The Frontal Cortex

One of the frustrations with writing a science book is that you keep on bumping into brand new research that you want to include. That's precisely what happened to me when I read this just published paper in the Journal of Consumer Research by Leonard Lee, Dan Ariely, and On Amir. The behavioral economists were interested in evaluating which decision-making system - the slow rational, deliberate approach (System 1) or the fast, emotional, instinctive approach (System 2) - was best suited for everyday consumer choices. The question, of course, is how one defines a "superior" decision. Who's to say whether it's better to pick Honey Nut Cheerios or Lucky Charms? Or if Diesel jeans are better than discounted Levis? In other words, how can one judge decisions when those decisions reflect individual preferences?

This is why the researchers chose to rely on consumer consistency. I'll let them explain:

When faced with a choice task, consumers need to evaluate the overall utility of each of the alternatives they are facing and compare these utilities in order to make their final choice. Such a utility computation process is likely to vary from case to case based on the exact information consumers consider, the particular facts they retrieve from their memories, as well as the particular computations that they carry out; any of these process components is a potential source for decision inconsistency. For example, when shopping for a new Nikon digital camera, it is possible that consumers might change the aspects of the camera they focus on, the particular information they retrieve from memory, the relative importance weights they assign to the attributes, or the process of integrating these weights.

As researchers, we often treat such inconsistencies as ―noise‖ and use statistical inference tools that allow us to examine the data while mostly ignoring these fluctuations. Yet, such noise can convey important information about the ability of the decision maker to perform good decisions, and, in particular, it can reflect their ability to conceptualize their own preferences. In the current work we focus on such inconsistencies / noise in decision making as indicators of the ease in which consumers can formulate their preferences: we focus on the question of whether
the cognitive or emotional decisions are more prone to this kind of error.

In other words, they don't care whether or not you prefer Cheerios to Lucky Charms. They just want to make sure you pick Cheerios every time.

Their experimental setup was straightforward. The behavioral economists set up three distinct choice environments, which allowed them to subtly bias the decision-making approach of the subjects. For instance, in condition two the volunteers were forced to memorize a long random string of numbers, which took up valuable cognitive space in working memory. There's a large body of evidence that such random digits make it harder to engage in "rational" thought, and thus make it more likely for people to rely on their emotional system. The researchers then had subjects choose between a series of paired objects. For instance, people were given a choice between a "Quick Release Micro-Light Keychain" and a "Voice Recording Keychain with LED".

What did they find? In all three conditions, subjects who relied more on their emotional system made a more consistent set of decisions. In other words, the property of transitivity - which, along with "completeness" is one of the basic assumptions of rational preference relations in economic theory - seems to depend not on rational thought processes but on those subtle emotional signals emanating from the limbic system. Here's the irony: In order to behave like a "rational agent" one needs to rely on the emotional brain.

For the consumers, contrary to lay perceptions, attending to one's emotional responses may prove to be very valuable in understanding one's preferences. It is possible consumers would be much happier with choices based more on their emotional reaction. For example, if one buys a house and relies on very cognitive attributes such as resale value, one may not be as happy actually living in it, as opposed to a person who attends to his or her emotional reaction to the house prior to purchasing it. Indeed, our results suggest that the heart can very well serve as a more reliable compass to greater long-term happiness than pure reason.

One additional interesting implication of this research is how online shopping might influence our decision-making process. The scientists speculate that the internet leads consumers to engage in more rational deliberation, since there are fewer affective cues. (This certainly fits with my own experience - before I buy something online, I always check the price at other stores, read consumer reviews, etc.) And yet, this sort of thinking might also lead to consumer inconsistency.

Thanks to Mo for the tip!