Inspired by Valentine’s Day “Mine” is a short story by sportswriter Patrick Dorsey about the steps that lead, or don’t lead, to a new relationship.  Featured in this story are the Behavioral Economic principles of virtual ownership and the self-fulfilling prophesy.

Read the story here….

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I am not a serious athlete, but I do like playing squash from time to time.  What I mostly like about squash is that it is a game of strategy, where each player tries to build an advantage over multiple shots.  First you get your opponent to run to the right, then you get them to run to the front left … and as the game progresses, they (hopefully) get behind the ball, their shots become worse, until at some point it is possible to finish the point!  Of course when you are the one that runs from side to side and trying to get back into control – the game is much less fun.

Anyway, have not played for a while so yesterday when I played I was out of shape.  But what was interesting was that I realized that my thinking ability was also diminished.  Usually I try to plan my moves in advance, and think about where my opponent will move, what I will do next etc – but being out of shape made me think very myopically, and focus just on making the next shot.  This of course was a very bad strategy and to my delight of my opponent I lost badly.

Perhaps the larger point is that being exhausted (and maybe also being under stress, physical exhaustion, sleep deprived, etc) makes people focus on the short-term and ignore the long-term – and this way become more susceptible to making mistakes….

Paul Samuelson, the influential and famous economist died not too long ago.

Here is a short video about one meeting I had with Samuelson

For more on Samuelson, see this Wikipedia

A few weeks ago, the New York Times announced that they would start charging readers for online content in early 2011, and since then the million-dollar question has been: will it work? Will readers fork over the cash to keep reading the Times, or will they go elsewhere?

The main problem of this approach is that over the years of free access, the New York Times has trained its readers for years that the right price (or the Anchor) is $0 – and since this is the starting point it is very hard to change it.

So, should the New York Times give up?  The trick with anchoring is that although we are not willing to pay more for the same thing, we are willing to pay more for different things.  What this means is that one approach that the New York Times could take is to present us with a new experience so that we don’t associate it with the previous anchor, and are open to new pricing.

Let me explain. Because we’re not very good at figuring out what we are willing to pay for different products and services, the initial prices that new products are presented with can have a long term effect on how much we are willing to pay for them.  We basically can’t figure out how much pleasure the New York Times gives us in terms of $ — so we go back and pay the same price we have paid before.  This means that getting people to pay for something that was free for a long time will be very challenging, but it also means that if the New York Times were to offer some new service at the same time that they start charging, they might be more likely to pull it off.

It’s a strategy that Starbucks founder Howard Shultz put to good effect. Before he came along, consumers were used to paying much less for coffee from spots like Dunkin’ Donuts. So to incite us to shell out more for his coffee, he worked hard to separate Starbucks from other coffee shops. He designed it to feel like a continental coffeehouse, putting in showcases with croissants, displaying french presses, and coming up with exotic drink and size names. He redefined the coffee experience, and by doing so, convinced us to pay more.

The Times could try to take on a similar approach …

Irrationally Yours,

Dan

I have “a friend” who will head over to a coffee shop to get work done. Not because she’s unable to work at her desk or because she needs the presence of other people, but rather because it lets her get away from the Internet and all its distractions.

True, she could easily stay put by just keeping her browser closed. But that requires self-control, and as we all know, keeping ourselves in check is easier said than done. Whatever the resolution (start dieting, start saving, stop procrastinating, etc.) we routinely stick to it for a bit and then cave. We make the resolution in one state of mind – a cool, rational state – and then break it when temptation strikes.

That’s the reason for my friend’s coffeeshop strategy: precommitments allow us to commit upfront to our preferred course of action. In her cool, rational state, my friend can decide not to surf the web and make a point to leave the wireless behind; later, when temptation strikes, she’ll be out of luck. Access denied.

On the whole, I like my friend’s strategy. But there’s a potential problem: what if she needs the Internet to do her work? What then?

Not to worry – there’s an app to the rescue: SelfControl, a free Mac-only software program that blocks access to incoming/outgoing mail servers and websites and was thought up by artist Steve Lambert. (As the son of an ex-monk and an ex-nun, he’s well-versed in self-control.) The app only takes seconds to install and comes with all the flexibility that my friend’s coffeeshop strategy lacks.

Instead of taking leave of the Internet all-together, you can pick and choose what you can and can’t access, and for how long. If Facebook is your particular time-suck, then add its URL to SelfControl’s blacklist and the program will block Facebook and nothing else. If Twitter is another danger zone, then by all means, throw its URL into the mix. Next, figure out how long you want to block them for – anywhere from one minute to twelve hours – and move the slider accordingly. Then press start and you’re good to go.

But here’s the key part: once you click start, there’s no going back. (No wonder the app has a skull and crossbones symbol as its icon.) Switching browsers won’t help you, and neither will restarting your computer or even deleting the app. You won’t get those websites back until the timer runs out. As such, it’s as effective of a precommitment as seeking out a wireless-free zone.

Though temptation routinely deflects us from our long-term goals, our struggle with self-control isn’t a lost cause. Once we realize and admit our weakness, we can do something about it by taking on clever precommitments that save us from ourselves. In an ideal world we wouldn’t need the SelfControl app, but in this world it sure is useful.

Irrationally Yours,

Dan

P.S. For more on precommitments, check out this post on self-control and sex.

A few months ago I posted four short stories that undergraduate students in my class wrote.

In response to these stories, some readers proposed their own short stories, and today I am posting the fist of these:

Here is “Five Sundays,” By Jamey Stegmaier

Would you pay $76 for a shot glass? What about $52 for an oven mitt? And $50 for a jar of marbles?

You may shake your head and say no way, but in a recent series of eBay auctions, the consumers did just that: they shelled out considerable cash for objects that to all appearances should never have fetched more than a couple bucks.

So what made the difference? Each item came with a unique tale.

The auctions were part of the Significant Objects Project, an experiment designed to test the hypothesis that “narrative transforms the insignificant into the significant.” Or, put differently, the goal was to determine whether you could take an object worth very little and make it worth much more by giving it a story, by endowing it with meaning.

To that end, the project’s originators – NY Times columnist Rob Walker and author Josh Glenn – bought up 100 unremarkable garage sale knickknacks for no more than a few dollars each, and then had volunteer writers whip up fictional back stories for them. This, they thought, would up the trinkets’ objective value.

They were right. Whereas the objects had cost Walker and Glenn a total of $128.74 to buy, the same trinkets netted a whopping $3,612.51 on eBay when paired with stories. This Russian figurine, for example, came with the original price tag of $3 but sold for $193.50. And this kitschy toy horse made the leap from $1 to $104.50. (See also:$76 shot glass, $52 oven mitt, $50 jar of marbles)

The results may seem surprising, but this is actually something we see all the time. It’s the basic idea behind the endowment effect, the theory that once we own something, its value increases in our eyes. (In one study, Kahneman, Knetsch and Thaler (1990) randomly divvyed up participants into mug owners and buyers, and found that whereas owners requested around $7 for their mugs, the buyers would only pay an average of $3.)

But ownership isn’t the only way to endow an object or service with meaning. You can also create value by investing time and effort into something (hence why we cherish those scraggly scarves we knit ourselves) or by knowing that someone else has (gifts fall under this category).

And then there’s the power of stories: spend a fantastic weekend somewhere, and no matter what you bring back – whether it’s an upper-case souvenir or a shell off the beach – you’ll value it immensely, simply because of its associations. This explains the findings of the Significant Objects Project, and also how other things like branding works

Irrationally yours

Dan

The New York Times Magazine publishes once a year the “years in ideas.”

This is the third year in a row that they are picking one of my papers, which is very nice of them.

It is also particularity nice of them that this year they picked two papers I am a part of.

One of the papers they picked this year is: The Counterfeit Self

Her is their report:
Wearing imitation designer clothing or accessories can fool others — but no matter how convincing the knockoff, you never, of course, fool yourself. It’s a small but undeniable act of duplicity. Which led a trio of researchers to suspect that wearing counterfeits might quietly take a psychological toll on the wearer.

To test their hunch, the psychologists Francesca Gino, Michael Norton and Dan Ariely asked two groups of young women to wear sunglasses taken from a box labeled either “authentic” or “counterfeit.” (In truth, all the eyewear was authentic, donated by a brand-name designer interested in curtailing counterfeiting.) Then the researchers put the participants in situations in which it was both easy and tempting to cheat.

In one situation, which was ostensibly part of a product evaluation, the women wore the shades while answering a set of very simple math problems — under heavy time pressure.

Afterward, given ample time to check their work, they reported how many problems they were able to answer correctly. They had been told they’d be paid for each answer they reported getting right, thus creating an incentive to inflate their scores. Unbeknown to the participants, the researchers knew each person’s actual score. Math performance was the same for the two groups — but whereas 30 percent of those in the “authentic” condition inflated their scores, a whopping 71 percent of the counterfeit-wearing participants did so.
Why did this happen? As Gino puts it, “When one feels like a fake, he or she is likely to behave like a fake.” It was notable that the participants were oblivious to this and other similar effects the researchers discovered: the psychological costs of cheap knockoffs are hidden. The study is currently in press at the journal Psychological Science.

Could other types of fakery also lead to ethical lapses? “It’s a fascinating research question,” says Gino, who studies organizational behavior at the University of North Carolina. “There are lots of situations on the job where we’re not true to ourselves, and we might not realize there might be unintended consequences.”

The second paper they picked this year is: The Drunken Ultimatum

Her is their report:

The so-called ultimatum game contains a world of psychological and economic mysteries. In a laboratory setting, one person is given an allotment of money (say, $100) and instructed to offer a second person a portion. If the second player says yes to the offer, both keep the cash. If the second player says no, both walk away with nothing.

The rational move in any single game is for the second person to take whatever is offered. (It’s more than he came in with.) But in fact, most people reject offers of less than 30 percent of the total, punishing offers they perceive as unfair. Why?

The academic debate boils down to two competing explanations. On one hand, players might be strategically suppressing their self-interest, turning down cash now in the hope that if there are future games, the “proposer” will make better offers. On the other hand, players might simply be lashing out in anger.

The researchers Carey Morewedge and Tamar Krishnamurti, of Carnegie Mellon University, and Dan Ariely, of Duke, recently tested the competing explanations — by exploring how drunken people played the game.

As described in a working paper now under peer review, Morewedge and Krishnamurti took a “data truck” to a strip of bars on the South Side of Pittsburgh (where participants were “often at a level of intoxication that is greater than is ethical to induce”) and also did controlled testing, in labs, of people randomly selected to get drunk.
The scholars were interested in drunkenness because intoxication, as other social-science experiments have shown, doesn’t fuzz up judgment so much as cause the drinker to overly focus on the most prominent cue in his environment. If the long-term-strategy hypothesis were true, drunken players would be more inclined to accept any amount of cash. (Money on the table generates more-visceral responses than long-term goals do.) If the anger/revenge theory were true, however, drunken players would become less likely to accept low offers: raw anger would trump money-lust.

In both setups, drunken players were less likely than their sober peers to accept offers of less than 50 percent of the total. The finding suggests, the authors said, that the principal impulse driving subjects was a wish for revenge.

Lets see if this trend continues….

Consider some of illusion at the bottom of the demo page (click here to see it).

The two middle color patches look as if they are different, but in fact they are exactly the same. What is gong on here? How can it be that we see wrong? How can it be that eve after we are shown that these two patches are identical we still can’t see them accurately?

It is because our brain is wired in a particular ways and this wiring, while very good for some things, is not perfect — and it makes us susceptible to certain errors and mistakes. Moreover, because these mistakes are a part of us, we are fooled by them in predictable and consistent ways over and over.

Now, vision is our best system. We have lots of practice with it (we see many hours in the day and for many years) and more of our brain is dedicated to vision than to any other activities. So consider this — if we make mistakes in vision, what is the chance that we would not make mistakes in other domains? Particularly in domains which are more complex (dealing with insurance, money, etc.), and ones in which we have less practice? Domains such as decision making and economic reasoning?

Not very high I think — and this is why we have lots of decision illusions. The predictable, repeated mistakes we all make in our financial, medical, and other daily decisions.

Irrationally yours

Dan

Here are a few suggestions I gave for eating less on thanksgiving:
1) “Move to chopsticks!” Or, barring that, smaller plates and utensils.

2) Place the food “far away,” so people have to work (i.e., walk to the kitchen) to get another serving.

3) Start with a soup course, and serve other foods that are filling but low in calories.

4) Limit the number of courses.

Variety stimulates appetite. As evidence, consider a study conducted on mice. A male mouse and a female mouse will soon tire of mating with each other. But put new partners into the cage, and it turns out they weren’t tired at all. They were just bored. So, too, with food. “Imagine you only had one dish,” he says. “How much could you eat?”
5) Make the food yourself. That way you know what’s in it.

6) “Wear a very tight shirt.”

Enjoy

This advice also appeared here