How Do We Decide?

Inside the 'Frinky' Science of the Mind

By Marina Krakovsky

Baba Shiv
CAKE OR FRUIT?Professor Baba Shiv designs experiments
that untangle when and why we use
different modes of decision making.

Photograph by Olivier Laude

Michal Bortnik, a second-year MBA student, was one of 14 who had arrived on campus before the start of classes to attend Professor Baba Shiv’s intensive week-long elective seminar on “The Frinky Science of the Human Mind.” Bortnik, who had been a computer science major, had no particular interest in psychology or neuroscience; he was there for one reason: He’d heard that Shiv is “awesome.” The award-winning teacher, an associate professor in the marketing area since 2005, didn’t disappoint: In the first session alone, after instructing everyone to call him “Baba,” he took apart a model of the human brain and gave a whirlwind tour of its emotional circuitry, presented the intellectual history of emotions in decision making, and managed to tie it all in with, among other things, emotional branding in Coke and Pepsi TV ads, Best Buy’s problem with product returns, and Google’s $3.1 billion purchase of DoubleClick. Throughout, Shiv wove in research results that he calls “frinky”—not a dictionary word but one his son made up to mean counterintuitive and funky. Case in point: The Shiv study that became fodder for a Jay Leno monologue.

The study, which aimed to see the effect of emotions on making simple investment decisions, examined how well healthy adults performed compared to patients with damage to the emotion-processing regions of the brain. The rules were simple: Participants each got $20 they could use to place $1 bets on 20 tosses of an ordinary coin. Each losing bet would cost $1, while each winning bet would earn $2.50. From a cool-headed distance, the right decision is a no-brainer: Given the payout and the odds of winning, of course you should bet every time. But anyone at all familiar with prospect theory in behavioral economics, developed by legendary psychologists Daniel Kahneman of Princeton and the late Amos Tversky of Stanford as an alternative to theory on expected utility, knows that’s not what most people actually do. Irrationally, we’re risk averse, finding the pain of loss much greater than the pleasure of equivalent gain. And, sure enough, in Shiv’s experiment the healthy participants passed up several chances to place a bet—and, as fear mounted with each subsequent coin toss, were less and less likely to take the gamble. As a result, they earned an average of only $22.80. A typical demonstration of loss aversion? Perhaps, but here’s the frinky part: The Mr. Spock-like (“Vulcan”) patients earned $25.70, on average, because they remained unswayed by the fear of loss throughout the game.

Enter Leno. “If you’ve been banging your head against the wall, frustrated with your investment returns,” he advised on the Tonight Show, you should “keep banging your head against the wall.” Bada-Bang, Bada-Boom. Needless to say, that won’t work, even when you strip away the enormous complexity of real-world investment markets, as this study did. (Nonetheless, for good measure, Shiv and his colleagues — behavioral economist George Loewenstein and neuroscientists Antoine Bechara and Hanna and Antonio Damasio — also had tested patients with other forms of brain damage and found that their performance was about the same as for normal individuals. In other words, blunted emotions are the key.)

But this research doesn’t simply confirm what philosophers from Plato through Descartes and beyond have said about emotions as the enemy of reason. In fact, in the complex world outside the lab, people with impaired emotional circuitry tend to be terrible decision makers. Without benefit of fear, regret, embarrassment, or other visceral cues to guide them, they careen from one poor choice to another, repeatedly failing to learn from their mistakes. What’s more, as Antonio Damasio described in his book Descartes’ Error (and as Malcolm Gladwell further popularized in Blink), these lesion patients are crippled by a bizarre—you might even say irrational—tendency to vacillate over the most trivial decisions, such as which appointment slot to take or which $15 gift (a wallet or a pen) to accept for participating in a study. They’re a little like the proverbial ass who starved to death for failing to choose between two equally good stacks of hay. Compound all this poor decision making by the countless choices our lives demand and it’s clear why life with severely impaired feelings doesn’t work: Humans evolved emotions for good reason.

“The belief in the academic field is that emotions are essential to decision making, otherwise you’ll end up making bad decisions,” Shiv says. “But,” he adds, explaining his huge contrarian streak, “I can show the opposite as well, that brain-damaged patients can make better decisions than normal individuals.”

So what’s going on—are emotions beneficial or detrimental to good decision making? There’s no simple answer except, “It depends.” But on what? In making choices, when is it better to think things through and when should you go with your gut? And given that we have both modes of decision making at our disposal, why do we sometimes give in to our impulses even when we know better, while other times we show more self-control?

These sorts of questions fascinate Shiv, a major player in the field of “decision neuroscience,” the study of how the brain makes decisions. Since becoming interested in the role of emotions in decision making as a doctoral student at Duke, Shiv has sought out a variety of collaborators and just about every research tool available to probe the workings of the human mind as it makes decisions. His findings have not only offered clues to interesting theoretical questions but also given practical insights to marketers and consumers hungry for real-world applications.

Shiv came to Duke after a brief marketing and sales career in his native India, where he earned his MBA in consumer marketing. For his PhD thesis he studied advertising. But his focus gradually shifted, in part through the influence of his dissertation co-advisor Jim Bettman, a leader in the field of consumer decision making. By the time he got his PhD, Shiv was interested enough in decision making and the brain to take a job at the University of Iowa mainly on the strength of its neuroscience program.

Because of the rapid progress in neuroscience over the past decade or so, the field of decision making has boomed as well. “It used to be you could think of decision making as a separate kind of process: There was perception and there was decision making,” explains Stanford psychology professor James McClelland, who heads the University’s multidisciplinary Center for the Mind, Brain, and Computation. “But when you think of the neural mechanisms involved, the boundaries between them start to become more vague. When you open your eyes and you see an object and end up thinking it’s a cup instead of a bowl, that’s a neural process that ended up with one interpretation or another.”

In that sense, all aspects of our daily lives involve constant decisions, whether or not we’re aware we’re making them. Do you put on a bicycle helmet before you hit the road? Do you opt for the salad over the cheeseburger in the cafeteria line? Even quick, often unconscious choices like these can have important consequences, which is one reason scientists studying everything from mental health and addiction to law and public policy are interested in decision neuroscience. And that’s why Shiv and some of his colleagues find the term “neuroeconomics” too limiting, though it’s been used to describe Shiv’s work. “This research applies to all fields where people have to make decisions,” says Bechara, now an associate professor of psychology at the University of Southern California.

One area of particular interest is the interplay between deliberate, analytical processes and the more primitive, visceral paths to a decision, and Shiv has been a pioneer in the growing understanding of these issues, says Bettman, a long-time marketing professor at Duke’s Fuqua School of Business. “Baba did his empirical work early on, before it became a cottage industry as it is now,” he says. “He was one of the first to come up with a nice empirical demonstration illustrating the tug between more automatic or emotion-driven or intuitive processes versus more thoughtful, cognitive processes—the immediate tug of the chocolate cake versus the cognitive tug of the salad.”

Bettman is referring to a 1999 paper based on one of Shiv’s characteristically elegant experiments. Shiv and his coauthor, Alexander Fedorikhin, showed that participants who had been asked to memorize a seven-digit number were much more likely to choose chocolate cake over fruit salad than those who’d been asked to memorize only a one-digit number. Carrying a lighter cognitive load, the one-digit group had more brain power left to resist the lure of the cake.

Shiv has done many such experiments, both in the lab and in more natural in-store settings. But when it comes to deeper questions about emotions, these experiments can take you only so far, Shiv says. For one thing, emotions are by nature fleeting. Not only that, but people have limited insight into their own feelings, so self-reports aren’t a great measure. That’s why Shiv has turned to neuroscience—both through his work with lesion patients and his use of functional magnetic resonance imaging, currently the most precise way of telling which brain regions are active moment to moment during a particular task. “With brain imaging, you can start to get a toehold into how emotions are influencing decision making,” explains Stanford psychologist Brian Knutson, Shiv’s most frequent collaborator on campus.

Not all psychologists are as comfortable with neuroscience research as Shiv is. Sometimes, says Bettman, “the thinking is, ‘Oh my God, somebody’s got to know how to run these machines, there’s a whole different way of analyzing the data, there’s all these brain regions,’ et cetera. But Baba showed that you can work with people in these other disciplines and have partnerships where people bring different things.” Shiv is working with scientists at CalTech, MIT, USC, Carnegie Mellon, Columbia, and elsewhere—and spending any time with him makes it easy to see how he’s attracted so many collaborators. In person, he has an upbeat, big-hearted, genuine way about him, like a favorite uncle who is always interested in your life and eager to talk about new, exciting ideas. “As academics we are many times looking at the negative things,” says Dan Ariely, a behavioral economist at MIT’s Sloan School of Management and a close friend of Shiv’s, “and we have to do it to some level, but many of us have taken it on as a hobby in addition to our work. And Baba …,” he says, pausing to inflect his voice for contrast, “is full of enthusiasm, curiosity, and positivity.” Ariely has identified what he calls a “Baba placebo,” whereby Shiv’s mere presence makes everything around him seem better.

The question of when you should go with your gut remains complicated, but Shiv has an answer, and it hinges on first figuring out your definition of a good decision. “An economist would say there’s a normative answer and the closer you are to the normative answer, the better your decision,” he begins. By “normative,” he means not what normal people actually do, but what they should do if they made optimal choices. In the coin-toss study, for example, the normative answer is to keep investing because the expected value of investing is higher than of not investing. But what about more complex decisions, where each option has pros and cons that can’t be quantified, let alone compared? Take the choice between buying a small house in a great neighborhood but with a long commute versus a larger house close to work but near a noisy freeway. “There’s nothing normative about buying a house,” says Shiv. And most real-world decisions are like that—from choosing between job offers to picking a life partner.

So what do you do when there’s no normatively correct answer? Here, you must use a different yardstick: A good decision is one in which the decision maker is happy with the decision and will stay committed to the decision, Shiv says. And that’s where emotions come in: They’re mental shortcuts that help us resolve trade-off conflicts and, unlike the vacillating Vulcans who can’t even decide between a pen or a wallet, happily commit to a decision. “When you feel a trade-off conflict, it just behooves you to focus on your gut.”

This kind of analysis is typical of Shiv’s approach. “If somebody is greedy, I want to know which part of the brain lights up and why it matters,” he says. “How can I come up with an intervention that will change people’s behavior?” But there’s more.

“Many people in the field of decision making are interested in exploring the ways that people are irrational and some of the implications of this,” says Ariely, who’s written the forthcoming book Predictably Irrational that deals with precisely those themes. And Shiv is interested in irrationality too, but he also wants to know what’s behind it. This deep interest in the underlying process, including what goes on at the brain level, sets him apart from many behavioral economists and others studying irrationality. As Ariely puts it, “Baba has a very high standard for ‘Why?’—and is willing to do lots of experimental manipulations to understand the Why.”

For example, Shiv worked with Ariely (and Ziv Carmon of INSEAD) on a series of studies that found a strange price-placebo effect: When participants bought an energy drink at a discount, they actually performed worse on a puzzle-solving task than participants who had paid full price for the same drink. “It turns out you end up becoming dumber if you buy the product at a discount,” Shiv says. That’s an astounding result in itself, and it also suggests the possibility that drugs bought at a discount, such as drugs from Canada or generic versions of brand-name medications, might be less effective even when they’re otherwise identical. But what’s behind this effect? The answer, it turns out, is our unconscious belief equating low price with low quality—a belief that works even though we know on some level that it’s not always true. “So when you get a drink at a reduced price, global beliefs get involved without you being aware of it.”

Though Shiv is interested in academic questions, he keeps his feet firmly on the ground. “He brings knowledge about which questions really matter to people in the business world,” Knutson says.

 In the “Frinky” seminar, Shiv discusses how decision research might reduce the rate of product returns, a problem that can be, for a chain like Best Buy, the difference between turning a profit and coming out in the red. The key question here is how to get customers not only to buy a product but to stick to that decision. Shiv’s research suggests that product packaging that’s harder to open lowers the return rate from 12 percent to 3 percent because taking time to open a product seems to increase the customer’s commitment. To introduce this idea of perceived commitment, Shiv shares an anecdote from his own corporate career: He tells the class that salespeople at industrial equipment maker Caterpillar, where he worked as a sales engineer in the 1980s, were taught to ask clients to sign a pro forma invoice, a legally non-binding document that increases the chance the customer will eventually sign the real thing.

At the end of each day in the week-long seminar, Shiv asks his students to present ideas for monetizing that day’s teachings. For example, Shiv’s lesson about the value of gut instincts included the idea that quick impressions tend to be as reliable as judgments formed over a long time. So one group of students proposed a “speed-shopping” website to help customers make more satisfying clothing choices. The class liked the idea so much that Shiv offered to put the group in touch with Zappos, the online shoe retailer.

Kelly Sortino, Class of ’08, who was part of that group and is pursuing a master’s in education along with her MBA, sees a personal benefit from Shiv’s teachings. “It seems relatively counterintuitive that complicated decisions would in fact be better served by gut reactions as opposed to logical deliberation,” she says. “This has given me a slightly new take on the big decisions I need to make this year.” Bortnik, her classmate who had started the seminar with no particular interest in psychology, agrees: “Relying more on my gut is going to save me a lot of time and guilt,” he says. He’s further along than he may realize: Choosing the seminar based on Shiv’s reputation was as good a mental shortcut as any.