By Nadav Klein
One of behavioral economics’ most important contributions is the study of how people process information. The discipline has uncovered numerous cognitive biases and heuristics inherent in how people use data and experience to make decisions. Many policy interventions inspired by behavioral economics can be characterized as nudging people to use information appropriately.
Do People Know How They Use Information?
However, beyond how people use information, modern technology has made another, related, question equally important: do people know how they use information?
Having this self-understanding is increasingly important partly because technology has dramatically lowered the cost of acquiring information. Simple facts can be learned by Googling them. Sophisticated research about all manner of topics can be accessed online. Most products and services in the marketplace can be sampled before purchase. It is no wonder that this current period in history is sometimes called the “information age.”
Expected vs. Actual Information Use
In a recent article published in the Proceedings of the National Academy of Sciences, my co-author Ed O’Brien and I tested whether people understand how they and others use information. Specifically, we tested whether people can anticipate how much information they and others will use to make a variety of decisions ranging from evaluating other people, marriage prospects, political candidates, novel foods, products, and services.
Our experiments led to a consistent result: People overestimate how much information they need to make up their minds about all of these targets. In other words, people use far less information than they expect before making decisions.
Juice, Art and Love
In one study, for example, participants were asked to sample an unmarked vegetable juice presented as novel in the market. Some participants were asked to predict how many sips they would need to make up their minds about the beverage, and put this number at 3.6 sips. In contrast, other participants asked to actually taste this beverage needed only 1.5 sips to decide whether they liked it.
In another study, we repeated this procedure with artwork. Participants predicted that they would need to see on average 16.3 paintings before deciding whether they liked a certain style of art. However, in reality those actually asked to evaluate this style of art needed to see only 3.5 paintings.
One of our favorite studies asked people who have never been married to predict how long, after meeting their future spouse, it would take them to decide that this person is “the one.” We also posed a similar question to married people. Of the never-marrieds, 39% predicted that this process of falling in love would take more than a year. In contrast, only 18% of married participants took more than a year to actually make this decision. The never-marrieds overestimated how much information in the form of interactions and experiences with their (future) partner they would need to have.
Implications
What are the implications of overestimating how much information we need to make decisions? We believe there are at least three important ones.
First, people may erroneously value longer trial periods for products and services. One of our studies asked participants to evaluate a service that emailed funny cat videos to their inboxes every day. We made up this service to avoid confounds related to familiarity with existing email subscriptions. As before, participants overestimated how many days they would need to experience this service to make up their minds about it. They also were willing to pay more money for a longer trial period of this service, even though in reality they did not need it.
Second, people might pay for information they will end up not using. In another study, we asked participants to guess the winner of U.S. Senatorial elections based on viewing the candidates’ photos, a task that past research has found people do remarkably well. Participants could select how much time they would need to view the candidates’ photos, but had to pay some of their study earnings for longer exposures. We found that participants overpaid for exposure times, resulting in higher costs that did not translate into better judgments or higher earnings.
Third, people might misunderstand how quickly others make up their minds and thus end up overworking in vain to impress them. For example, one of our studies asked M.B.A. students to write applications for hypothetical management positions, a familiar activity for them in a time when they were applying for real jobs. We then asked actual H.R. persons to evaluate these applications. Applicants wrote much more material than these hiring professionals cared to read.
None of this is to say that making data-poor judgments is necessarily worse than making judgments based on a lot of information. In fact, past research suggests that quick decisions are often quite accurate in interpersonal domains, such as predicting elections results and predicting satisfaction with teachers or doctors. Moreover, quick judgments are also more practical. We would be paralyzed if we took the time to evaluate a lot of information before every decision we make.
However, misunderstanding how quickly we make decisions can aggravate already-thorny interpersonal problems. For example, failing to see that we make quick judgments about other people can make us more likely to fall pray to stereotypes.
In addition, we might be more likely to unwittingly create self-fulfilling prophecies for those over whom we have power. We might believe that we would thoroughly assess our employees based on data and many observations. In reality, however, we are likely to make up our minds about an employee or subordinate based on one negative instance. We then might avoid giving this employee responsibilities and challenging tasks, retarding his or her development and growth. This employee would wither in our organization, thereby “confirming” our initial negative assessment about him or her, without us noticing that our quick judgments are the source of this negative spiral.
Understanding how we make decisions has been the bread and butter of behavioral economics, and has led to far-reaching insights about human judgment. In an age in which information is plentiful, understanding whether we know how we make judgments is becoming increasingly important as well.
