Porno, Beer, Bible Share MIT Economist's Toolbox: Interview

bloombergInterview by Robin D. Schatz 

March 13 (Bloomberg) — Behavioral economists are a fun- loving bunch, to judge from the intriguing new book “Predictably Irrational: The Hidden Forces That Shape Our Decisions.”

One moment author Dan Ariely is observing how sexually aroused male college students answer questions; the next he’s observing how the Ten Commandments affect the propensity to cheat or watching unsuspecting taste testers happily guzzle vinegar-spiked beer.

Unconventional research methods are all in a day’s work for Ariely, professor of behavioral economics at the Massachusetts Institute of Technology and a researcher at the Federal Reserve Bank of Boston.

This quirky stuff brings to mind the 2005 megahit “Freakonomics” (by Steven D. Levitt and Stephen J. Dubner), which mined the economic logic underlying the actions of such societal archetypes as drug dealers, real estate brokers and sumo wrestlers.

“In some sense, this is the evil twin of “Freakonomics,” Ariely, 40, told me during an interview at Bloomberg’s New York headquarters. “Freakonomics’ showed us where there is rationality in places we don’t expect rationality. In my book, I describe many cases in which we expect people to be rational and they’re not.”

Take Ariely’s unusual experiment on sexual arousal. A group of 20-something male college students were asked to predict how they would answer a set of questions about sexual attitudes and behavior when sexually aroused. They were asked the same questions twice — first in a “cold, rational” state, and again while they were viewing pornography Web sites.

No Difference?

“If we know ourselves, then there should be no difference between those two conditions, but as the results show, we don’t really know ourselves. In a cold state, people thought they would always respect women, always use condoms and their sexual preferences were rather conservative,” Ariely said. Once they were aroused, their answers changed dramatically — a willingness to engage in risky activities replaced normal caution.

So what does this have to do with economics?

“Imagine a stockbroker, who is at a particular moment making a lot of money or losing a lot of money,” Ariely said. “He’s gripped by emotion. Is he going to make the same decision as he would in a cold, rational state?”

In another experiment, Ariely had subjects solve a set of problems and then report how many they had completed successfully. Then they received money for each correctly answered problem. When given the opportunity to cheat, people lied — just a little.

Virtuous Thoughts

Later, when subjects were asked to recall as many of the Ten Commandments as they could before reporting on their correct answers — or, alternatively, to sign a code of honor — Ariely found they stopped cheating completely.

When the subjects were given tokens that were later exchanged for money — instead of getting cash outright — they were twice as likely to cheat.

“In a sense, nothing has changed, but the domain in which they cheated is a step removed from money,” Ariely said. “It completely released people from their morality shackles and allowed them to cheat much more.”

“I am disturbed by this result because I think it’s related to why we see so much corporate cheating,” Ariely said, “why it’s easy to backdate their stock options and why business expenses are easier to cheat on than cash.”

And what about that beer? Ariely wanted to measure how people are affected by their expectations of quality.

“In one study, we gave people beer — one, called the MIT brew, had balsamic vinegar in it. It turns out, when people didn’t know there was vinegar in it, people liked it better,” Ariely said. “But if we told them up front that this beer has balsamic vinegar in it, they hated it. Their preconceptions were so powerful that they overwhelmed their experience and they experienced it as much worse.”