To make better economic decisions, think in a foriegn language

The results suggest that thinking in a foreign language could be greatly beneficial in making decisions in a business setting or in personal finance

Business has become truly global. This has resulted in many more people travelling across the world for work than ever before. But does the foreign setting affect one's business sense? How do they make rational decisions when everything around them is unfamiliar? Researchers at the University of Chicago have found that people make more rational decisions if they think in a foreign language [non-native language]. "We know from previous research that because people are naturally loss-averse, they often forgo attractive opportunities," said UChicago psychologist Boaz Keysar, a leading expert on communication. "Our new findings demonstrate that such aversion to losses is much reduced when people make decisions in their non-native language."

"A foreign language provides a distancing mechanism that moves people from the immediate intuitive system to a more deliberate mode of thinking," wrote Keysar, professor of psychology at UChicago, in the paper, "The Foreign Language Effect: Thinking in a Foreign Tongue Reduces Decision Biases." The paper, which appears in the current issue of Psychological Science, was co-authored by UChicago graduate students Sayuri Hayakawa and Sun Gyu An.

The research participants were taught spanish and asked to place bets. When given the experiment in English, the students thought myopically, researchers found. The students who considered the problem in English focused on their fear of losing each bet, and took the bet only 54 per cent of the time. In contrast, students who did the experiment in Spanish took the bet 71 per cent of the time.

"Perhaps the most important mechanism for the effect is that a foreign language has less emotional resonance than a native tongue," co-author Hayakawa said. "An emotional reaction could lead to decisions that are motivated more by fear than by hope, even when the odds are highly favorable."

The team also tested asymmetry in decision-making, which happens when the same choice is framed either as a gain or a loss. In general, people avoid risk when the question is framed in terms of gains, but they seek risk when the question is framed in terms of losses. This behavior runs counter to economic theory, which states that risk evaluation should be independent of how a situation is described.

Through a series of experiments in Korea, France and the United States, the team showed that asymmetry disappears when a person makes decisions in a foreign language. The students were able to evaluate the choices based on expected outcomes, rather than having their decisions influenced by the different presentation of the problems.

The new findings are relevant to how people in a global society make decisions as more individuals use a foreign language on a daily basis, the researchers wrote. The results suggest that thinking in a foreign language could be greatly beneficial in making decisions in a business setting or in personal finance.

"People who routinely make decisions in a foreign language might be less biased in their savings, investment and retirement decisions, as they show less myopic loss aversion. Over a long time horizon, this might very well be beneficial," the authors wrote.

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