Undercover Economist

Calculators away … life’s big choices call for gut instinct

Life presents us with some very large decisions: where to live, whom to marry, whether to have children. Is there any reason to believe that we make these choices wisely?

Don’t come to an economist for the answers. When it comes to choice, classical economics leaps to the punch line and works backwards: if both Betty Sue and Sally Ann are willing to marry you and you chose Betty Sue, the economist can only conclude that you preferred Betty Sue. Whether the marriage made you happy, or you were right to choose her, is none of the economist’s business. Game theory, for instance, may tell you how to get what you choose, but not how to choose.

Economists are not surprised to hear the (perhaps apocryphal) story that circulates about the great game theorist Howard Raiffa, who is said to have been trying to choose between a large increase in salary at Columbia University or a high-status move to Harvard. Sharing the dilemma with a friend, Raiffa was told to deploy the traditional tools of economics. He is said to have retorted: “You don’t understand. This is a serious decision.”

I am not in Howard Raiffa’s league, but I feel his pain when Family Harford wrestles with the big choices in life. The true challenge is that these choices force us to imagine different possible futures – one with Betty Sue and one with Sally Ann; one living in Surrey and one in Scotland; the carefree life of the childless couple versus the nurturing joys of parenthood.

It’s quite possible that our image of these possible futures is not very good. As the psychologist Dan Gilbert points out, you might think that winning the Lottery would make you happier than being permanently paralysed from the waist down, but the empirical evidence suggests that this is just a failure of imagination: paraplegics are not, in fact, less happy than people who have won the Lottery.

To me, that fact was at first surprising, then not very surprising at all. And then, after thinking still further, I realised it kicks away the foundation of almost everything we implicitly believe about the world.

Gilbert’s own experimental work suggests that we are extraordinarily good at “synthesising happiness” – in short, convincing ourselves that we like what we chose and dislike what we rejected, no matter how agonising the choice might have been at the time. This is true even of people with severe anterograde amnesia – an inability to form any new memories. They form much stronger likes for objects which they have previously chosen, despite having no conscious recollection that they had ever chosen them.

So how should we make choices? I recently met Sheena Iyengar, another psychologist and author of a new book, The Art of Choosing – aptly titled because despite a range of recent insights from psychologists and behavioural economists, choice is not a science.

Although she did not phrase it in this way, Iyengar’s method for making big choices boils down to improving the quality of our simulation of the future. First, she says, make a note of your gut reaction. (It may change.) Then list all the pros and cons, as an economist might do. Then talk to other people who have made decisions like the one you are considering – a move to the suburbs, or having a baby. Don’t ask them whether they think they made the right choice: as Dan Gilbert will tell you, of course they do. But ask them about how they live, what they do each day, and what are the advantages and the downsides of their choice.

And then? “Then you go back to your gut feeling,” says Iyengar.

Of course you do. This is a serious decision.

Also published at ft.com.