Musings about Leadership, Decision Making, and Competitive Strategy
Monday, April 18, 2016
Risky Business: How Low Self-Control Leads to Risky Choices
New research examines why people with low self-control may make riskier choices. Scholars Uzma Khan, Jayson S. Jia, and Ab Litt conducted a series of experiments related to people's choices that impacted automobile safety, heart disease, gambling, and lung cancer. Prior research has shown that people with low self-control tend to make riskier decisions. These scholars wanted to know why that was the case. What was the mechanism by which these people engaged in riskier behaviors? Here's what they found:
People perceive risk in two main ways: the probability that something bad will happen, and the consequences of those negative outcomes. And through a series of experiments, they found that those with low self-control focus more on the probability and pay less heed to the consequences. For a real-life example, the researchers quizzed people on their health. They found that people with low self-control are more concerned if they are told their probability of contracting heart disease is twice as high rather than if they are told the consequences of heart disease are twice as bad as previously thought. Khan, who studies behavioral judgment and decision-making, found the reverse to be true for people with high self-control, who tend to pay more attention to consequences and less to the probability of a risky outcome. This coincides with previous research showing that high-level executives pay less attention to the probability of negative outcomes. “Because they feel more in control, they think that outside odds don’t apply to them. Their behavior is, therefore, determined disproportionately by the consequence of the outcomes, such as the potential profits,” she explains.
The findings strike me as very interesting. If we were purely rational decision makers, we would think in terms of expected values (probability multiplied by outcome). Not only do we not think in such a calculating way about many choices, but we actually pay more attention to one element of expected value than the other, depending on our self-control. That's a new twist on our prior understanding of how we can be "irrational" with respect to certain choices in life and in business. What's the implication of this research? Think carefully about how you craft messages to different audiences. If you have an audience likely to exhibit low self-control, then focus on probability. If you have an audience with high self-control, then focus your message on consequences: "The outcome of this chain of events is very, very bad. Here's the loss that could result."