What’s Familiar or What’s New? Research on Decision Making Could Lead to More Innovation
When you’re at the grocery store, how often do you pass by the brand of an item you usually buy and try another brand instead? What motivated you to take a chance on something different? Stanton Hudja, an assistant professor of business analytics and strategy at Illinois Tech’s Stuart School of Business, would like to know.
How people make decisions in their daily lives, particularly when they choose to try something new, is the focus of much of Hudja’s research, including a recent paper published in Experimental Economics, titled “Strategies in the Multi-Armed Bandit.”
“Every decision has a sort of trade-off,” he says. “You can always sample a new option when you make a decision. We’re really trying to get at something fundamental in decision making: do you do what’s best in the short term, or do you learn about one of your other options?”
To gather empirical evidence, Hudja and his co-author, Daniel Woods from Macquarie Business School, conducted multi-armed bandit research experiments, which are analogous to a gambler continually choosing between various slot machines, or “one-armed bandits.” In pursuing the biggest payouts, would the subjects in the experiments decide to stick with machines that they had tried most often—that is, the short-term view—or would they take a chance on other machines to see if that would yield higher returns?
Hudja and Woods analyzed a variety of decision strategy models to find out which models fit best with the decision-making behaviors observed in the experiments. As they gathered more data, they developed additional models to fine-tune the results.
There are many applications for this type of research, Hudja notes, with consumer behavior related to trying new products, services, or technologies being common ones. “The research suggests that people tend to ignore new brands and new technologies, some because they might be averse to uncertainty,” he says. His research also has shown that individuals typically discount the potential future benefits of collecting information about unfamiliar options, which takes effort and may or may not pay off.
Hudja draws a connection between research on decision-making and the adoption of innovative approaches and technologies on a much larger scale. “I think the overarching aspect of this research is how to get people to collect information and to innovate,” he says. “We study this at the micro level, but there are huge possible gains for the economy and for society if you have ways to encourage people to try new things.”
