Why Don't Well-Educated Adults Understand Accumulation? A Challenge to Researchers, Educators, and Citizens

Accumulation is a fundamental process in dynamic systems: inventory accumulates production less shipments; the national debt accumulates the federal deficit. Effective decision making in such systems requires an understanding of the relationship between stocks and the flows that alter them. However, highly educated people are often unable to infer the behavior of simple stock–flow systems. In a series of experiments we demonstrate that poor understanding of accumulation, termed stock–flow failure, is a fundamental reasoning error. Persistent poor performance is not attributable to an inability to interpret graphs, lack of contextual knowledge, motivation, or cognitive capacity. Rather, stock–flow failure is a robust phenomenon that appears to be rooted in failure to appreciate the most basic principles of accumulation, leading to the use of inappropriate heuristics. We show that many people, including highly educated individuals with strong technical training, use what we term the ‘‘correlation heuristic”, erroneously assuming that the behavior of a stock matches the pattern of its flows. We discuss the origins of stock–flow failure and implications for management and education. 2008 Elsevier Inc. All rights reserved. Understanding and managing stocks and flows—that is, resources that accumulate or deplete and the flows that alter them—is a fundamental process in society, business, and personal life. At the macroeconomic level, for example, exploration increases known petroleum reserves, while oil production reduces the stock of oil remaining for the future. In turn, petroleum combustion increases the stock of carbon dioxide in the atmosphere and contributes to global warming. At the organizational level, firms’ capabilities and competitive advantages arise from the accumulation of resources and knowledge. Firms must manage their cash flows to maintain adequate stocks of working capital, and production must be adjusted as sales vary to maintain sufficient inventory. Individuals, too, face similar stock management challenges: we manage our bank accounts (stock of funds) to maintain a reasonable balance as our incomes (inflows) and expenses (outflows) vary, and we struggle to maintain a healthy weight by managing the inflow and outflow of calories through diet and exercise. Accumulation is a pervasive process in everyday life, and arises at every temporal, spatial and organizational scale. All stock–flow systems share the same underlying structure. The resource level (stock) accumulates the inflows to it less the outflows from it. Although the relationship between stocks and flows is a fundamental concept of calculus, knowledge of calculus is not necessary to understand the behavior of stocks and flows. Any stock can be thought of as the amount of water in a tub. The water level accumulates the flow of water into the tub (the inflow) 0749-5978/$ see front matter 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.obhdp.2008.03.003 * Corresponding author. E-mail addresses: [email protected] (M.A. Cronin), [email protected] (C. Gonzalez), [email protected] (J.D. Sterman). 1 Formally, consider any stock, S, with inflow I and outflow O. The stock at any time T, ST, is the integral of its net inflow over time, plus the quantity in the stock at the initial time, t0, St0. The net inflow to the stock is the difference between inflow and outflow, I O: