Saturday, February 23, 2008

Our irrational behaviours are neither random nor senseless — they are systematic

Home > Edits & Columns > PRINT LINE All too human Indian Express: Friday, February 22, 2008 How our wackiness upsets the standard assumptions of economics

From the perspective of neoclassical economics, self-punishing decisions are difficult to explain. Rational calculators are supposed to consider their options, then pick the one that maximises the benefit to them. Yet actual economic life, as opposed to the theoretical version, is full of miscalculations... The real mystery, it could be argued, isn’t why we make so many poor economic choices but why we persist in accepting economic theory.
In ‘Predictably Irrational: The Hidden Forces That Shape Our Decisions’, Dan Ariely, a professor at MIT, offers a taxonomy of financial folly... In pursuit of his research, Ariely has served beer laced with vinegar, left plates full of dollar bills in dorm refrigerators, and asked undergraduates to fill out surveys while masturbating. He claims that his experiments, and others like them, reveal the underlying logic to our illogic. “Our irrational behaviours are neither random nor senseless — they are systematic,” he writes. “We all make the same types of mistakes over and over.” So attached are we to certain kinds of errors, he contends, that we are incapable even of recognising them as errors. Offered FREE shipping, we take it, even when it costs us.
As an academic discipline, Ariely’s field — behavioural economics — is roughly twenty-five years old. It emerged largely in response to work done in the nineteen-seventies by the Israeli-American psychologists Amos Tversky and Daniel Kahneman... (who) found that there were consistent biases to the responses, and that these biases could be traced to mental shortcuts, or what they called “heuristics.”... Though Tversky and Kahneman’s research had no direct bearing on economics, its implications for the field were disruptive. Can you really regard people as rational calculators if their decisions are influenced by random numbers?...
If there is any consolation to take from behavioural economics — and this impulse itself probably counts as irrational — it is that irrationality is not always altogether a bad thing. What we most value in other people, after all, has little to do with the values of economics. (Who wants a friend or a lover who is too precise a calculator?) Some of the same experiments that demonstrate people’s weak-mindedness also reveal, to use a quaint term, their humanity. One study that Ariely relates explored people’s willingness to perform a task for different levels of compensation. Subjects were willing to help out — moving a couch, performing a tedious exercise on a computer — when they were offered a reasonable wage. When they were offered less, they were less likely to make an effort, but when they were asked to contribute their labour for nothing they started trying again. People, it turns out, want to be generous and they want to retain their dignity — even when it doesn’t really make sense. Excerpted from ‘What was I thinking?’ by Elizabeth Kolbert in the current issue of ‘The New Yorker’

No comments:

Post a Comment