Why Americans Can't Think Straight
Baron Jonathan University of Pennsylvania
Rex V. Brown Decision Science Consortium, Inc. Reston, VA
Jane, 30 and single, was living from hand to mouth as an actress and waitress when her father died and left her his life savings. The money was tied up in stock, which he had held for years because of the capital-gains tax he would have had to pay if he sold it. Jane, of course, could sell it without paying the tax, but she did not plan to do so, since the value of the stock had just gone down, and she hoped it would go back up.
A friend asked her, "If you had the money in cash instead of the stock, would you buy the stock at its current price?"
"Of course not," she replied. "I want a safe and steady income to supplement what I earn, and the stock could just as easily go down some more."
"So, if you had a choice between the stock and the cash, you'd choose the cash, right?" Jane saw that this was exactly her choice, and she sold the stock.
Jane at first exhibited a classic fallacy of decision-making called the endowment effect, an irrational tendency to favor the status quo. Yet one apt question enabled her to recognize and correct the problem.
Most Americans, however, never get that kind of help--either in school or in later life. Adolescents become involved in crime, abuse drugs, get pregnant or drop out as a result of faulty thinking. Adults make bad deci____________________