Part 2 - Rational Results from Irrational Stakeholders

Part one of this two-part series discussed behavioral economics as a sub-discipline of economics concerned with how people make decisions.  Behavioral economics concepts are furthered by brain imaging research conducted by those in the field of neuroeconomics.  Also in part one, “Choice Architecture” was introduced as a system for improving group outcomes through strategies that help people overcome their natural short term thinking, including suggestions to address NIMBYism and to increase the likelihood of positive stakeholder meetings.  

In part two, I review behavioral economics and neuroeconomics concepts that can assist designers and planners with stakeholder selection of optimal alternatives, stakeholder acceptance of mitigation measures, understanding large scale proposals, and improving long term decision making. (References to the behavioral economics and neuroeconomics work from researchers Tsversky, Kahneman, Thaler, Sunstein, Gilbert, Bar, Peters, Buchel and Ariely appear at the end of the article.)

Conundrum in the Cornucopia of Alternatives
In stakeholder meetings it can become difficult to gain consensus to eliminate alternatives from consideration.  People resist narrowing down a list of alternatives because they become attached to many of the ideas.  This is loss aversion at work. People often want all or many of the alternatives kept on the table, even though in the end, only one or a few can be implemented.  People also resist narrowing down the list of alternatives even though the window of opportunity for some of the best alternatives may be lost while multiple alternatives are still being explored.

Another factor is ownership bias, which applies to ideas as well as tangible things.  People are reluctant to part with ideas, especially their own.  This can make it difficult to take alternatives off the table.

“Choice Architecture” solutions for narrowing down alternatives:

  • Utilize ranking systems to assist stakeholders in focusing on feasible alternatives, but take care to avoid peer pressure that could result in good alternatives being de-selected. For example, the very common “dot” exercise can result in peer pressure as people see others placing dots and are influenced by the opinions of others.  
  • Instead, create evaluation matrices for the various alternatives in order to quantify short and long-term impacts.  This will aid in overcoming exaggerated fear associated with loss aversion, status quo bias and ownership bias.  (As explained in part one, loss aversion is a basic human heuristic: people hate losing something they have, so much so that losing something makes them twice as unhappy as the happiness they experienced when they first obtained that same thing.  Status quo bias is an extension of loss aversion.  People generally try to maintain their current situation, whatever it is, and will put up with significant inconvenience to avoid potential loss presented by change.  Ownership bias results from people’s attachment to the things they have, including objects as well as ideas.)
  • Remind participants of the costs of keeping infeasible alternatives open, including the possibility that some of the best alternatives may be lost if decisions are not made timely.  This approach uses loss aversion as a tool in the process of winnowing alternatives.

  Lowest Common Denominator Why Groups Choose Sub-optimal Alternatives
People tend to make choices based on comparisons of like things, and they tend to avoid trying to compare things that are dissimilar -- the “relativity” heuristic.  People will generally choose the “best” of several similar alternatives, and discard an outlier, which may actually be the best alternative.  Designers and planners need to take great care in structuring proposed alternatives so as to use the relativity heuristic productively.

Choice Architecture solutions to arrive at optimal decisions:

  • Craft the presentation. Ensure that in the range of alternatives being examined, you have not created a likely front runner solely because it is the best of several similar alternatives, leaving a better but “unique” or different alternative as an orphan that will be discarded.
  • Establish clear criteria to eliminate sub-optimal alternatives early in the process.
  • Utilize “mapping” in the stakeholder process – provide overviews of the decision-making process to help participants understand when different levels of decisions will be made.  For example, use a a large flip chart agenda to cue participants as to when 1) ideas will be generated; 2) priorities and preferences will be identified; 3 )preliminary choices will be made;  and 4) final choices will be selected.

In the Eye of the Beholder – “Reasonable” Mitigation Proposals
Stakeholder groups often reject what appear to be reasonable alternatives.  Due to loss aversion, people value the things they have more than they value the things that someone else has.  This is demonstrated by the delta (difference) between what someone is willing to accept in payment for a thing versus what another person is willing to pay for that same thing, also referred to as WTA/WTP.  

Similarly, once a person has a particular object they don’t want to give it up, but if they don’t already have that same object they do not necessarily feel the need to obtain it.  This bias is true to such an extent that losing something makes people approximately twice as unhappy as the happiness they experienced when they first obtained that same thing.

Due to WTA/WTP, if community members or stakeholders perceive that a proposed plan or project will cause a loss to themselves or the community, the mitigation offered must be significantly more valuable than the perceived loss in order to be viewed as equitable.  

Secondly, people care about fairness, so much so that they will decline an offer of free money if they feel the offer is unfair. This has been demonstrated through behavioral economics experiments such as “the ultimatum game” in which one participant (the proposer) will receive a portion of $10 if he or she is able to get acceptance of the offer from the other participant (the responder).  The proposer selects the amount to be offered and the responder must either accept or reject the offer – no other communication is allowed.  If the responder rejects the offer, neither person receives any money.

In theory the responder should accept any offer above zero since the responder will receive nothing if they reject the offer; however, in practice, responders are influenced by “fairness” and will reject offers they deem to be too low, or “not fair.”  Neuroscientists observe through brain imaging that rejection of unfair offers is the result of a strong, negative emotional response rather than a deliberative thought process.  Emotional responses are not likely to be swayed by logic.

Designers and planners should take special care in situations where there seems to be  tradeoffs between people’s welfare that could trigger emotional responses. Two examples: 1) an action that benefits one person at the expense of others; or 2) a situation in which stakeholders believe there are limits to how much someone should be allowed to benefit at a cost to other people.  

The reference heuristic also plays a role in the evaluation of fairness because the current status quo (whatever it is in any given situation) becomes a reference point for the then-current participants to be “entitled” to an existing favorable arrangement.   So for example, changing access or cost of access for current beneficiaries of a public good or service (such as a public park) may be viewed as less “fair” than restricting access or increasing cost of access for those not presently in the equation.

Choice Architecture solutions for presentation and acceptance of mitigation proposals:

•    Establishing value for mitigation:  To overcome the WTP/WTA differential, any proposed mitigation has to be at least twice as good as the status quo to be seen as “equal” to status quo by stakeholders.  For example, if a new building project requires removal of a historic structure, mitigation to relocate that historic structure AND to improve the exterior facade of another historic building might be seen as equitable.  

•    Designers and planners need to take care when crafting mitigation measures to ensure the mitigation addresses anyone who will lose their current rights of access, or who will experience increased costs. Consider grandfathering in those who already have access or a favorable cost structure.  For example, funding building improvements at a community center through increased fees for future residents, while maintaining current fees for those who already participate, may be viewed as more fair than increasing fees for everyone.

•    Take care in structuring proposed mitigation; draft or “frame” mitigation to illustrate fairness.

Too Big to Grasp:  Why Stakeholders Reject Large Scale Proposals
When it comes to public-policy decisions, people exhibit predictable, but seemingly illogical, biases. They value a smaller scale service, such as upgrading emergency medical service equipment more than a larger public good, such as improving disaster preparedness.  Due to the relativity heuristic, human reaction to large dollar amounts or less tangible outcomes is generally less supportive because people generally have little experience to allow them place the large scale alternative in context. Scope insensitivity is a significant factor that must be taken into account in preparing information for public design and planning processes.

Choice Architecture Solutions to Scope Insensitivity:

  • Present large scale proposals as itemized breakouts that include smaller scale specific projects that stakeholders can relate to.
  • Frame each specific project or component as an essential part of the larger scope proposal.
  • Utilize loss aversion to call attention to what will be lost if the comprehensive proposal is not adopted.

Decisions for Today vs. Ten Years from Now
Due to hyperbolic discounting, a.k. a. reward delay discounting, on average people naturally choose immediate rewards over longer term gains.  Bar, a neuroeconomist, observes that immediate and delayed rewards stimulate different parts of the brain, with immediate rewards triggering the brain’s emotional centers, while delayed rewards trigger areas of the brain dealing with reason.  

Emotions related to short term rewards win out disproportionately to reason-centered long term solutions.  For example, if you ask people who are not already committed to a regular exercise regimen whether they want to be healthy they will say “yes.”  If you ask them to pick an activity for today and one for next week, they will elect to PLAN to exercise next week and will select the immediate gratification of watching television or shopping for today. Alternatives that won’t yield results for years or decades are even more challenging due to reward delay discounting.  
Choice Architecture Solutions for Long-Term Decision Making
Expanding on neuroeconomics research by others, Bar postulates on how to counteract reward delay discounting by cueing people to imagine specific desired future events tied to their personal goals.  

According to neuroeconomists Peters and Buchel, when test participants were asked to visualize future events related to their receipt of future rewards, they were much less likely to choose short term rewards over long term goals and rewards.  In preparation for this experiment, individual participants were asked about their personal plans and goals.  Participants provided examples such as  vacations, weddings, education, or social and family events.  When the researchers cued the participants to  imagine one of these  personally relevant future goals or events, the areas of their brains associated with long term memory were activated in addition to the areas of the brain associated with decision making and predictions.  

The key concept for those designing public decision systems is that “appreciating the value of future rewards and the benefit of acting to obtain them relies on our ability to imagine the relevant future.”   

Here is a series of recommendations for designers and planners to help stakeholders focus on long term choices in the design of projects:

  • Survey stakeholders about their future goals that might be supported through your design project (e.g. physical fiss, social interaction, family interaction, etc.)
  • Help stakeholders imagine personally relevant future events and conditions as part of your design or planning process.
  • Help stakeholders visualize the relevant future your plan or project proposes through drawings, photographs, video, computer simulation, etc.
  • Most importantly, make it relevant to the stakeholders’ lives through association with the goals they stated at the outset.

Behavioral economics and neuroeconomics research provide much needed insight into seemingly irrational stakeholder responses and decisions.  Designers and planners can utilize “choice architecture” concepts and methods to obtain improved outcomes that result in more positive and productive stakeholder meetings as well as better long-term decisions. Improved decision making by the stakeholders in the design process results in better designed projects for the long-term.
 

Kathleen M. Fox is a registered landscape architect,  Fellow of the American Society of Landscape Architects, and executive director of the Ohio Cultural Facilities Commission.  A 2002 Loeb Fellow at the Harvard Graduate School of Design, she also holds a graduate certificate in Alternative Dispute Resolution from Capital University Law School and is author of the research paper Utilizing Behavioral Economics to Improve Public and Private Decision Systems in Community Planning and Development.  She can be reached at:  kfox@post.harvard.edu.          

References:

Dan Ariely. Predictably Irrational: The Hidden Forces That Shape Our Decisions. New York:
Harper Collins Publishers, 2008.

Moshe Bar. ”Wait for the Second Marshmallow? Future‐Oriented Thinking and Delayed Reward
Discounting in the Brain.” Neuron 66, 66, April 15, 2010.

Daniel Gilbert. Stumbling on Happiness.  New York:  Vintage Books, 2007.

Kurt Lewin. Field Theory in Social Science: Selected Theoretical Papers. New York: Harper &
Row, 1951.

Moshe Bar. ”Wait for the Second Marshmallow? Future‐Oriented Thinking and Delayed Reward
Discounting in the Brain.” Neuron 66, 66, April 15, 2010.

Daniel Gilbert. Stumbling on Happiness.  New York:  Vintage Books, 2007.

Jan Peters and Christian Buchel. “Episodic Future Thinking Reduces Reward Delay Discounting
through an Enhancement of Prefrontal‐Mediotemporal Interactions.” Neuron 66, 138–148,
April 15, 2010

Richard Thaler and Cass Sunstein. Nudge: Improving Decisions About Health, Wealth, and
Happiness. New Haven, CT: Yale University Press, 2008.


Amos Tversky and Daniel Kahneman. “Judgement Under Uncertainty: Heuristics and Biases.” Science 185 (1974): 1124‐31