Feeling Confident About Some Choices

Why do most people feel confident of some choices but question others? Because abstract thinking and concrete thinking determine the theory consumers adopt to interpret their subjective experiences of ease or difficulty during the choice, according to Claire Tsai, MBA ’01, PhD ’07, and Ann McGill, Sears Roebuck Professor of General Management, Marketing, and Behavioral Science.

In their paper “The Effects of Fluency and Construal Level on Confidence Judgments,” (pdf) Tsai and McGill asked 750 subjects to choose a variety of products, manipulating the ease of processing by varying the clarity of print advertisements or the number of thoughts subjects were asked to generate to explain their choices. Ease of choice increases confidence when consumers think concretely about the decision - for example, in making their way through detailed steps to pick one item over others. Consumers interpret smooth processes as evidence of a good pick. However, when people think abstractly about the choice - for example, in finding a way to solve a problem - ease of choice reduces confidence because consumers feel they have not performed sufficient “due diligence” to ensure a good outcome. The research, which has been accepted for publication by the Journal of Consumer Research, was covered by Asian News International.—P.H.


Measuring the True Cost of Innovation

While no one would argue that innovation is bad for the overall economy, it also has a dark side, according to assistant professor of finance Stavros Panageas. Although  innovation expands the productive capacity of the economy, it increases competitive pressure on existing firms and workers, reducing profits of existing firms and eroding the human capital of older workers. And since economic rents from innovation are captured largely by the future cohorts of inventors through the firms they create, existing agents cannot use financial markets to avoid the negative effects of displacement.

In “The Demographics of Innovation and Asset Returns,” (pdf) Panageas and coauthors Nicolae Gârleanu and Leonid Kogan write that while innovation provides a valuable economic boost, it does more good for some than for others, including older firms and older workers - a phenomenon he calls “the displacement effect.”

A Huffington Post story on the research said, “The traditional way of measuring risk and financial returns - using aggregate data - is misleading because it fails to properly account for displacement risk. We need to measure consumption and wealth risk faced by the same cohort of households over time rather than relying on the average, aggregate numbers, which cover both the old and new cohorts of households.”—P.H.


Are You Willing to Bet on a Hot Streak?

Do people expect a rising stock market to continue to rise? Probably yes, if they believe the market has “a mind of its own,” according to research by Eugene Caruso, assistant professor of behavioral science; Nicholas Epley, John Templeton Keller Professor of Behavioral Science; and Adam Waytz. In “The Intentional Mind and the Hot Hand,” (pdf) the researchers note that people can appear inconsistent in their intuitions about the sequence of repeated events. If the agent of a “hot streak” appears to act intentionally (as in a basketball player hitting shots), subjects assume the streak will continue. If the agent does not appear to be acting intentionally (as in betting on a roulette wheel), they assume it will end.

The researchers also measured the subjects’ tendency to attribute human characteristics to nonhuman agents, then showed them graphs of market activity for four stocks over two-week periods. Those with a greater tendency to anthropomorphize were more likely to believe a rise in stock prices would continue, the researchers said.

“This last study has important implications,” said a story about the work on PsychologyToday.com. It cautioned readers, “We must take some care not to ascribe intentions to processes that are really random.”—P.H.

Last Updated 11/19/10