We face major crossroads throughout our lives that shape our well-being and satisfaction — whether to quit a job, pursue more education, end a relationship, or change health habits like smoking or dieting. Yet, assessing whether we make optimal choices at these junctures is remarkably difficult. Without the ability to rerun the simulation using alternate realities, how can we know if our decisions were the right ones?

The Limits of Economic Models

Mainstream economics utilizes expected utility theory to model how rational individuals should approach high-stakes choices to maximize personal outcomes. This framework assumes we accurately weigh costs and benefits to select the option with the highest utility. 

However, insights from behavioral economics reveal many deviations from these theoretical frameworks. Cognitive biases like loss aversion, hyperbolic time discounting, and the sunk cost fallacy (among many others) systematically warp our decision-making.

Loss aversion refers to the tendency to overweight potential losses relative to gains of equal magnitude, making us overly cautious. Hyperbolic discounting leads us to excessively discount future outcomes relative to short-term rewards. The sunk cost fallacy causes us to persist with endeavors already heavily invested in, even when rational to cut losses and change course.

A vast amount of literature explores individual judgment under uncertainty, but primarily in low-stakes, laboratory-controlled settings using small gambles and game theory. How well do these findings reflect the complex cognitive and emotional forces shaping our navigation of consequential real-world dilemmas? The evidence remains limited.

A Large-Scale Test of Life Decisions

Seeking fresh insight, economist Steven Levitt conducted a large-scale field experiment. He asked over 20,000 people struggling with major personal decisions to let a coin flip determine their choice to either maintain the status quo or enact change. He recruited subjects through his popular Freakonomics website and podcast and followed up two and six months later to assess resultant happiness.

The findings: “Those who report making a change in follow-up surveys are substantially happier than those who do not make a change. This is true for virtually every question asked two months and six months later. This correlation does not, of course, necessarily imply causality. Those who make a change differ from those who do not make a change on many dimensions.” 

In short, Levitt said, “As a basic rule of thumb, I believe that people are too cautious when it comes to making a change.” 

Limitations and Critiques

While an intriguing exploration, Levitt’s study remains far from definitive. Like all studies on human psychology, this one faced limitations: 

• The sample was self-selected. Participants were drawn from visitors to Freakonomics.com and podcast listeners. This group is unlikely to represent the general population. Their interest in economics and willingness to use a coin flip for advice may reflect personality traits that could skew the results.

• The major life decisions likely varied greatly in their complexity, impact, reversibility, and other factors that could influence the outcomes of change vs. the status quo. 

• The findings rely entirely on self-reported survey data about happiness and whether participants went through with a change. 

• As Levitt acknowledged, unobserved differences between changers and maintainers, such as risk tolerance, may account for some of the outcomes reported by changers rather than the act of changing itself.

• The study cannot determine causality. While changers reported greater happiness on average, we cannot infer that the act of changing caused the improvement in subjective well-being.

Implications for Improving Our Decisions

While this exploration raises intriguing ideas, more rigorous research is required to draw firmer conclusions about decision-making at major life crossroads. However, the findings align with a commonly observed bias: when facing uncertainty, we readily generate potential downsides of change while underestimating the upside. With highly complex and emotionally charged decisions, simple heuristics like Levitt’s coin flip may help counteract our tendency toward excessive caution.

Ultimately, gaps remain in our understanding of how systematic biases and stochastic forces shape our navigation of life’s moments of uncertainty. As we work toward more enlightened frameworks, carefully considering the impact of our psychology when faced with major personal crossroads, whether professional, relational, or health-related, can lead to more courageous and imaginative choices — and possibly a happier existence.