July 8, 2019

INDIVIDUALISM IS A MYTH:

Our friends can influence our behaviour more than we think (Michael Sanders, 7/07/19, Journal.ie)

One of the most powerful departures of behavioural economics from "standard" economics is that where standard economics tends to assume that people are individualistic, and out only for their own ends, behavioural economics embraces altruism, reciprocity, conformity, and identity. These are all aspects of our being which influence our behaviour and are inherently social. 

One of the big puzzles for economists was that they failed to foresee the financial crisis, and that even once it was well underway, it took them time to get their heads fully around it.

In part, this was because the recession didn't make any sense. In the UK, the start of the crisis really came with the "run" on Northern Rock - people queueing for hours to get their money out of their bank accounts, bringing about the collapse of the bank. This doesn't make sense, as almost nobody had enough money deposited to actually risk losing anything - the government's financial protections would have prevented it.

But despite this the queues formed, and the longer they got, the faster people rushed to join them. This instinct to conform to the behaviour of others - to follow the herd - isn't something economics could handle.

It's a theme captured in a study by Bruce Sacerdote, who exploited the random assignment of students to their college roommates to see how much you're influenced by your roommate.

The answer, as it turns out, is quite a lot - roommates tended to join the same sorts of societies, have the same hobbies, and even get about the same grades.

If this is striking, it's worth noting that it's probably an underestimate of the true effect our friends have on us. Your real friends, after years of knowing each-other, are able to exert far more influence than a mere change in GPA or a decision to sign up to the creative writing society.

Posted by at July 8, 2019 12:00 AM

  

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