The outlook for the future is: “More accurate”Posted: Wednesday 10 April 2019 1.10pm
Is it a good time to buy a house? Should an oil company invest millions exploring the Arctic? Both of these decisions are informed by expectations. Anyone who is interested in predicting behaviour should therefore pay attention to the formation and measurement of expectations.
A paper by University of Stirling Behavioural Economist, Dr. David Comerford, experiments with a new way to ask people about their expectations. In this study, Comerford asked people about the chance that they would live to age 75. Whereas the standard approach asks about the percentage chance that they would live to age 75, Comerford tested what happens when people were asked to think about 100 people just like them in every respect and were asked how many of those 100 would still be alive at age 75. Both of these questions ask about the chance out of 100 that the respondent will be alive at age 75, but the percentage chance question delivered less reasonable results than the alternative "frequency" approach.
How is the reasonable-ness of answers measured? "Obviously we cannot not know people's actual chances of dying before age 75", Comerford says, "but we do know what should and should not predict responses. We know that people born in the 1950s are expected to have shorter lives than people born in the 1980s, on average. And we know that life expectancy should not change depending on whether people are asked about “living to” age 75 or dying “at or before” age 75. By each of these tests, the frequency question delivered more reasonable answers.”
This result is consistent with research by cognitive psychologists showing that many people struggle to interpret statistical information that is reported as “x%” but that they cope a lot better with the same information when it is presented in the logically equivalent form “x out of 100”. Let’s hope that this research helps us make better decisions in the future.