Over 400,000 people visited Farnam Street last month to learn how to make better decisions, create new ideas, and avoid stupid errors. With more than 100,000 subscribers to our popular weekly digest, we've become an online intellectual hub. To learn more about we what do, start here.

Are we good at making choices?

Three Yale scholars discuss research — their own and others’ — that sheds light into questions on making choices.

Some excerpts that caught my eye:

…what we’ve seen, if anything, is that the short run feedback may actually push people to make the wrong decision, like when they pay too much attention to short-run fluctuations in the stock market and they push their allocation further toward bonds. And the ultimate feed-back that would push them toward the right decision is far into the future — it’s hypothetical and requires some kind of mental simulation that they can’t really do. Whereas the short-run feedback in your setting actually pushes people toward the right decision. … I think the feedback is very important. There is a big difference in the quality of the feedback. With savings, it is not at all clear whether you’ve made the right asset allocation, ex ante. It’s very easy, ex post, to play Monday morning quarterback and say, oh, I shouldn’t have been in the stock market in 2008. That’s not a very useful form of feedback when you’re trying to make asset allocations for the next 30 years of your life.

and

education is remarkably ineffective, unless it’s tied to an action that people can take in response to the education immediately. You walk out of the financial seminar room, go home, and turn on the TV and eat some dinner — at that point you’ve basically lost it. You need to have some way in the financial seminar itself to push a button and increase your savings rate while it’s still at the front of your mind. Generally when you interview people coming out of these financial seminars, they say that they are going to raise their savings rate; they’re going to change their asset allocation. You check the administrative data afterwards, and they’ve pretty much done nothing.

and this keen insight

the mere act of choosing changes the way we feel about things, because we like to think of ourselves as people who make good decisions.

Continue Reading

RelatedArticles
The Art and Science of High-Stakes Decisions
The Art and Science of Asking Better Questions
Choice Under Uncertainty
An Introduction to Decision Making

Shop at Amazon.com and support Farnam Street