When do you know you have enough information to make a decision?

So much depends, of course, on the nature of that decision. Ordering lunch? That’s fairly low stakes, and a few quick questions of your waiter will suffice. Choosing the CEO of your next organization? Yeah, that’s going to take more research.

But interestingly enough, according to a new study, we’ll work harder to gather more information about the very same decision if it is framed as a responsibility as opposed to an opportunity—with implications for politicians, marketers, and more. Today, we’ll discuss.

Plus, an unexpected answer to the question: If you had an extra $500 in your checking account, what would be a rational thing to do with it?

What’s your mindset?

Broadly speaking, we can approach a decision with one of two mindsets. We can 1) be driven to achieve a goal because it offers a chance for self-advancement—a gain—or 2) be driven to fulfill our obligations, thus considering what we might lose if we make a bad decision. (We’ve covered these mindsets previously in Insight. For more, you can check out this webinar.)

Across three studies, Kellogg researchers Galen Bodenhausen and Michalis Mamakos found that framing a decision around losses (e.g., here’s what’s at stake if you botch this task) leads participants to be more risk-averse, with participants choosing to gather more information even when it is costly to do so. Interestingly, this holds even when the new information might contradict their beliefs—such as when participants are choosing to learn more about a political candidate in their preferred political party (knowing full well that some of that new information might not please them).

This insight here—for political candidates, marketers, and leaders alike—is that there are ways to nudge people to slow down and do more research, even in situations where your message isn’t particularly welcome. You can read more about the studies in Kellogg Insight here.

When a pantry doubles as a hedge fund

Okay, about that extra $500 sitting in your checking account. What would be a rational thing to do with it? Invest it in the stock market? Stick it in your savings account?

But there’s another form of “investment,” one that can yield returns (in the form of cost savings) exceeding 20 percent, and sometimes as high as 50 percent, a rate competitive with top-performing hedge funds. (And no, I’m not collecting a commission on this, guys!)

According to new research from Kellogg’s Scott Baker and his colleagues Stephanie Johnson and Lorenz Kueng, “investing” surplus cash in an inventory of common household consumables, like canned goods or toilet paper, can be a pretty smart strategy, particularly for lower-income households.

Baker and his colleagues drew on Nielsen data, which tracks the purchasing patterns of roughly 60,000 households—“grocery items, pharmacy items, basically most things with a barcode,” he says. By aggregating these consumption patterns over time, and by matching them against other financial data like household income, the researchers could construct a reasonable picture of which kinds of products were “invested” in as inventory.

1. Taking fewer shopping trips and buying in bulk in order to reduce prices.
2. Making more-frequent trips to multiple stores in order to take advantage of any temporary sales or deals that may be in effect.

According to Baker, households “trade off between these mechanisms of savings” to optimize the return on their household inventory.

And it turns out that not having to pay whatever the corner store is charging for, say, toilet paper that day can lead to some hefty savings, particularly for households with the lowest levels of working capital. For example, consider this scenario: if a lower-income household spends about $5,000 per year on consumable goods and holds $250 worth of cash and inventory as its “household working capital” at any given time, the marginal return—that is, the return on investing additional money into inventory—is about 55 percent, according to Baker’s model.

“It moves the needle more for households that don’t have a lot of financial wealth,” says Baker.

You can read more about their research in Kellogg Insight here.

Jessica Love, editor in chief
Kellogg Insight

Maja Kos, senior academic editor
Kellogg Insight