Mental Balancing of Tradeoffs
Posted: 12 Dec 2009
Date Written: December 10, 2009
The concept of tradeoffs, and how one may manage them, is one of the core issues addressed in much of operations literature. While much work has gone into answering how one should manage tradeoffs, there is significantly less understanding of how people actually manage them. Toward developing a positive theory of managing tradeoffs, the current article proposes that people, when faced with a tradeoff, employ mental balancing heuristic wherein they attempt to equate and thus minimize the “imbalance” between the costs/benefits associated with the specific tradeoff. Subsequently, the predictions of the proposed model are examined in three experimental studies.
The results show that a significant fraction of participants make tradeoff choices predicted by mental balancing heuristic. Furthermore, such choices do not arise from any intrinsic preference for the outcome that has balanced costs compared to one which has the least costs, but appear to emerge from participants’ false belief that the heuristic solution is the same as the normatively optimal cost-minimizing solution. Lastly, a novel experimental design offers a more direct examination of a participant’s decision-making process (i.e., how the participants arrived at their tradeoff choices), and it is shown that mental balancing has a predictable and significant effect.
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