How We Decide (21 page)

Of course, the wine preferences of the subjects were clearly nonsensical. Instead of acting like rational agents—getting the most utility for the lowest possible price—they were choosing to spend more money for an identical product. When the scientists repeated the experiment with members of the Stanford University wine club, they got the same results. In a blind tasting, these semi-experts were also misled by the made-up price tags. "We don't realize how powerful our expectations are," says Antonio Rangel, the neuroeconomist at Caltech who led the study. "They can really modulate every aspect of our experience. And if our expectations are based on false assumptions"—like the assumption that more expensive wine tastes better—"they can be very misleading."

These experiments suggest that, in many circumstances, we could make better consumer decisions by knowing
less
about the products we are buying. When you walk into a store, you are besieged by information. Even purchases that seem simple can quickly turn into a cognitive quagmire. Look at the jam aisle. A glance at the shelves can inspire a whole range of questions. Should you buy the smooth-textured strawberry jam or the one with less sugar? Does the more expensive jam taste better? What about organic jam? (The typical supermarket contains more than two hundred varieties of jam and jelly.) Rational models of decision-making suggest that the way to find the best product is to take all of this information into account, to carefully analyze the different brands on display. In other words, a person should choose a jam with his or her prefrontal cortex. But this method can backfire. When we spend too much time thinking in the supermarket, we can trick ourselves into choosing the wrong things for the wrong reasons. That's why the best critics, from
Consumer Reports
to Robert Parker, always insist on blind comparisons. They want to avoid the deceptive thoughts that corrupt decisions. The prefrontal cortex isn't good at picking out jams or energy drinks or bottles of wine. Such decisions are like a golf swing: they are best done with the emotional brain, which generates its verdict automatically.

This "irrational" approach to shopping can save us lots of money. After Rangel and his colleagues finished their brain-imaging experiment, they asked the subjects to taste the five different wines again, only this time the scientists didn't provide any price information. Although the subjects had just listed the ninety-dollar wine as the most pleasant, they now completely reversed their preferences. When the tasting was truly blind, when the subjects were no longer biased by their prefrontal cortex, the cheapest wine got the highest ratings. It wasn't fancy, but it tasted the best.

If the mind were an infinitely powerful organ, a limitless supercomputer without constraints, then rational analysis would always be the ideal decision-making strategy. Information would be an unqualified good. We would be foolish to ignore the omniscient opinions of the Platonic charioteer.

The biological reality of the brain, however, is that it's severely bounded, a machine subject to all sorts of shortcomings. This is particularly true of the charioteer, who is tethered to the prefrontal cortex. As the psychologist George Miller demonstrated in his famous essay "The Magical Number Seven, Plus or Minus Two," the conscious brain can only handle about seven pieces of data at any one moment. "There seems to be some limitation built into us by the design of our nervous systems, a limit that keeps our channel capacities in this general range," Miller wrote. While we can control these rational neural circuits—they think about what we tell them to think about—they constitute a relatively small part of the brain, just a few microchips within the vast mainframe of the mind. As a result, even choices that seem straightforward—like choosing a jam in the supermarket—can overwhelm the prefrontal cortex. It gets intimidated by all the jam data. And that's when bad decisions are made.

Consider this experiment. You're sitting in a bare room, with just a table and a chair. A scientist in a white lab coat walks in and says that he's conducting a study of long-term memory. The scientist gives you a seven-digit number to remember and asks you to walk down the hall to the room where your memory will be tested. On the way to the testing room, you pass a refreshment table for subjects taking part in the experiment. You are given a choice between a decadent slice of German chocolate cake and a bowl of fruit salad. What do you choose?

Now let's replay the experiment. You are sitting in the same room. The same scientist gives you the same explanation. The only difference is that instead of being asked to remember a seven-digit number, you are given only two numbers, a far easier mental task. You then walk down the hall and are given the same choice between cake and fruit.

You probably don't think the number of digits will affect your choice; if you choose the chocolate cake, it is because you want cake. But you'd be wrong. The scientist who explained the experiment was lying; this isn't a study of long-term memory, it's a study of self-control.

When the results from the two different memory groups were tallied, the scientists observed a striking shift in behavior. Fifty-nine percent of people trying to remember seven digits chose the cake, compared to only 37 percent of the two-digit subjects. Distracting the brain with a challenging memory task made a person much more likely to give in to temptation and choose the caloriedense dessert. (The premise is that German chocolate cake is to adults what marshmallows are to four-year-olds.) The subjects' self-control was overwhelmed by five extra numbers.

Why did the two groups behave so differently? According to the Stanford scientists who designed the experiment, the effort required to memorize seven digits drew cognitive resources away from the part of the brain that normally controls emotional urges. Because working memory and rationality share a common cortical source—the prefrontal cortex—a mind trying to remember lots of information is less able to exert control over its impulses. The substrate of reason is so limited that a few extra digits can become an extreme handicap.

The shortcomings of the prefrontal cortex aren't apparent only when memory-storage capacity is exceeded. Other studies have shown that a slight drop in blood-sugar levels can also inhibit self-control, since the frontal lobes require lots of energy in order to function. Look, for example, at this experiment led by Roy Baumeister, a psychologist at Florida State University. The experiment began with a large group of undergraduates performing a mentally taxing activity that involved watching a video while ignoring the text of random words scrolling on the bottom of the screen. (It takes a conscious effort to
not
pay attention to salient stimuli.) The students were then offered some lemonade. Half of them got lemonade made with real sugar, and the other half got lemonade made with a sugar substitute. After giving the glucose time to enter the bloodstream and perfuse the brain (about fifteen minutes), Baumeister had the students make decisions about apartments. It turned out that the students who were given the drink without real sugar were significantly more likely to rely on instinct and intuition when choosing a place to live, even if that led them to choose the wrong places. The reason, according to Baumeister, is that the rational brains of these students were simply to exhausted to think. They'd needed a restorative sugar fix, and all they'd gotten was Splenda. This research can also help explain why we get cranky when we're hungry and tired: the brain is less able to suppress the negative emotions sparked by small annoyances. A bad mood is really just a rundown prefrontal cortex.

The point of these studies is that the flaws and foibles of the rational brain—the fact that it's an imperfect piece of machinery—are constantly affecting our behavior, leading us to make decisions that seem, in retrospect, quite silly. These mistakes extend far beyond poor self-control. In 2006, psychologists at the University of Pennsylvania decided to conduct an experiment with M&M's in an upscale apartment building. One day, they left out a bowl of the chocolate candies and a small scoop. The next day they refilled the bowl with M&M's but placed a much larger scoop beside it. The result would not surprise anyone who has ever finished a Big Gulp soda or a supersize serving of McDonald's fries: when the scoop size was increased, people took 66 percent more M&M's. Of course, they could have taken just as many candies on the first day; they simply would have had to use a few more scoops. But just as larger serving sizes cause us to eat more, the larger scoop made the residents more gluttonous.

The real lesson of the candy scoop, however, is that people are terrible at measuring stuff. Instead of counting the number of M&M's they eat, they count the number of scoops. The scientists found that most people took a single scoop and ended up consuming however many candies that scoop happened to contain. The same thing happens when people sit down to dinner: they tend to eat whatever is on their plates. If the plate is twice as large (and American serving sizes have grown 40 percent in the last twenty-five years), they'll still polish it off. As an example, a study done by Brian Wansink, a professor of marketing at Cornell, used a bottomless bowl of soup—there was a secret tube that kept on refilling the bowl with soup from below—to demonstrate that how much people eat is largely dependent on serving size. The group with the bottomless bowls ended up consuming nearly 70 percent more soup than the group with normal bowls.

Economists call this sleight of mind mental accounting, since people tend to think about the world in terms of specific accounts, such as scoops of candy or bowls of soup or lines on a budget. While these accounts help people think a little faster—it's easier to count scoops than actual M&M's—they also distort decisions. Richard Thaler, an economist at the University of Chicago, was the first to fully explore the consequences of this irrational behavior. He came up with a simple set of questions that demonstrate mental accounting at work:

Imagine that you have decided to see a movie and have paid the admission price of $10 per ticket. As you enter the theater, you discover that you have lost the ticket. The seat was not marked, and the ticket cannot be recovered. Would you pay $10 for another ticket?

When Thaler conducted this survey, he found that only 46 percent of people would buy another movie ticket. However, when he asked a closely related question, he got a completely different response.

Imagine that you have decided to see a movie where admission is $10, but you have not yet bought the ticket. As you walk to the theater, you discover that you have lost a $10 bill. Would you still pay $10 for a ticket to the movie?

Although the value of the loss in both scenarios is the same—people were still losing ten dollars—88 percent of people said they would now buy a movie ticket. Why the drastic shift? According to Thaler, going to a movie is normally viewed as a transaction in which the cost of a ticket is exchanged for the experience of seeing a movie. Buying a second ticket makes the movie seem too expensive, since a single ticket now "costs" twenty dollars. In contrast, the loss of the cash is not posted to the mental account of the movie, so no one minds forking over another ten bucks.

Of course, this is woefully inconsistent behavior. After losing tickets, most of us become tightwads; when we lose merely cash, we remain spendthrifts. These contradictory decisions violate an important principle of classical economics, which assumes that a dollar is always a dollar. (Money is supposed to be perfectly fungible.) But because the brain engages in mental accounting, we end up treating our dollars very differently. For example, when Thaler asked people whether they would drive twenty minutes out of their way to save five dollars on a fifteen-dollar calculator, 68 percent of respondents said yes. However, when he asked people whether they would drive twenty minutes out of their way to save five dollars on a $125 leather jacket, only 29 percent said they would. Their driving decisions depended less on the absolute amount of money involved (five dollars) than on the particular mental account in which the decision was placed. If the savings activated a mental account with a minuscule amount of money—like buying a cheap calculator—then they were compelled to drive across town. But that same five dollars seems irrelevant when part of a much larger purchase. This principle also explains why car dealers are able to tack on unwanted and expensive extras and why luxury hotels can get away with charging six dollars for a can of peanuts. Because these charges are only small parts of much bigger purchases, we end up paying for things that we wouldn't normally buy.

The brain relies on mental accounting because it has such limited processing abilities. As Thaler notes, "These thinking problems come from the fact that we have a slow, erratic CPU [central processing unit] and the fact that we're busy." Since the prefrontal cortex can handle only about seven things at the same time, it's constantly trying to "chunk" stuff together, to make the complexity of life a little more manageable. Instead of thinking about each M&M, we think about the scoops. Instead of counting every dollar we spend, we parcel our dollars into particular purchases, like cars. We rely on misleading shortcuts because we lack the computational power to think any other way.

The history of Western thought is so full of paeans to the virtues of rationality that people have neglected to fully consider its limitations. The prefrontal cortex, it turns out, is easy to hoodwink. All it takes is a few additional digits or a slightly bigger candy
scoop, and this rational brain region will start making irrational decisions.

A few years ago, a group of MIT economists led by Dan Ariely decided to conduct an auction with their business-school graduate students. (The experiment was later conducted on executives and managers at the MIT Executive Education Program, with similar results.) The researchers were selling a motley group of items, from a fancy bottle of French wine to a cordless keyboard to a box of chocolate truffles. The auction, however, came with a twist: before the students could bid, they were asked to write down the last two digits of their Social Security numbers. Then they were supposed to say whether or not they would be willing to pay that numerical amount for each of the products. For instance, if the last two digits of the number were 55, then the student would have to decide whether the bottle of wine or the cordless keyboard was worth $55. Finally, the students were instructed to write down the maximum amount they were willing to pay for the various items.