Why do people make bad decisions? 'Information avoidance' can explain

Investors avoid looking at their financial portfolios when the stock market falls. People at risk of health conditions neglect to take medical tests even when they are free. Voters avoid hearing opposing arguments — though it could help them make better decisions at the ballot box. Such decision-making is a new field of behavioral science called “information avoidance” and it is being explored by George Loewenstein, the Herbert A. Simon Professor of Economics and Psychology at Carnegie Mellon University. Loewenstein’s work posits people sometimes avoid information even when it is free and could improve their decision-making. This goes against traditional economic theory which holds information is sought when it can improve a person’s decision-making, and only avoided in a situations where a person is materially better off not knowing something. The idea that development policy and program design should be informed by insights from behavioral science has been growing in recent years. The World Bank focused its 2015 World Development Report on how researchers and practitioners can account for psychological and social influences in their approaches. The most well-known application of behavioral economics to development to date has been the “nudge theory” which says small changes in the way choices are presented to people can nudge them into making better decisions. But Loewenstein wants to move the field beyond “nudges” and look at other ways in behavioral economics can impact public policy, and by extension, development policy. Loewenstein was recently invited to speak as part of the World Bank’s Global Insights Initiative lecture series. GINI seeks to incorporate behavioral and social insights from economics, psychology, and related fields into project design. The economist believes his new research on information avoidance is an example of an alternative behavioral economics phenomena which could have potential implications for making policy. Devex caught up with Loewenstein and asked him about his research and its potential implications for the development sector. Here are four key things to know about this emerging body of research. 1. Current behavioral science approaches have limitations. The “nudge agenda” has enjoyed significant success and has been applied to public policy, most notably to retirement savings policies. Policymakers in the U.S. and U.K., for example, approved a “nudge” to encourage employee participation in pension schemes. Employees were auto-enrolled to the program so they had to opt out — not opt in. As a result participation levels jumped. While Loewenstein applauds the theory for mainstreaming behavioral economics into public policy, he is worried that the popularity of nudges has overshadowed alternative ways in which behavioral economics can inform policy. This has had the unwanted effect of limiting the range of policy problems which behavioral economics can potentially be applied to, and simultaneously limit the possible solutions it can provide, Loewenstein explained. 2. Information avoidance tries to explain why people make bad decisions. Loewenstein’s research looks into why people actively avoid information even when it is free and could improve their decision-making. It also explores situations in which people go out of their way to avoid information even when it is neutral and therefore, by economic assumptions, could be ignored at no cost. In order to qualify as information avoidance, the individual has to know that the information in question exists, and it has to be freely available. Its study is especially timely, Loewenstein argues, considering we now live in an age when the internet has revolutionized the quantity, quality and the timeliness of information available. “We are now in the information age — economic development is all about information, so I think economists need to have a more sophisticated understanding of the hedonics of information,” he said. 3. Information avoidance manifests itself in different ways. There are many ways by which we avoid information, according to Loewenstein. For example, physical avoidance refers to choosing to avoid reading specific publications, avoiding looking at tests results, or not talking to specific people, for example. A second type of avoidance involves obtaining information but deliberately avoiding drawing the most logical interpretation from it, and instead interpreting it in a way which bolsters what the subject already believes. Forgetting is a third kind of information avoidance, whereby subjects receive information but then selectively fail to remember it. 4. It has potentially big implications for development policy and programs. While Loewenstein’s research is still in the early stages and he is yet to work on direct applications, some areas which could have implications for development policy and program design are already emerging. For example, information avoidance could shed light on why a person who has the opportunity to be tested for a transmittable disease chooses not to and in doing so avoids getting treatment for themselves and risks spreading infection to others. This could be highly relevant to HIV/AIDS testing and treatment programs. Information avoidance could also offer insights into the increasing political polarization and wildly differing views about science we are seeing throughout the world. “As science develops and new forms of data and data analysis capabilities emerge, you might think this would lead to convergence about scientific issues, but it’s not happening. If anything, the opposite is true,” he said. Policymakers can make better informed and more effective policies if they have an understanding of how people process (and indeed avoid, misinterpret or forget) the information drawn from science and data. For Loewenstein, the field is ripe for exploration and there is more to behavioral economics than just nudges. “We economists have barely scratched the surface when it comes to understanding how people process and react to information. There’s an infinite amount of work to be done that, I think, could be very important for economics,” he said. 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