I recently started working on my next book.
It is generally going to be more stories about my research and the plan is to have 3 parts
Part 1: Personal life, happiness, adaptation, dating, and online dating
Part 2: business life: motivation at work, the role of bonuses, mistrust, and revenge
Part 3: cheating: the effects of observing other people cheat, group based cheating, the effect of one dishonest act on others etc.
The current title is:
Living irrationally: the way we work, date and cheat.
If you have any other suggestions for a title, please email me at dan at predictablyirrational dot com
Many thanks
Dan
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Like Dear Readers –
Over the last few months I have posted a few short fictional stories that some of the students in my class wrote (see this link).
Some were more popular and some were less, but many of you expressed interest in sharing your own fictional short stories or experiences of irrational behaviors
So –If you are interested in submitting a short story, I will post the best of these here, and if you are interested in sharing a kernel of an idea with me, I will take the best of these and try to make a short (fictional) story from it
Please send your stories and / or experiences to living.irrationally at gmail.com. I look forward to your emails and learning more about the role of irrationality in our lives!
A Fictional historic view of the future: a look at policy from 2034 back to the last 25 years
This is what I think I would like t0 write in 25 years…
It is hard to remember how politicians used to go about legislating policies. Let’s take a quick trip down memory lane and examine public policy, as it was twenty-five years ago, before the experimental policy era—that is, an approach that values and nurtures social experimentation as a way to design policies – we live in now.
As you may recall, in 2008-2009 a global financial crisis was brought on by lack of transparency, conflicts of interest, terrible bank-lending policies, complex financial instruments, and lack of government regulations. Above all, a religious-like belief that humans and the market are perfectly rational was a major contributor to this historical catastrophe and the five-year economic recession that followed.
In retrospect it sounds ridiculous, but before the 2008 crisis, rational economics– now largely restricted to university courses taught by a few academics–was the only guiding light that politicians used while designing taxation strategies, policies, and institutions. When the economic tragedy of 2008 hit, it illustrated beyond any doubt that relying on the assumption of perfect rationality is dangerous; and this realization, in turn, ushered in a new era for behavioral economics.
After the initial shock from the crisis, this painful and expensive lesson caused businesses and policy makers to recognize three main lessons: 1) human beings have many irrational tendencies, fallibilities, and quirks; 2) we often have bad intuitions and a limited understanding of our irrational tendencies and; 3) if we want to create effective policies we shouldn’t rely on our intuitions for finding recommendations nor on the assumption that people behave rationally; instead, we should ground our recommendations in how people actually behave.
With these three lessons in mind, the business and policy landscape changed dramatically over the next twenty-five years. As expected, businesses led the charge and questioned their basic assumptions about the relationship between salary and productivity, the value of meetings, and the problems with conflicts of interest. After a few years spent watching in awe as business productivity improved, government policymakers followed suit by implementing experiments with the Education-Forward Initiative (formerly No Child Left Behind). These experiments showed that basing teachers’ salaries on student performances had minor short-term benefits and caused substantial long-term damage on teacher and student motivation; that creating interest in education was more important than grades; and that shifting the curriculum focus from calculus to statistics and probability had a wonderful impact on students.
Between 2019 and 2025, experimental policy, which became a more established field, examined the simplification of the income tax (with huge social and tax benefits) and studied incentives that encouraged people to get routine medical exams (with tremendous long-term benefits). Currently up for debate are the benefits and disadvantages of socialized health care. In 2009, this might have become an ideological debate about right and wrong. But given our realization of how little we truly understand ourselves and the systems we design, combined with an appreciation for the benefits of detailed experimental investigations and empiricism, we are trying to solve this important issue by setting up multiple different experimental programs. In some of these the levels of co-pay are low, in some medium and in some high. In some of these programs the focus is in specialists, while in others the focus on the family doctor, and some focus on treating patients while other focus on preventative care and education. Rhode Island, being a small state, currently runs many of these experiments and in the next few years we will have a much better idea of the costs and benefits, both short-term and long-term, associated with all of these approaches. Based on these we will pick the best policy to adapt. At the end, thanks to experimental policy, the decision will be based on solid empirical testing and data, not on a misconception of rationality.
In light of these improvements, maybe the financial meltdown of 2008-2009 was really a blessing in disguise; It got us to think more carefully across the assumptions we were making across the board and helped us get rid of the assumption of perfect rationality and replace it with empirical data.
Many awkward situations inevitably arise from the college roommate situation, most of which do not have a clear-cut solution. For instance, should you try to get your roommate to take out the garbage for a change? Should you tell your roommate to stop playing M.I.A.’s “Paper Planes” from his or her laptop 9 times a day? Should you tell your roommate it’s not cool to have to get kicked out of the room for 15 minutes every time your roommate brings someone back to have sex with? This last quandary brings up the notorious practice of “sexiling,” in which college students “exile” roommates from their room for a period of time so that they could have sex. This has become a relatively common practice on campuses because one alternative would simply be to have sex while your roommate is in the room, which brings up its own obvious issues. The other alternative, of course, is not to have sex at all. But, c’mon, is that really an option to many horny college students?
But Tufts University has now officially banned “sexiling,” stating that “any sexual activity in the room should not interfere with a roommate’s privacy, study habits, or sleep.” Besides the obvious question of whether or not this is even enforceable (“Excuse me…campus police? My roommate is currently having sex while I’m here trying to sleep!”), it raises a number of interesting psychological issues that suggest not only its inevitable failure as a policy, but also its indirect effect on the roommate dynamic.
First of all, even if students simply giggle at this new policy and passively accept it by not directly fighting against it right now, this does not mean that the practice will stop at all. Dan’s “laptop” study showed that people do not realize what desires they will succumb to when they are in a “hot” state (eg, horny) while they are in a “colder” state. So when it comes to sex at Tufts (or any college for that matter), students may be currently thinking something along the lines of “OK, I guess this rule makes sense. I wouldn’t want to have sex while my roommate is sitting there studying Orgo anyway.” However, when the moment of passion comes, that same person might not be able to resist the urge to have sex- whether that means kicking the roommate out of the room or having sex while the roommate is studying or trying to sleep. We simply do not know the decisions that we will make in certain states when we are not currently in that state.
My second point is that this new anti-“sexiling” rule could- perhaps ironically- damage the roommate-roommate relationship. Roommates generally have explicit or implicit social contracts with each other, filled with all sorts of social norms. For instance, roommates may understand that if one is “forced” to leave the room so that the other could have sex, the other will inevitably hit him or her back with a favor later on. Basically, these social contracts between roommates help in the cultivation of a relationship between the two and the imposition of rules from the college administration may undermine this relationship. Now, instead of, say, Roommate #1 being grateful that Roommate #2 was nice enough to wait until Roommate #1 went to the gym before having sex, Roommate #1 may think that Roommate #2 just didn’t want to get slapped with a punishment from Tufts.
And finally, it is a shame when institutions set stupid rules, but it is particularly sad when a university does not study a topic, and test it out before trying something like this.
Change Begets Change
This is how you put a positive spin on the recession.
In a new study, Moore School of Business marketing professor Stacy Wood suggests that it’s in times of upheaval that we’re particularly inclined to leave our comfort zone and try new things.
On first thought, this sounds counter-intuitive. You would think that upon losing our job or girlfriend, we’d be more intent on crawling under the sheets with a favorite book or movie and lying low for a while – not deciding that now’s the time to quit smoking or take up sky-diving.
And yet, these are the very kinds of challenges that we’re likely to take on following a big life change, according to Wood. In her study, she ran five related experiments comparing participants’ consumer choices with the degree of stability in their lives at the time.
In the initial experiment, for instance, she had undergrads take their pick between a pack of tried-and-true Lay’s potato chips and a bag of unfamiliar and odd-flavored British crisps (Camembert and plum, anyone?). Afterwards, she handed out a questionnaire that checked for the number of changes occurring in the participants’ lives. And the result? The students who chose the unusual chips were also more likely to be experiencing lots of change at the moment.
Wood later switched up the order of the questionnaire and consumer choice task in a follow-up experiment, and in another she also expanded the choice test to include a wide range of items – and still, the results were the same. When she asked participants to think about either two big life changes or eight, those who thought of more chose the strange chips more often.
It seems that when we are confronted with one disruption to our daily routine, we become more open to other change. Or, to put it differently, when things break, we enter the right mind-frame for breaking our old habits as well. According to Wood’s rationale, this is because once something pivotal in our routine gets switched around, we’re no longer so attached to all the other habits that formed our daily script.
When it comes to our recessionary times, then, it appears that now is a good time for us to embrace all kinds of change. A tighter budget or shorter hours at work might be that catalyst you need to reevaluate your daily shot of Starbucks espresso or your aversion toward exercise. To paraphrase President Obama, (and for somewhat different reasons) now’s the time to believe in change.
Reflecting back on our recent economic history bring to my mind a two sad surprises.
Even as a behavioral economist who generally believes in the prevalence of irrationality in our every day life, I place some stock in the main mechanism that should have maintained the efficiency of the financial markets: competition. In principle, the drive for competition among individuals, banks, and financial institutions should get the actors in the market to do the right thing for their clients as they fight to outdo their competition. After the Wall Street fiasco, I expected and hoped that in the spirit of competition some financial institutions would change their way given the new information about the risks they were talking and self-impose restrictions on themselves. I did not expect that they would do so because they were benevolent, but because they wanted to get the business of those who have lost trust in the financial institutions.
Surprise one: Sadly, the forces of competition do not seem to have any effect on the functioning of our financial institutions and Wall Street seems to be back to is pre-fiasco structure.
We are now discussing the possibility of health care reform, which arguably is even more messed up than our financial institutions (about 18 percent of GDP, bad incentives, bad intuitions, and the leading cause for bankruptcy before the current housing problem). When I look at the health care debate, it seems to be fueled by ideological beliefs about the importance of competition and freedom of choice on one hand, and the evilness of regulations and limits on the other. As someone who loves data beyond theories, it is surprising to me how little we know about the effectiveness of different versions of health care, and how sure people are in their own beliefs — which makes it an ideological and not a very useful debate (this is just a small surprise).
But what is the most surprising to me is that the tremendously expensive lessons we have experienced about the efficiency of markets and self interest do not seem to carry to the health care debate. As a society, we still seem to be enamored with the ideology of free markets, and have not seemed to update our beliefs in their efficiency despite the evidence. On the bright side, it looks like behavioral economists will have a lot of work for the foreseeable future.
Today we have a dark story about the very controversial topic of end of life decision making that demonstrates what we in decision making studies call the “endowment effect.” Again, this wonderful story is written by another one of my undergraduate behavioral economics students at Duke. Hope you enjoy it! You can find it here.