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Is ignorance really bliss? Are you sure?

Fall 2014

 

The Morcos Massoud Associate Professor of Accounting and George R. Roberts Fellow Ananda Ganguly and Claremont Graduate University economist Joshua Tasoff recently completed a study that has an interesting conclusion. People, their study says, will go to great lengths to avoid learning unpleasant information and seek out good news, even when it may be completely useless to them.

For part of the study, the two professors surveyed 194 sexually active young adults and offered testing for two forms of the Herpes Simplex virus. Remarkably, subjects were three times more likely to avoid testing for Herpes Simplex 2, the scarier version of the disease, and to forgo the $10 cash payment for their participation. Ganguly shared his findings with CMC Magazine after discussing them during a mid-summer interview on National Public Radio’s “Morning Edition.”

CMC: What did your study teach you about the value of information?

Ganguly: Economists have traditionally thought of information as having value only for its usefulness in decision-making. So, people shouldn’t pay for information that is useless for decision-making because that information has no value to them. Conversely, people should never pay to avoid getting any information, especially since you can theoretically ignore the information you don’t need. However, we find in this project that people will pay for information that is useless, and also pay to avoid receiving information that would be actually useful. Both these preferences are irrational from the point of view of traditional economics. Of course, though, we’re not talking here about educational or entertainment-related information.

CMC: Has there been similar research done that corroborates your fascinating findings?

Ganguly: Information avoidance in particular is well known anecdotally and has been demonstrated in a variety of contexts. Researchers recently found, for example, that people will pay for confidence-enhancing information even when it can’t improve decisions, or pay to avoid information about their attractiveness or their IQ. Most famously, perhaps, economist George Loewenstein and his colleagues found that people checked on the value of their investments far less frequently when the market was doing poorly. The popular press calls this “the ostrich effect.” But what we did in our experiment that’s different is that we demonstrated how a single unified theory of information preferences can explain both of these “irrational” preferences at the very same time.

CMC: Why did you choose health information for this study?

Ganguly: Josh and I struggled with finding a real-life application that people wouldn’t pooh-pooh away as something too arcane and irrelevant to the “real world.” Somehow, maybe because healthcare has been so much in the news lately, we started thinking about healthcare. We settled on this disease that has a high prevalence among college students and test-results for that disease should therefore be economically important in that demographic.

CMC: What are the implications for health and health information?

Ganguly: Well, as researchers, we want to be careful not to overinterpret our findings without specific research. That being said, we can make suggestions. We do have evidence here that raises the question of whether highlighting the negative prognoses of incurable diseases to encourage people to get tested may in fact be counterproductive. As Josh suggested in the NPR interview, our findings may argue for routinization for certain kinds of medical testing.

CMC: What kind of feedback have you received from the NPR story?

Ganguly: The NPR story drew a lot more attention than I had expected. For about two days I was inundated with fascinating emails and phone calls from healthcare professionals from all over the country. One of these phone calls came from Dr. Harvey Kliman of the Yale University School of Medicine. He told me he was “struck like a thunderbolt really” by our study. It turns out that Dr. Kliman and his colleagues have developed a new test that looks at abnormal creases in the placenta from childbirth to evaluate whether the newborn is at increased risk of autism. Although incurable, it appears that behavioral therapies started early can mitigate autism symptoms significantly. Even though this PlacentASD test has received wide media coverage and is now covered by major insurance carriers, he is surprised that there is no major rush to do the test. He now believes that part of the reason may be that the publicity materials they used may have overplayed the negativity of autism spectrum disorders.

CMC: How do these findings impact economics, finance and management?

Ganguly: I think it impacts all economic behavior where information acquisition or usage is an issue. As an accountant, my own focus is on decisions made by users of accounting information, which includes all the data that is recorded or generated in an organization. We teach students that information is useful only if it (1) differentiates between decision alternatives and (2) pertains to the future and not the past. Since information is costly to obtain, managers generally should target their scarce resources only on useful information. But our research suggests that managers may tend to obtain a whole lot of costly but useless information that is expected to show a rosy future. Conversely, managers may avoid obtaining information that is useful but expected to indicate harsh realities. What is worse, our results suggest that the degree of rosiness or harshness of the anticipated future may drive managerial demand for information in ways that are detrimental to the organization and its stakeholders. So, the rosier the expected future, the greater the demand for useless information about it! Conversely, the harsher the expected future, the more the avoidance of useful information.