Intuition and exponential growth: bias and the roles of parameterization and complexity

Martin Schonger,Daniela Sele

doi:10.1007/s00591-021-00306-7

Martin Schonger, Daniela Sele

Open Access

https://doi.org/10.1007/s00591-021-00306-7

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Abstract

Exponential growth bias is the phenomenon that humans intuitively underestimate exponential growth. This article reports on an experiment where treatments differ in the parameterization of growth: Exponential growth is communicated to one group in terms of growth rates, and in terms of doubling times to the other. Exponential growth bias is much smaller when doubling times are employed. Considering that in many applications, individuals face a choice between different growth rates, rather than between exponential growth and zero growth, we ask a question where growth is reduced from high to low. Subjects vastly underestimate the effect of this reduction, though less so in the parameterization using doubling times. The answers to this question are more severely biased than one would expect from the answers to the exponential growth questions. These biases emerge despite the sample being highly educated and exhibiting awareness of exponential growth bias. Implications for teaching, the usefulness of heuristics, and policy are discussed.

Highlights

Exponential growth is an astounding and fascinating phenomenon even, or perhaps especially, for the numerate
This article reports on an experiment where treatments differ in the parameterization of growth: Exponential growth is communicated to one group in terms of growth rates, and in terms of doubling times to the other
Subjects are randomly divided into two groups, which are given the information about this exponential growth process in two different frames: The first frame, given to Group R, communicates exponential growth in terms of the growth rate

Summary

Introduction

Exponential growth is an astounding and fascinating phenomenon even, or perhaps especially, for the numerate. The inventor cleverly and seemingly humbly asks for a few grains of rice, the amount to be calculated as follows: a single grain of rice should be placed on the first square of the chessboard, two grains on the second square, four on the third, and so on, doubling the amount with every square, until the final and sixty-fourth square is reached The ruler, believing this to be an exceedingly modest request, accepts without hesitation—only to realize that the entire harvest in his dominion would not be enough to fulfil it: The number of grains needed to fill all 64 squares is 264 1. During the Covid-19 pandemic, exponential growth bias has received both renewed scientific [14, 19] and media [2, 5, 26] attention

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