Poor math skills leads to bad shopping decisions, scientists find

Our poor math skills make us take bad money related decisions. Poor math skills, especially when it comes to using ratios, leads us to make bad shopping mistakes, scientists from Miami University’s School of Business Administration say.

According to a paper published in the Journal of Marketing Behavior in situations where consumers must average ratio information, such as comparing the fuel efficiency of two cars using the ratio miles per gallon, they often flub the numbers by incorrectly assuming the mathematic equation to find miles per gallon would be to average the sum of the mileage of both cars and then divide by two, instead of using a more complex equation needed to accurately compare ratios.

“People rely heavily on the ‘normal’ way to compute an average and if they simply had ready access to software that calculates the average of ratios, they could make more informed decisions about many big-ticket purchases, such as cars,” said Michael Tsiros, chair and professor of marketing at the School. “If you think about how many different ways we miscalculate the average of ratios, you’d realize how much of an impact this likely has on our stock purchase decisions that can also suffer from the same bias given they can also be compared as ratios,” said Tsiros, who conducted the study with a colleague from Texas A&M University.

This “normal” way of doing math leads to only 25-30 per cent of shoppers getting the correct answer.

To test their theories, scientists devised a test to underline the difficulty of dealing with ratios.

In the first study, participants were assigned word problems that, in order to arrive at the correct answer, required them to use the formula for averaging ratios. The majority, 53 per cent of the participants, selected the response that reflected the arithmetic average and not the average of ratios.

In the second study, participants received information on the cash flow, discount rate, and growth rate of three stocks and were asked to allocate $1,000 across them. Similar to the first study, 48 per cent of participants’ selections reflected the incorrect use of the arithmetic average formula.

Scientists say that poor math skills not only make us select low-performance products, because we get confused by the numbers, but they could also lead to improper allocation of funds and bad investments.  Instead of using incorrect math, scientists propose an app which could help customers easily compare ratios so that they make better informed decisions.

“Whether the decision is about allocating funds properly to a 401K plan or finding a washer and dryer that uses a lower ratio of water per load, this study points to the significant need for something like a ratio calculator built on to relevant shopping websites or perhaps in-store,” continued Tsiros. “Maybe it’s an easy mobile app. Whatever it may be, the return that comes with going the extra mile for your customer, especially those making big-ticket purchases, is a smart business decision.”

The study coming from Miami University is not the only one to point out that poor math skills get in the way of making good shopping decisions. Other tests showed that percentages could also get us in trouble, especially when used cleverly by marketers.

And according to scientists from Illinois, poor math skills also impact legal decision making as research showed a link between lawyers’ native math skills and the substance of their legal analysis, suggesting that legal analysis and, by extension, legal advice may vary with a lawyer’s native math skills.