Your favorite actor is starring in the sequel to a movie you totally loved. You’ve been waiting months for its release, and when the day arrives you’ve got a babysitter, popcorn, and an excellent seat.
The movie begins. You settle in happily, but 15 minutes later you can’t help noticing things that annoy you: The dialogue is flat, the theater is loud, and even this early on, the plot seems overblown. Your watch says it’s 8:00, and the movie doesn’t end until 10:00. If you’re thinking like your average theater-goer, you probably feel compelled to stay. But if you’re thinking like an economist, you quietly stand up and leave.
Why? Because an economist would say it’s a mistake to yoke your decision to stay or go to costs you’ve already absorbed. Your life begins now, they’d say, and depleted resources shouldn’t affect what you do next. Neither your time nor your money can be returned, which makes them, in the language of economists, “sunk costs.” By forcing yourself to endure a disappointing evening, you’re making yourself pay twice: first for the ticket, and second by obliging yourself to sit through a movie you’re not enjoying rather than doing something you’d like more.
Out of the Ordinary
Richard Nisbett, the Theodore M. Newcomb Distinguished University Professor, has culled such principles from economics and other unexpected disciplines—statistics, logic, psychology, and philosophy—and applied them to ordinary life. A social psychologist, he’s spent much of his career researching reasoning and cognition, including the nuts and bolts of how we make judgments that lead us to the wrong decision. In his recently published book, Mindware: Tools for Smart Thinking, he describes how we can use these principles to make better ones.
“I got interested in the sorts of errors that kept cropping up,” Nisbett explains. “My research focuses on the way people reason. Working with people in different disciplines at U-M, I found these different fields shared fundamental paradigms. Different disciplines applied these paradigms to different kinds of problems, but the paradigms themselves appeared over and over again.”
Nisbett noticed things such as the “endowment effect,” in which we overestimate the value of the things we possess, and “choice architecture,” which refers to the way the environment that frames our options also influences what we choose. Nisbett found that a remarkably large number of our errors could be avoided if we applied certain scientific concepts and principles. “And,” he says, “it is surprisingly easy to teach these principles in just a few minutes.”
Read the full article "Get Smart" at LSA Today.