The Inevitable Side of Decision Making: Sunk costs Explained

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Have you ever wanted to quit something, but you weren’t able to do it because there was already too much money, effort or time invested into it? Well, you are not alone! This quite common phenomenon is known as the sunk cost fallacy. The concept follows the idea that a person or a group of people choose to intentionally pursue further investments or commitments based on the aversion to waste the resources that were previously invested. One might ask, why do we incur in this fallacy in the first place? We’ll explore different concepts that might help us answer this question. 

The first concept to analyse is loss aversion. Loss aversion is usually related with investors, but it can apply to anyone. It’s the tendency to have a stronger preference in avoiding losses rather than acquiring the equivalent gains, simply because the “pain” of the loss is higher than the reward felt from a gain. In situations of loss aversion, three regions of the brain are activated: the striatum, which processes losses, the amygdala, which processes fear, and the insula, which makes individuals avoid some behaviours; neuroscientists also noted that this last region is much more activated in situations that might be a loss when comparing with the equivalent gain. This will make most individuals carefully consider risky actions and try to avoid losses. Additionally, as explained above, since the costs in our minds weigh more than the benefits, we might have the urge to make the most out of our resources and stay away from wastefulness. 

The different regions of the brain and their respective functions 

For example, when we are in the middle of a book that we hate, we often keep reading it until the end, just because we don’t want to waste the time or the money that we already invested in that book. This just goes to show that, sometimes we continue to put effort into something when we might be better off leaving it, just because we don’t want to feel like we are losing or quitting on the costs that we already incurred despite, most of the times, those costs being unrecoverable. 
As the writer and comedian James Colley revealed to The Guardian, “At some point it becomes a calculation of ego. When a book is finished it becomes a trophy. When it’s left half-finished it becomes an albatross. It occupies your mind like the tell-tale heart, mocking you, symbolising your failure”. 

This fallacy, however, doesn’t only affect individual decisions but can also have considerable proportions by affecting governments and larger projects. One example of this is the development of the airplane Concorde, which resulted in the partnership between the UK and France and had an initial cost of 100 million dollars. However, as the project developed, more costs accumulated, having a final value of 1.6 billion dollars. Even though it was a technical improvement, it reveals the sunk cost fallacy because, as the costs were incurred, they realised that it wouldn’t pay off, but they continued with the project.  This plane was retired after only 34 years, and it was so expensive that was never profitable. In this example, the governments of France and the UK were victims of the sunk cost fallacy, as despite the understanding of the unprofitability of the project they continued it. This could be justified not only by the feeling of wasted resources but also by the pressure that could arise from the bad investments of taxpayers ‘money. 

The Airplane Concorde being fully operational despite costly drawbacks 

This example illustrates the second concept, escalation of commitment. This tendency happens when some individuals might stick with a decision previously made because they feel the pressure to remain and to “honour” that commitment, such as in the case referred above, where even after new information notifies them that the previous decision might not be the best to follow.  

Another application of the sunk cost fallacy is related with the third concept called gambler’s conceit. This idea expresses that a gambler believes that he will be able to stop his risky behaviour while still engaging in it. Let’s say that you went to a casino and lost 100 dollars gambling. Your odds remain the same as when you started. Despite this, the tendency is to keep gambling until you recover from that loss because you already risked that money into the game, and you might experience loss aversion (feeling of loss greater than the one of gain). Besides that, according to the gambler’s conceit, while you are playing, you believe that you are still able to stop and that you will do it once you achieve gains, but when that happens, results show that you are unlikely to stop. 

In this illustration, you are also letting your past actions and losses influence your recent decisions leading to irrational behaviour, and it can be described as an entrapment situation, in which we endure the losses, in the hope of a later rescue and success by further investment. 

As seen throughout this article, it is rooted in our brains a powerful loss aversion. This neurological feature might have had a significant role in assuring our survival as a species, as it allowed us to avoid risky behaviour. However, it is also at the core of the sunk cost fallacy, not allowing us to put our rationality into practice and leaving us stranded to our past and immutable actions. 

Whether you are in the middle of a boring book, in a losing streak at the casino or you simply invested too much in a project that no longer makes sense, we hope this article can help you. 

Sources: The Guardian, Forbes & Corporate Finance Institute


Afonso Serrano

Daniel Calado

Mariana Gomes


Nudgers secret weapon: Randomized controlled trials

 

Policy interventions that base themselves on behavioral economics findings have emerged heavily in different governments over the past 2 decades. The Behavioral Insight Team (UK) is one of the most recallable instances of nudge units that provided for research advancements and interventions of such kind. From using social norms to increase tax payments, increase fine payment rates, or using lotteries to increase election participation rates among voters, the approach that any result had in common was the extensive use of a statistical experimental method that changed science for good: randomised controlled trials.  This article explores the methodology, why it is useful as well as its limitations, along with real life examples to provide an informed take on why is of essential importance within the behavioral economics field.

A Randomized control trial (RCT) is a type of scientific experiment that aims to reduce certain sources of bias when testing the effectiveness of new treatments. It consists in the randomized selection of two or more groups inside the population in study, where one group is the experimental one, which receives the intervention being assessed while the other, commonly called the control group, receives an alternative treatment in which there’s no intervention. The groups are monitored under equal conditions, in order to determine the effectiveness of the experimental trial when compared to the control group, since the only expected difference between the groups is the outcome variable in study.


Pro’s

RCTs are useful tools to answer medical-related experiments, being one of the most efficient ways to study the safety and effectiveness of new treatments, required by governmental regulatory bodies as the basis for approval decisions. This provides a very powerful response to questions of causality, as it allows the program implementers to assure the outcomes obtained are, in fact, a result of the variable in study, considering all other variables constant. As so, it eliminates any bias that may hinder the experiment, improving the veracity of the results achieved. RCTs are, in fact, the safest method for establishing cause–effect relationships, and they are often used to rigorously evaluate nudge interventions.


Con’s

Nevertheless, RCTs are not always the answer, and should only be used to evaluate nudge interventions whenever appropriate. The truth is, sometimes they are simply not feasible. Let’s consider the example of a school intervention: many times, the processes of randomization are not possible to perform in classrooms where all students are exposed to it. RCTs can also be considered unethical, in experiments where the intervention group clearly benefits with its application. For instance, if a school decides to expose only half of the students to an experiment that helps them build a CV, the other half will undoubtedly be harmed, due to the randomization inherent to the selection process. Additionally, RCTs may not be able to guarantee equivalence between the groups when dealing with a small sample, which may result in an unpowered test, unable to detect the real effect of the variable being studied. Lastly, if participants in different experimental conditions are in close proximity, as it might be the case in experiments among the population of a company, in which participants share their workplace, there may be communication between them, harming the veracity and credibility of the results.


The use of RCTs by Behavioral Economists

The application of psychology in public policy has been gaining tremendous importance in the past decade, as Governments have been realizing that their policies may depend on social, emotional, cognitive and many other factors usually disregarded by economists. Behavioral Economics is the science that embraces the psychological aspects of policies, and RCTs are the most important tool to which it resorts to. Leading to significant contributions to known cognitive and perceptual biases in our decision-making processes, the application of Behavioral Economics to public policy is occurring in diverse settings, from promoting a sustainable use of energy at home, to encouraging the timely and honest payment of taxes. These public policies have usually derived from centralized labs or innovation hubs specifically set up within government departments to rigorously trial and disseminate findings.

As introduced before, the most well-known example of RCT applied to BE is the United Kingdom’s Behavioral Insights Team (BIT). Having advised the UK’s Government since 2010, the BIT has been working across multiple domestic policy areas with the intent of improving public policy in general, by promoting the methodology “Test, Learn, Adapt”. The suggested approach was created with the purpose of dismantling the idea that RCTs are expensive and difficult to implement, by showing the Government its endless advantages in offering quick feedback to improve policy making. The BIT’s innumerous interventions over the past years have saved the UK government tens of millions of pounds, through the combination of a rigorous evaluation by the highly regarded psychologists, economists and policymakers who compose the team with new insights and approaches, with the use of RCTs as the most essential tool to test the effectiveness of these evidence-based policies. The BIT’s remarkable success has led many other countries to follow similar paths and create some type of Government-led initiative influenced by Behavioral Economics.

Allow us to consider a real-life example: in Canada, where behavioral economics is playing an increasingly important role in the development of its policies, with the establishment of many agencies rigorously testing their prospective behavioral interventions through the application of RCTs, it was made a behavioral intervention involving the promotion of organ donation registration rates in Ontario. The experiment was developed by the government agency Behavioral Insights Unit (BIU), which intervened with the purpose of simplifying the registration processes. The trial contributed to an increase of organ donation registration rates by 143%, due to the province of Ontario’s opt-out default policy framework. The RCT implemented by BIU allowed them to compare the effects of the different treatment periods to before and after the intervention, and to determine which treatment contributed the most to increase registration rates.

Although the incorporation of behavioral economics into public policy initiatives is not the solution to every political concern, it has proved to be a very important tool in this regard, as this intervention in Canada allowed us to conclude.

However, it is not only in the public sphere that RCTs are used. In fact, many private entities resort to this type of scientific experiment to prove the effectiveness of certain behavioral interventions.

Let’s consider a real-life example to better understand how a RCT can be helpful to the private sector: The Rector of the University of Virginia organized a RCT to find out the relevance of three different nudge interventions the university was considering to apply, with the goal of increasing college attendance and graduation rates. As so, the university selected three random groups of students, which received one of three messages: about the financial benefits of completing the Free Application for Federal Student Aid (FAFSA); reminding them or their motivation for applying to college; or with instructional guidance on how to complete the FAFSA. The study ended up finding out that none of the used nudge interventions had a statistically significant effect on students’ persistence into their second year of college, as the effects were close to none. It was concluded that this was a well-conducted RCT, since it provided valid findings and allowed the university to reject the application of the previously considered interventions.


In essence, it is safe to conclude that RCTs are one of the most valuable tools used by behavioral economists, not only as a powerful aid on policy making, but also on many private entities that desire to test hypothetical nudges before putting them into practice.

Luxurious consumption: (not) for everyone?


Since the beginning of mankind, evolution has gone far changing fundamentally the way we live our daily life despite little or no change in our biology since thousands of years: we now have healthcare, language, our habits.

Still the most fundamental things of our nature did not change much.


Humans’ most basic needs did not disappear as we are still subject to biology (we need safety, sheltering, food, sleep…). But steering from survival we also have needs that, still biological, are necessary for a pleasant existence. The overall desire to feel accomplished, recognized and respected is one of them.

The american psychologist Abraham Harold Maslow theorized about human needs as being hierarchical. He put the Esteem needs towards the top of the pyramid in his famous Maslow’s Hierarchy of Needs chart. The framework is still used today as the basis for many consumer psychology studies (brand managers know this well!).


Maslow's Hierarchy of needs

Maslow’s Hierarchy of needs

All these needs are shared with our ancestors, even though the ways we satisfy them today are much different.
For this article, we want to focus for a moment on the esteem needs and how we deal with them.

Travelling back in time, we realize that the way we perceive status and accomplishment has changed dramatically. Back in the early 20th century,  recognition of prestige and success was relatable with something that today is considered as basic income level goods: simply owning a car or having access to products and appliances like a toaster, a vacuum cleaner or a radio were status symbols upon release.

Thanks to a mass economy of scale, globalization and technological advancements prestige is less correlated with these things and access to common goods and easy mobility is somewhat granted for a big percentage of the world population. Following our previous example, having a toaster in the 50s was somewhat a luxury whereas today it is just a machine taking up space in a kitchen. This means that what was considered a luxury in the past, is now considered common, which forces people to search for something original, unique and that makes them feel special in comparison to their peers.

As a result, people are going a long way to present themselves as accomplished and successful. Evidence has shown time and time again that luxury purchases are overwhelmingly emotional and driven by perceptions regarding self-identity and self-comparison. Since luxury goods have the ability of changing the perspective of who we are, they deliver emotional benefits regarding self-esteem, power and overall satisfaction regarding the consumer and his identity.

A paper of 2015 about preference of luxury goods concluded that luxury products are associated with success and considered a way to satisfy needs of social integration. In the study, most participants stated that luxury items helped them to highlight their personality and demonstrate their self-value, improving their confidence and self assurance, meaning that, through the purchase of expensive items or services, people get a feeling of accomplishment that enhances their idea of self-worth.

This is relatable to the concept of “conspicuous consumption” that was first introduced by the economist Thorstein Veblen. In essence, so-called luxury products serve a purpose beyond their utilitarian value, by providing a more visible one: the status value of the product. They provide the chance to publicly display individual economic power.

More recent studies further confirmed this vision, as Rayo and Becker (2006) suggested, the purchase of certain items was mainly motivated by a desire to advance in the social ranking and was viewed as an investment in self-image that could be projected to surrounding outsiders. Also, Manolis and Roberts (2008) defended that conspicuous consumption is a result of a motivational process where the individual wishes to improve social status by displaying consumption of products that symbolize a certain social position.

As a result, it is important to talk about “Veblen goods”, a very particular type of goods that contradict one of the most important laws of economics, the law of demand. As opposed to the “typical” goods, these are subject to an upward sloping demand curve, that is, as the price rises, so does the demand. This phenomena seems to question the rationality of economic agents, since ultimately individuals ask for the best price. But as we see, real life is different.

Just Imagine that you are online shopping and an advertisement pops-up: “Gucci bag at 19.99$, limited offer!”, what’s your first thought? It’s fake, right? At least, that is what most people think, and who can blame them? Gucci and other designer brands are associated with luxury, quality and exclusiveness. All of these attributes seem to lessen as the price goes down. Other examples are hyped sneakers, produced in limited quantities, as demand rises, so does the price. However, demand does not stop increasing since desirability is linked to exclusivity, to scarcity.

In behavioral economics and marketing, this lesson is well known and the markets for Veblen goods are increasing horizontally and vertically, with more and more exclusive and vintage products gaining traction in a stock market manner. These kinds of effects are part of our decision-making process as we don’t know the absolute value of any product or service, because, objectively, the value of anything is nothing more than a human construct. Brands are the most exemplary case for a psychological construct holding value.
If you’re offered (for free) a no brand version of your favorite piece of clothing and one from your favorite designer, you would probably go for the latter, even if the two items were exactly identical.

What if I have to decide on something I’ve never seen? To evaluate such a decision, our brains go for the relative price, comparing it to the most similar choice. What if we have no reference? Well, that’s difficult…for your brain too.

This human brain feature is called reference dependence. We rely on a reference point to make a judgement. This is usually well known by marketing departments and is a crucial way to find untapped business opportunities. Suppose you, as a company, are the product architect of a brand new product: a fine piece of jewellery with a rare material that no one has ever heard about. You will have to decide a price point for launch, which will influence future perceptions of the jewel. That is, you have to decide on the positioning of your product in the market. But how to proceed when your product doesn’t have anything directly comparable? Where you’re going to put your product next on the shelves, will also correspond to where it is positioned next in the consumer’s mind. New car price tagged the same as a Ferrari will not be regarded as a Prius!

After all, price is associated with quality and this abstraction can be more elaborated (that is the job of brand managers). With luxury goods, elasticity of demand is different than with consumer products, and price plays a vital role in consumer decision making. Price is a handy heuristic for quality.

The “You get what you pay for” goes far beyond the physical characteristics and attributes of a product, and most of the time those attributes don’t even matter. Blind tasting experiments with expensive wines showed that the majority of consumers can’t differentiate wines over a certain price threshold and even the most renewed sommeliers have troubles if blindfolded of the label.

So is it all in our minds? It was proven in a study made by Stanford and Caltech scholars regarding wine tasting that when looking at the MRI scans of the participants’ brains, not only did people rate more highly the most expensive wines, as they also enjoyed the experience of drinking them more.

Another take on the matter from Michael Norton, a professor at Harvard: “There’s an extra boost when you go up in the quality of experiences. So, it’s possible that a $10,000 bottle of whiskey would be more than twice as pleasurable than a $5,000 bottle of whiskey because it’s such a peak experience way out in the extreme.”

As an endnote, luxury serves a purpose beyond the experience itself and it is quality that goes on the sociological side. When people are satisfying their egos and amplifying their self-value through expensive items and services, they are also sending a message to everyone around them. This can only be achieved by publicizing that lifestyle and receiving public recognition and praise.

A very famous example of using luxury to reinforce social status came from Louis XVI along his bride Marie Antoniette. Royalty historically used luxury and wealth as a power statement.

In essence, there is a general acceptance in our society that possessing some items qualify an individual as successful and that gives them access to exclusive social circles that are recognized as powerful, wealthy and prestigious.

Through this article, it becomes understandable that Veblen goods and luxurious experiences serve a very important purpose for human beings as they satisfy a need that is sometimes unclear due to its intangible attribute. Mainly, the need to be accepted and recognized by others which is present in all of us. Ultimately, luxury is rational in the eye of the beholder: is human made, and human needed. Definition of luxury transcends time, but it’s materialization is very much unfixed, ever changing, and far from absolute.


Scarcity makes luxury. Not diamonds.


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From great power (of Habit) comes great responsibility

The corporate world surely can be a challenging and high-pressured environment to work in. It is a place where people with very different backgrounds, education and beliefs have to collaborate and work together.

In the hopes of building and sustaining a successful project within competitive industries, organizations have to look deep inside their own dynamics with the goal of harmonizing everyone’s interests in the search for a common goal.

Human behaviour is considered one of the most difficult things to understand completely but one thing is certain, we are creatures of habit. Our brains are subject to numerous stimuli every day and forced to make millions of decisions, so as an evolutionary feature, we evolved to have programmed patterns, routine processes that allow us to save our much needed mental energy.

The American psychologist William James once compared habits to water, he said “water hollows out for itself a channel, which grows broader and deeper, and, after having ceased to flow, it resumes, when it flows again, the path traced by itself before.”, revealing this way, how we systematically repeat behaviours without even realizing it. These habits show up in our daily lives in the form of automatic routines: we don’t have to think about the route for work or university, and we end up drinking the usual morning coffee in the same shop without realising it.

the power of habit

However, it is possible to redirect the path this water takes and adjust behaviours by creating new habits.“The Power of Habit” explores this deeply. According to the author,  the best way to get rid of a bad habit is simple: create a new one. From a more scientific perspective, we form habits following a 3 step loop: Cue (the external or internal stimulus that makes you perform the habit), Routine (the act of practicing the habit)  and Reward (the satisfactory feeling from performing the routine) which can be anything. From a feeling of accomplishment by finishing a task to a dopamine release when you open social media and see dozens of messages and likes. By being able to identify the cue, that is, what triggers a bad habit, you can change your routine to a new one and adjust the reward accordingly.

However, one must understand that there is no secret formula to do it. It depends on multiple factors like will power (highly subjective), personal background and it’s even harder when dealing with the habits of possibly thousands of employees that, altogether create what is the company culture. Some habits appear harder to change than others and some people can go a lifetime without realizing or being able to change any of them.

Some explanation could be found when looking to groups of people that are designed to fight (bad) habits. It is not enough to get used in fighting habits or even change it for a new one. As shown in a study from the California’s Alcohol Research Group for the Alcoholics Anonymous, in most cases, respondents revealed that when a stressful event occurred, the habit tended to come back, as they found comfort in the reward associated (quoting William James, the habit path never entirely disappears). In this perspective, organizations might have to play a vital role.

As stated, habits depend a lot on will power and this is highly correlated to the environment surrounding each individual: social norms, peer pressure and other phenomena can either make the ground for beneficial or bad habits. Is about which group and which norms you’re exposed to that determines how your behavior will be beneficial or not. As for drinking (often a group activity), take the AA: they try to provide individuals with a feeling of inclusion, understanding, and offer a base of support to fight addiction (assigning a mentor, sharing with fellows struggling like them…). By finding a common ground and goals to move towards together, organizations might have the base to form a stronger group identity: a culture.

Some organizations fail to succeed in the corporate world for the lack of an identity, something that everyone in the company embraces and fights towards. But even though a unifying culture is vital for success, it is even more imperative that this culture is the right one for the organization.

Take what happened at the Rhode Island Hospital a couple years back. This hospital, one of America’s leading medical institutions, was known as a place with many internal tensions. The relationship between doctors and nurses was difficult and after years of strikes by the nursing staff, the situation remained similar by the lack of effort of the administrators.

Nurses came up with a damage limitation solution: they created a blackboard where they could all see the doctors they would work with on the operation room and they would write those names with different colours, so that each nurse knew what to expect when entering the room, if the name was written in red or black, they knew they shouldn’t even make a suggestion or they would be in trouble.

This way, nurses thought they would avoid unnecessary conflict. But how wrong they were… Without noticing, the nurses created a habit: if the name is written in black or red, I will not intervene and correct the doctor’s decision, no matter what.

The result? Malpractices, one after the other, that sometimes, led to deaths.

Whenever a surgeon (human after all) was about to make a mistake, due to past conflicts, nurses would simply follow their habits and not intervene; these habits were instilled through unwritten rules that have been interpreted as part of the culture.

Rhode Island Hospital, one of America's leading medical institutions.

Rhode Island Hospital, one of America’s leading medical institutions.

Sometime after, due to all the pressure from the media, the administration came to their senses and applied measures that eventually conceded nurses a voice and created new habits that changed the organization’s dynamics. However, it remains a perfect example of how an undirected bad culture within an organization, can lead to harmful outcomes (in this case, for the health of patients). Corollary: in moments of crisis and public exposure, organizations have a unique opportunity to make changes. When everyone involved is in some way or another negatively affected and there is a sense of collective struggle, the chance to set aside divergences and move towards a common goal, rises.

Let’s relate to the covid-19 pandemic. For a company to survive these uncertain times it is essential to maintain its culture. However, with most people having to work from home, the overall company dynamics had to be changed or completely reinvented. By looking at some top renown companies we can see the path that company cultures’ development is taking.

For instance, Google has allowed its employees to work remotely until the end of 2020. Besides, it also provided a work from home allowance of 1000$ for equipment costs. Such action made it possible for workers to create their own home office environment with less propensity of getting distracted and more sustainability.

Take instead the measures taken by Target. Target’s main priority was to ensure employee safety by extending sick leave for everyone and offering high-risk workers a thirty-day paid leave in case they were uneasy to come back to in person work. In addition, Target also offered financial aid to employees working in the stores (and implemented similar programs for ones who wished to contribute.)

On the influence of leaders, we have an example from a firm: Alcoa, an aluminium company. When their new CEO, Paul O´Neill took over in 1987, everyone was confused by his presentation speech. His main goal, he said, was to “make Alcoa the safest company in America”, he added, “I intend to go for zero injuries”. Every shareholder in the room was surprised, not only did he not talk about raising profits and cutting costs, he intended to transform one of the most risky workplaces into the safest in the country. One year after his speech, the firm hit an all time record of profits, and by 2000, when O´Neill left, the annual Net Income of Alcoa was 5 times larger. So, what happened?

The CEO was aware of the power of good practices, good examples, and more importantly, of the impact of a good culture. By defining a clear goal that everyone could work towards and support (relatable), Paul created a culture where everyone felt part of something bigger and got each worker excited to do their best for a company that defended their interests.

With this measure, everything improved: happy workers were more productive, less accidents meant less costs and more available workers, but, more importantly, in order to achieve the goal of zero injuries, everyone had to be well aware of what everyone had to do. In other words, the change of a habit triggered a chain reaction. It made workers not only be more careful and productive, but they also felt entitled to give suggestions to improve the company: they felt like they mattered more, and had a saying in the path the firm took.

This just goes to show that even though managing thousands of workers, pleasing shareholders and simply put, running an organization, can be difficult, it is possible, even with simple ideas, to create a good culture, unite everyone and run a successful business.

More recently, Dan Price (CEO of Gravity Payments) made the news cutting his own wage to reach a minimum salary of 70k$ for all its employees. Deemed as a madman by the media, actually had a more interesting effect: its company valuation went from ~4 b$ to ~11 b$ dollars in 4 years. More than 10% of the company have been able to buy their own home, in one of the US’s most expensive cities for renters. Before the figure was less than 1%. People even started having babies all of a sudden.

The examples presented painted very different pictures, however, both help prove the argument that an organization is much more than the individualities and much bigger than an idea.

Dan Price, CEO Gravity Payments

Dan Price, CEO Gravity Payments

Companies and institutions are made of every single person involved in the final product or service provided, and without a common ground, an identity or a culture to unite the interests of everyone, it is only by chance that success lasts.

Cognitive overload: Everybody needs a fishbowl

Most people love ice cream. Most people also know which flavor they fancy the most. Choosing a scoop to get should be easy enough. But what if on the menu you find a word clutter that says strawberry, salty caramel, hazelnut, pistachio, marshmallow, dark chocolate, yogurt, cherry, lemon, mint… We guess you end up with the same flavor you’ve been getting for years. Probably, you just went through “choice paralysis”.

In simple terms, choice paralysis happens when confronted with a high number of fairly equivalent options (see the pistachio – hazelnut dilemma), all of which have equally satisfying outcomes. The result is being overwhelmed by options and unable to make a good decision (or a decision at all). Besides the number of options, apprehension in decision-making, associated with the belief in a “perfect” decision, is also on the table.

The effects of this phenomenon become more present as the stakes of our decisions and their impact in our lives increase. Take for instance purchasing a new laptop, surely relatable, and when confronted with all the what ifs as “Should I choose the 10th generation i5 intel core or the 7th generation i7 intel core? What if I have to use that heavy photoshop plugin?” and yadda yadda.

Choice paralysis and learning programming by Jordan Lee (Medium)

Choice paralysis and learning programming by Jordan Lee (Medium)

Naturally, we want to opt for the choice that better satisfies our needs; but we are all guilty of relying on looking up “top laptops for school” on geeky websites, opening 25  browser tabs and ending up buying one “because the reviews are good”.
This familiar situation is flooded with unnecessary information that load our decision process. Hence, using shortcuts such as reviews, top 10 lists and etc. to help us out. We also take shortcuts unconsciously: we use cognitive heuristics. This is a natural adaptation strategy to preserve mental energy provided by mother nature.

To explain this, we must first recognize that as human beings, we always go for a path with the least resistance: in other words, our brains are lazy. It is not (entirely) our fault. It is an evolutionary adaptation: as we have so many decisions to make every day, our brains save energy whenever possible and simplify complex choices by using cognitive rules of thumb. These, in behavioral science, are called heuristics, and do a great job in simplifying our mental life.

But, as these are merely educated guesses, heuristics can bias our decision making. They tend to forget about details that may come from sophisticated thought, such as logic and statistical reasoning.

Take, for example, the present bias: our tendency to favour and over value immediate rewards and gratification while undervaluing long-term interest. Do you relate? Financial behavior is a major example, and we all had budgeting problems at some point (shopping in sales season can get out hand). Surely most students will know the struggle in letting go of a movie night for catching up with studying.
A more institutional example is the widespread failure to enroll in the right retirement plan: since your retirement doesn’t look that relevant when you’re in your 20s. As such, retirement savings (in the U.S. landscape) have been a major problem.


Also relevant with cognitive overload, there’s the status quo bias. In simple terms, it is defined as one’s inertia to change, leading us to stick to a decision made previously (even if changing it would imply higher benefits for that individual). The power of a default option comes right from status quo bias in choice architecture.

Making a certain option the default, helped increase adoption rate in different contexts, such as organ donations and also with the mentioned retirement savings plans.

At aggregate level, organizations and governments can rely on things like bureaucracy for chances to introduce nudges (cheap & easy to avoid elements of choice architecture that can work against our cognitive heuristics in a predictable way, promoting better decision making), like making organ donation the default option, or making automatic enrollment in a fair retirement plan. (for our new readers see our previous article on nudging).

Choice overload archives | Prime Quadrant

Choice overload archives | Prime Quadrant

Taking Action

Given that organizations have a fair chance to design the choice landscape, what is more needed is a strategy to help ourselves out in decision making. For individuals, the job is doubled, as we’re required to be our decision makers as well as choice architects. So what to do? According to an authority on choices, Barry Schwartz, the best advice is: limit your options. (multitaskers, anyone?)

Take the example of the laptop again: make your research, but try to put a  limit on the number of sources you’ll have. The more choices you include, the sooner your brain will get tired.

Another good tip is to prioritize. One of the reasons we get paralyzed when choosing is because we don’t have our priorities set! Back to the laptop example, you could ask yourself: what will I do with it? Read slides or editing hour long videos? Having your priorities in mind when doing your research reduces your chances of experiencing cognitive overload and helps to focus on why you have to make a decision on the first place.

In Conclusion

All things considered, Barry Schwartz, author of “The Paradox of Choice: Why More Is Less” said it best: “Learning to choose is hard. Learning to choose well is harder. And learning to choose well in a world of unlimited possibilities is harder still, perhaps too hard.”

Everybody needs a fishbowl

Everybody needs a fishbowl

“[You can be anything you want to be — no limits.] “

“You’re supposed to read this cartoon and, being a sophisticated person, say, “Ah! What does this fish know? Nothing is possible in this fishbowl.” Impoverished imagination, a myopic view of the world — that’s the way I read it at first. The more I thought about it, however, the more I came to the view that this fish knows something. Because the truth of the matter is, if you shatter the fishbowl so that everything is possible, you don’t have freedom. You have paralysis. (…) Everybody needs a fishbowl. This one is almost certainly too limited — perhaps even for the fish, certainly for us. But the absence of some metaphorical fishbowl is a recipe for misery and, I suspect, disaster.”


Sources: Behaviouraleconomics.com, Deloitte, The Conversation, The New York Times, “The paradox of choice” – Barry Schwartz, Cincinnati.com, Equity Release Council

Afonso Serrano - Afonso Serrano Vladyslava Shoturma - Vladyslava Shoturma

Alvise Persegato - Alvise Persegato

The new era of Business: Exploring consumer-firm interactions

The corporate world is well-known by many as a “battleground” where firms compete for market power, higher profits and better public opinion.The search for the competitive edge has led companies to specialize and improve every aspect of their organizations, striving for differentiation in every front.As ideas start to run out and specialization reaches sky-high levels, firms are starting to realise that there is one area in particular that has both much room for improvement and the capability of providing the advantage they look for: the consumer approach.This phenomena is not only embraced by firms simply because they enjoy helping the community. Even though consumers benefit from it, these measures also allow firms to increase their profits. In fact, the consumer service has improved a lot over the years and the saying “The client is always right” has gained special attention from companies. Ever since trades started to occur, the idea of a consumer and a producer being two separate identities only linked by the currency exchanged has been rooted in our minds. However, as stated, firms are now shifting their focus towards the people who are the reason why they exist in the first place. More and more, organizations are trying to end this notion of separation and starting to approach customers with the goal of breaking barriers and gaining trust.One way to do so lies in customization. The development of the trend where buyers customize their own product according to their tastes and preferences has increasingly brought gains for firms. On the one hand, consumers become emotionally attached to the products as they feel like, by being responsible for part of the creative process, the resulting product becomes part of themselves, boosting positivity towards the merchandise and the brand. On the other hand, firms also have the opportunity to receive massive feedback about consumer taste, transforming the otherwise “passive customer” into an “active customer”, transforming the whole decision process – a win-win situation one could say.

The head of the Center for International Manufacturing at the University of Cambridge, Jagjit Singh Srai, even said that he believed most major companies would have customization operations in place within the next 5 years.

Nike is one of the most famous brands that embraces product customization

Nike is one of the most famous brands that embraces product customization

Another way to build consumer trust relies on brand development. Through jingles, logos, catch phrases and multiple initiates firms’ main goal is not only capturing a bigger audience, but also promoting brand loyalty among the regular consumers.It is with no shame that everyone can remember at least a handful of commercials or jingles from their favourite brands, even if they don’t want to. It is actually not our fault that the themes are so catchy that our brains cannot detach from them, or that we are exposed to the same commercial so many times that it sticks. It is a great investment of time and money on the behalf of firms to improve our perception of their reality.

Moreover, brand image is also boosted by campaigns related to events occurring in the world where brands decide to take a stand and defend a certain point of view in order to send a message to their customers, showing what ideals they support. As an example, multiple brands like Nike, Netflix, Ben & Jerry´s and Amazon, decided to make a stand against racism in light of the recent protests “Black Lives Matter” through financial contributions, social media posts and advertisements.


Part of Nike´s “For once, don´t do it.” Campaign.

Part of Nike´s “For once, don´t do it.” Campaign.

With all these measures the firm´s main goal is to be seen as much more than a company that trades a specific product or provides a service and more as an entity  linked with ways of living and thinking, wanting to sell an experience which their customers can identify themselves with and embrace. It is of great importance to feel part of a family that shares their same interests as it drives loyalty and brings security while promoting and expanding companies’ perception within the market.However, it is also very important to notice that by doing so, firms are now starting to interact more and more with social norms and less with market norms. That is, firms, by trying to reach an emotional attachment with consumers, start to fill an enlarged pool of expectations that if they are not able to fulfil, might generate disappointment among the loyal customers that saw them as more than a brand.


Picture this situation:

For years, you only buy shoes of a certain brand, either because you like the design better or simply because you really like the brand’s message. Imagine that you like it so much that you even have posters on your bedroom wall and stickers on your laptop of commercials and slogans by that specific brand. Well, it’s safe to say you have an emotional connection with this brand.

Suppose now, that you made your first order online and the product is nothing like what you expected and so you complain, calling and sending emails to the “Consumer  Help Service”. After hours waiting on the phone and a couple of sent emails, you receive no answer by the company you liked so much.

Now, you have a strong dislike towards this brand, you have been personally disappointed and it is very likely that you will not shop there again and will persuade your friends to do the same by telling them all about your experience. This feeling of betrayal would not exist if the emotional connection had never been established. Firms should have this in mind when they decide the type of image they want to send to the public.


To sum up, building an emotional connection with customers has numerous advantages and is a very prosperous way to gain market power and brand loyalty, but it is also a potentially dangerous measure that has the possibility of backfiring and having the opposite effect if the expectations are not met. This being said, emotional connections are a significant way to achieve consumer loyalty, but building an image that cannot be achieved can also greatly damage a firm’s reputation.


Sources: NY Times, The Guardian, Forbes Magazine

Scientific revision: Ana Clara Malta (Behavioral Economics Team Leader)

Is self-control equal to sacrificing pleasure?

Have you ever regretted eating that hamburger or that pizza some days later? Probably you have, and you are not the only one. How can this possibly be explained? Well, we are humans, it all lies in the way we perceive our own self-control.

Self-control is the concept of sacrificing short-term pleasure for an important long-term benefit. All existing theories are based on this idea of conflict of preferences between the “now” self and the “future” self. The “now” will seek (and consume) a tempting good, but the “future” one would regret such consumption.

Following this idea, preferences are a key element to have present. It is crucial to understand the reflection of individual taste as it explains one’s choice of consumption. Therefore, to address this opposing conflict we have to explore various properties of preferences and relate them with time.

Firstly, it must be recognized that the conflict between the present and the future implies that preferences actually change over time. This is what behavioural economists and scientists like to call time-inconsistent preferences.  Similarly, preferences are usually ranked, meaning that one is more important than the other. So, as the importance of immediate gratification fades quickly as time passes, long-term preferences end up being superior to the short-term ones, forming a hierarchy which consequently characterizes all forms of self-control conflicts. Considering the previously mentioned characteristics, talking about anticipated regret seems pretty logical. Smoking a cigarette provides pleasure to the smoker, but brings with it a sore throat immediately after smoking and potentially cancer in the long term. Knowing this, the smoker who anticipates that he may regret giving into the temptation of smoking a cigarette is experiencing a self-control conflict.


self control conflict

Where does this bring us? Around 96% of the papers that explore the concept of self-control and present it use this idea that self-control lies where there is a given sacrifice of pleasure. More recently this idea is being presented as flawed mainly because of its assumptions. On one hand, it assumes that all consumers trade-off short-term goals with long-term ones and that the absence of a self-control conflict would inevitably result in the choice of the long-term goal (while the short-term goal always represents a breakdown in self-control).

Nevertheless, many elements may change since not all consumers pursue the same superordinate long-term goals. Consider the choice between pizza and grilled chicken salad. A consumer may choose the former but not necessarily experience a self-control failure because he/she does not care about restraining her calorie intake, or because she is a vegetarian, or because she likes pizza more than salad. (Actually, even though American consumers, in general, believe the better a food tastes the less healthy it is, in a recent cross-national survey conducted in the US, UK, France and Belgium, consumers associated ‘unhealthy’ only weakly with ‘tasty’).

Why is this relevant? This is a powerful insight into consumer behaviour that is even relevant in policymaking. A good example of this is the food industry. Behavioural economists cannot substitute nutritionists but they can find a way to help consumers align their goals and actual behaviour with objective criteria. Consumer behaviour researchers can devise interventions that motivate consumers to consider the long-term consequences of their actions. Based on this “theorizing”, it should also be easier to exert self-control when abandoning the idea that pleasurable and beneficial consumption (hedonic consumption) represents a self-control failure. Rather than categorizing foods into good and bad, consumers could train themselves to use relative quantities as a benchmark for harmful consumption. Rationing portion sizes and consumption frequency are indeed powerful strategies to limit food-intake since how much we eat is as much governed by a food’s tastiness as by serving size.

Beyond food and bad habits, self-control is present in our day to day and regret is inherent to human nature. The more we sacrifice short-term pleasure for an important long-term benefit, the more we become aware and the less probable we are to be disappointed over something that we did or failed to do. Regardless, not everything in life is to be regretted and some things are meant to be done today.

Behavioral economics in action: the role of behavioral units in politics

In this era of social networks, communication has reached new levels of virality. The Network of Networks – the Internet – has facilitated the creation of a new status quo: from governments and businesses to common citizens, each piece of information inserted and shared in the Web has the potential (given some very small probability factors) to become viral. If that happens, it cannot be stopped. No matter how far you are from the formal location where the original information fluctuates you will know about it. And it only needs a fraction of seconds.

How should people be in such an environment?  At the current speed at which media spread, even words have tremendous impact when misused. Likewise, silences also have a tragic impact when speech is needed. There is a need to be fast and ready to process information. In the case of politicians, words mean actions, words mean decisions, and these decisions impact much more than themselves: they affect millions of lives.

One lesson that Behavioral Science has taught well is how it is human nature to systematically make mistakes in evaluating circumstances. This comes with no shame: our ancestors needed to make decisions quite fast, and that led us to develop mechanisms to quickly judge whether a shadow was one of a rock or say, a lion. This is no different at this time, as we are still required to make these fast decisions. Politicians, corporate top management, governmental bodies’ leaders, some people’s job is to make decisions better than others for others. Yet, very often is forgotten how even our leaders are human. As so, they are equally prone to the same heuristics of anybody else. Yes, they may be more aware, and yes, they are skilled decision makers (usually), but emergency situations require quick reactions.

Our brain is programmed to follow a more rational, logic system (lets call it system 2) when decisions are complicated and require abstraction. However, most is processed by a quick, instinctive mechanism (that we call system 1). The latter, is the one responsible for both convenient intellectual shortcuts as well as for all of our biases and heuristics.

Availability is the name for the heuristics that describes how we evaluate situations based on examples that come up to our mind. This is among the main reasons why people are more scared about a plane crash when the news has reported one unlucky case, ignoring how many flights are done daily, yearly, with virtually no accident.

For the same reason, when something has never happened (or, to better put it, has never happened while we were conscious and alive…), we fail to capture the potential consequences of that event dramatically. We human beings are simply very bad at evaluating probabilities. Again, this is true even for the most capable, skilled leaders! (see our article on Nudging for more insights)

The work of behavioral economists has helped highlight this condition. Starting from the first inception with the research of psychologists and Nobel prize recipient Daniel Kahneman and his fellow Amos Tversky, the more recent work of economists such as Richard Thaler and Dan Ariely (author of the acclaimed Nudge and Misbehaving, among others), helped spreading awareness about the potential benefits of the behavioral science among various high ranks. President Obama himself has been a perpetrator of the nudging theories in his second mandate; yet, it is a case rather than the norm.


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Availability heuristics, Groupthink (the tendency of believing something just because others believe it), Inertia and many other cognitive and emotional biases, help us explain why governments failed to evaluate the Covid-19 threat on a systematic, large scale. Why did this happen, despite early warnings and examples by the first victims, from China to South Korea? No simple answer is the right answer: many actors from different contexts with different interests likely lead to an environment where cooperation and mission alignment is tough to achieve. But one thing we can be sure: we are all humans, and as such, as scientific research has demonstrated, we are all prone to biased decision making. Through this, perhaps we could find a common denominator, a common ground for global discussion, from individual to country level.

The current situation shows how the role of behavioral science is still unclear. As an example, the UK has indeed a behavioral insights team operating. In the last days, the debate is around the decision of prime minister Boris Johnson not to enforce quarantine measures but rather “nudge around” the situation. Is it the right choice? Is it the right time to act like this? Is behavioral science going to be blamed in case the decision doesn’t have the hoped results? Still, the ultimate decision power doesn’t lie in behavioral units, but in politicians. Takes unbiased foresight for a leader to understand when a threat has to be taken seriously despite no direct consequence can be observed in his/her community. In this case, we should keep in mind that it is the prime minister’s decision on when to take action and who to ask for collaboration from.


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Should perhaps behavioral science be first a way to improve decisions at a widespread individual level, before becoming a toy at disposal of biased leaders? Behavioral units are still scarce, with a bunch of countries actively using them. We shall see how events unfold…

Take this little quiz to test which system you’re naturally relying on to read a piece:

1-A bat and a ball cost 1.10€ in total. The bat costs 1.00€ more than the ball. How much does the ball cost? … cents

2-If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets? …Minutes

3-In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake? …days

To check your answers go to our instagram/web page. Did you get them? Maybe just some? If you’re interested in exploring more of the research behind “clever formulations” and its applications, consider the read of “Nudge”, by Richard Thaler and Cass Sunstein.

Sources: The Guardian, Politico, Apolitical, The conversation, Behavioural Economics.com, Springer

QUIZZ SOLUTIONS:
1- (5 cents)
2-(5 minutes)
3-(47 days)

From flies in urinals to higher savings rates: How nudging influences our decisions

“A choice architect has the responsibility for organizing the context in which people make decisions.”

— Richard H. Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness

Nudging has been the start point of many economic studies, in particular in the area of behavioral economics as it explores the way people´s decisions could significantly change in a predictable way by modifying the context of such decisions in a very subtle form. The concept was first introduced by the Nobel Prize winner Richard Thaler and Professor Cass Sunstein. Thaler, however, stressed the point that nudging should be used for good, with the goal of improving society’s welfare, but has his wish become a reality?

It all started at Amsterdam’s Schiphol Airport where Thaler´s discoveries were first explored by a simple experience aiming to solve a very real problem: the cleaning manager intended to reduce the “spillage” around urinals in order to reduce the cleaning expenses on the airports´ bathrooms.

Where does Thaler´s nudging theory come into play? Well, to the surprise of many the solution suggested was to “paint” a small fly near the drains of the urinals. Many may (and did) find it ridiculous and childish but actually it was a very credible and simple solution following the reasoning of human (particularly, men’s) behaviour. The goal was to “guide” men in to reducing spillage (without even noticing) and the results were an impressive 80% reduction in spillage and a consequent 8% reduction in cleaning costs. The raw truth is that men can’t help themselves and start aiming at the fly.

Fly painted in Urinal

Fly painted in Urinal

This is one of the most famous examples of the nudge theory, as it respects the most important principles that guide its use. Firstly, all nudging should be transparent and never intended to mislead (a common prevented practice – just like with publicity & advertisements since it can in fact be used to manipulate human behaviour). Secondly, it should be really easy to opt-out of the nudge (it is not mandatory for anyone). And thirdly, the behaviour encouraged should aim at improving the welfare of those being nudged (once more, no harm is intended).

Not only relevant for small problems, but also in various other areas, this theory has impacted and been adopted by governments all over the world. Over the last decade, many countries have seen and tested the effects of nudging – aiming at lower costs and better exploitation of long-lasting benefits – and the results have been astonishing. Whether the goal is to promote a healthier lifestyle by displaying healthy food at eye level in supermarkets – the impact of ordering and context framing – or increasing the savings rate of the population by automatically enrolling people in a savings plan, the results have been mostly  positive.


Another example that illustrates the impact of a nudge lies in organ donations: In countries where enrollment is necessary for those who want to donate organs after dying, the percentage of people that go through with the process is very low. On the other hand, in countries where organ donation is an opt-out option (that is, people are automatically enrolled), the acceptance rates are extremely high.

Effective consent rates, by country. Explicit consent (opt-in, gold) and presumed consent (opt-out, blue)

Effective consent rates, by country. Explicit consent (opt-in, gold) and presumed consent (opt-out, blue)


This enormous difference can be explained by what is called the default effect. Socially speaking, people tend to be change averse and avoid anything that poses extra effort and so accept the proposed default option even though they have the ability to reject it at any time.

This being said, one can probably anticipate that Thaler´s wish to use nudge for good, isn’t entirely respected as private entities are also trying to explore human psychology and use the nudge effect for profit purposes, appealing consumers to either buy or to use their products more often.

Think about these two cases in particular, Spotify and Netflix. If you don’t have a premium subscription in Spotify you may be tired of listening to something like “Don’t have premium? Try now a 1-month free trial!”. As you may know, this very tempting offer requires the allured clients to give their credit card information to be saved for the period after the free trial. Surely, after the free month, the consumer is given the choice to give up the premium account and not pay anything, but the statistics prove that many stay immersed in the inertia of the default effect and simply don’t have the energy to quit, leading them to a monthly payment that they wouldn’t otherwise have if Spotify hadn’t given the nudge. In the Netflix case, their nudge is even more camouflaged. By simply having an automatic count down to the next episode, they encourage people to go for the path of least resistance and keep watching.

Netflix automatic queue

Netflix automatic queue

It is important to highlight that in both cases, consumers weren’t forced to do anything, they were simply guided towards an option. Notwithstanding, this suggested (consumerist) human behaviour falls a bit short on doing good and has been a matter of concern to the authors of the theory.

“Whenever I’m asked to autograph a copy of Nudge, the book I wrote with Cass Sunstein, the Harvard law professor, I sign it, Nudge for good. Unfortunately, that is meant as a plea, not an expectation”

— Thaler to confess to the New York Times

Whether we notice it, or not, nudging is present in many of our daily lives and its influence can lead us to make choices that we wouldn’t otherwise. One could consider nudging anything like a simple buzz from a phone, a “ding” from a microwave or even a jingle played by the washing machine, warning and leading us to its use. The effects, however, go way beyond mere sounds and as people start realising that they could be being manipulated without even noticing, they start to distrust even the things that lead them to better choices, harming, this way, the true purpose of the theory. Regardless, it will continue to be part of our lives and it is our role as citizens to be aware of its potential but also of its limitations, so that we can make the most of such a powerful tool.


Sources:

  • Financial Times

  • NY Times

  • Washington Post

  • Book “Nudge” by Richard Thaler and Cass Sunstein

Scientific Revision: Ana Clara Malta, Behavioral Economics Team Leader

Culture, Language and Colours: How culture affects the decision-making process?

Have you ever thought about why we perceive Germans to be a precise people? Or why we consider the Chinese to be math geniuses? In a world where we tend to assume everyone thinks the same as we, members of the Western world, do, and ignore the potential effects of culture, you might be surprised as to just how powerful some of these small differences can be.


Most times, when we think about the decision-making process, we immediately think about the bounded nature of our minds. However, there are actually three sets of factors that have influence over our decisions.

They include (1) the features of the decision, (2) the situational factors and (3) the characteristics of the decision-maker.

The features of the decision concern how we are prepared to take them, how the situation is framed and how the options are ordered. The situational factors are related with time constraints, social pressure and other phenomena of this kind. The characteristics of the decision-maker include their age, gender, personality, social class and even their culture.

The first two sets presented are the ones that are discussed and studied the most, while the latter is sometimes ignored.


Culture has tremendous effects on many aspects of our lives,  even affecting some of the mental shortcuts we intuitively take. Therefore, it’s easy to realise the importance of understanding its impact over us. This is also  where it gets strange because, when we look at data, we realise that most research on decision making was made in Western countries such as the US: 96% of the samples in these studies come from countries that only represent 12% of the world’s  population. Moreover, the population of these regions live under special circumstances, their countries are democratic, and the population has high living standards and is highly educated. This enforces the idea that the samples we usually consider may not represent the entire world. This way, we are, in an implicit way, assuming that, cognitive biases are universal and operate in similar ways despite the different cultures, for instance. This is the reason why theories in cognitive psychology almost never consider culture as a factor. Again, we assume that the way we think is universal. However, recent studies might have shown the opposite.

Recent cross-culture research shows that culture can affect some of the most basic psychological domains such as visual perception, moral reasoning and self-concepts. Even though this kind of research is limited, it is proving itself to be extremely beneficial as it may allow us to unravel the deepest foundations of our behaviour.

It might seem natural to assume that people all over the world would perceive colours in the same way. Nevertheless, studies have found that colour categorisation may vary depending on the language – the way we formulate colour categories is connected with the linguistic terms used to describe them.

For example, the population of the Himba tribe (a tribe of around 50,000 people living in northern Namibia) have difficulties in distinguishing between green and blue, since their language only has one word for both colours. In contrast, another interesting example is tied to the way the Russian language has a different term for a lighter and darker tone of blue. This differentiation allows Russian speakers to categorise and distinguish colours faster than English speakers.


Another study has shown that culture and even age may affect even more basic aspects, like visual perception.

Image 1: The Müller-Lyer arrows

Image 1: The Müller-Lyer arrows

The Müller-Lyer arrows is an optical illusion where the line in the top arrow appears longer than the bottom one, despite both being the same length. The study found that the illusion is stronger to young American people and that almost disappear for the members of the San forager tribe (that live in the Kalahari Desert), for instance. A possible explanation for this is that American people tend to live in more urban areas, with straight lines, square corners and right angles, whereas forager tribes live in a more irregular environment. This greater exposure to rectangularity may lead Americans to be more susceptible to the illusion.

If simple things like colour categorization and visual perception vary significantly from culture to culture, what can we say about more complex psychological processes? Even though we do not have an answer, simple cross-culture studies found meaningful differences that question the way the world and our behaviour are perceived.  Their importance is increased when we consider that most of the samples- people from western countries- may represent outliers that by consequence ignore the profound differences created by our cultural context.


interculturel.jpg