Affective Forecasting Errors

Psychologist Daniel Gilbert finds that people tend to erroneously forecast how events will affect their happiness. He argues that people choose to act on the wrong information when they predict, for example, whether they will enjoy a particular vacation spot.

if you actually give people one of these two pieces of information, they more accurately predict their own happiness when they see the random traveler's report [than] when they see the brochure. Why? Because the brochure enables you to simulate what the island might be like and how much you'd enjoy it, but as I've mentioned, these sorts of predictions are susceptible to a wide variety of errors.

On the other hand, another person's report enables you avoid these errors because it allows you to base your predictions on real experience rather than imaginary experience. If another person liked the island, the odds are that you will like it too. There's a delicious irony here, which is that the information we need to predict how we'll feel in the future is usually right in front of us in the form of other people. But because individuals believe so much in their own uniqueness—because we think we're so psychologically different from others—we refuse to use the information that's right before our eyes.

I think that this bias against taking advantage of other people's experience is real. Looking back after I started a commercial web site, I realized that I should have asked other people beforehand what types of Internet businesses were making money and what types were not. In retrospect, it seems like that information would have been obviously helpful to collect, but at the time it did not occur to me to do so.

For Discussion. Gilbert says that "Economic decisions are inherently affective forecasts." Is that a fair statement?