Coin flip experiments as a measure of status quo bias

That is what the new Steve Levitt paper looks at and it does seem people stick with their current circumstances too much:

Little is known about whether people make good choices when facing important decisions. This paper reports on a large-scale randomized field experiment in which research subjects having difficulty making a decision flipped a coin to help determine their choice. For important decisions (e.g. quitting a job or ending a relationship), those who make a change (regardless of the outcome of the coin toss) report being substantially happier two months and six months later. This correlation, however, need not reflect a causal impact. To assess causality, I use the outcome of a coin toss. Individuals who are told by the coin toss to make a change are much more likely to make a change and are happier six months later than those who were told by the coin to maintain the status quo. The results of this paper suggest that people may be excessively cautious when facing life-changing choices.

Of course not all coin flips turn out the right way.  And furthermore we all know that the control premium is one of the most underrated ideas in economics…

Comments

I didn't go past the paywall, but I did read a bit about this study on The Atlantic, and there was a part of the article that caused my eyebrows to raise slightly.

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"The study does have a few weaknesses. First, Levitt couldn’t observe the people he was studying, so he had no way to verify the truthfulness of their answers. (In some cases, people did agree to find a third party to vouch for their responses.) Also, not everyone who tossed a coin participated in the follow-up surveys to see if they ended up making changes and to report their happiness, so the data is less than complete. Finally, the participants are not necessarily representative of the general population, as a large number of them are Reddit users or Freakonomics listeners.

When I asked Levitt if he expects his unusual study to be published in a peer-reviewed journal, he said, “I hope so.” But even if it’s not published in a journal, it will still be one of his favorite research projects. “Just because it seemed like such a long shot that we would get people to come to the website to toss a coin about something really important to them. I mean, how many economists go on Reddit to get people to participate in their research?” I couldn’t think of any."

-excerpt from "Considering a Big Change? Go for It, Says Evidence From 20,000 Coin Flips" by Alexia Campbell
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It's an interesting concept, but I think I'll hold off a little longer before letting a coin toss tell me to quit my job.

I'd like to apologize for the awful formatting of my previous comment, this is my first time posting here.

Welcome to worst forum posting software on the web!

No, Scott Sumner's TheMoneyIllusion is much worse, Wordpress and small boxes where you can't see your entire post without scrolling.

Does he still have that dot between the day of month and the month, making it look like some weird broken numbering system?

Yep, just checked, still does.

Below I correct the inaccuracies in the abstract, here is a much more accurate version:

Little is known about whether people make good choices when facing important decisions. This paper reports on a large-scale randomized field experiment in which research subjects REPORTING having difficulty making a decision REPORTED flipping a coin to help determine their choice. For important decisions (e.g. quitting a job or ending a relationship), those who REPORT making a change (regardless of the outcome of the coin toss) REPORT being substantially happier two months and six months later. This correlation, however, need not reflect a causal impact. To assess causality, I use the outcome of a coin toss. Individuals who REPORT BEING told by the coin toss to make a change are much more likely to REPORT making a change and TO REPORT THEY are happier six months later than those who REPORT being told by the coin to maintain the status quo.

Here is the accurate summary:

The results of this paper suggest that little is known about whether people make good choices when facing important decisions. We know a little more about what people say about their choices.

Typically pretty high levels of agreement between self-reported happiness and "objective" psychological measures of happiness...

I suppose 'much more accurate' is relative... You also left out this: 'individuals who REPORT BEING told by the coin toss to MAKE A CHANGE also PROVIDED A THIRD PARTY TO CONTACT; when this THIRD PARTY was contacted, the THIRD PARTY ALSO REPORTED that the individuals who REPORT BEING told by the coin toss to make a change MADE A CHANGE and likewise estimated that the INDIVIDUALS REPORTED BEING HAPPIER; contact rates and responses DID NOT CHANGE between groups who were TOLD'.

So no, it's not purely self-report.

You're also wrong about whether the coin flipping is self-report too; the website flipped the coin for them, that's how Levitt knows who got heads and tails - it's right there on pg4. (It would be super silly to let subjects flip the coin themselves for several reasons: it's trivial to implement in Javascript, it removes a major potential for bias, most people don't have a coin sitting around conveniently, and real coin flips are biased anyway.)

To quote Piet Hein:
Whenever you’re called on to make up your mind,
and you’re hampered by not having any,
the best way to solve the dilemma, you’ll find,
is simply by spinning a penny.
No — not so that chance shall decide the affair
while you’re passively standing there moping;
but the moment the penny is up in the air,
you suddenly know what you’re hoping.

I remember reading something similar years ago. Flip a coin and once you have your answer, you'll know how you feel about it, and that will tell you what you really want. There's even an old Mad Magazine strip with a similar theme I remember from at least 35 years ago.

This is actually how I picked what graduate school to go to. I had two good choices, both top programs. There were advantages to each. I was like that donkey caught between two bales of hay, but the deadline for deciding was approaching quickly. Deciding on either school would be better than failing to make any decision at all.

So, heads was school A, tails school B. It came up tails. I experienced regret that it hadn't come up heads. So, I immediately mailed my acceptance to school A.

In the end, was school A the best decision? Life has no control groups, so we won't know for sure. I have no regrets.

Thats what I was thinking, its entirely plausible that both decisions would make you happier, in which case the coin flip predicts nothing

Timely time to toast this tory: http://olivenri.com/machine_won_files/The_Machine_that_Won_the_War01.pdf Asimov, Isaac - The Machine That Won the War

Spoiler: it involves a coin toss. HT: TR

Free market economists sometimes talk about a gold standard or incresing the money supply a constant percentage every year as ways to prevent Central Banks or governments from making disastrous decisions regarding the economy. Maybe deciding public policy by coin toss could be a way to restrict the ability of politicians to make disastrous decisions, period. Think about it, what would be the odds of Hitler getting heads every time he decides to invade a country or imprison a group of people? However, it must be said there is a growing body of research on how to beat the odds in coin tossing.
http://www.dailymail.co.uk/sciencetech/article-1239823/Heads-win-tails--win-You-beat-toss-coin-heres-.html
http://www.conman.com.au/melbournemagicians/7-ways-to-rig-a-coin-toss
http://www.slate.com/articles/health_and_science/science/2015/11/solution_to_coin_flip_paradox_when_to_bet_heads_or_tails.html

I therefore propose that we replace combat between nations to a chess match, Kurt Vonnegut short story style.

I would have imagined that under such a system Russi would dominate the world, but in fact the two mist recent FIDE champions are from India and Norway. I am not sure it makes things better though

Thanks Ray, Asimov's story is great. Sometimes in the job I feel like I'm the guy who manipulates input data and the client is the executive.

"The results of this paper suggest that people may be excessively cautious when facing life-changing choices."

Survivor ship bias, duh! ;) Ok, that's a joke, but it probably is a genetic factor to the average risk tolerance in humans. Since we've made our environment artificially safer, we probably tend to overestimate risk.

Fourth, when it comes to “important” decisions (e.g. job quitting, separating from your husband or wife), making a change appears to be not only correlated with increased self-reported happiness, but also causally related, especially six months after the coin toss.

yikes

(although given Steve's personal life....)

I used to make difficult choices this way. If I couldn't decide between two options, I'd get a coin prepare to flip it, and then the act of choosing which side I wanted it to fall on would reveal which I actually preferred.

(I assume that no fly on the wall would have been whispering "heads" or "tails" to influence the choice in those bygone days before mind-influencing technologies were illegally and widely deployed by rogue agents within the security state.)

When the choices are very close, making a decision is often more important than what decision you make.

If you choose not to decide, you still have made a choice.

I let Rush lyrics guide all my decisions.

Is this study saying that people are excessively cautious, or that risk premiums are greater than the study estimates? Because I think I know.

Discuss how the GDP impact of Brexit can be used to estimate the control premium.

If you've come to the point where you're asking yourself if you should end a relationship, then you should probably end the relationship. Seems like the coin is just giving you permission to do what you know you want to do anyway.

I liked the 2013 'control premium' post. Seems applicable to risk/return relationships among categories of investment, likely promotes a "rearview mirror" approach. Right now, in the aftermath of the worst recession in 80 years, people feel less control overall and, as a result, have less appetite for riskier investments.

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