“Snap decisions can be good decisions”
Martin Kocher, Professor of Behavioral Economics at LMU, uses experimental approaches to study how time pressure affects the quality of our decisions. Some of his findings are quite surprising.
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You study the impact of time pressure on decisions. The holiday season is almost upon us. Is that a good time to make decisions?
Martin Kocher: Generally speaking, being pressed for time has a negative impact on the quality of our decisions, so having more time to think things over is usually helpful.
As an economist, what motivates your interest in the influence of time on decision-making?
The time factor plays a significant role in very many decisions. It affects our behavior every day – when we slip into the supermarket on the way home to pick up something for dinner, for instance. Or take buyers at auctions and investors in financial markets, who must often make split-second decisions. Time is a variable whose importance has long been neglected in economic research. In their models, economists have always assumed that ultimately we will all make the same, the optimal, decision, no matter how long one has to think about it. But as experimental studies have shown, that is simply not true. So in order to understand large-scale phenomena in the sphere of economics, it is essential to understand the impact of time on decision-making.
Is a relative lack of time always a bad thing?
Having to decide “on the fly” can sometimes be an advantage. This holds particularly for complex situations in which there are many factors to be considered. Take the decision to rent an apartment, for example. Here, things like price, quality, location and many other variables are involved. But experiments show that prospective tenants with less time to decide make better decisions and are happier in their new homes than those who can decide at leisure – which is not that surprising. Choosing involves the rejection of options. When we have too many to choose from, we can get caught up in a vain search for the “perfect” one.
Nowadays everyone complains of a lack of time. We all feel rushed and harried. What impact does this have on our decisions?
Whether or not one feels oneself to be short of time does not depend so much on how much time one actually has available. One may have lots of time and still take the decision under pressure. For instance, if I have a deadline two weeks from now, my very awareness of that fact can be an immediate source of pressure. Time pressure is not objectively quantifiable. It is a matter of subjective assessment, the degree of pressure one experiences personally.
Given that the notion of being pressed for time is a largely subjective one, how can one make generalizations about its effects?
We create experimental situations in which people are either forced to take decisions with little time to think them through or are compelled to think them over before deciding. We investigate how decisions that are based on certain specific preferences change under these different conditions. We ask how time pressure affects decisions when one is, let’s say, very risk-averse or has a pronounced altruistic streak. This design allows us to infer how the time dimension affects our decisions, and our social actions in general, by altering the relative impact of our intrinsic preferences.
Do you have any results yet?
To take an example, we have looked at how our estimates of risk change when we are under time pressure. In simple cases, the factor time has little impact on our assessment of risk, but as soon as situations become more complex, a systematic change is observed. When pressed for time we become more risk-averse, in particular with respect to possible losses – and we become more sensitive to subtle signals. Our decision-making becomes more heuristic, in other words.
And how does time pressure affect our social behavior?
Some experiments suggest that people are more likely to behave in an altruistic fashion when they have more time to consider the issue at hand. When one has to make a quick decision, self-interest plays a more prominent role. That could be because that one’s first impulse is to look after oneself, to act egoistically. On the other hand, we also follow social norms that make life easier for everyone. Our results seem to imply that we have a greater tendency to disregard social norms when we are pressed for time. This is an important point, because it suggests ways of getting people to behave in a more cooperative manner in the interest of the common good.
Time pressure also plays a significant role in negotiations. One might assume that conflicting parties would be more willing to reach agreement if they know they have only so much time. But the opposite is the case. Negotiations conducted under an explicit time limit produce fewer results. We will study this further in order to discover under what circumstances deadlines have a positive impact on negotiations.
Much of the science of economics is based on the Homo oeconomicus, the agent who always makes the best possible decision. How would he react to having to decide on the trot?
Homo oeconomicus is a purely theoretical construct that helps us to understand the decision-making process as such. Given enough time, he will always make the right decision. But this also assumes that time doesn’t cost anything, which of course is seldom the case in the real world. Taking time for thought can result in higher costs. In that case, he would at least weigh these costs against the expected benefits.
Professor Martin Kocher holds the Chair of Behavioral Economics and Experimental Economic Research at LMU and is Speaker for the Munich Experimental Laboratory for Economic and Social Sciences (MELESSA). In October 2013 he begins a sabbatical as a Senior Researcher in Residence at the Center for Advanced Studies, where he will devote his time to working on the project “The Variable ‘Time’ as a Determinant of Individual Decisions”.