Decisions, Decisions

Here’s another idea from Thinking, Fast and Slow. Daniel Kahneman credits economist Thomas Schelling (author of Choice and Consequence) as the original creator; I’ve slightly altered the  version Kahneman presents in his book. The exercise demonstrates how framing, emotion, and moral values affect how people make decisions, and how this effect flies in the face of rational choice. It can easily be modified  for application in a number of contexts. Here it is:

Present students with two fictional developing countries, A and B. The governments of each country need to collect tax revenue to pay for public services. The governments also decide that taxes on family income will vary according to the number of a family’s dependent children.

The government of country A decides that for adult couples with children, the tax exemption for the wealthy should be larger than that for the poor.

Ask students if they agree or disagree with the decision of government A. They will most likely find it to be highly objectionable.

The government of country B takes the opposite approach and imposes a tax surcharge on adult couples that have no children. It decides that childless adult couples who are poor will pay a penalty that is just as large as childless adult couples who are wealthy.

Ask students if they agree or disagree with the decision of government B. They will most likely also find this highly objectionable.

Then explain that students cannot logically reject both proposals because they are economically equivalent. The only difference between the scenarios is that A presents a childless couple as the default and for B the default is couples with children.

Kahneman points out that responses to questions like these are highly dependent upon how the questions are framed. If I were to introduce some additional but functionally irrelevant detail into one of the scenarios — such as “because wealthy citizens in country A typically invest much more money in their children’s educations than poor citizens” — many people would respond differently.