Thinking in a foreign language helps economic decision-making

People are more likely to take favorable risks if they think in a foreign language, the new study showed. "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.

In one of the most telling experiments, they tested native English speakers at the University of Chicago who gained Spanish proficiency in the classroom, in order to see how loss aversion influenced their decision-making. The experiment explored how likely the students were to take attractive bets depending on the language in which they considered their options.

Each participant received $15 in dollar bills, from which they took $1 for each bet. They could either keep the dollar or risk it for the possibility of getting an extra $1.50 if they won a coin toss. So in each round, they could net $2.50 if they won the toss, or get nothing if they lost. The bets were attractive because statistically, the students stood to come out ahead if they took all 15 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 percent of the time. In contrast, students who did the experiment in Spanish took the bet 71 percent 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. So, is it always better to make economic decisions in a foreign language? The team is currently investigating decisions where the opposite is true. "It depends on the role of emotions in the specific situation," Keysar said.

The work was supported in part by the National Science Foundation.