Choices in the rear view mirror

(featured image credit: Fred Langridge)

A bad experience may look very different when it’s behind you. How bizarre!

Imagine a multi-day public transport strike is called for next week. You can’t take time off, or work from home, and it’ll totally screw up you commute. Is this a great prospect, or would you rather the strike was called off? Even more intense: imagine a soothsayer announces that, in three years’ time, you will go through a really bad patch in life, with alcohol and drug abuse, relationship breakup, and economic hardship. Would you look forward to that, or hope like never before that divination is a load of cobblers?

Given a say in the matter, most people would prefer to avoid both the strike and the down-and-out period in their life. Yet that is when the disruption lies ahead. It seems that when such an episode has happened to us, and we’re looking back on it, we may have a rather different view.

Looking from the other end

London experienced a two-day strike by tube station staff in February 2014, closing many stations completely (while others remained open as normal). Shaun Larcom, an economist at Cambridge University, and colleagues from Oxford and the IMF examined the individual travel patterns of 100,000 commuters during a 4-week period around those two days. Their findings are rather interesting: 5.4% of the travellers in their study changed to a different route during the strike, and continued to use this new route afterwards. This suggests more than 1 in 20 of them discovered a quicker way to and from work as a result of the strike: the typical gain was 3 minutes one-way (thus saving 6 minutes every day). On strike days, the average journey time had been  4.5 minutes longer (one way), so just three days after the strike the commuters who switched had recovered their ‘cost’.

By coincidence, last Sunday morning I was listening to a radio programme in which the host quizzed the guest (an actor) about his past. The conversation turned to a pretty dark episode pretty much like the one described above. Would he, given the chance to turn back the clock, choose to eliminate that period from his life? It didn’t take him long to answer. Despite the unmistakable downsides (addiction, guilt, broken promises, mental and physical bad health), it had led to a kind of rebirth, freed of demons. So no, he would not remove those years: without going through them, he would not have been able to deal with all the stuff that needed dealing with.

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But… the benefits! (image: L’Outil)

There is something intriguing about situations like this. It seems that – with the benefit of hindsight at least – the trade of a truly rotten experience, in return for which we get something valuable, is regarded as a rational exchange. But when we’re not looking back, but looking forward, we don’t see it that way.

Sure, not everyone comes stronger out of a drink and drugs fuelled period in their life, and 95% of commuters didn’t discover a better route. There’s no guarantee up front that a bad experience will have a benefit, so perhaps it’s risk aversion that makes us say no, given the choice.

At any cost?

But that doesn’t answer two other nagging questions. One is, how come we feel it has been a good trade after the event, almost irrespective of the cost? A transport strike may not be the end of the world, but a period of addiction can be hell. And there are other examples. You occasionally hear people say that losing their job was the best thing that happened to them. Occasionally? Googling “losing my job best thing” produces more than 100 million hits, and the first few pages are full of testimonials of people claiming just that.

One explanation is that our perception of the cost after the event may not be accurate. We are subject to a phenomenon known as time preference or intemporal discounting. The costs and benefits of a decision are experienced differently depending on whether they are situated in the present or at a more distant point in time. The reason why so many people fail to provide adequately for their retirement is because the future is far away: sacrificing money now for a benefit decades ahead is not attractive.

A 2005 paper by Dilip Soman, a behavioural economist at the university of Toronto and colleagues, comprehensively explains the psychology behind this. But it’s not just the benefit that looks small in the future, costs in the past can look small too. Think back of a time a few years ago when, say, you wasted a lot of time being delayed on a train, a plane or an automobile. It undoubtedly felt pretty unpleasant back then, but does it still weigh on your shoulders today? Probably not. So even the cost of a period of addiction, several years on, eventually fades in your perception, while the lasting benefits are still there.

Another factor is that we are masters at post-rationalization. We don’t like to admit to ourselves that we’ve made a bad decision, so we re-evaluate costs and benefits so that our choice makes sense. We even go so far as to misremember the facts. A 2006 paper by Linda Henkel and Mara Mather describes how people were asked to make a hypothetical choice between two used cars, each with a different set of attributes. A week later they asked the participants to explain their choice based on the corresponding attributes, but half of them were actually given the attributes of the car they rejected. Intriguingly, being given the wrong features didn’t stop them justifying their decision. Knowing they chose the black car, it must have been because they judged its attributes superior.

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What were those features again? (images: Juan Salmoral & Natalla Romay)

The same thought process makes us believe that if X led to Y, and Y is a good thing, then X must have been a good thing too. If an unpleasant experience is linked with a beneficial outcome, we prove to ourselves that it was a good deal on balance, and after all.

Stuck in the status quo

The second question is: why do we seem only to make the changes we so value after having paid a high price? It’s easy to pretend your habitual underground station is closed, and look for an alternative – no need to wait for a strike. You can definitely explore alternative occupations without being fired. And it may not actually be easy, but if you have big life issues to deal with, it should be possible (and quite likely easier) to tackle them without adding drug dependency to your problems.

Here, a likely explanation is our old friend the status quo bias. We may not even have considered the possibility there is a better route to work: we simply do today what we did yesterday (something Dan Ariely calls self-herding). Thinking about another job, even if there is plenty in our current job we don’t like, is hard work, and better the devil you know after all. And if that is hard, confronting your own demons is a lot tougher still, so it’s easier to postpone doing so.

Disruption of your life by a strike, by being made redundant, or by engaging in self-destructive behaviour may be bad, really bad even. But it shuffles the deck for you: suddenly the barriers to change are not so big, or have disappeared altogether. You’re forced to change.

If rational thought can come to us after the event, there is no reason why it could not come before the event. We don’t really have to wait for misfortune to strike before we can make changes to our lives for the better. We can choose to challenge our habits, our reluctance to consider alternatives, our tendency to postpone hard decisions. We can choose to think rationally on beforehand, not just with the benefit of hindsight.

It would almost be like getting that most mythical of things: a free lunch – a benefit without a cost. That should be worth a little effort, shouldn’t it?

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About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Cognitive biases and fallacies, Economics and tagged , , . Bookmark the permalink.

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