Stuck with indecision? Let the coin decide!

Quasi-rational decision makers are loss averse (we value losses more than we value equivalent gains). One of the interesting outcomes of loss aversion is status quo bias. Because changing something entails both a loss (we give up what we were doing before) and a gain (we start doing something new), the change has to make us much better off before we are willing to make the change. Status quo bias keeps us investing in projects that have little chance of success, and keeps us in unhappy relationships, horrible jobs, and so on.

So, what if we could overcome our indecisiveness by outsourcing the decision to a coin? Kind of like this:

Ok, maybe not quite like that. Tim Harford explains in a recent post:

The roll of a die or the toss of a coin can actually help us make better decisions.

There are two quite different reasons for this. The first is that by pre-committing to follow a random instruction, we can end up making decisions that we should have been making all along. The status quo has a strange hold over us. Stuck in a job that we dislike, or with a romantic partner who is anything but romantic, all too often we stick with the devil we know.

Deciding that “if the coin comes up heads, I’ll leave my boyfriend” may be the only way that some of us have to break through the inertia and make tough decisions. A 50 per cent chance of dumping the oaf is better than no chance at all.

Harford goes on to talk about this recent NBER Working Paper (ungated version here) by Freakonomics author Steven Levitt (University of Chicago). I've been meaning to write about this paper for some time - it was covered by Marginal Revolution, Jodi Beggs (Economists Do It With Models), and The Economist Free Exchange blog, all back in August, and has been on my must-read list since.

Why do a study that uses coin tosses to make decisions? Levitt explains in the paper:

What we really care about, however, is the impact on the marginal decision maker. It would not be surprising if getting a divorce would have a devastating impact on the inframarginal married person. A much more interesting question is whether divorce, ex post, will be the right choice for someone teetering on the edge of ending a relationship.

Even if one found such a group of individuals who are close to indifferent between remaining married and getting divorced, an ex post comparison of the happiness of those who do and do not make a change still would not have an easy causal interpretation, because the people who make a change will systematically differ from those who do not on many dimensions. To convincingly answer the question, a researcher would not only need to find large numbers of these marginal individuals, but also, through some sort of randomization, influence their important life choices.

That is what I do in this study. I created a website called FreakonomicsExperiments.com. On the website, individuals who are having a difficult time making a life decision are asked to answer a series of questions concerning the decision they are struggling with... One choice (e.g., “go on a diet”) is assigned to heads and the other choice (in this case “don’t go on a diet”) is assigned to tails. The outcome of the coin toss is randomized and the user is shown the outcome of the coin toss. The coin tossers are then re-surveyed two months and sixth months after the initial coin toss.

What Levitt finds is remarkable. First, people actually do follow the advice of the coin (in at least some cases). Those who flipped heads were 24.9 percentage points more likely to change than those who flipped tails (a statistically significant change). And even better, those who changed were happier afterwards. Levitt notes:

when it comes to “important” decisions (e.g. job quitting, separating from your husband or wife), making a change appears to be not only correlated with increased self-reported happiness, but also causally related, especially six months after the coin toss. Those who were instructed by the coin toss to make a change were both more likely to make the change (as noted above) and, on average, report greater happiness on the follow-up surveys... Choices on “less important” decisions (e.g. dying hair, improving posture) do not generally have a measurable impact on later happiness.

How big was the impact on happiness? People who made a change reported happiness about 0.48 points higher (on a scale of 1 to 10), or about 0.2 standard deviations. When looking at individual decisions, the results are under-powered to find much but do show that the effects appear to be largest for job quitting and breaking up. So, the next time you are agonising over whether to end that relationship or quit that job, maybe let a coin decide.

[HT: Marginal Revolution first, then others]