The nights in the burn department were always difficult, and many of the patients would regularly ask (beg) for more painkillers to help them fall sleep. One afternoon I overheard the doctors tell the nurses not to give a certain patient any more morphine. A few hours later, when the same patient started begging for painkillers I saw the nurse go to her room with an injection and a few seconds later the patient quietly went to sleep. When the nurse stopped by my room, I asked her about it and with a smile she told me that she had given the patient IV fluid.This was the first time I experienced (secondhand) the power of placebo. I am not sure if they ever treated me with the same method, but it is certainly possible.Years later I became even more impressed with placebos when I learned that a placebo for pain has a very clear physiology. When we expect to get pain relief, our brain secretes a substance that is very much like morphine and this substance makes the pain go away. This means that even if the injection contains no painkiller we can still get pain relief courtesy of our own brain.Yesterday we published a study in The Journal of the American Medical Association about placebos. In this study we showed that when people get more expensive painkillers (placebos in our case) they expect a lot and get a lot of pain relief, but when the price of these pills is discounted, the expectations are lowered and so is their efficacy. As it turns out, with painkillers, we sometimes get what we pay for.For a story in the NYT see this link

The NYT just reported a paper by a few of my friends about soccer. The basic analysis is that during penalty kicks, goalies should stay in the middle more often than they currently do. The question, of course, is why do they so often jump to one side or the other, when it might be better to stay in the middle.

There might be many reasons for this but one thing that I am curious about is whether one reason is that not doing anything just seems wrong to the goalies. Imagine for example a highly paid stock broker that is trading on a day where there is not much news — would that broker feel the need to trade a lot just to justify his salary to himself and maybe to others? Wold he feel guilty just sitting and doing nothing (even when this is the right thing to do) and as a consequence over-trade?

I am not sure if the “idle hands” intuition is correct, but it does sound like an idea that deserves an experiment. Maybe an experiment where we pay some subjects a small amount of money for trading and others get much more money, and we see if the amount that they get changes their need to trade — even when there is no real reason to trade . . . Anyone want to predict the results?

In one of our projects, Kristina Shampanier, Nina Mazar, and I examined whether our reaction to Free! is just a rational reaction to a low price (a very low price) or if it is an irrational overreaction to Free! We carried out a set of experiments in which we measured not only what people chose but also what they gave up in the process. By doing so we were able to show that Free! can tempt us so much that we are willing to forgo a really good deal for a mediocre one simply because it is Free! For now let’s skip the experiments and consider the following thought-experiment:

Consider how long you would be willing to stand in line for a free Ben & Jerry’s ice cream cone. Let’s assume that your answer is 20 minutes and that the cost of a Ben & Jerry’s ice cream cone is $1.45. Now answer this: would you be willing to stand in line for 20 minutes for $1.45 in cash? No way.

This is exactly what the experiments showed; when something is Free! we get excited and as a consequence we are willing to give up better deals — not to mention our time, money, etc.

For the original paper see this link.

For a story about this in the New Yorker see this link.

DAN ARIELY TALKS WITH KATE FILLION ABOUT WHY SO MANY ECONOMISTS UNDERSTAND SO LITTLE, AND HOW A BURN UNIT CHANGED HIS LIFEQ: What exactly is a behavioural economist?

A: Much of standard economic analysisassumes rationality. If you ask a standard economist why people don’t saveenough money, they’d say it’s a meaningless statement; people are reasonable,they know what they’re doing–they might not be saving a lot because maybe theydon’t have enough resources right now, maybe they want to check out how itwould feel to live with their kids at retirement, maybe they really want totest out the bounds of social security. Behavioural economists, though, believethat people make all kinds of irrational mistakes, and we try to analyze themin order to create opportunities to help people out. For instance, have youever gone to a restaurant wanting to watch your diet, but when the waiter camewith a tray of desserts, you succumbed to temptation?

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The next time you’re juggling options — which friend to see, whichhouse to buy, which career to pursue — try asking yourself thisquestion: What would Xiang Yu do?

Xiang Yu was a Chinese general in the third century B.C. who tookhis troops across the Yangtze River into enemy territory and performedan experiment in decision making. He crushed his troops’ cooking potsand burned their ships.

He explained this was to focus them onmoving forward – a motivational speech that was not appreciated by manyof the soldiers watching their retreat option go up in flames. But General Xiang Yu would be vindicated, both on the battlefield and inthe annals of social science research.

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WHAT WAS I THINKING?The latest reasoning about our irrational ways.  

by Elizabeth Kolbert; FEBRUARY 25, 2008

People make bad decisions, but they make them in systematic ways.

Acouple of months ago, I went on-line to order a book. The book had a list price of twenty-four dollars; Amazon was offering it for eighteen. I clicked to add it to my “shopping cart” and a message popped up on the screen. “Wait!” it admonished me. “Add $7.00 to your order to qualify for FREE Super Saver Shipping!” I was ordering the book for work; still, I hesitated. I thought about whether there were other books that I might need, or want. I couldn’t think of any, so I got up from my desk, went into the living room, and asked my nine-year-old twins. They wanted a Tintin book. Since they already own a large stack of Tintins, it was hard to find one that they didn’t have. They scrolled through the possibilities. After much discussion, they picked a three-in-one volume containing two adventures they had previously read. I clicked it into the shopping cart and checked out. By the time I was done, I had saved The New Yorker $3.99 in shipping charges. Meanwhile, I had cost myself $12.91.

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Making the Same Mistake Twice–And Why a Smart Buy Probably Isn’t
BY EMILY BOBROW | FEBRUARY 15, 2008 | PREDICTABLY IRRATIONAL: THE HIDDEN FORCES THAT SHAPE OUR DECISIONS

I missed the deadline with this book review. Although I had plenty of time to work on it (having pitched it in December), I procrastinated and ultimately pulled an all-nighter to get it in. This sacrificed my personal utility–that is, the amount of satisfaction I have derived from this assignment. Clearly, this was not a very rational thing to do.
Why on earth did I do it? According to Predictably Irrational, a fascinating new book of behavioral economics by Dan Ariely, to dither is human. “We have problems with self-control, related to immediate and delayed gratification,” he writes. We’re inclined to put off work, even if this makes little sense in light of our long-term goals.
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PREDICTABLY IRRATIONAL: The Hidden Forces that Shape Our Decisions    Most people don’t know what they want and don’t know that they want it-until they see it and the reptilian brain kicks in. “Everything is relative,” writes economist Ariely (Behavioral Economics/MIT), “and that’s the point.” His book, a cousin to Freakonomics and The Long Tail, is a spry treatise on how the world works and how we spend our money based on other people’s rules. Knowing that everything is relative, says Ariely, a merchandiser will display a 19-inch television next to 26-inch and 32-inch models, the prices progressing from $210 to $385 to $580, with the point being to sell the nicely profitable, nicely midsize model first. Of course, because we want more relative to what we have, that merchandiser will hope to see us again, now clamoring for the bigger, more expensive model. Thus the economy chugs along, and thus our credit debt deepens. When the time comes to buy that bigger goodie, then we will respond to an “anchor price” that somehow worms its way into our mind. This is the same anchor price that leads us to think that a four-dollar cup of coffee is acceptable, and after doing it once, we do it again, for we now “assume that this is the way you want to spend your money.” Is it? Maybe not, but people are funny creatures of habit, and it is for all of us that Ariely has a brilliant solution to a problem that is very real: “a self-control credit card that would let people restrict their own spending behavior,” categorically and overall, fixing, say, grocery spending at $200 a week and coffee spending at $75 a month. Fat chance of it catching on, he allows: After all, the credit-card companies make $17 billion a year in interest charges. They know our irrational ways, too. Make a point of seeing this book. That way you’ll know you want it, and you will.

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If I did not know that the people around me were talking about Obama, I would have guessed that I was among a group of excited fans, infatuated with a rock singer, or a movie star. In fact, when I ask Obama supporters about how they expect him to fare against other US presidents, their general answer is that he is likely to be the best president of all time (some think he will be second to JFK). (more…)

Try, one day, to walk up to someone, maybe up to many people, and tell them that you think they have made a mistake in their most recent decision. You can even try to sugar-coat it by telling them that the reason for this mistake is not because they are stupid or negligent, but because this is just the way they are wired — just the way their brain works. (more…)