Are You a Rational Decision Maker?

Do you consider yourself to be a rational decision maker? Most of us do. We may be willing to admit weaknesses in a variety of areas – maybe we’re impatient, or obsessive-compulsive about trivial things, or maybe we rant at other drivers on the road (not that anyone in my family does that). But when it comes to making decisions, most of us would quite confidently state that we consider all pertinent information and facts, maybe listen to our finely honed instincts, and then make a logical choice.

And most of us would be completely wrong. Various outside elements play a significant role in our decision making process.

Let’s look at the work of Dan Ariely, author of Predictably Irrational and presenter of a wonderful TED talk on how poor human beings are at making decisions consistently, sensibly, and yes, rationally. Ariely undermines our smug sense of self-confidence, and does it in extremely amusing fashion.

In one of Ariely’s examples, he focuses on the basketball phenomenon that is a huge part of campus life at Duke University.

1. Duke gives tickets to students through a complicated system in which they must camp out for long periods of time just to be entered in a lottery.

2. Among those students willing to endure Duke’s system (and many, many of them do), the tickets are distributed randomly, as one would expect from a lottery.

3. After the lottery is completed, some students are now proud ticket holders while others wail and gnash their teeth.

Following the lottery, Ariely contacted both sets of students.

He asked those who held tickets how much they would be willing to accept in exchange for those tickets; he asked those without tickets how much they would be willing to pay. Average amount ticket holders would accept: $2400. Average amount non-holders would pay: $170. That’s quite a chasm.

Rationally, this gap should not exist. The lottery was random, so there is no reason to assume that only the true Blue Devil diehards got tickets. Either you’re happier with a basketball game ticket in your pocket, or you’re happier with, say, $1000 in your pocket. But no, apparently what you are happier with depends quite heavily on what it is that you actually have in your pocket at that moment. This is a variant of the endowment effect, as discovered by Richard Thaler and others, and it goes something like this: If I own it, it’s worth more than if I don’t own it.

But pride of possession is just the tip of the psychological iceberg. Free stuff makes people go completely crazy.

Ariely and his cohorts set up a stand at which passers-by could either buy a Lindt truffle for 15 cents or a Hershey kiss for a penny. 73% went for the truffle; only 27% bought the kiss. But when the price of the truffle was lowered to 14 cents and the kiss was free, fully 69% took the kiss. Again, either it’s worth 14 cents more to enjoy a fine Lindt truffle rather than a simple Hershey kiss, or it’s not. But not if the kiss is free, and not if the buyer is human.

But (you may be thinking) these are fairly trivial decisions. Surely when the decisions are important and when an expert is making the choice, facts and figures rule the day, right? Wrong.

Doctors were asked to consider the case of a middle-aged man whose right hip has been hurting for a very long time. Everything has been tried, and the patient has now been referred for hip replacement surgery. But then a week later (but still prior to the surgery), the doctor realizes that he has never tried ibuprofen. When asked if he would let the patient proceed with the surgery or would pull him back to try ibuprofen, a majority of the doctors pulled the patient back (much to all of our relief, I’m sure).

But – when doctors were given the exact same patient in the exact same situation heading into the exact same surgery, but this time the doctor realizes that he has never tried ibuprofen nor has he tried piroxicam, and the doctor is asked, “Would you let the patient proceed with surgery or would you pull him back to try ibuprofen or piroxicam, and if you pull him back, which one would you try?”, a majority of the doctors said they would let the patient have the surgery.

This is disturbing. The fact that the “pull back” choice was made slightly more complex and required a second decision to be made was enough to alter a major medical recommendation. And given that doctors are no more susceptible to logical follies like this than anyone else, there’s no reason to believe that airline pilots, military generals, and people like you and me wouldn’t do the exact same thing.

In short, when it comes to making decisions – even relatively simple ones – we need all the help we can get. I’m not even talking about our tendency to use heuristics and gut feel in complex situations rather than rigorous analysis (what Daniel Kahneman calls “System 1 Thinking” vs. “System 2 Thinking”). That is a subject for a future blog. No, I’m just referring to the fact that although we think we’re considering the options coolly and rationally and choosing the alternative that is best for us – i.e., we think we’re in the driver’s seat – in reality, our decisions are as much dictated by how our choices are presented to us as they are by our own preferences.