• Atakan Erdogdu

From Toddler to Adult: How Do We Make Decisions?

We know that not only our brain circuits dictate what we do, but also our cognition and ability to control impulses increase with age. Indeed, there are remarkable changes in behaviour for a given situation over the span of development. For instance, it has been demonstrated that unlike pre-schoolers who mainly use deception to their own benefit, school-aged children increasingly start to use deception to protect other’s feelings. Furthermore, when distributing resources, 8-12-year-olds, compared to toddlers who prefer rewards to be solely given to themselves, are willing to incur costs to avoid unequal outcomes, suggesting that people have a concern for other people’s outcomes – a significant deviation from the predictions of game theory. How can we explain these stark differences? Is the change in behaviour due to prosocial concerns or strategic considerations?

Sticker Experiment: Probing into the minds of children

A recently conducted experiment by Smith, Blake, and Harris (2013) attempted to answer the aforementioned questions. Children, separated into three age groups (3-4, 5-6, and 7-8), were asked to indicate their favourite colours from a choice of 6, received 4 smiley stickers with different odour of that colour and were told that they can share their stickers with another child. Two experimental groups were formed. In the Self-Share group, the number of stickers each child shared with another was recorded; children in the Other-Norm group were asked how much another child should have shared in the same situation.

The figure demonstrates that toddlers (3-4 years old) are much more reluctant to show prosocial behaviour when they have to give up some of their own possessions to benefit another person. In contrast, around 70% of 7-8 year olds were willing to give half of their possessions, suggesting the presence of a developmental increase in costly sharing. The interesting thing is that although all age groups (65% aggregate average) mentioned that equal sharing is ‘what one should do’, the effect of established norms on behaviour was almost absent between the ages of 3-7 years, implying that the developmental change in costly sharing is not caused by the differences in the extent of explicit knowledge about fairness or equality.

What is even more interesting, perhaps humorous, is that it is the toddlers who act in line with the economic theory as they choose to keep all the resources for themselves, thereby fulfilling the definition of self-interested, rational economic man proposed by John Stuart Mill. This might mean that we grow ‘dumber’ in an economic sense or it might also indicate that there are other factors, besides monetary ones, that govern our decisions. We choose to elaborate on the latter.

Social Behaviour: Impulse Control, Perspective Taking, and Identity Building

We have mentioned that people, by definition, are social constructs, in the sense that our decisions are governed not only by our own judgment, but also the judgment of others. Furthermore, in our previous blog on theory of altruism (see here) we have delineated that people have other-regarding preferences, may it be equality for others, following social norms, or looking for social approval. The sticker experiment was of high importance as it captured these seminal, yet overlooked, aspects of decision theory via demonstrating that the effects of these factors on our decisions become more apparent over time. What if we turn out to be socially ‘smarter’, feeling virtuous about our previous actions and creating better conditions for our future economic transactions?

How we are seen and how we want to be seen from the perspective of others can and do affect our decisions. To move from the current towards the desired image, we engage in perspective taking and evaluate our possible future actions from other people’s point of view. If the possible action is not in line with our desired image – which is usually the case for purely monetarily motivated actions – we defer from doing so. This judgment hints the unique influence of perspective taking on behaviour, as its power lies not in the actual consequences it brings, but rather in the prospective consequences it can bring on the individual provided that he/she does not act in accordance with the desired image. This leads the individual to internalize the costs without even engaging in a certain behaviour. Accordingly, for situations in which a selfish behaviour can be punished (may it be monetarily, emotionally, or socially) we tend to choose courses of action that does not deteriorate our built social image, thereby building a social identity.

This is a highly strategic act, both economically and socially, since having a well-regarded social identity can have effects in future transactions. For instance, within institutional economics, the implementation of credible contracting hinges on trust and repeated transactions between counterparties, and there is an abundance of information demonstrating that building a corporate identity does build trust, decrease transaction costs, and expand the opportunity set. A similar argument can be made for individual-level interactions: “Do you remember the difference in treatment towards you and the others when you went to a restaurant where you are known?” This difference was the manifestation of positive effects of built identity.

Reverting back to our sticker experiment, children as early as 3-4yrs were aware of the importance of equality and fairness. Yet, these factors did not have a material impact on their behaviour. How can we account for this? Evidence from neuroeconomics and developmental functional magnetic resonance imaging (fMRI) studies suggest that children at that age have not fully developed the ability control their impulses; therefore, for them the impulse to ‘have it all’ overrides social concerns.

References and Further Readings

Akerlof, G. A. and Kranton, R. E. (2000). Economics and Identity. The Quarterly Journal of Economics, 115(3), pp. 715-753.

Guroglu, B. van den Bos W, Crone E. A. (2009). Fairness Considerations: Increasing Understanding of Intentionality During Adolescence. Journal of Experimental Child Psychology, 104(1), pp. 398-409.

Smith, C. E., Blake, P. R., and Harris, P. L. (2013). Why Young Children Endorse Norms of Fair Sharing but Do Not Follow Them. PloS ONE, 8:e59510.

Williamson, O. (1993). Calculativeness, Trust, and Economic Organization. The Journal of Law and Economics, 36(1), pp. 453-486.

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