Consumer Behaviour,Marketing

The perks of having second thoughts

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While intuition can be a valuable tool, it can also deceive us. A new study delves into the reasons why blindly trusting your gut is not the best approach

By Putro Harnowo, Senior Content Manager, China Business Knowledge @ CUHK

Have you ever found yourself in a situation where you made a decision that later turned out to be wrong, but you felt stuck and couldn’t change your mind? It’s like when you confidently solve a math problem, only to realise later that you made a mistake. Or perhaps you bought something you didn’t really need, only to regret it later.

Well, you’re not alone. A new study has shown that this is actually quite common. The way our brain makes decisions is more complex than we thought. Take a classic quiz called the “bat and ball problem” below to understand how people make decisions.

A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

A significant number of participants in the study failed to solve the problem, even after getting the hint that the 10 cents was the wrong answer. In another experiment with the same question, the researchers gave the respondents the correct answer, but many were still stuck with their initial responses. And if you’re struggling too, you may find the answer at the end of this article.

The result of the study showed that our first thoughts can be really strong, and it can be hard to change our minds once we have made a decision.

bat and ball problem
A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

“The biggest takeaway from this research is that initial conclusions can be very sticky, even if they were based on very little thought, and even if there’s simple logic that contradicts them,” says Andrew Meyer, Research Assistant Professor with the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

The study, conducted by Professor Meyer along with Professor Shane Frederick of the Yale School of Management, focused on how our intuition can sometimes lead us astray. So, how can we minimise these misleading hunches?

Two schools of thought

The study titled The formation and revision of intuitions documents Professor Meyer and Professor Frederick’s attempts to investigate methods to encourage reflective thinking and found that incorrect intuition often persists despite an additional reflection. They highlight that sometimes our quick, intuitive thoughts can be tricky, and it’s important to take our time and think things through carefully.

Furthermore, the researchers argue that the human brain has two systems for making decisions: system 1, which is fast and intuitive, and system 2, which is slow and analytical. Unfortunately, system 1 processes often override or corrupt system 2 processes, which means that people often rely on their intuition rather than taking the time to reflect on a problem.

“In other experiments, we told one group of people that a bat cost US$100 and a ball cost US$10, and we asked another group to solve the bat and ball problem for the prices of both objects, which most people said were US$100 and US$10,” says Professor Meyer. “Then, we asked everyone whether the prices differed by US$100.”

In the group that was given both prices, hardly anyone made the mistake of thinking that these two prices differed by US$100. But in the group that generated those two prices themselves, three-quarters went on to try justifying their answers by arguing how they differ by US$100.

“This suggests that once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error,” Professor Meyer explains.

“Once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error”

Professor Andrew Meyer

“The only way we could stop people from giving the erroneous intuitive response was by changing the question so that the easy calculation no longer led to a plausible answer,” he adds. “One takeaway is to expect lots of errors if there is an easy calculation that leads to a plausible answer.”

Practical implications

Dual system theory suggests that both systems work together to help individuals make decisions and judgments. However, the balance between the two systems can vary depending on the situation and individual differences.

This theory can be applied to various fields, including psychology, neuroscience, economics, and decision-making. It has been used to explain a wide range of phenomena, such as cognitive biases, heuristics, and decision-making errors.

“I would expect a lot of these forces to be particularly powerful in financial decision-making, where there are many potential calculations, and easy ones often lead to wrong answers and bad decisions,” says Professor Meyer.

dual system theory
Dual system theory can be powerful in financial decision-making, where there are many calculations and rooms for error.

For instance, if a person borrows US$100 and has to pay back US$10 per month for a year, the total payment would be US$120. Some might think that this is a 20 per cent effective annual interest rate. However, this would only be true if US$120 is paid at the end of the year.

As the borrower has to pay most of it back much earlier, the loan becomes a lot worse than a 20 per cent effective annual rate. Taking into account the impact of compounding – the process of earning interest on the original amount borrowed and the accumulated interest from previous periods – then the effective annual interest rate is actually 41.3 per cent.

“One prediction from the bat and ball research is that people will not only make the initial mistake and think that this monthly instalment plan is a 20 per cent effective annual rate, but persist and continue to make that mistake even if the logic, that the loan is paid back in much less than a year, is made clear to them,” Professor Meyer adds.

Does extra time help?

The researchers believe that solving the bat and ball problem requires deliberate thinking. Those who manage to solve it take much longer time, and solution rates are markedly reduced after imposing time limits or cognitive load. Therefore, in situations where time is limited, the intuitive system may dominate.

“Time pressure greatly reduces bat and ball solution rates, but encouraging people to take extra time has little effect, which is somewhat disappointing” says Professor Meyer.

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Although a previous study suggests that many people can solve the problem intuitively, Professor Meyer is skeptical as the respondents in the previous study answered various modified versions of the problem, and many “intuitive” solutions came from later trials that participants had encountered repeatedly. The researchers believe that it’s crucial to differentiate between intuiting an answer and quickly applying a previously learned solution strategy.

Circling back to solving the ball and bat problem, setting up a simple equation will help. If “x” is the cost of the ball, then the cost of the bat is x + 1 and the total cost is x + (x + 1) = 1.10, or it can be simplified to 2x + 1 = 1.10. After subtraction and division, we get x = 0.05. Therefore, the ball costs US$0.05 or five cents.