The big day!

I stayed awake until midnight, just to see the countdown on my computer arrive at the “In Stores Now!” I went to bed soon after but at 2:30 AM woke up, full of excitement, and could not fall a sleep again. I was not too worried because I was sure that the excitement would give me sufficient energy for the day ahead and indeed this was correct.

From 7:00 AM until 4:30 PM I went from studio to interview and back to studio. TV was a bit strange because the time was so short, and the pace was so fast. Radio was more relaxed and conversational. Magazine interviews felt even more natural. (more…)

Leonard Lee, George Loewenstein, James Hong, Jim Young and I recently conducted a study on the ways that one’s own attractiveness influences their perception of, and actions toward, others.

The first question we had is whether people who are less attractive themselves view the attractiveness of others differently. Using data sets from HOTorNOT.com we found that regardless of how attractive people themselves are, they seem to judge others’ attractiveness in similar ways, supporting the notion that we have largely universal, culturally independent standards of beauty (e.g. symmetric faces). Moreover, we found that people prefer to date others who are moderately more attractive than they are themselves. (more…)

Tyler Cowen posted a blog today discussing one of the chapters in Predictably Irrational– the chapter on Free!

A lively discussion emerged from his posting, with people proposing many alternative accounts for the findings. Most of these alternative accounts are interesting (transaction costs, gifts, social norms) and they are ones that we have tested and have found that they cannot account for the phenomenon of Free!

For the complete paper describing many of the experiments see this link, or see Chapter 3 “The Cost of Zero Cost Why We Often Pay Too Much When We Pay Nothing”

In a recent report, David Leonhardt of the New York Times, described Senator Obama as a behavioral economist, saying that:

“Senator Obama’s ideas, on the other hand, draw heavily on behavioral economics, a left-leaning academic movement that has challenged traditional neoclassical economics over the last few decades. Behavioral economists consider an abiding faith in rationality to be wishful thinking. To Mr. Obama, a simpler program – one less likely to confuse people – is often a smarter program.”

I don’t know whether Senator Obama is a behavioral economist or not, but it seems to me that realizing how confusing many of the policies implemented in DC are (the tax code, the new prescription drug program, etc.) — is a matter of common sense that I hope is apparent not only to behavioral economists.

A few weeks ago, a paper that Mike Norton, Jeana Frost, and I wrote was selected as one of the Ideas that helped make 2007 what it was.

Aside from the fact that the NYT decided to drop Jeana and my names from the paper this was a very happy event.

The paper itself is about the idea that although people expect that the more they get to know about another person the more they will like this person, in reality familiarity breeds contempt!

Why is this the case? When we get partial information about others we tend to fill the gaps optimistically, assuming that they are just like us and that they like the same things we like. However, when we learn more about that other person we can no longer hold this optimistic interpretation, the disappointment begins, and from there on the disappointments escalate. For example, imagine that someone writes that they like music. You assume that it is the same music you like (blues) and you immediately like this blues-music-lover. But when you learn more, you discover that in fact they like jazz, and once you see one dissimilarity, everything you learn afterward is colored by that.

What is the lesson here? Sure there are some people that are worth knowing very well, but in the process of finding these individuals we will encounter a lot of heartache and disappointments.

In conventional economics it is assumed that we are all rational — meaning that the decisions we make are the perfect decision for us. How do we achieve this feat? What standard economics assumes is that every time we face a choice we consider all the available options, compute the value of all the options, perform a cost benefit analysis, and then follow the best possible path of action. What if we make a mistake and do something irrational? Here, too, traditional economics has an answer: “market forces” will sweep down on us and swiftly set us back on the path of righteousness and rationality. (more…)