Circuitous Minds and Hearts
By Kathleen O'Toole, Editor

Kathleen O'Toole, EditorThe three of us went shopping together for his final valentine. Would our father’s casket be oak or cherry wood? Should his wake include a rosary or Scripture readings?

As we sat in the funeral home surrounded by the accoutrements of a proper funeral and burial, I was trying to gauge whether Protestants would outnumber Catholics at the wake. Would a rosary service distance our dad’s Lutheran and Methodist neighbors from the Catholics at a time we hoped they would share memories? Would the Catholics of his generation be offended if we didn’t say a rosary?

“A rosary,” my brother said, ending his deliberation very quickly. “Dad was traditional. We should have a rosary.”

Ah, yes. I remembered Dad telling us once that he prayed the rosary three times a day when he was trying to persuade our mother to marry him. But that was 1945, and this is 2007 when ecumenism is more accepted.

And so it went—my brother making quick choices from his gut; my sister and I trying to weigh all the angles. For two weeks after my father’s death, she and I were heavily engaged in the assigned tasks that accompany a family member’s death. My brother helped too, but his approach was different. He wanted, for instance, to have a farmer’s cap placed on Dad’s head before the casket was closed. At the time he mentioned this, I was trying to decide if we needed more than one roll of postage stamps for thank-you cards.

How people make decisions is the primary focus of research by marketing Professor Baba Shiv, whose counterintuitive findings are featured in this issue. We also have research by marketing Professor Uzma Khan on shopping as a two-stage decision-making process, and finance Professors Peter DeMarzo and Ilan Kremer show how economic bubbles take on hot air from perfectly “rational” decision makers investing in risky long-shots. No decision is more complicated, however, than choosing a life partner who must also choose you. Our article on online dating websites provides perspectives on why algorithms have become decision aides to customers of these matchmaking companies.

If all this decision talk leaves your head spinning, consider Baba Shiv’s insight that most decisions are not objectively right or wrong. If you are satisfied with your choice, it was a good decision.

Whether Dad’s decision to pray rosaries helped his courtship or not, Mother eventually decided to marry him. Unwittingly she picked the first day of hunting season for the wedding. Dad later explained his decision not to point out her social flub: “I went hunting ducks that morning, but I got to the church on time,” he said. “It was the best decision I ever made.” (About This Issue)

Read Stanford Business Magazine, February 2008 Online

How Do We Decide?
Inside the 'Frinky' Science of the Mind

By Marina Krakovsky

Michal Bortnik, a second-year MBA student, was one of 14 who had arrived on campus before the start of classes to attend Professor Baba Shiv’s intensive week-long elective seminar on “The Frinky Science of the Human Mind.” Bortnik, who had been a computer science major, had no particular interest in psychology or neuroscience; he was there for one reason: He’d heard that Shiv is “awesome.” The award-winning teacher, an associate professor in the marketing area since 2005, didn’t disappoint: In the first session alone, after instructing everyone to call him “Baba,” he took apart a model of the human brain and gave a whirlwind tour of its emotional circuitry, presented the intellectual history of emotions in decision making, and managed to tie it all in with, among other things, emotional branding in Coke and Pepsi TV ads, Best Buy’s problem with product returns, and Google’s $3.1 billion purchase of DoubleClick. Throughout, Shiv wove in research results that he calls “frinky”—not a dictionary word but one his son made up to mean counterintuitive and funky. Case in point: The Shiv study that became fodder for a Jay Leno monologue.

The study, which aimed to see the effect of emotions on making simple investment decisions, examined how well healthy adults performed compared to patients with damage to the emotion-processing regions of the brain. The rules were simple: Participants each got $20 they could use to place $1 bets on 20 tosses of an ordinary coin. Each losing bet would cost $1, while each winning bet would earn $2.50. From a cool-headed distance, the right decision is a no-brainer: Given the payout and the odds of winning, of course you should bet every time. But anyone at all familiar with prospect theory in behavioral economics, developed by legendary psychologists Daniel Kahneman of Princeton and the late Amos Tversky of Stanford as an alternative to theory on expected utility, knows that’s not what most people actually do. Irrationally, we’re risk averse, finding the pain of loss much greater than the pleasure of equivalent gain. And, sure enough, in Shiv’s experiment the healthy participants passed up several chances to place a bet—and, as fear mounted with each subsequent coin toss, were less and less likely to take the gamble. As a result, they earned an average of only $22.80. A typical demonstration of loss aversion? Perhaps, but here’s the frinky part: The Mr. Spock-like (“Vulcan”) patients earned $25.70, on average, because they remained unswayed by the fear of loss throughout the game. ...

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The Stanford Graduate School of Business (also known as Stanford Business School or Stanford GSB) is one of the professional schools of Stanford University, in Stanford, California. It is one of the leading business schools in the United States.

The Stanford Graduate School of Business offers a general management MBA degree and thus does not offer degrees in specialized areas such as finance or marketing, although it does offer certificate programs in public management and global management. The school also offers the Sloan Master's Program, a full-time ten-month MS in Management for accomplished mid-career executives and entrepreneurs, and a Ph.D. program. The school also offers a number of dual degrees jointly with other schools at Stanford University including Education, Engineering, Law and Medicine. (Wikipedia.org)

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