I could bet with almost 99,999% certainty that at some point in your life you faced a decision that was not easy to make. Under those circumstances, we must ponder every aspect and think hard about it. Intuitively we know that the dedicated time to the thought process behind the decision-making should be proportional to the impact it has on life, particularly the reversibility of the decision.
Many times we delay this arduous task and procrastinate as we do in so many other areas of our lives. We are error prone creatures and perhaps think under the cloud of biases such as risk aversion, hyperbolic discounting, and the sunk cost fallacy, which can further debilitate our ability to decide and take action. Therefore, we become a marginal decision-maker – one that, when facing a fork in the road, could go both ways.
Coin Flip – The Freakonomics Experiment
It was about the marginal decision-maker that the experiment carried under www.FreakonomicsExperiments.com took an interest in. Steve Levitt [@StevenDLevitt], the author of the paper “Heads or Tails: The Impact of a Coin Toss on Major Life Decisions and Subsequent Happiness” knew that there was little empirical experience in Economics about whether people were actually making good choices when it comes to their most important decisions.
As Levvit wrote, to know the impact of decisions have in these *marginal decision-makers, “*a researcher would not only need to find large numbers of these marginal individuals but also, through some sort of randomization, influence their important life choices.”
That’s what he did with his experiment. Roughly speaking, on the website, individuals who were having a difficult time making a life decision were asked to answer a series of questions concerning the decision they were struggling with. One choice,(e.g. “go on a vacation”- this is the active “make a change” desired outcome) is assigned to heads, and the other choice (in this case “don’t go on a vacation”- this is the “maintain the status quo” outcome) was assigned to tails.
The outcome of the coin toss was randomized and the user was shown the outcome of the coin toss. The coin flippers were then re-surveyed two and six months after the initial coin toss. Additionally, prior to the randomization, coin flippers were encouraged to identify a third party (a friend or family member) to verify their outcomes. The third parties were also surveyed two and six months after the coin toss.
To my surprise, the experiment gathered a total of around 20,000 coin flips!
The results
The results were really interesting:
- Two months into the study participants show a bias towards the status quo, in the sense that people report making a change less frequently than they predicted they would before the coin toss. However, six months after this tendency is gone.
- Those who report making a change in follow-up surveys are substantially happier than those who do not make a change, and they are more likely to say they would make the same decision if they were to choose again. This is true for virtually every question asked both two and six months later.
- The outcome of the coin toss appears to influence the actions taken. Those who flipped heads (change) were approximately 25% more likely to report making a change than those who got tails (status quo).
- When it comes to “important” decisions (e.g. job quitting, separating from your husband or wife), making a change appears to be not only correlated with increased self-reported happiness but also causally related, especially six months after the coin toss. Those who were instructed by the coin toss to make a change were both more likely to make the change and, on average, report greater happiness on the follow-up surveys. (…) This result provides strong empirical support for the notion of a status quo bias (Samuelson and Zeckhauser, 1998; Kahneman et al., 1991).
- For all decisions—not just the most important ones—there appears to be a causal impact of making a change on how satisfied the subject is ex-post with the decision. Those who were instructed to make a change by the coin toss are substantially more likely to report that they made the correct decision and that they would make the same decision again if given the chance.
To be taken with a pinch of salt
As any experiment of this kind, there were some main caveats:
- self-reported happiness as a proxy
- research subject pool that is far from representative
- potential sample selection in which coin flippers complete the surveys
- responses that might not be truthful
All of which the author tried to understand the impact on the results. Arriving at the idea that these main flaws affected more the perceived effect of the coin toss on decisions made (first-stage estimates) than the causal influence of the decision on self-reported happiness (second-stage estimates).
The takeaway message
In the end, there is the main takeaway message that I found really interesting. There was a substantial bias against making changes when it comes to important life decisions. Regret aversion was also at play because if regret is a product of decisions that one has control over, giving up control to a randomizing device may lessen possible regret.
This confirms the evolutionary tale that wired us to, understandably, maintain the status quo, and avoid unknown outcomes despite an actual, but known, inconvenience. Despite having to be cautious when concluding, this almost hints me to say that when under a difficult decision that we carefully pondered over, and yet we are still at the fork, we should opt for change.