March 15, 2008

IF YOU MEET THE HOMO ECONOMICUS IN THE ROAD KILL HIM:

Emonomics: PREDICTABLY IRRATIONAL: The Hidden Forces That Shape Our Decisions. By Dan Ariely (DAVID BERREBY, 3/16/08, NY Times Book Review)

To see how arousal alters sexual attitudes, for example, Ariely and his colleagues asked young men to answer a questionnaire — then asked them to answer it again, only this time while indulging in Internet pornography on a laptop wrapped in Saran Wrap. (In that state, their answers to questions about sexual tastes,, violence and condom use were far less respectable.) To study the power of suggestion, Ariely’s team zapped volunteers with a little painful electricity, then offered fake pain pills costing either 10 cents or $2.50 (all reduced the pain, but the more expensive ones had a far greater effect). To see how social situations affect honesty, they created tests that made it easy to cheat, then looked at what happened if they reminded people right before the test of a moral rule. (It turned out that being reminded of any moral code — the Ten Commandments, the non-existent “M.I.T. honor system” — caused cheating to plummet.)

These sorts of rigorous but goofy-sounding experiments lend themselves to a genial, gee-whiz style, with which Ariely moves comfortably from the lab to broad social questions to his own life (why did he buy that Audi instead of a sensible minivan?). He is good-tempered company — if he mentions you in this book, you are going to be called “brilliant,” “fantastic” or “delightful” — and crystal clear about all he describes. But “Predictably Irrational” is a far more revolutionary book than its unthreatening manner lets on. It’s a concise summary of why today’s social science increasingly treats the markets-know-best model as a fairy tale.

At the heart of the market approach to understanding people is a set of assumptions. First, you are a coherent and unitary self. Second, you can be sure of what this self of yours wants and needs, and can predict what it will do. Third, you get some information about yourself from your body — objective facts about hunger, thirst, pain and pleasure that help guide your decisions. Standard economics, as Ariely writes, assumes that all of us, equipped with this sort of self, “know all the pertinent information about our decisions” and “we can calculate the value of the different options we face.” We are, for important decisions, rational, and that’s what makes markets so effective at finding value and allocating work. To borrow from H. L. Mencken, the market approach presumes that “the common people know what they want, and deserve to get it good and hard.”

What the past few decades of work in psychology, sociology and economics has shown, as Ariely describes, is that all three of these assumptions are false. Yes, you have a rational self, but it’s not your only one, nor is it often in charge. A more accurate picture is that there are a bunch of different versions of you, who come to the fore under different conditions. We aren’t cool calculators of self-interest who sometimes go crazy; we’re crazies who are, under special circumstances, sometimes rational.


And libertarians wonder why everyone laughs at them.

Posted by Orrin Judd at March 15, 2008 8:33 AM
Comments

This should have been blazingly obvious to anyone involved in actual business. If we were rational all the time, advertising wouldn't take the shape it has. If I were fully rational I wouldn't have bought a convertible.

Posted by: Mikey [TypeKey Profile Page] at March 15, 2008 9:40 AM

Yes, you have a rational self, but it’s not your only one, nor is it often in charge. A more accurate picture is that there are a bunch of different versions of you, who come to the fore under different conditions. We aren’t cool calculators of self-interest who sometimes go crazy; we’re crazies who are, under special circumstances, sometimes rational.

That secular statists accept such results-oriented, psychobabble assertions about their own natures is why people laugh at them. Completely apart, that is, from the comical idea that, as an alternative, rational voters should elect rational politicians to make rational economic decisions for them.

Posted by: djs at March 15, 2008 12:50 PM

Mikey, better buy a convertible now and wow the girls than wait until you're in your dotage as a lot of the geezers here in sunny Florida do. They look silly while you probably look cool.

Enjoy.

Posted by: erp at March 15, 2008 1:18 PM

I have never seen a single one of those assumptions at the heart of an argument for market economics. I certainly don't remember any mention of them in, say, Hayek.

Posted by: Annoying Old Guy at March 15, 2008 3:03 PM

Which is why Hayek had to end one book by denying he was a conservative, though falsely.

Posted by: oj at March 15, 2008 7:36 PM

The hand that moves free markets wouldn't be very invisible if individual human behavior was perfectly rational or definable, now would it?

That social conservatives think it should be is as funny as liberals thinking it is.

Mikey, I have a friend who in his younger more impetuous days, jumped into a nice looking blonde’s convertible and introduced himself. She was stopped at a red light. He might have gotten arrested but ended up married to her with three kids here some 17 years later. I'll leave it to you to decide if getting arrested would have been better ;-)

Posted by: Perry at March 15, 2008 9:57 PM

They only care about their own perfect reason.

Posted by: oj at March 16, 2008 6:37 AM
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