Standard vs behavioral economics (I have experiments …)
Nov
20
I have experiments …
6 Comments to “Standard vs behavioral economics (I have experiments …)”
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Hi, I’m Dan Ariely. I do research in behavioral economics and try to describe it in plain language. These findings have enriched my life, and my hope is that they will do the same for you.
My latest book, The Upside of Irrationality, explores some positive and some negative ways that irrationality plays out in our lives.
When we make decisions we think we're in control. But are we?
Excerpts and Videos
Dr. Ariely and whomever else cares to comment!,
With great interest I have read your book, and several other books dealing with behavioral economics. I ask your opinion on the following issue which I think may deal directly with some of the phenomenom you have observed in the experiments you write about, particularly the issue of humans difficulty in making judgments about price/value without a comparison available:
Starting with fiscal year 2010 school budgets (which are locally determined and voted upon in Vermont), any school’s budget that exceeds a state decreed maximum, must pass two votes, rather than a single yes or no ballot. This was a state law passed in order to control the so called “unsustainable rapid growth” in educational spending. I will give an example to show you how this is meant to work. In prior years, if a school had a budget of $10 million, the ballot would simply say: “will the voters of Arielyville approve a budget for their school in the amount of $10 million?” Very simple, if voted down the Board needs to go back to work and come up with a new budget to be voted upon. Now, under the new system there is a complicated formula involving per pupil spending and an allowed inflation amount. Let’s say for the Arielyville School, that formula yields a maximum spending of $10 million. Arielyville can still present their voters with just one vote because they are at the maximum. If they want, the Board can still ask for an $11 million budget but must do so with two questions. The exact language would be:
“School Budget Question #1:
Shall the voters of the School District approve a total budget in the amount of $10,000,000, which includes the Maximum Inflation Amount of education spending?
“School Budget Question #2:
If Question #1 is approved, shall the voters of the School District also approve additional education spending of $1,000,000?”
My feeling is that, if a town has developed a budget that falls under the maximum threshold requiring two votes, they may want to go ahead and add 10% (or some arbitrary amount) in order to deliberately trigger the two vote rule. Why? because in the 2 scenarios above, I believe the $10 million budget desired has a much greater chance of passing in the two vote situation than in the stand alone situation. I think this is because the voters in the two vote situation will see the $10 million as the responsible (best value) amount, since the second question asks their opinion on amounts in excess of that $10 million. They get to say yes to one and no to the other. It reminds me of your example with pricing of subscriptions to “The Economist”. What do you think?
Dan
we met this year at the Diamond exchange, my first, and we discussed your golf research over lunch.
I have just finished your book and have ordered 10 copies for associates and friends.
I will look forward to the next exchange and your next publication.
Chris
Christopher Griffin
President International
VP, USG Corporation
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