On Making Right Choices

Our lives our filled with making choices. Sometimes we make reasoned choices and sometimes we make irrational choices. The drivers of irrational choices were examined in a series of studies by Daniel Kahnemann and Amos Tversky, who won the Nobel Prize in Economics for their work. Their experiments showed that humans will make irrational choices when the cost-benefit relations are manipulated in certain ways. They established two generic modes of cognitive function: an intuitive mode in which judgments and decisions are made automatically and rapidly, and a controlled mode, which is deliberate and slower. Cost-benefit parameters need not involve money, but they often do, such as "should I wait for the new cars go on sale" to "how much am I willing to save for retirement."

I had the good fortune back in the early 1970s when these Nobel Prize discoveries were being made to be part of a team at Texas A&M that documented and elucidated the founding "behavioral economics" concepts. We use rigorously controlled experiments with rats in an economic environment where we commoditized their food and drink. Prices were set in terms of how many lever presses they had to make to get an item. Buy the way, they normally prefer root beer over Tom Collins mix (without the alcohol). But what they "bought" was readily manipulated by changing the cost and the amount of item they could get. With certain cost-benefit conditions, they made stupid choices even to the point of making themselves sick. Our widely cited paper apparently stimulated the present-day use by drug companies to use our approach with lab animals to test new drugs for their potential to be addictive.

Today, a recent review of behavioral economics emphasizes that foundational principles of behavioral economics may help in the treatment of maladaptive choice-making, as occurs in preventive medical practices, drug addictions, obesity, and assorted compulsions. The heart of the matter is that such choices entail how much one values a desired target (like chocolate cake) and how much one values the future consequences of delaying or minimizing immediate consumption. Choices are irrational and maladaptive when a person is inadequately sensitive to long-term consequences and is controlled mostly by immediate desires.

Choices are a gamble. You can't know for certain you have made the right choice. But being paralyzed with indecision is no solution. Reason helps you understand the odds.

The mind is a strange and wonderful thing. 

Read about it in my book, Mental Biology.

Sources:

Jarmolowicz, D. P., Reed, D. D., Reed, F. D. G.,  and Bickel, W. K. (2015) The behavioral and neuroeconomics of reinforcer pathologies: Implications for managerial and health decision making. Managr. Decis. Econ. DOI: 10.1002/mde.2716

Kagel, J. H., Rachlin, H., Green, L. Battalio, R. C., Basemann, R. I., and Klemm, W. R. (1975) Experimental studies of consumer demand behavior using laboratory animals. Economic Inquiry. 13, 22-38.