The New York Times reported last August the going horribly awry of a US Congressional initiative shaming Congressmen by publishing the number and value of “earmarked” appropriations, which typically are excoriated as pork-barrel waste. Rather than encouraging shame and restraint, the transparency initiative instead caused Congressmen to compare their earmark successes with those of their colleagues and to work ever-harder to secure greater federal funding for their own districts. Nobody wants to be the Congressman who brought home the least money, and each will compare himself to some other who’s done better. Dan Ariely doesn’t tell this story in his new book, Predictably Irrational: The Hidden Forces That Shape Our Decisions, but I wish he had. We’ll come back to this.
Ariely adeptly summarizes and popularizes groundbreaking recent research in behavioural economics: a field which he’s done a fair bit to advance. Behavioural economists experiment on real people to find the ways that they deviate from economists’ standard assumptions about how folks behave. Ariely argues that people not only deviate from rationality postulates but that their errors are systematic. So, individuals tend to compare themselves to others in deciding how well off they are; context and framing oughtn’t, but do, matter a lot in determining how individuals value products; we procrastinate and often choose short-term gains over things that pay off in the longer term. People in the economics lab often behave in ways that seem less than optimal.
He then takes things a step further by bringing the experiments out to the field and seeing how people behave in the real world. Ariely runs his experiments in bars and cafeterias; he secretly stashes cases of pop or plates of cash in university dormitory common fridges and monitors how long it will take for either to be stolen; he asks individuals how sexually stimulating various scenarios seem and how likely they’d be to engage in risky or immoral behaviours, both in the cold of the lab and after being left alone in a room with a computer well stocked with pornography. He even runs small experiments on the trick-or-treating children who come to his door seeking Halloween candy. In short, MIT has a far more accommodating human ethics review committee than does Canterbury, making the book a stimulating read to say the least.
Taken as a set of lessons for self-improvement, the book is very good. Emotions, relative comparisons, social norms, context and framing effects, and weakness of will affect all of us; the book provides a few strategies for overcoming our biases. Of course, the devising of strategies for overcoming things like weakness of will are hardly new: Odysseus came up with a rather nice one several thousand years ago by tying himself to the mast to resist the sirens’ call; Stephen King proposed another 30 years ago when he imagined a company, Quitters Inc., that would help you quit smoking by imposing physical punishment on both you and your family should you fail to quit. Economics blogs recently have had a bit of fun in proposing mechanisms for weight loss whereby you pay a friend $1000 today that he gets to keep should you fail to lose the promised 5kg by the end of the year.
But these sorts of private solutions don’t seem to be Ariely’s main interest. He wants instead that public policy be used to help us do better. Ariely argues that behavioural considerations overturn standard economic arguments that individuals do best when left to make their own decisions: regulations keeping us on the straight-and-narrow instead may help us. Besides overplaying the strength of behavioural results, he more importantly ignores that those same behavioural problems plague both MPs and the bureaucrats that might be charged with helping us, with the added complication that they have far less incentive to fix any problems that they might cause. Ariely writes of corporate CEOs whose relative status games have pushed their compensation levels ever higher but ignores the similar games I described earlier. As economist Ed Glaeser argues, the strength of the case for markets lies more in the fallibility of the state than in the perfection of either markets or the individuals within them: something Ariely would do well to ponder a bit more deeply before calling for assistance from similarly-flawed but poorly-motivated politicians and bureaucrats.