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Want to Make Better Economic Decisions? Think in a Foreign Language

By Associate News Editor
Reviewed by John M. Grohol, Psy.D. on April 26, 2012

Want to Make Better Economic Decisions? Think in a Foreign LanguagePeople are more likely to take favorable economic risks if they think through a problem in a foreign language, a new study shows.

“A foreign language provides a distancing mechanism that moves people from the immediate intuitive system to a more deliberate mode of thinking,” said author Dr. Boaz Keysar, a professor of psychology at the University of Chicago. The paper, which appears in the current issue of Psychological Science, was co-authored by graduate students Sayuri Hayakawa and Sun Gyu An.

In one experiment, the researchers tested native English speakers at the University of Chicago who gained Spanish proficiency in the classroom to see how loss aversion influenced their decision-making. The experiment explored how likely the students were to take attractive bets depending on the language in which they considered their options.

Each participant received $15 in dollar bills, from which they took $1 for each bet. They could either keep the dollar or risk it for the possibility of getting an extra $1.50 if they won a coin toss. In each round, they could net $2.50 if they won the toss, or get nothing if they lost. The bets were attractive because, statistically, the students stood to come out ahead if they took all 15 bets.

The students who considered the problem in English focused on their fear of losing each bet, and took the bet only 54 percent of the time, according to the researchers. In contrast, students who did the experiment in Spanish took the bet 71 percent of the time.

The researchers also tested asymmetry in decision-making, which happens when the same choice is framed either as a gain or a loss. In general, people avoid risk when the question is framed in terms of gains, but they seek risk when the question is framed in terms of losses. This behavior runs counter to economic theory, which states that risk evaluation should be independent of how a situation is described, the researchers note.

Through a series of experiments in Korea, France and the United States, the team showed that asymmetry disappears when a person makes decisions in a foreign language. The students were able to evaluate the choices based on expected outcomes, rather than having their decisions influenced by the different presentations of the problems.

The new findings are relevant to how people in a global society make decisions as more individuals use a foreign language on a daily basis, the researchers wrote. The results suggest that thinking in a foreign language could be greatly beneficial in making decisions in a business setting or in personal finance.

“People who routinely make decisions in a foreign language might be less biased in their savings, investment and retirement decisions, as they show less myopic loss aversion. Over a long-time horizon, this might very well be beneficial,” the researchers wrote.

Source: University of Chicago

Business man photo by shutterstock.

 

APA Reference
Wood, J. (2012). Want to Make Better Economic Decisions? Think in a Foreign Language. Psych Central. Retrieved on October 25, 2014, from http://psychcentral.com/news/2012/04/26/want-to-make-better-economic-decisions-think-in-a-foreign-language/37855.html