Why We Choose Wrong

Behavioral Economics for Better Everyday Decisions

Introduction: The Choices We Make Without Noticing

Every day you make a great many decisions. Most of them are small. Which line to stand in at the shop. Whether to answer a message now or later. What to eat for lunch, which route to take home, whether to say yes to one more task. A few of them are large: a new job, a move, a big purchase, a promise to another person. Large or small, these choices shape the life you actually live.

For a long time, many economic theories described people as careful calculators. In those theories, a person looks at every option, weighs the costs and benefits correctly, and picks the best one. It is a tidy picture, and it is useful for some purposes. But when researchers began to watch real people make real choices, they found something more interesting. People do not usually choose at random, and they are not foolish. Yet they make mistakes in the same directions again and again, in ways that can be predicted.

The field that studies these patterns is called behavioral economics. It brings together economics, which asks how people use money, time and other limited resources, and psychology, which asks how the mind works. Its findings are not about other people being silly. They are about all of us: students and grandparents, shop owners and nurses, people who are good with numbers and people who are not.

This book explains the most important of these patterns in plain language. Each chapter takes one of them: why losses hurt so much, why the first number we hear stays in our heads, why the words used to describe a choice can change what we pick, why we keep going with things we should stop, why "later" always seems like a better time to start, and more. For each pattern, I explain what researchers have found, how strong the evidence is, and how it shows up in ordinary lives.

I also try to be honest about the limits of this science. Behavioral economics is a young field, and some of its early, famous results have not held up when other researchers repeated the studies. Other findings have been confirmed many times. Where the evidence is strong, I say so. Where it is mixed, I say that too. A book about better decisions should not ask you to believe more than the facts allow.

How to Use This Book

Each chapter follows the same simple path. It begins with an everyday moment of choice. It then explains the idea behind that moment, gives a few examples from different kinds of lives, and offers practical steps you can try. Each chapter also includes a short exercise, answers to questions that readers often ask, and a brief summary at the end. You can read the chapters in order, since later chapters sometimes build on earlier ones. You can also open the book at whichever chapter matches a decision you are facing now.

The people in the examples are imagined. Their names and situations are invented, but the kinds of choices they face are common in many places and at many ages. You may recognize yourself in some of them. That is the point. The patterns in this book are not signs of a weak mind. They are part of how every human mind works.

You will get the most from this book if you try the practical steps on real decisions. Keep a small notebook, or a note on your phone, and write down one decision each week: what you chose, why, and how it turned out. After a few months, you will start to see your own patterns more clearly than any book can show them to you.

Please keep one more thing in mind. For important decisions about your money, your health or your legal affairs, talking with a qualified professional is a wise step. If you are going through a very hard time and feel unable to cope, please reach out to someone you trust or to a professional, and if you are ever in danger, contact your local emergency services right away.

Now let us begin with a simple question: if people are so clever, why do we so often choose wrong?

Chapter 1: Why Smart People Make Poor Choices

An Ordinary Saturday

Nadia is twenty-nine and works in a bookshop. She is good at her job. She can find a half-remembered title from three words of description, and she handles the shop's accounts without a single error. On a quiet Saturday morning, she decides to buy a new toaster, because the old one burns one side of the bread.

She opens her laptop and starts comparing. There are dozens of toasters. Some have two slots, some have four. Some have a button for frozen bread, some have a button for bagels, some have a small window so you can watch the bread brown. She reads reviews, then reviews of the reviews. An hour and a half later she has a headache, eleven open pages and no toaster. She closes the laptop and tells herself she will decide tomorrow.

That afternoon she walks past a gym. A smiling young man at the door offers a special price on a one-year membership, valid only today. Nadia has not been to a gym in three years. She signs up in four minutes. In the evening, her manager calls and asks whether she could work an extra shift on Sunday. Nadia had planned to visit her sister. She hears herself say, "Yes, of course," and only after she hangs up does she feel annoyed.

Nadia is not foolish. She is intelligent, careful and responsible. Yet in one day she spent ninety minutes on a small decision and failed to make it, spent four minutes on a large decision and probably made it badly, and agreed to something she did not want because saying yes was easier than saying no. If you recognize something of yourself in her Saturday, you are not alone. Almost everyone has days like this. The interesting question is why.

The Perfect Chooser Who Never Existed

For much of the twentieth century, many economic theories were built on a simple picture of a human being. In this picture, a person is a perfect chooser. When they face a decision, they know all the options. They know what each option will cost and what it will bring. They know exactly what they want, and what they want does not change from one hour to the next. They weigh everything correctly and choose the option that gives them the most benefit. In this book I will call this imagined person the rational chooser.

The rational chooser is not a silly idea. Economists did not believe that every real person calculates like a machine. They used the picture because it made their models simpler, and because in many markets the picture works reasonably well on average. If the price of bread goes up a great deal, people buy somewhat less bread. You do not need a deep theory of the mind to predict that.

But the rational chooser has some strange features when you look closely. The rational chooser would never spend ninety minutes on a toaster and then give up, because the time spent has a cost too. The rational chooser would never sign up for a gym out of a sudden good feeling, because they would think about how often they will actually go. The rational chooser would never agree to a shift they did not want simply to avoid an awkward moment. And the rational chooser would never feel that the same decision is right in the morning and wrong in the evening.

Real people do all of these things. We get tired. We forget. We are moved by the words someone uses, by the first number we hear, by what our friends are doing, by how a choice is arranged on a page. We care more about avoiding a loss than about gaining the same amount. We put things off. We feel very sure about things we have not checked. None of this means that people are stupid. It means that the rational chooser is a useful simplification, not a description of how human minds work.

There is also a deeper problem with the rational chooser. It assumes that every person always knows what they want. But much of the time, our wants are unclear, even to ourselves. We discover what we like by trying things. We change our minds when we learn more. We want one thing today and another tomorrow, and both wants are sincere. A theory that starts from fixed, clear wants will miss a great deal of what makes decisions hard. Behavioral economics does not throw the older theories away. It adds what was missing: a real human mind, with its strengths and its limits.

Good Enough: The Limits of Time and Attention

One of the first thinkers to take these limits seriously was Herbert Simon, a scholar who worked across economics, psychology and the study of organizations in the middle of the twentieth century. Simon pointed out something that sounds obvious once it is said. Real people do not have unlimited time, unlimited information or unlimited attention. They cannot check every option, because there are too many. They cannot predict every result, because the future is uncertain. So they do something else.

Simon called the real way people think bounded rationality. The word "bounded" means limited, as a field is limited by its fences. Within those limits, people are often quite sensible. They use simple rules, they rely on experience, and they stop searching when they find something that will do. In the 1950s, Simon even made up a word for this last habit: satisficing, a mix of "satisfy" and "suffice". To satisfice is to choose the first option that is good enough, rather than searching forever for the best one.

Satisficing is not a failure. In many situations it is exactly the right way to choose. If Nadia had decided that any toaster with two slots, a reasonable price and decent reviews would do, she could have bought one in ten minutes and spent the rest of the morning with a book. The "perfect" toaster would hardly have made her life better than a good enough one. In that small decision, her mistake was not that she was lazy. Her mistake was that she tried to be the rational chooser in a situation where nobody can be.

Simon's idea opened a door. If people are limited, then the interesting question becomes: what shortcuts do they use, and when do those shortcuts lead them wrong? A mental shortcut of this kind is called a heuristic. It is a simple rule the mind uses to decide quickly, often without our noticing. "Buy what you bought last time." "Go where the crowd is going." "If it is expensive, it is probably good." Most of the time, heuristics serve us well. Sometimes, in predictable ways, they do not.

It is worth seeing how natural these shortcuts are. A traveller who arrives hungry in an unfamiliar neighbourhood may choose the restaurant with the most people inside, on the reasonable guess that so many people cannot all be wrong. A parent buying medicine for a child's cold may choose the familiar packet from the shelf, because it worked last time. A student facing a test with no time left may pick the longest answer, on the guess that it contains more detail. Each of these shortcuts saves time and effort. Each is often right. And each can sometimes lead to a poor result, when the full restaurant is simply the cheapest one, when the familiar packet is no longer the best choice, or when the longest answer is the one written to trick careless readers.

Mistakes With a Pattern

In the 1970s, two psychologists began a long series of simple experiments. They asked people questions about chances, numbers and choices, and they paid close attention to the wrong answers. What they found was that the wrong answers were not scattered at random. People made the same kinds of mistakes again and again, in the same directions. These predictable directions of error are called biases.

The word "bias" here does not mean prejudice against a group of people. It means a tilt in our judgment, like a table that is not quite level, so that a ball placed on it always rolls toward the same side. If you know which way the table tilts, you can predict where the ball will go. In the same way, if you know which way a bias tilts our thinking, you can predict the kind of mistake people are likely to make, and you can sometimes prevent it.

Over the following decades, economists and psychologists worked together to study these patterns in real markets and real lives. This shared work became known as behavioral economics. It looks at how people actually save and spend, how they choose jobs and schools, how they respond to prices, rules and forms. Its central message is simple. People are not perfect calculators, but they are not random either. Their errors have shapes, and those shapes can be studied.

This is good news. If our mistakes were random, there would be little we could do about them. Because they are predictable, we can learn to recognize the situations where they appear. We can slow down at the right moments. We can arrange our surroundings so that the better choice is the easier one. And we can be kinder to ourselves and to others when mistakes happen, because we understand that they are part of being human.

In the chapters ahead, you will meet the best known of these tilts one by one. Some are about numbers: the first number we hear, or how we feel about gains and losses. Some are about time: why we favour today over tomorrow, and why our plans take longer than we expect. Some are about other people: how we follow the crowd and how a first impression colours everything after it. And some are about our own state: how hunger, tiredness and strong feelings change what we choose. Together they make a kind of map of the places where good minds tend to slip.

Three Lives, Three Patterns

Consider Kofi, who is sixteen and must choose which subjects to study for his last two years of school. He likes drawing and he is curious about chemistry. But his three closest friends are all choosing business studies, and when he imagines sitting alone in a classroom of strangers, his stomach tightens. He chooses business studies. Kofi is not making a thoughtless choice. He is using a very old and often useful shortcut: when unsure, follow the people you trust. The difficulty is that his friends are choosing for their own reasons, not for his.

Now consider Ilse, who is seventy-two. For eleven years she has paid for the same telephone plan. It was a sensible plan when she chose it, but prices have changed and her habits have changed. She now uses her phone mostly for short calls to her grandchildren. A cheaper plan would suit her better. Every few months she thinks about switching, and every time she puts it off. Switching means forms, long waits on the telephone and the small worry of doing something wrong. Keeping things as they are means doing nothing at all. Later in this book we will see that this pull toward the present state of things is one of the strongest forces in human decisions.

Finally, consider Ravi, who is forty-five and runs a small café. Two years ago he bought an expensive coffee machine. It has never worked well. It breaks down every few weeks, and the repairs cost more each time. A good second-hand machine would cost less than a year of repairs. Yet Ravi keeps paying for repairs, because he cannot stand the thought that all the money he spent on the expensive machine would then be "wasted". This feeling, that we must keep going so that what we already spent was not for nothing, has a name too, and it has its own chapter in this book.

Kofi, Ilse and Ravi are very different people. Their ages are different, their lives are different, and their choices are different. Yet each of them is pulled by a pattern that researchers have studied carefully. None of them lacks intelligence. Each of them is simply being human in a situation where the human mind has a known tilt.

And Nadia, the bookseller from the beginning of this chapter? Her Saturday contained at least three patterns at once. Her toaster search shows how too many options can freeze us. Her gym membership shows how a time limit and a friendly face can rush a large decision, and how easily we imagine a future self who is more disciplined than the one we actually are. Her extra shift shows how strong the pull of the easy "yes" can be, especially when someone with power over us is asking. By the end of this book, you will have names for each of these patterns, and some practical ways to meet them.

How Strong Is the Evidence?

Before we go further, I want to be honest with you about the science in this book. Behavioral economics has produced many important findings, and some of them have been confirmed so many times, in so many settings, that we can rely on them with confidence. But the field has also had some painful lessons.

Over the past years, researchers in psychology and related fields began to repeat famous studies carefully, often with many more participants than the original studies had. Repeating a study to see whether its result appears again is called replication. When a result appears again, we say it has replicated. Some famous results did replicate. Others turned out to be much weaker than first reported, and a few seem not to exist at all. This period of checking and rechecking is sometimes called the replication crisis, and it has made the whole field more careful.

What does this mean for you as a reader? It means that you should be a little suspicious of any book, article or talk that presents a surprising finding about the mind as a settled fact, especially if it promises that a tiny trick will change your life. In this book, I will tell you when a finding is well established, when its size varies from situation to situation, and when the evidence is mixed. I will not give you invented numbers or exaggerated claims. Where I describe a classic experiment, I describe how it was done, not a list of percentages.

Here are a few simple questions you can ask whenever you meet a claim about how people decide. Was the result found once, or many times by different groups of researchers? Was it found in real life, or only in a short laboratory task? Is the claimed effect large and dramatic, or modest? Does the person making the claim want to sell you something? None of these questions proves a claim right or wrong. But they help you hold surprising claims a little more loosely until the evidence is clear.

It also means something more hopeful. The patterns that have survived years of careful checking are robust, which means they appear again and again even when the details change. Those are the patterns most worth knowing, because they are the ones you are most likely to meet in your own life. Most of this book is about them.

Practical Steps

Here are a few steps to begin with. They are simple, and you can try all of them this week.

First, sort your decisions by size. Before you start choosing, ask yourself how much this decision really matters. Will it make a real difference to your life in a month, a year or five years? For small decisions, give yourself permission to satisfice. Set two or three simple conditions for "good enough", and take the first option that meets them. Save your time and attention for the decisions that deserve them.

Second, notice the speed of large decisions. If you find yourself making a big choice very quickly, especially under time pressure or with a salesperson smiling at you, treat the speed itself as a signal. A sensible rule is to wait at least one night before agreeing to any large commitment that you did not plan to make that day. If an offer is truly good, it is usually still good tomorrow, or a similar one will come again.

Third, look for the easy "yes". Many of our poorer choices happen because one answer is simply easier to give in the moment. When you feel yourself about to agree to something, take one breath and ask: "Am I saying this because I want it, or because saying no feels uncomfortable?" You do not have to change your answer. You only have to notice.

Fourth, start a decision notebook. Once a week, write down one decision you made. Note what you chose, what you expected, and what you were feeling at the time. Later, add a line about how it turned out. This simple habit lets you see your own patterns, which are more useful to you than any general rule.

Fifth, be curious rather than harsh. When you catch yourself in one of the patterns described in this book, try saying to yourself, "Interesting, there it is again," instead of "How stupid of me." Curiosity helps you learn. Harshness mostly makes you want to stop looking.

Sixth, ask for a second view on decisions that matter. Our own tilts are hard to see from the inside, in the same way that it is hard to see the back of your own head. A friend, a family member or a colleague who is not caught up in the decision can often notice a pattern that you miss. Choose someone who will be honest with you rather than someone who will simply agree.

A Short Exercise: A Map of Your Week's Decisions

This exercise takes about twenty minutes, spread over one week. Its aim is to help you see where your own time and attention go when you decide, and where they might be better spent.

Take a sheet of paper and draw three columns. Label the first column "Small", the second "Medium" and the third "Large". During the coming week, each evening, write down three or four decisions you made that day and place each one in the column that fits it. A small decision is one that will make little difference in a month, such as what to cook or which shirt to wear. A medium decision is one that matters for weeks or months, such as which course to sign up for or whether to accept an invitation to help with a project. A large decision is one that may matter for years, such as a change of job, a move or a long commitment to another person.

Next to each decision, write two short notes. The first note is how long you spent deciding: a moment, a few minutes, an hour or several days. The second note is how you decided: by habit, by asking someone, by comparing options carefully, by following a feeling or because someone else pushed you.

At the end of the week, look at the whole sheet. Many people discover something surprising. They spent a long time on several small decisions and very little time on one or two medium or large ones. Others find that most of their decisions were made by habit, which is often perfectly fine, but sometimes means that an old habit is making choices that no longer suit their life.

Then ask yourself three questions. Which small decisions could I make faster, by choosing a simple "good enough" rule? Which medium or large decision deserved more of my attention than I gave it? And was there a moment this week when I said yes mainly because saying no felt uncomfortable? You do not need to change anything yet. Simply seeing the map is the first step. Keep the sheet, because several later chapters will ask you to look at your decisions again with new questions.

Questions People Often Ask

"If my mind has all these tilts, can I ever trust my own decisions?" Yes, most of the time. The patterns in this book are tendencies, not commands. They push our judgments in certain directions, but they do not make every decision wrong. Most of your everyday choices are good enough, and many are very good. The aim of this book is not to make you doubt everything you do. It is to help you recognize the particular situations in which a second look is worth the effort, so that you can relax about the rest.

"Are some people free from these patterns?" Nobody seems to be completely free from them. Some people are less affected by some patterns, especially in areas where they have long experience and clear feedback, as we will see in the next chapter. People who are comfortable with numbers tend to be less affected by certain kinds of number tricks. But studies with experts, highly educated people and people who know about these biases have often found that they are affected too, sometimes only a little less than everyone else. Knowing about a bias is helpful, but it is not a shield. Habits and good surroundings help more than knowledge alone.

"Is it not better simply to trust my gut?" Sometimes it is. Your gut, or your quick feeling about a choice, often contains real wisdom drawn from experience. In familiar situations, with a long record of trying and learning, it can be an excellent guide. The difficulty is that your gut feels just as sure in unfamiliar situations, where it has little experience to draw on. A good approach is to listen to your gut, then ask whether this is the kind of situation where it has earned your trust. If it is, give it weight. If it is not, let it be one voice among several, rather than the final judge.

Chapter Summary

Older economic theories often pictured people as perfect choosers who weigh every option correctly. Real people have limited time, information and attention, so they use mental shortcuts, called heuristics, and they often stop at the first option that is good enough, which Herbert Simon called satisficing. Most of the time this works well.

But our shortcuts also lead us wrong in predictable directions, called biases. Behavioral economics studies these patterns in real lives. Some of its early findings did not hold up when they were repeated, so it is wise to trust the patterns that have been confirmed many times and to stay cautious about surprising claims.

Knowing your own patterns is the first step toward better decisions. In the next chapter, we look at the two different speeds at which the mind thinks, and at why the fast one so often answers before the slow one has even started.