Foreign Language Skills Aid Business Choices
April 26, 2012

Foreign Language Skills Aid Business Choices

Connie K. Ho for

"A foreign language provides a distancing mechanism that moves people from the immediate intuitive system to a more deliberate mode of thinking." These are the words of a University of Chicago (U Chicago) professor and his team of researchers in a new study on economics and language. They bring fresh perspective into language and the role it plays in business decision-making.

The study, titled "The Foreign Language Effect: Thinking in a Foreign Tongue Reduces Decision Biases," states that people make more rational decisions when they rationalize the problem in a foreign language. The results show that people are more likely to take a risk when they think through a problem in a non-native dialect.

"We know from previous research that because people are naturally loss-averse, they often forgo attractive opportunities," said U Chicago psychologist Boaz Keysar. "Our new findings demonstrate that such aversion to losses is much reduced when people make decisions in their non-native language."

The paper, published in the current issue of Psychological Science, covered how people make financial bets based on the language they are using. In one of the experiments, the scientists observed a group of participants made up of U Chicago students. The students´ native-language was English, but they had also gained Spanish proficiency from taking Spanish as a second-language. Each student was given $15 in one dollar bills, which they could bet on a coin toss. If they lost the toss, then they´d have to give up the dollar; if they won the toss, then they kept the dollar and received an extra $1.50. When the experiment was done in English, the students tended to ruminate more on the problem and only took the bet 54 percent of the time. On the other hand, when the experiment was given to students in Spanish, they were more likely to the take the bet; results showed that the students took the bet 71 percent of the time.

"Perhaps the most important mechanism for the effect is that a foreign language has less emotional resonance than a native tongue," commented co-author Sayuri Hayakawa, a U Chicago graduate student. "An emotional reaction could lead to decisions that are motivated more by fear than by hope, even when the odds are highly favorable."

Besides conducting the experiment with students in Chicago, the researchers took the project to Korea and France. Pooling results from all the data also allowed the team to analyze asymmetry in decision making, which relies on how questions are framed. In asymmetry, people are less likely to take on risk if the question is phrased in gains, but more likely to take on risk if the question is phrased in losses. Based on this knowledge, the researchers found that the participants making decisions in a foreign language ignored asymmetry and make decisions based on what they expected the outcome to be rather than on how the question was presented to them.

The researchers believe that the results of the study show how foreign language can impact those who use different dialects in everyday life and they propose that the the benefits of utilizing languages can come handy in situations dealing with business or finance.

"People who routinely make decisions in a foreign language might be less biased in their savings, investment and retirement decisions, as they show less myopic loss aversion,” the authors noted in the paper. “Over a long time horizon, this might very well be beneficial.”