Research shows that our level of numeracy affects the quality of our decisions. When facing complicated personal and public policy choices, those who are good with numbers make better decisions; we need to accommodate those who aren’t.
There is a Pickles cartoon in which the little boy asks Grandpa for help with math homework. The grandfather replies that he can’t help and he’s not ashamed to admit it because ”they say five out of four people have trouble with fractions.” He’s partially right. Findings from the National Adult Literacy Survey confirm that American math skills leave much room for improvement. And Canadians are faced with a sobering decline in their position in the OECD’s global student assessment rankings.
It’s becoming increasingly clear that math deficiencies are not just bad for Grandpa. Many of our broader policy failures — from bursting real estate bubbles to the inability to make proper health choices — can be linked, in part, to poor numeracy. Research shows that numerical ability is an important skill in analyzing choices and making judgments. So while policy-makers increasingly look to market-based policy solutions to problems, we see evidence that consumers do not always have the skills required to navigate these problems. The result is that many policies fail to deliver promised efficiency and welfare gains. In fact, our free-market economy may systematically be creating further disparities in health and finances based on numeric ability.
But all is not lost. Behavioural research shows that presenting numeric information in ways that make it easier to understand and use can help everyone — and particularly the less numerate — to act more effectively. The more numerate we are — whether due to learned skills or better information presentation — the less likely we are to make bad personal choices. That finding may have implications for how we tackle our biggest problems, such as individual health choices that have a cumulative impact on the cost of health care, financial choices that may determine how we live in retirement and judgments about the scientific consensus on climate change.
Numeracy has implications beyond the mastery of numbers. It affects our ability to process what we are being told, evaluate information and make informed choices. In short, better numeracy makes us less susceptible to being manipulated and less likely to be swayed by anecdotes or other nonstatistical appeals for our support.
A powerful example of the role numeracy can play in contributing to threats to national economies is the case of the US subprime market implosion. According to Paul Krugman, these toxic loans were offered primarily to those least able to understand them. A 2001 study for AARP (formerly the American Association of Retired Persons) shows that retirement-age borrowers were three times more likely to hold a subprime mortgage than younger borrowers. Borrowers who were female and older and those who were members of nonwhite minority groups were more likely to hold subprime mortgages than their male counterparts. All these vulnerable groups tend to score lower in tests of numeric ability.
Policy-makers can present information so it is salient, available and less of a cognitive burden.
In a 2006 Maryland Law Review article, legal scholar Lauren Willis quotes a former finance company employee saying that ”finance companies try to do business with blue-collar workers, people who have not gone to college, older people who are on fixed incomes.” The perfect customer, according to Willis’s source, was ”an uneducated widow who is on a fixed income, hopefully from her deceased husband’s pension and Social Security, who has her house paid off, is living off of credit cards, but having a difficult time keeping up with her payments.”
Certainly, women such as the prototypical one described above are likely to have a hard time understanding the risk of a teaser-rate mortgage. But poor number skills exist among women and men and in every demographic group, including the highly educated. Nor are the problems introduced by innumeracy limited to financial questions.
Numeracy skills are also related to the ability to follow doctors’ instructions, such as taking a prescription correctly. In one study, low numeracy was common in patients who took warfarin to reduce stroke risk, and this lower numeracy was associated with poorer control of health problems. Innumeracy has also been associated with a lower likelihood of quitting smoking, more hospital and emergency room visits (among, for example, patients with asthma), and higher hemoglobin A1c levels among diabetics.
The implications for policy-makers are clear. The growing emphasis on improving health and financial outcomes rests on a presumption of informed consumer choices. Yet many individuals lack the skills and knowledge to process this information. Nobel-Prize-winning economist Daniel McFadden concluded in one study, for example, that 40 percent of those enrolled in US Medicare had little or no knowledge of the Part D prescription drug program, and that among those with low socio-economic status, bad health and low cognitive ability, the share deemed to be ”poorly informed” was more than half (54 percent).
Those poor individual choices, when multiplied, carry enormous collective costs.
So if policy-makers can’t fix Grandpa’s math weakness right away, they need to acknowledge the impact of his lower level of numeracy in his decision-making.
One often-proposed solution is to simply provide people with more options and more information to allow for true autonomy and the best decisions. But that approach also has flaws that are rooted in our behaviour. Columbia Business School professor Sheena Iyengaar conducted a famous taste-test study of jam varieties in upscale grocery stores in Menlo Park, California, which she writes about in her book The Art of Choosing. She found that more people did indeed stop at the booth to try a sample when a greater number of jams were offered. But while the greater variety was initially more attractive, more jam was sold when fewer choices were offered. Ultimately, greater choice proved to be less effective in convincing people to choose.
Research by Ellen Garbarino of the University of Sydney and Duke University business professor Julie Edell Britton showed that people making decisions were even willing to pay more for simpler options than for an options palate that required more effort. And my research with -Judith Hibbard, Nathan Dieckmann and others demonstrates that the comprehension and quality of decisions increases as the amount of effort required to process the information decreases. For example, less numerate consumers in one study understood almost 40 percent more information about the quality and cost of a hospital choice when we gave them only quality and cost information compared with when we gave them additional information as well.
Public policies often appear to presume that ”more” (more information, more options) will produce better outcomes. However, in this era of informational access and informational excess, there are reasons to be cautious in adopting such an approach. Keeping it simple by providing consumers with less information in the study described above meant that they chose the highest-quality hospital 62 percent of the time compared with only 40 percent of the time when we gave them a more complex choice. Jack Soll and colleagues at Duke University demonstrated similar effects with understanding of credit card use. They found that simplified credit card statements significantly reduced the tendency among the less numerate to underestimate the size of the monthly payments required to pay off a debt.
Having a more numbers-savvy population would help to increase the quality of decisions that we make. In the short term, policy-makers can present information in ways that make it salient, available and less of a cognitive burden. For long-term success, education and its resulting increases in numeracy and decision abilities may be crucial. We face complicated problems and, in a democracy, we need people to make smarter choices. Helping them do the math is a good place to start.