Spotlight on Economics: Considering the Complexity of Decision Making
By Cheryl J. Wachenheim, Professor,
NDSU Agribusiness and Applied Economics Department
I like a houseful of children. I cannot help but smile when I hear their infectious laughter and the conversations that stem from yet unbridled imaginations. I love it, until I realize it is dinner time and there are several more children present than I can claim as my own.
I don’t mind cooking, and it is always nice to share our table with friends. What causes me pause is knowing from experience that, as the number of children at our table increases, so do the number of limitations on our meal options.
Each child brings a list of items they “don’t prefer” or cannot eat. In the spirit of compromise, I feel obliged to accommodate them. In the extreme, we reach a point in numbers when satisfying everyone is not possible within the limitations of our kitchen. I am dumbfounded when I realize that accommodating a group with as much in common as these young folks and over which I have the final say exceeds my imagination.
Add, if you will, democracy into the mix. I only need to listen to two children work to agree on a movie to recognize the added layer of complexity that comes with multiple decision-makers. As the discussion evolves, their choice becomes, not about what they want to watch, but rather what they can both agree would not be “too bad” to watch.
In most any context, we find that numbers, heterogeneity and democracy can stagnate decision- making. Groups may reach a decision that is not optimal for anyone, but rather minimizes conflict or reflects the choice of an option that no one has particularly strong feelings against. Sometimes, we are left with no decision being made at all; that is, with the status quo or an externally defined outcome.
The importance of group dynamics in decision-making came to mind as I read the literature about what influences the adoption of conservation practices by farmers and ranchers. As academics, we start with this review to understand the current state of knowledge and the scientific support explaining what led us here. That means I am reading a lot about what others have concluded from their research in an attempt to understand what we know about who adopts conservation practices and what internal and external factors affect this decision.
The literature has identified the role of many such factors. They include those related to farm characteristics, such as size, tenure, crops grown or livestock raised. Also identified are characteristics of the farmer and landowner, such as their attitudes and beliefs about conservation and a wide range of other topics, plus practices currently used. I found in my review that the factors considered have been relatively consistent across studies.
Quickly getting into the stack of papers, I was confident I had read enough to identify them all. I was surprised, however, when I encountered a study that listed spousal influence as an important factor affecting the adoption of conservation practices. I was first surprised because the dozens of independent studies I had reviewed had not considered the influencing role of others. Then my surprise shifted to the fact they had not.
Why? Because we know the influence of others and their role in the decision-making process is important. We cannot effectively model and predict decisions if we exclude this reality. Just as we see in our personal interactions, a team or group outcome is often a compromise from what the involved individuals would have chosen on their own. If it was not, restaurants would not sell so many cheese pizzas.
There already is a relatively rich body of literature on team and group decision-making, as well as how others influence decisions. Such consideration is especially prevalent in the management and marketing literature, but also covers a wide range of other disciplines. An internet search reveals thousands of relevant academic and popular press articles devoted to the subject.
As economists, however, we sometimes ignore this when we ask an individual farmer or rancher, independent of those with whom he farms, lives or shares a community with, about his or her attitudes, beliefs and characteristics and about what decision they would make. Limiting our work to considering only those decisions already made rather than asking their inclinations (what they would do), in part, corrects for this oversight. Unless we ask, however, we still miss understanding how others influenced this decision.
This sometimes results in conclusions that we struggle to explain. When people do not behave as we would expect them to given our model, we have to figure out why. In my case, as an economist, the gap I have to explain is when individuals are not making decisions that maximize long-term profit under whatever constraints exist, such as limited cash flow or their level of risk aversion.
Simplified, there only are two options that explain the gap. Either we missed something in our model (for example, something matters that we did not consider), or the decision-maker does not have the necessary information about his or her options to optimize the decision. We can perhaps go a long way in overcoming the former by including influence of others in the decision-making process as an explanatory factor.
We can learn, for example, the role of spousal influence on the decision to adopt conservation practices. We might find out that, while Jim responds to our query that he is inclined to plant a buffer strip, in the end he does not because one or more from among his spouse, children, neighbors, banker, crop consultant or others, chimed in with their ideas when the decision was ultimately made. If we did not include a query about these influencers when we asked him after the fact if he had a buffer strip, we may not be able to explain why it was not planted.
I wonder how incorporating information about the role of others in making or influencing decisions might have improved our current state of knowledge about conservation practices used by farmers and others. Also, I am renewed in my search for answers about this from the literature and from our own NDSU research. May your day be filled with similar wonder.
NDSU Agriculture Communication – Sept. 11, 2013
|Source:||Cheryl Wachenheim, (701) 231-7452, firstname.lastname@example.org|
|Editor:||Rich Mattern, (701) 231-6136, email@example.com|