Puzzling preferences

(featured image credit: A.H.M CC BY)

Are our preferences fixed, or can we change them at will?

Would you prefer a holiday for the advertised price, or the very same one for 25% less? Would you prefer spending half an hour doing the dishes every day, or five minutes loading and (when it’s done) unloading the dishwasher? Such preferences are simple, straightforward and unambiguous: we prefer not to spend more money than necessary on something, and the same applies to spending time.

The efficient allocation of resources like money and time is, perhaps, the most basic concern of economics, and indeed of human decision-making (which illustrates, in case it were necessary, why economics is such a fundamentally human topic of research). All else being equal, we prefer to spend the minimum possible resources in order to achieve a given goal. The reason is as simple as it is overwhelming: it means we have resources left over that we are free to spend on something else. Making the most efficient choice unequivocally leaves us better off. Yay!

A lot of human progress is mediated by this fundamental preference. Our distant ancestors discovered that hunting with weapons was more efficient than hunting with bare hands, and that storing water in earthenware vessels was more efficient than always having to walk to the spring or the river whenever they were thirsty.  More recent ancestors came up with the dishwasher. Late to the party (compared to other efficiency-enhancing devices like vacuum cleaners and washing machines), it is still enjoying increasing popularity (ownership in the UK is up from less than one-in-five households in the early 1990s to a whisper below one-in-two in 2018. (Ours broke down earlier this week, and we were promptly reminded of our preference).

Fluctuating preferences

But this is only part of the story about preferences. You like to-may-to, I like to-mah-to (although, other than in the Gershwins’ song, I have never heard anyone express a preference for po-tah-to), you prefer tea, your friend is a coffee lover. This is a trickier aspect for economists, because it is hard to measure this kind of preference objectively, but it doesn’t bother ordinary mortals much. Even if, one day, we prefer a beer with our dinner and the next a glass of wine, this not an issue. Subjective is perfectly fine for us: we know what we like, to paraphrase an old prog rock song.

No dishwasher for me, I know what my preference is! (photo: Francesca de Freitas CC BY)

Yet, there is something intriguing going on. In some cases, our preferences don’t just fluctuate from one moment to the other and back again, but change in a more permanent way. Fashion is an obvious example: looking at old photos or home movies reminds us of the hilarious preferences in clothing (were ties really that wide?) and haircuts (let’s not even go there) we used to have, and which are almost certainly never coming back.

But why did our preferences change? Did we wake up one morning and decide we did not like that style anymore? Social conformity bias or even peer pressure may well play a role where fashion is concerned. Conformity is one of the earliest topics of study in psychology. A classic experiment by Solomon Asch, a Polish-American psychologist goes back nearly seventy years. A group of eight people were asked in turn to answer a simple question (which of three lines matches the length of the line on a template). However, only the last person in the group was the real subject; unbeknownst to her or him, the other seven were actually the experimenter’s confederates. When these seven all answered the question incorrectly, about one-third of the time, the subjects also gave the wrong answer. Moreover, across all trials, around 75% of the participants gave the wrong answer at least once. Fifteen years earlier, Muzafer Sherif, a Turkish-American psychologist (who is probably better known for the controversial Robber’s Cave experiment), devised an experiment for his PhD dissertation, in which three participants had to estimate how far a dot of light projected in a totally dark room “moves”. (The movement is in fact an illusion brought on by the lack of reference: the dot did not actually move.) In every trial, the subjects naturally converged on a common estimate. One week later, the subjects were recalled individually, and their estimate of the (imaginary) movement remained conform to the common group estimate from a week earlier.

The preference to conform, to fit in with our in-group (or stand out from our out-group) seems to enjoy a higher priority than any aesthetic preference regarding our hair or our attire. And if the social norm of what is hot, and what is not, changes, our preference changes with it.

Deeper preferences

Yet we have other, deeper, preferences that change but perhaps not because everyone else’s changes. I bet you can list quite a few foods or drinks that you didn’t like when you were a child or an adolescent, and that you are rather partial to right now; and quite likely there are some that you liked in the past, but no longer at present. (We’re not talking about things you, for (self-)imposed health reasons, no longer consume, but still have a secret craving for: we’re talking not actually enjoying anymore.) The same may hold for stuff like music, books or TV shows, or even for holiday destinations.

Are these changes in preferences the result of a conscious effort? Probably not – it’s more likely that we are experiencing, on the one hand, a gradual process of an eroding preference (because it is being replaced with something new), and on the other hand specific opportunities to develop new ones (say, a cheese and wine evening where you try out a piece of Roquefort for the first time, and are at once smitten).

He’s sitting on my preferred spot, and I don’t care (photo: Armistead Booker CC BY)

What if we actually could actively alter some of our preferences? Many of them are clearly advantageous, so changing them would seem to be unwise. Efficient allocation of resources is one worth keeping – we’d need to be some kind of masochist (really!) to literally enjoy wasting time or money for nothing in return. Preferences that help us signal membership of a group, or tell others something about us that can be beneficial (e.g. we’re generous, wealthy, trustworthy etc.), too, are obviously worth maintaining as well. Others, like a taste for churros or cheesy chips, are perhaps, for obvious reasons, more maladaptive, and losing them might help us. But successfully unlearning such preferences with a strong physiological component, may well require a large dose of unpleasant brainwashing. There are more gentle ways toward healthy eating.

Imagined preferences

However, some preferences are entirely between our ears – they do not influence our lives in any material way. Some examples? A relative comes to stay, and promptly plonks himself down in our preferred spot on the sofa. That then becomes his default place for the duration, making us increasingly resentful. Or we have a colleague who is usually very tidy in her use of language, but who happens to be rather generous with expletives in team sessions, and we strongly prefer people not gratuitously pepper their speech with f- and c-words. A client systematically misspelling our name, one of our children having a, shall we call it, disorganized bedroom, or hair of a colour and a style that goes against our preferences (or, heaven forfend, a tattoo). You get the picture.

All of these can make us feel thoroughly annoyed and miserable. Why is this so – other than because we actually choose to have these preferences? What if it didn’t matter so much to us where exactly on the sofa we sit, or what people say or don’t say, how cluttered our kids’ bedrooms are, what colour their hair is, and so on?

Epicurus, the great Greek philosopher, taught us more than 2,300 years ago that we should seek to attain the state of ataraxia, being at peace with the world and free from suffering. Here we have a great opportunity to come a step closer to that ideal, by altering the preferences that seem to have no other function than to make us unhappy. Can we do it?

(Preferences that exist in our imagination are in the domain of cognitive economics, and will undoubtedly be a discussion topic at the free, virtual Cognitive Economics Society conference on 9-10 July 2020.)

Posted in Behavioural economics, Economics, Emotions, Psychology | Tagged | Leave a comment

Facts don’t matter

(credit: Amusing Planet)

…what matters is how much you care about them.

It has not been a good month for statues. True, statues have been torn down before: you may remember the images of the Iraqi ruler Saddam Hussein’s statue being toppled in April 2003. Numerous statues of Lenin (and other communist grandees) were removed since the fall of the Berlin Wall. Revolutions often mean a symbolic end for the effigies of the deposed rulers.

But the recent fate of some statues, of people as notorious as Belgian monarch Leopold II, and as obscure (for most non-Bristolians) Edward Colston is not quite comparable. What happened to them is not the result of a sudden, dramatic regime change, but of a full-on challenge to the reasoning behind their very existence in the first place.

The meaning of a statue

Perhaps, before we start wondering why there might be case for statues to be removed (quietly or more forcefully), it is worth asking why they are erected in the first place. We can be brief about self-commissioned sculptures of dictators and potentates: these symbolize only their vainglorious pomposity. But most other statues depicting a person are generally put up in their honour, or to recognize some admirable feat for which they are known. Whether something like this is a valuable use of resources can be questioned, but that is true for almost all symbols. Symbols generally do not represent any material value to anyone, but they embody ethereal, abstract values, and somehow our species seems to think such representations are important.

To deserve the honour of their own statue, a person would naturally need to be honourable. We don’t need to consider whether a statue in tribute of Adolf Hitler or of a serial killer like Jack the Ripper would be a good idea: it would be clearly absurd and in bad taste. The facts about these individuals would seem to be unequivocal.

It’s a thin line between revered and reviled (image: Volodymyr D-k CC BY)

But what if a person’s record contains both honourable and less honourable elements – someone like Oskar Schindler, perhaps? He was a member of the Nazi party, and a drinker and womanizer, as well as an opportunistic profiteer, who initially employed Jews in his factory because they were cheaper. But he was also responsible for saving the lives of 1,200 Polish Jews during the Holocaust. Does he deserve the statue devoted to him in the old Jewish Quarter in Krakow?

Or what about Harry Truman, the US president who authorized the use of atomic bombs on the Japanese cities of Hiroshima and Nagasaki? Is he deserving of the honour of a statue (and there are several), knowing that he was responsible for the deaths of many tens of thousands of Japanese citizens? Should he, despite this, nevertheless be recognized for a decision that may have been instrumental in bringing a swift end to one of the bloodiest conflicts in human history?

Perhaps the balance between honourable and dishonourable ends up unfavourable for Edward Colston, whose statue was famously toppled in a Black Lives Matters demonstration and tossed into the Bristol harbour on June 7th. He was a rich merchant and benefactor, funding almshouses, schools and hospitals, but also a leading member of a company active in the slave trade in the late 17th century, which is how he is said to have made most of his fortune.

Yet even when the facts regarding a historical figure who has been honoured with an effigy are well-known, how come there is controversy? If the judgement whether someone is worthy of a statue were based on facts, there would be no such controversy, because facts are facts, right?

Living statues in tribes

This is not a phenomenon limited to decisions that are, to most of us, somewhat arcane. We don’t typically spend much time thinking about bronze or granite statues. But we do have opinions about people of flesh and blood – some close to us, like colleagues, friends and even family members, and others more remote, like celebrities, or political or business leaders.

We may not know all the facts about them that might be relevant in judging them, as would be the case with historical figures, but we may find we are still a little selective in which of the known facts we take into account in forming (and maintaining) our opinion. We might, for example, at first look for clear tell-tale signs that make someone either favourable or unfavourable in our eyes. These could be as superficial as the football team they support or the car they drive, or more profound like their ideological position on matters like same sex marriage or immigration, and on that basis determine whether they are in or tribe or not.

Once we’ve established that we have a tribal connection, we will tend to amplify facts that put them in a good light, and overlook facts that don’t, or that put them in a bad light. Anything positive will reinforce our favourable inclination towards them – you probably recognize our old friend, confirmation bias. Negative facts might generate cognitive dissonance (surely a member of our tribe would not do anything like that!) and so we will tend to dismiss them, give them a spin (what they did is not quite so bad, or quite understandable in the circumstances) or deny them. (And it is the opposite for those who are not members of our tribe, where negative facts confirm our opinions, and positive facts are questioned or spurned.)

Real sculpture or real person? The facts don’t matter much anyway (Image: ArtTower via Pixabay)

So far, so good, we might think. If we compare how we evaluate people with how we evaluate, say, a house, what we do does not appear that unusual. If you love your house because of its splendid location or because of its fantastic kitchen, you may be quite tolerant of the fact that there is no garage, or that the stairs are very steep, and mention its qualities rather than its downsides when you describe it. If you love your spouse because of her/his generous nature and good humour, you may be quite tolerant of the fact that she/he leaves her/his dirty clothes on the floor, or always squeezes the toothpaste from the middle rather than – as it should – from the end. And here too, the facts are what they are, and you focus on what you think is more important.

A difference

But there is a difference between deliberately determining that – on balance – positive qualities outweigh negative ones, and disregarding facts because they do not fit our favourite narrative. One is a reasoned position that acknowledges reality and reveals our relative preferences. The other is self-delusion: consciously failing to consider incontrovertible but inconvenient facts and cultivating a distorted image of the world.

There is a difference between saying “he is my friend, despite the fact that he is a cheat”, and turning a blind eye to your friend’s dishonesty and pretend he is a good guy. There is a difference between saying “we need to honour Leopold II because he was our second king, despite the fact that his personal rule was marked by severe atrocities, violence and mass scale deaths”, and shutting one’s eyes to the inhumanity he was responsible for.

I would like to propose a simple way to find out whether or not facts matter to us. Swap the person concerned for a member of the opposite tribe – Donald Trump for Nancy Pelosi, or Jeremy Corbyn for Boris Johnson. Then we ask ourselves whether we’d judge them both in the same way for the same facts. If so, then hurrah!, we can congratulate ourselves because facts actually do matter. (If not, then we know the score.)

I would also like to suggest a simple way to handle the problem of controversial statues. Any newly erected status can stay for, say, 50 years, after which the following criterion is used: would we actively commission this statue today? If the answer is no, it is removed to a resting place, which we might call something like the Museum of Unwanted Statues.

Somehow, I find it hard to decide which of these two simple approaches is the most unlikely to gain widespread adoption.

Posted in Behavioural economics, Cognitive biases and fallacies, Psychology, Society | Leave a comment

An accidental behavioural economist in lockdown – Part II: Mental Economics

(featured image credit: Catherine Thackstone/Flickr CC BY)

A surprisingly large part of our economic activity takes place between our ears

Undistracted by the triggers and prompts of intriguing human behaviour that a break in south-west England has provided in past years during the spring, the thoughts of this accidental behavioural economist wandered towards what happens in the mind – others’, and indeed his own. For there too, economic principles are found. One instance is the situation where the benefit balancing a cost is immaterial – not money, but thoughts.

This was very apparent in an item in the evening BBC news that caught my attention last week. Experts are seeing a significant jump in the number of so-called young carers as a result of the coronavirus crisis. These are children – the age of some of them can be written with just one digit – who take on caring responsibilities for relatives who are affected, physically or mentally, by the lockdown, or by the effects of the virus itself.

Rewards in the mind

It portrayed two young carers. Finlay, aged 12, has become the primary carer for his disabled mum (his dad died when he was two) now his grandmother, who would normally help out, could no longer do so since the lockdown. So Finlay gets up at six, does the washing and cleans the kitchen. Later on, he cooks the meals for their little household. “Technically, my whole life has changed,” he says when the reporter remarks that COVID has messed up things a bit.

15-year old Danielle looks after her three siblings, Millie aged 5, who has epilepsy, Imogen, who is 6, and Ryan (12) who has autism, ADHD, and Tourette’s, to relieve her mum while her dad works long days. Sometimes things do get on top of her: when her brother kicks off, “he does make me question, how long is this going to go on for? It could be months, and that leaves me scared for not only my mental health, but everyone’s in the family.”

Finlay cleaning the kitchen, Danielle walking on the street with her two young sisters
Two awesome young people motivated by intrinsic reward of their efforts

But these two awesome young people (and their 700,000 peers across England) show remarkable resilience. Finlay says, “It’s like hardwired into me, so I don’t find it a burden or anything.” Danielle gives tips to others in the same situation through a local Whatsapp support group: “Do not stress about the things you can’t control – you can’t control lockdown, you can’t control COVID-19.”

Why are they making such a huge sacrifice? “It is one of the most rewarding things you can do as a young person, genuinely, I wouldn’t have it any other way,” says Danielle. “I don’t feel tired of being a young carer because it’s who I am. However annoying she is and how much I have to do for her, I have to remember she’s my mum,” is how Finlay sees it.

The power of intrinsic motivation and reward is quite something – not to be underestimated.

Thinking of effort and ownership

Being locked down does strange things to people. An acquaintance of mine (who shall remain nameless) has embarked on a herculean task: tidying up 20 years’ worth of cut out, torn out and photocopied recipes. If, like me, you’re a jazz cook who prefers to improvise on a basic groove, you will likely find this a baffling proposition. But here too, the trade-off is in the mind, in how we, each in our own personal way, perceive things.

As she made painfully slow progress, I pondered the various reasons why we might acquire things in the first place, and why we then become so possessive of (if not possessed by) them. Mindful of my observation in Part I that, to really understand people, we had better flip our perspective, I found it remarkably easy to identify ways in which I act in a very similar way. I keep on bookmarking interesting finds on the web and saving PDF files of scientific papers, for example. If I am being generous, I may have gone back and looked at perhaps 5% of the accumulated items. (There is a good reason why I am not mentioning my CDs and books.) But let’s stick to being buried in piles of recipes.

My suspicion is that it starts with a mixture of wishful thinking (“one day this will definitely be useful”), and regret avoidance (imagine once having seen something that looked vaguely useful but not enough to keep it, and sometime later – sometimes a very long time later – finding you should’ve kept it; better safe than sorry). The immediate cost of keeping just one more recipe, hastily stuffed into a cardboard folder, is negligible, and the benefit of knowing we’re adding to our external body of knowledge is as pleasant as it is salient. But we avoid thinking of the future cost we keep on adding to (the effort it will take to tidy it up increases with each new item) – a naturalistic case of hyperbolic discounting.

I also spotted a blend of sunk cost fallacy, the endowment effect, and the IKEA effect. A rational person realizing that (a) they’re not going to be able to cook even a paltry few percent of the collection of recipes in their remaining years, and (b) they’ve actually got a wide range of very nice dishes for ordinary and extraordinary occasions, and that they therefore really have no need for thousands more ideas, such a person would at once dump the lot in the recycling bin.

We are, however, not entirely rational. The past effort we’ve put into building the collection should not be a factor in hanging on to it, let alone continuing to add to it. But just like large public or private projects are sometimes wrongly continued because of the money and effort (the sunk cost) they have already absorbed, so we continue collecting. Just like an IKEA bookshelf, the stacks of recipe folders acquire value through our effort, and in fact simply because we own them.

These same effects are at play in the process of tidying up, too. Naturally, we cannot decide whether to keep a recipe or to throw it away without reading it. But the very act of reading it means we invest further in it, so binning it becomes harder still.

Here, at least, I could offer some solace. By reframing the purpose of reading the recipe as a decision point (keep, throw away, not sure yet), it is no longer an investment, so we don’t grow more attached to it. Setting tough realistic targets upfront for each pile (“maximum 10% in the keep pile”) also helps. When in doubt (or when the “keep” pile remains too tall), flip the situation: what if the wind swept the recipe away – how much time and effort would we be willing to spend recovering it? This counteracts the endowment effect.

I am happy to report modest success: the collection has apparently shrunk by “a significant” (but otherwise unquantified) proportion. It seems that also the power of the sunk cost fallacy, the endowment effect and the IKEA effect is something to be reckoned with…

Joyful utility

Sometimes thoughts and beliefs themselves play an active part in economic trade-offs, as a new twig that has recently appeared on the big family tree of modern economics, suggests. One of the reasons the field of cognitive economics emerged is that conventional economic theory does not handle the idea very well how mental states can have utility  – the abstract term in economics referring to the relative preference we have for different options. We can enjoy (or dislike) a particular thought (say, anticipating a holiday, or an imminent visit to the dentist) just as much as a cold drink when we’re parched, or the loss of our wallet.

Which item provides the most utility? (image: your correspondent)

A few weeks ago, I was instructed by my better half to put up a photograph depicting our two grandsons. It now hangs opposite my favourite spot in the settee, so that every time I sit down to relax after a hard day’s accidental behavioural economicking, the first thing that catches my eye is this picture.

The pleasure it keeps giving me, weeks later, has taken me by surprise. It is not the obvious sense of achievement of having accomplished the task without inflicting permanent damage to the wall, the photograph or myself. That wore off pretty quickly. Instead, it is the recurring joy of the thoughts the photo triggers every time I see it. As I sit reading, it is always there, in the corner of my eye. And especially during lockdown, not having seen the little dudes for nearly three months, it is giving me profound happiness and indeed much economic utility (yes, I could easily associate considerable monetary value to it).

What is in our mind can be a weighty source of utility indeed, and hence be a powerful influence on our behaviour and decisions.

[The annual conference of the Cognitive Economics Society takes place online on 9-10 July 2020 and is free to attend.]

(This is Part II of a 2-part post. Part I is here.)

Posted in Behavioural economics, Cognitive biases and fallacies, Economics, Psychology | Leave a comment

An accidental behavioural economist in lockdown – Part I: Flipping wisdom

(featured image credit: Karel Julien Cole/Flickr CC BY)

Economics everywhere, and not an economist in sight

There is something about milestones. I was reminded of this fact by a post last weekend on Martin Carty’s blog. The milestone of its 300th article was celebrated with a guest post by my friend David D’Souza, who in it looks back on many years of blogging, and reflects on how and why he writes: for the joy of writing, sharing, and connecting.

By happy coincidence, this week it is four years and a few days ago since I published my first blogpost. The topics I write about are, superficially at least, different from David’s (he usually writes about things like HR, management and leadership). But scratch the surface just a little, and perhaps they are more closely connected than they appear. My very first post (in English) had as its title “We are all economists”, and attempted to show how much of our behaviour can be understood by looking at it from an economics perspective. So we share an interest in how people behave, make decisions and interact with each other.

And like David, I am also motivated by the joy of writing, sharing and connecting. It gives me joy to observe and try to understand the behaviour of the people around me, wherever I am: it is a compelling force to activate empathy – how can you understand someone if you don’t empathize with them? It gives me even more joy to share my observations and reflections on my blog – and it has undoubtedly given me a huge number of connections, people who have reached out because, somehow, something I wrote moved them or resonated with them.

But that was not what I was going to write about today. Usually, in late spring, we go away to the English south coast for a week, where I take the opportunity (an accidental behavioural economist never rests) to observe my fellow humans from a different perspective, and in a different setting. This year, the COVID-19 pandemic meant we did stay at home, but that did not prevent me spotting interesting behaviour and choices, that provided food for thought. Even when not on a break.

Flipping the anchor

Impossible to overlook, these last few weeks, were the hundreds of demonstrations around the world following the brutal killing of George Floyd by a police officer in Minneapolis. That would have been remarkable at any time. The fact that they took place during a pandemic, at a time when we are still supposed to stay at home as much as possible, keep at a safe distance from others, and certainly not to attend mass gatherings made them even more noteworthy.

But also controversial, and controversial actions are intriguing material for a student of human behaviour. (I will entirely leave to one side the polemic around the judiciousness of the demonstrations, e.g. on the overall cost/benefit, or the political context – here are some links in case you are interested: a Twitter thread, a Guardian article and an Atlantic article. My concern here is to understand the behaviour, not to judge.)

The participants of the rallies worldwide were widely condemned for exposing themselves and each other to an elevated risk of contracting COVID-19, as well as potentially causing new outbreaks. But my inner economist immediately identified that there was a trade-off, with risks on one side, and benefits on the other. Blaming people for the downside of their actions without considering the upsides is not a good way to understand them. Is simply a looking at trade-off sufficient, though?

Our perspective on trade-offs is generally unconsciously anchored on our own position. When we try to understand other people’s choices, we look at upsides and downsides from our perspective. If we were not at the demonstrations, we had, by definition, already made our own, different, trade-off. To really understand those who marched, we would need to flip our anchor.

And what if we reversed the roles? (photo: scottmontreal/Flickr CC BY)

Imagine seeing someone driving through town, late on a Saturday night, at twice the speed limit. We’d intuitively classify the driver as a dangerous lunatic and that’s that. But to understand the driver, we’d need to ask ourselves what would make us do something similar. Say your heavily pregnant sister was visiting you, and her waters broke and you needed to get her to the hospital pronto, would you obey the speed limit – or at least understand someone might not?

We should not anchor our reasoning on the current situation as we judge it, but on the current action, and work back from there. It is only by thinking about what would make us violate the COVID-19 rules and put ourselves and others at risk, we can form a view about how strong the feelings and motives of the demonstrators are.

A similar approach can help appreciate privilege, especially from the perspective of those who enjoy privilege without realizing it*.  We have a tendency to ascribe our successes to our skills, ability and effort – a characteristic known as self-serving bias (and our failures to external circumstances or the actions of others). This is the basis for the assumption that society is, by and large, meritocratic. If, like is the case for me, your skin is white and your sex organs are on the outside of your body, it is easy to not be conscious of the privilege you benefit from, like the goldfish from David Foster Wallace’s famous speech, who is oblivious to what water is.

Many people sincerely believe they are blind to ethnicity or gender – that they genuinely don’t notice whether a colleague is a man or a woman, or whether they have a coloured skin or not. If, say, the vast majority of people in the upper management echelons of an organization, happen to be white males (something that is far from unusual), then they assume this is just a matter of meritocracy. Here is a little thought experiment to test how blind they really are.

The company you work for merges with a competitor. Business is booming, so there is no need to cut staff numbers in the operational and support roles. However, the firm only needs one of every senior management role. The structures of the two pre-merger enterprises were identical, so exactly half of the senior managers will be made redundant. How to choose who stays? The new boss happens to be an arch-meritocrat, who will compare the incumbents from each constituent organization with their respective counterpart. And lo and behold, the candidates with the most merits are all, without exception, women from an ethnic minority background.

Will those who claim to be blind really not notice? I used to see myself as colour and gender blind, but the anchor flip of this thought experiment has made me realize that was an illusion. The reason I didn’t ‘notice’ the gender or skin colour of colleagues and clients was not my deliberate, self-professed blindness, but the fact that I shared my skin colour and gender with most of them – and like the goldfish was to water, I was oblivious to this.

When we feel a smug moment coming on, convinced we are right and anyone with a different view is wrong, it’s a good idea to do the anchor flip.

Working more flexibly – but preferably when the children are at school (photo: crises_crs/Flickr CC BY)

A final example of flipping I noticed over the past few weeks comes courtesy of my son-in-law. At the beginning of the lockdown, his employer had operated a hurriedly worked out ad-hoc shift system for a few weeks, in which people came to the office some days, and worked from home the others. This had been followed by a period of furlough, until last Monday when normal work resumed. In the past, he had occasionally been grumbling about his company’s stubborn attachment to rigid working times – a bit of flexibility would have been rather helpful to him as a young father of two. However, an externally enforced change in boundary conditions seems to have done what numerous reasonable requests and arguments were incapable of. Upon the big return to work, several of his colleagues have opted for (and been granted) part time working, and most others (including he) will be working from home at least some of the time – with the boss’s blessing.

The canonical example of this phenomenon in the behavioural sciences is that of the London commuters affected by a two-day Underground strike. Forced through external circumstances to find another route to work, around 1 in 20 of them stuck to the alternative route after the strike, a study by Shaun Larcom and colleagues found (summarized in an easy-to-read article here).

Flipping the anchor of our perspective is a remarkably powerful way of breaking out a fixed, limiting mindset, which opens the way to more wisdom. Happy flipping (and see you next week for part II of my lockdown observations)!

* I know, because that’s what did it for me.

Posted in Behavioural economics, Emotions, Psychology, Society | Tagged | 1 Comment

Economics for other people

(credit: Lenny DiFranza CC BY/Flickr)

Two core economics concepts are crucial to our decisions, and even more so if they affect others than just ourselves

Late last Sunday, May 31st, my wife’s friend Linda got a surprise from the UK government. Since the beginning of the lockdown, she and her husband Tom, together with 2.5 million others who were deemed “clinically extremely vulnerable” to COVID-19, had been advised to stay at home 100% of the time – i.e., unlike others, not even go to shops or pharmacies or exercise. Now, after having been shielding in this way for nearly ten weeks, from the next day Linda would be allowed to go outside once per day, as long as she kept at least the UK safe distance of 2 metres from anyone other than her husband.

For someone with more than a passing interest in decision making (like your correspondent), both this decision and its timing provided food for thought. What was behind the decision? Why was it made now? What were the cost and benefits involved, and for whom? Two key economics concepts can help us understand.

Not everyone was comfortable to venture out straight away. Some people still feel the risk of getting infected, however much lower than ten weeks ago, was too high. But on Tuesday morning at 5am, for the first time in more than two months, Linda and Tom went out and enjoyed the new old freedom of going for a long walk. Few people normally get up this early, so the fact that they took this costly action reveals their preference: they indicated they were prepared to give up a good few hours of sleep in order to be able to have that walk in safety. For our friends, the decision was clearly a good one, and an overdue one.

Trading off costs and benefits

When the government recommended certain people to stay indoors (and the rest to only go out for very specific reasons and in very restricted ways), it made a trade-off. It had to “flatten the curve” to prevent the healthcare system to become overwhelmed with COVID-19 patients. That came with a price tag: the economic consequences of such a lockdown are, by all accounts, huge. But the social and economic consequences of hundreds of thousands of deaths, too, would have been huge. Working out this trade-off is complex, and it is not the topic of this article.

It also meant personal trade-offs. While staying at home 24 hours a day poses less risk, or at least no more risk of contagion than leaving one’s home, it also involves making a substantial sacrifice. Ask yourself how much you would need to be paid not to go out at all for ten weeks – I bet it is not a trivially small amount. Was this a good trade-off? Naturally, most vulnerable people did not know what the exact risk of going out for a walk would have been, but instead relied on (and accepted) the government’s judgement that it was high enough to justify such extreme shielding.

Now, under the new guidance, a walk clearly no longer poses sufficient risk to warrant shielding. But what has really changed?

The announcement refers to the “decrease of the COVID-19 disease levels over the last few weeks”. Disease levels is a vague term, but the key data – deaths, hospitalizations and new cases – have indeed been steadily decreasing since late April. Does this mean going for a walk is now less risky? That is far from obvious – if, as the present guidance suggests, you take care not to get closer than 2m to anyone who might be infectious, the total number of deaths or cases is really of no relevance.

So, if the risk is not demonstrably lower than before, then one can wonder whether it really ever was high enough to justify the advice to 2.5 million people to stay indoors 24/7, and not even go out for a walk at 5am. Is this paternalism going too far?

Decisions made by policymakers are often paternalistic, and so by definition affect others, namely the citizens (on whose behalf they are taken). The question is whether the trade-offs in these decisions take into account the costs and benefits to the citizens affected. If the risk of going outdoors was always as low as presently, then the cost of avoiding it, the sacrifice of being locked up for weeks, may well have been excessive. If policymakers mistakenly (perhaps even arrogantly) assume they properly understand the consequences of a decision to the citizens, and fail to verify their assumption, the trade-off they make on behalf of those citizens will be wrong.

The dreaded externality

Still, there was a change in the guidance. It came ten weeks after the start of the lockdown, when the number of COVID-19 deaths was doubling every 2-3 days. Perhaps it was understandable at the time that the government, having decided that everyone needed to stay at home except to get essential provisions and to exercise, wanted to provide extra protection to the clinically extremely vulnerable. But at what point could they have chosen to relax the guidance and allow these people to have a safe stroll? Did they really not know until May 31st that they could issue the new guidance without expose them unduly? Or was it an afterthought?

It is unlikely that the grounds for the decision to ease the restrictions for vulnerable people were only known on the day the new guidance was announced. If concern for their wellbeing had been a priority, then it would have been issued much earlier. By leaving it, for whatever reason, so late, the government deprived vulnerable people of the opportunity to go for a walk for several weeks.

Unlike the original guidance, which involved an explicit trade-off between risk and sacrifice made on behalf of vulnerable people, the timing of the easing of the guidance (i.e., the decision when to decide) represents what economists call an externality: a decision that has (often negative) consequences on a party that is affected but not involved. Not having to take the trouble of revised guidance until later was a benefit of sorts for the government with lots on its mind, but the corresponding cost of having to remain locked in for longer was borne by the citizens.

Such externalities are common in decisions made by policymakers. Sometimes, they are inevitable, for example, the disruption and annoyance the construction of a motorway imposes on local residents. Sometimes they are the consequence of neglect or ignorance.

Whether policymakers themselves will reflect on the poor treatment clinically extremely vulnerable have experienced as a result of their trade-offs and the externalities they impose is an open question. But it is not just policymakers who make decisions on behalf of others, or who impose externalities on them. We make decisions for others, too, for example as parents, as teachers, as carers, or as supervisors at work.  And we make choices where others who are not involved still bear the cost – when we behave selfishly on the road, when we noisily leave the pub at midnight, or when we leave our dirty coffee mug in the sink at work and leave the washing up to someone else.

Perhaps we can draw a lesson from the story of Linda and Tom, and try to have a little more regard for others when we make choices.

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The consequences of loyalty

When rules and consequences clash, we had better weigh up carefully what matters most

When a pandemic is wreaking havoc, and many hundreds of people are killed by a virus every day, it is important that the population as a whole takes sufficient precautions to slow down its exponential spread. Self-interest may not be sufficient to ensure the right behaviours are widely adopted. So, governments tend to impose rules that transcend people’s conventional decision-making approach in which they weigh up the costs and the benefits of a decision.

In essence, a rule removes the burden of having to work out the trade-off: Just Do (or Do Not Do) This (or That) Thing. Laws, religious prescriptions, and social conventions are full of them: we drive on the correct side of the road, do not covet our neighbour’s ass, and, unless we are a life guard, we don’t go to work in a swimsuit. And during a pandemic, when the government says “Stay at home” that is what we do.

However, such rules may come into conflict with other concerns at some point. When I wrote about this a few weeks ago, I discussed the potential for behavioural fatigue and alluded to the fate of the Scottish Chief Medical Officer who had had to resign for breaking the terms of the lockdown. I had no idea that in the weeks to come epidemiologist Neil Ferguson would be resigning as a member of SAGE, the group of senior scientists advising the UK government on COVID-19-related policy, also for breaking the lockdown rules. But I had even less expected that prime minister Boris Johnson’s chief adviser, Dominic Cummings, would become embroiled in a similar controversy.

This latest affair offers a kaleidoscopic perspective on decision-making, at three levels, each of which merit our attention.

A worried father

In case you missed the story (though I understand it has received airtime well beyond the shores of the British Isles), a brief summary. A few days after the nationwide lockdown was instated, Mr Cummings’ wife reported feeling ill, and feared she might have COVID-19. Concerned they might not be able to look after their four-year-old son if he too would become ill, he drove his family 250 miles from their home in London to Durham, where his father and his sister live. This was clearly in breach of the government’s lockdown instructions. People with symptoms had to self-isolate at home, and were not expected to travel elsewhere.

Nevertheless, it is an understandable option to consider. As a fearful parent, we feel the most secure when we are close to our family. Moreover, Mr Cummings’ own account of the episode suggests his actions posed negligible risk to others – not least since, despite both his son and he falling ill while away, none of the family did actually tested positive for COVID-19 throughout.

A short trip to test one’s eyesight (image: Twitter)

But this is precisely why simple, unconditional rules, respected by all, are important. This rule was intended to manage the externality that Mr Cummings (and everyone else) – whether with symptoms or not, since also asymptomatic carriers can spread the virus – was imposing on others, by increasing the risk to them.

So, some take a dim view of this escapade. The case for having acted as a worried father seeking to do the best by his family is not really helped by a somewhat surreal twist to this tale. A few days before returning to London, he made a trip to Barnard Castle, a popular tourist attraction about 30 miles away, supposedly to verify his eyesight was good enough for the long drive home, and with wife and son in the car. (Meanwhile the Durham police have declared it “might have been a minor breach” of lockdown rules.)

The citizens are revolting

The fact that of one worried father had bent the rules would not remotely have made the headlines. This was not a random worried father, however, but a figure in a position of authority, and the news, on 22nd May, of Mr Cummings’ trip led to predictable indignation. Much of it came from the opposition, but there was plenty of outrage from within the government party too. Dozens of Tory MPs seem unwilling to “move on” from the row, with 44 of them (including several bona fide Brexiteers) calling for Mr Cummings to go. In a YouGov poll after Mr Cummings defended his actions at a press conference, 59% of respondents said he should resign or be sacked, and 71% believe he breached regulations. Several variations on the “One rule for them, another one for the rest of us” could be heard up and down the land.

Hypocrisy is hardly an unusual allegation to be levelled at politicians, so it should not be unexpected for chief advisers either. But while perceiving someone as a hypocrite is often enough to call for their resignation or for them to be sacked, being a hypocrite is not, in itself, unethical, and rarely grounds for actually having to resign, any more than being bald or wearing a terrible T-shirt.

In this case, however, the consequence of the controversy goes beyond the potential loss of reputation for the ruling party, or a shift of voting intentions towards the opposition. The government relies on the broad willingness of the citizens to respect the rules imposed for handling the pandemic. Such behaviour depends on social proof, visible evidence that others are following social norms and adopting that desired behaviour too.

The widespread perception that the prime minister’s chief adviser broke lockdown rules (this is violating the descriptive norm, “what people do”),  and that it is actually OK to break the rules (this is violating the injunctive norm, “what people ought to do”) flips that social proof around. When we see evidence that others – especially figures in authority – are disregarding the rules, and leaders are condoning such transgressions, we will be inclined to do likewise, especially if the behaviour the rules aim to achieve is costly or inconvenient.

Uncompromising loyalty

This makes the reaction from the prime minister, from Mr Cummings himself, and from the cabinet – ‘nobody did anything wrong’ – a little puzzling. Both the PM and his adviser have a reputation of being good communicators, at least with words. But communication is more than just rhetoric and slogans: what one does, or doesn’t do, also conveys a message. Here, the government seems to be spurning the scientific advice it is otherwise so keen to refer to, as this tweet from Stephen Reicher, a psychologist specializing in crowd psychology and one of the members of the Independent Scientific Pandemic Influenza on Behaviour (SPI-B) group suggests (supported by several of his colleagues):

source

It is hard to disagree both with both the advice, and with the conclusion that it has not been followed particularly diligently. The fact that, a week on, the controversy shows little sign of dying down, despite appeals by Boris Johnson to “move on”, indicates the government might have been wiser to do so. Mr Johnson’s defending his chief adviser is understandable: he relies heavily on his top aide, and would be loth to lose him. But he appears to have manoeuvred himself in the tricky position of now having to choose between his right-hand man, and the trust and support of a considerable proportion of the people.

It is the uncompromising loyalty of his ministerial team that is the most remarkable, however. One junior minister resigned over the matter, but most members of the cabinet have expressed their backing for the PM and his chief adviser, in uncannily similar tweets, almost as if they received instructions to do so.

These cabinet members appear not to be Benthamite consequentialists, aiming to achieve the best possible outcome, but Kantian deontologists, who doggedly stick to the rules of loyalty to the party and to each other. Being guided by such a principle may well help avoid making difficult trade-offs, but when a conflict arises with another rule, or when the consequences of the principle begin to, well, be consequential, then obstinacy can be poor counsel.

On 28th May the UK officially started its test-and-trace programme, which – in the words of the government – relies on “people doing their civic duty”, and obeying the instructions to quarantine for two weeks when that is demanded.  A government that is perceived as condoning the breaching of its own rules by a senior adviser, and to be valuing tribal loyalty more highly than maintaining solidarity with its subjects may find this civic duty not to be as forthcoming as it would wish.

Even deontologists would be well advised to have an eye for the consequences of the rules they uphold.

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Is that a lot, or is that a little?

(credit: duncan c/Flickr CC BY)

The answer to the question is often far from clear-cut, and we may be easily misled – by others and by ourselves

Imagine you have ended up in a foreign country that you have never visited before. You have no local currency on you but, remarkably, the taxi driver accepts your credit card. You ask him how much he would charge you to take you to your hotel, which you know is about 8km from where you are now. He says that would cost 250 monetan. Is that expensive or cheap?

Without anything to compare this with, the amount is clearly meaningless. Knowing the exchange rate might help at least convert it into your home currency. But perhaps you rarely take a taxi at home, so even knowing how many pounds, euros or dollars a moneta is might still not tell you the whole story. And even then, perhaps the going rate for an 8km taxi ride in this country is 50 monetan, and the taxi driver is ripping you off.

No certainty without context

Numbers give us a sense of certainty, but they don’t tell us anything if there is no context. In a foreign country with a currency we are unfamiliar with, we are keenly aware of this. If we cannot compare the price of one good or service with what other goods and prices cost, with what a similar good or service would cost in our own country, or with what we could buy at home with the equivalent amount, the proposition by the taxi driver may just as well have been for 250,000 monetan, or 2.5.

Is this a lot of money, or a little? (photo: FreddieBrown/Flickr CC BY)

And it is not as if there is just one single context. If you can buy a sandwich for 250 monetan, then the taxi drive seems cheap, but if the moneta is at parity with the pound, the euro or the dollar, it’s rather pricey for an 8km drive. (Both can be true at the same time, by the way.)

Because numbers need context, if we don’t have one, we will make one up. If we don’t know whether 250 monetan is a lot or a little, we’ll think of 250 pounds, 250 euros or 250 dollars as a reference. We will not actually equate the two currencies but, failing anything better, a taxi ride costing 250 monetan will feel expensive, and one costing 25 monetan cheap.

We don’t even need fictional foreign currency for such implicit comparisons. I remember hearing, back in the 1990s, someone mention that British Telecom made a profit of over £3 billion, or “more than £5,000 per minute”. Now, £3 billion is, even 25 years on, a large amount of money that is hard to evaluate for ordinary mortals. The attempt to convert it to something that speaks more to the imagination is, in itself, laudable, but what do most people think of when they see an amount of £5,000? Many will compare it with their salary. The average person in 1995 had to work for three months to earn what BT makes in profits in one minute. A correct observation, but does it help us evaluate the significance of this amount? Can we say whether BT’s profit is a little or a lot, excessive or disappointing, given this context? Not really. Will that stop us drawing a conclusion? You probably know the answer.

We can even leave money behind altogether, and still find ourselves harbouring assumptions that lead us to unwarranted conclusions. In a recent essay, Professor Sir David Spiegelhalter, the closest thing to a risk and uncertainty guru the UK has, calculates that “compared to a 20-year-old, an 80-year-old had ~ 500 times the risk of dying from COVID [over the 5-week period from 28th February to 1st May]”. Is that a little, or a lot? Of course, as one might expect, the good prof provides plenty of context in his article for us to get to the bottom of it. But how would most people interpret a newspaper headline like this? 500 times the risk of dying sounds pretty dramatic. (As it happens, Prof. Spiegelhalter’s approximation is a little off – the risk doubles every six years, not every six-seven years, which means that over a 20-year age gap the risk increases around 10-fold, not 8-fold. This in turn means an octogenarian is at 1,000 times the risk of dying compared to a vicenarian*. If anything, this amplifies the effect, of course.) But unless we know 500 (or 1,000) times what, what can we really conclude?

Looking at the data table in the article, we see that the actual risk for a 20-year old male is about 1 in 200,000, and that of an 80-year old male is indeed just over 1,000 times higher, at 1 in 179. A little or a lot? Well, it’s still not so easy to say.

In search of the right context

We can look at what would happen in the absence of this pandemic. The baseline risk of dying for a man in the 80-84 age range is a little higher than that of dying of COVID-19, at 1 in 155. If there was a group of, say, 179 80-year old men on 28th February in a normal year, five weeks later there would be 178 still alive. Now, with the novel coronavirus spreading around, it would be 177. This perspective is a long way from what the figure of 500 or 1000 suggested.

Has he not heard that his risk of dying of COVID-19 is 1000 times that of a 20-year old? (photo: Andrea Piacquadio)

Because for someone in this demographic, the risk of dying of COVID-19 in that 5-week period is about the same as the baseline risk, we can also say the pandemic has nearly doubled the risk. For a man between 20 and 24, that increase is 11%. We might therefore just as legitimately conclude that the increase in the risk of dying as a result of the virus for an 80-year-old man is less than 10 times greater than for a 20-year old man. Again, quite different from the 500 (or 1000 times) factor, which seems not remotely as informative as we might have thought.

We cannot help comparing, though. (I wrote about our comparing minds before.) The work of researchers like Dan Goldstein and Jake Hofman can produce give meaningful context to numbers (see this piece), but in the meantime we often have to simply construct our own.

And our conclusion – a little or a lot – often hinges on what we use (or are given) as a reference point. This creates opportunities for nudging for good, as illustrated in a new research by Hal Hershfield, a psychologist at the University of California, Los Angeles and colleagues. They tested different ways of presenting a saving programme, and found that framing deposits as daily rather than monthly amounts quadrupled the number of people who enrolled. More strikingly still, they found that, with a suggested deposit of $150 per month, the number of participants in the highest income bracket was three times the number in the lowest bracket. When the deposit was presented as $5 per day, the difference in participation rate was eliminated.

But it also creates opportunities for manipulation. If the context can make a little look like a lot, and a lot like a little, astute people with a particular agenda can select the one that furthers their cause. At the Twitter account @justsayrisks, Gideon Meyerowitz-Katz, an epidemiologist at the University of Wollongong in Australia, regularly shares examples of somewhat sensationalist use of relative risks in media headlines – like the recent Daily Mail claim that coronavirus patients with vitamin D deficiency are twice as likely to die, whereas the absolute risk increase is just 1%.

A little or a lot? It often depends. Be on your guard that you are not getting the wrong answer.

* Yes, I had to look it up, too.

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Prices without markets

(featured image credit: Corinne Brown/Flickr CC BY)

Do prices reflect value – and if they don’t, should they?

Cynics, Oscar Wilde said, know the price of everything, and the value of nothing. That’s as may be, but do you know the difference? The price of something is easy: it is the amount of money one party pays to another party in return for a good or a service. It is clear-cut, unambiguous and quantified.

The price for the same item may differ from one transaction to the next: a beer in a swanky bar may well cost somewhat more than the same beer from a beach shack, and printer paper bought by the box is most likely cheaper per page in a single ream. But after a completed transaction, there is no discussion about the actual price.

Capturing value

Value is a different affair. We can try to express it in money as well, using economists’ concepts of willingness to pay (WTP) and willingness to accept (WTA) as proxies for the value in the eyes of the prospective buyer and seller respectively. The long-running television show Wheeler Dealers (perfect fodder during idle lockdown moments) illustrates how this works.

In each programme, car trader Mike Brewer seeks out an old car to renovate, which his wizard mechanic companion (formerly Edd China, currently Ant Anstead) then fixes. The hope (and aim) is to sell the car on at a profit. At the very end of the show, a prospective buyer offers an amount of money below the asking price. Then there is some (pretend) haggling, and usually the sale is concluded at an amount in between; although sometimes they settle for either the offer, or the asking price. Does this tell us something about the value in the eyes of either party?

To the buyer, the value of the car will be at least equal to their initial offer; a sane person would obviously not offer to pay more than that. How it is derived, we can only guess (but hang around, there is more to say about this in a few paragraphs). To the seller, with similar logic, the value will be no more than the asking price (but at least the total cost of the renovation, as the seller will not want to incur a loss).

running tap

It is vital for our survival. How can something so valuable be so cheap? (photo: Steven Johnson/Flickr CC BY)

But both parties, if they do their homework, will also consult the market. If you know at what price similar transactions have concluded, you can calibrate your WTP or WTA, and avoid a costly mistake. If you’d make a good profit by selling at £7,000, but you know that this kind of car sells for £10,000 you’d be a fool not to raise you WTA to that level. Likewise, if your budget for a classic car you really fancy is $10,000, but you find that they typically change hands for around $7,000, you’d feel miffed if you had stuck to your original WTP.

Are WTP and WTA a good proxy for the true value of something, then? It may well be for sellers. WTA is like a reserve price in an auction – if that price is not reached, the seller keeps the item. If they later agree to sell at a lower price, they are not selling below their value, but discovering that their true value was not as high as they imagined.

But for the buyer, it’s is not so straightforward. How much would you be willing to pay for a litre of water? Let me remind you that without enough water (around 2 litres per day), we would probably be dead in less than a week. And we don’t just use it for drinking – it is just as essential for cooking, and for keeping our house, our belongings and ourselves clean. Surely, something so crucial to our welfare will be more precious to us than diamonds (which we can happily do without)? In the UK, a litre of water, delivered at a tap of your choice, costs around 0.3p – not a lot, you’ll agree.

Now let’s compare that, not with diamonds, but with petrol. Even with rock bottom oil prices, a litre of petrol in the UK costs more than £1 – more than 300 times the price of a litre of water. Since our species first emerged, we have depended on water to survive and prosper, and indeed to evolve to conquer the world. But we never needed petrol. So, surely, water is the more valuable of the two. Would that be reflected in our WTP – would we happily pay £1 or more for a litre of tap water?

Thankfully, we don’t have to contemplate that eventuality. Water is, in most places where people live, in abundant supply, so that all our demand can be met at the low, low price we pay. Should any supplier try it on and test how valuable we really find water, competition will soon force them to adjust their prices to what the market will pay. That even applies for mineral water, selling at 200 times the price of tap water – but not 1000 or 10,000 times.

Pay by contribution

Which brings us to an idea that pops up every so often, including now, when our society is, shall we say, a little disrupted. The so-called key workers: nurses, garbage collectors, shelf stackers and delivery drivers – the people who keep us from going sick, hungry or crazy in this lockdown… don’t they contribute more to society than CEOs, financial traders and soccer stars? Should, as an opinion video on the BBC website suggests, “bin men (and women) be paid more than bankers”?

There is a tempting logic to the proposition. Even sidestepping the difficulty of establishing the actual contribution of a worker, our intuition would seem to tell us that bin (wo)men are considerably more valuable to our life than bankers. But isn’t that just like water and diamonds? It is not because something is more valuable to us than something else, that we are prepared to pay more for it.

This is known as the paradox of value. Adam Smith, the spiritual father of modern economics, attempted to resolve the paradox by separating the value in use (the utility we enjoy while consuming a good or service) and the value in exchange (the price in a transaction).  As we saw earlier, they can influence each other, but they can still differ markedly. The utility we derive from the consumption of a good or a service is generally not dependent on supply and demand. The price, on the other hand, is very much a function of relative supply and demand – and this is what is behind the core of the paradox. We confound stuff that is inherently valuable to us because it provides utility, with stuff that is expensive because it’s scarce (and hence appears valuable).

Bin men

More contribution than two bankers (photo: Jonathan Davis/Flickr CC BY)

Would it be beneficial if the price of water or of garbage collection reflected better the value it represents? Imagine governments raised taxes on water the way they do on alcohol, and made water – being more valuable – more expensive than whisky or gin. It is not easy to see how this would make anyone better off. Households would need to divert money that is spent on other things to pay for water. This would be welfare reducing, and one wonders what the government could do with the additional water tax revenue that would provide enough compensation.

What if refuse collectors were given a pay rise that put them on a par with bankers? Governments are the principal buyer of their services (on behalf of the tax payer) so they could actually make this happen. But here too it is unclear where the net benefit would arise. Like for households and more expensive water, the pay rise would require a cut in other expenditure, and hence a drop in overall utility.

It would also disrupt the labour market. Everyone with suitable qualifications would want to become a bin person: the wage rise signals the supply of labour is scarce. But, of course, it is not – on the contrary, there are suitable candidates in abundance, and it’s the jobs that are scarce. Huge numbers of entirely qualified people would be chasing a small number of highly paid jobs. How would the lucky candidates be selected? It’s easy to see how corruption might start tempting the recruiters. Would the unlucky ones demand similar wages elsewhere? If they’re successful, life might become much more costly (and eventually even the bankers would earn more too). If not, we might see rising social tension. Trying to set prices outside the market, without taking into account relative demand and supply – price controls, if you like – is fraught with unintended consequences.

But perhaps the most compelling argument against pricing goods, services or work according to the value they contribute is not that it is impossible to beat the market. It is in our own choices and behaviour. If we, as consumers of water or waste collection, feel we want to pay a higher price that more accurately reflects the value these represent to us, we are free to do so. Nothing stops us making extra payments to our water supplier, or handing out money to the bin men and women.

And we don’t – because it doesn’t make us better off.

 

 

 

 

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Similar, but very different

(credit: 272447 /Pixabay)

We sometimes treat similar risks very differently, and that affects how we make decisions

Fear of flying is not likely to be something bothering many people any time soon. The latest IATA figures show that, after a drop in global demand for air travel in February of 10% year-on-year, the decline was way more precipitous in March: it was down by 56%. The figures for April are not yet available, but FlightRadar24 (which tracks all flights globally) reports it shrank by nearly 74%. This includes cargo movements, so whatever remains of passenger flights will be negligible.

Fear of flying is often cited as an irrational fear, on the basis that the objective risk of perishing while in an aircraft disaster is comparable to the risk of dying while travelling to or from the airport, especially if that is done by car (a 1000 mile flight poses about the same risk as driving 250 miles). You could indeed argue that categorically avoiding one risk, but happily accepting a similar or larger risk is irrational. But is that really so?

Risk: more than just figures

The risks may be equivalent, but there is more to it. Should something go wrong, the prospect of spending your last minute or so in an airliner going down, well… I can kind of see why some people might have a strong preference to avoid such a fate. And before – if you are lucky enough not to suffer from aerophobia – you laugh at people refusing to travel by air, consider this. Would you happily jump out of a plane in free fall for thirty seconds, before eventually engaging your parachute? If you drive a pretty average 8,000 miles per year, you will have exactly the same risk of dying. And yet, for most people, it doesn’t feel remotely the same.

If you don’t go skydiving (or travel by aeroplane) then what you are doing is to avoid any possibility of being killed during that activity altogether. Like avoiding hangovers by not drinking alcohol, it is hard to see why this would be irrational. Before we dismiss fear of flying (or of skydiving) as irrational, we should realize that there is more to risk avoidance than just numbers.

If we must see irrationality in refusing to travel by plane, then we have to look elsewhere, for example at the failure to consider the trade-offs in a categorical refusal. By unconditionally rejecting (or indeed accepting) a particular possibility, without even considering the consequences, we are potentially excluding the option that is ultimately best for us. That would be reasonable example of acting irrationally, against our own interest.

classroom

Empty now, but will anyone die when the classroom is reopened? (photo: Wokandapix/Pixabay)

There is another facet of risk where a question can be asked about rationality, and it is staring policy makers in the countries that have successfully contained the COVID-19 pandemic right in the face. Imposing a lockdown was easy in several ways. The message was exceedingly simple: stay at home (with very few, pretty clear exceptions). There was also, initially, little worry about the consequences. When the number of new victims of a disease doubles every other day, and the health care system is accelerating towards 100% of its capacity, you pull out all the stops, without asking too many questions.

But once the curve has been flattened, attention turns to the drawbacks of a lockdown, and pressure rises to relax earlier rules. That will certainly make communication more difficult (“if we can go to work, then why can we not visit friends?”). More importantly, it also confronts governments with complex decision-making challenges. Easing the restrictions almost inevitably involves an increase in the risk that some people might contract COVID-19 (and die of it).

Not all the dead are equal

One such decision is the reopening of schools. School age children seem to be a low risk population across most countries. In the UK, the latest figures for March (when the total number of deaths ascribed to COVID-19 was 3,912 – it is around 30,000 now), only one person under 20 was among the dead (in the 15-19 range). This would make allowing young people to go back to school an appealing decision: big benefits (children can get properly educated again, and parents can go back to work), small disadvantages. However, there are nearly 9 million pupils in British schools. Might children actually die if the schools reopen?

Data on influenza (ordinary flu) give us some guidance. A study looking at incidence (the chance of contracting it) and case fatality rate (the likelihood that someone dies, having contracted the disease) shows that, on average, the incidence of influenza for children aged 5-14 is 0.85%, and the CFR is 0.12%. Both the incidence and the CFR for people above 14 are higher, so if we use the same numbers for the entire school age population (up to age 18) we know we are underestimating reality. If 0.85% of 9 million pupils contract the disease, and 0.12% of that number die, about 90 COVID-19 deaths can be expected among the school age population.

How would people react to even a fraction of this figure? Imagine the headlines in the media, even after the first death: “Schools reopen, Abigail (6) dies of COVID-19”.  Which policy maker would be prepared to face the cameras and explain that this is not much different from the 60 or so children who die of flu each year?

car crash

After the lockdown, back to more traffic casualties (photo: valtercirillo/Pixabay)

Now consider another measure: the reopening of businesses, and the corresponding pickup of traffic. Over the last eight years, the number of traffic fatalities in the UK has been around 1800 per annum, or about 34 per week. There are no figures yet for traffic casualties during the lockdown, but with car traffic down by 80%, a reasonable approximation would be to say it has been reduced pro rata, to say about 7 fatalities per week. We can truthfully say that the lockdown has saved 27 lives every week since 24th March – that is 160 people. We can be absolutely certain that, as the economy kicks back into action, more people will die on the roads.

Will we see headlines proclaiming “Lockdown ends, 14 extra traffic fatalities in the first week”? Not very likely.

A decision to ease the lockdown at the end of May, will, by the end of the year, be responsible for well over 500 traffic deaths – people who would not have died on the road had the lockdown been maintained. It may also be responsible for maybe 100 school children dying over the same period, compared to the same baseline.

While the risks of travelling by plane and by car may be roughly similar, we can understand why, to some at least, they appear very different – a matter of preference. But is it just a matter of preference, if we find an increase in the number of deaths among young people of about 100 compared to the present status quo so much worse than an increase of at least 5 times that in traffic fatalities?

Even your correspondent struggles with this question. If you feel the same, you are in good company.

Posted in Behavioural economics, Economics, politics, Society | Tagged , | Leave a comment

What (we think) others think about us

(featured image credit: Nathan Rupert CC BY)

Our concern about the way we believe others see us is not necessarily all that helpful

“Does my bum look big in this?” Lovers of British comedy may recall this catchphrase from The Fast Show, in which Arabella Weir plays a variety of characters unduly preoccupied with the looks of their rear end. As is often the case with good comedy, it is just an ever so slightly exaggerated depiction of something that we all recognize.

Most of us do indeed care about what others think of us, and the very thought that we might leave a negative impression on them fills us with horror. We shudder at not noticing that there is a big bogey visible inside our nostril, or a piece of spinach stuck between our front teeth. Likewise for ‘wardrobe malfunctions’ such as – for gentlemen – forgetting to zip up their flies, or – for ladies – tucking their skirt in their underwear.

Not just the misadventure

It is not just mishaps that we fear. When we go out, the choice of clothes we wear, and what we do to our face (whether it’s shaving, trimming our nose hair or putting on makeup) is – contrary to what we may like to tell ourselves – most of the time not for ourselves. As we are stuck at home in lockdown, at most we pay some attention to the bit that our webcam will see in the odd Zoom call will see.

It is also not just about how we look, but what about we do – and how we think others will see us as a result. Stanley Milgram is probably best known from the obedience experiment in which the participants were told to give an unknown person electric shocks of increasing intensity every time they gave a wrong answer to a trivia question. However, he also worked on a concept known as norm violations.

During the 1970s, he instructed his students at the City University of New York to take the subway during the rush hour, and repeatedly ask passengers who were lucky enough to have a seat to give it up. What was remarkable, was the fact that no less than 68% of the people responded positively to the request and got up willingly. What was more remarkable, though, is how difficult, even traumatic, the experimenters found this task. In an article in the New York Times published 30 years later, some of the people who had taken part at the time as students reported still having vivid memories of the experiment – “I really felt sick to my stomach,” one of them said, “I was afraid I was going to throw up.”

crowded subway

May I have your seat – or is it two seats? (image: WNYC New York Public Radio CC BY)

Milgram himself was surprised his students found it so hard, so he tried it himself. And he too found himself unable to perform this simple task: walking up to a seated passenger in a crowded carriage, and asking them for their seat. When he eventually managed to do what he had asked his students to do, and a man got up, he reported feeling possessed by the need to justify his request: “My head sank between my knees, and I could feel my face blanching. I was not role-playing. I actually felt as if I were going to perish.”

Much of the embarrassment we experience in social situations may well be related to perceived norm violation. We have a strong tendency to imagine that others continually judge us for our appearance and our behaviour. It even has a name: the spotlight effect, coined in 2000 by the psychologists Thomas Gilovich, Victoria Medvec and Kenneth Savitsky. In one of their experiments, they asked participants to wear a T-shirt featuring the singer Barry Manilow, an artist “not terribly popular among college students”, and to estimate how many fellow students would spot it. They predicted that nearly half would notice they were wearing an embarrassingly naff, norm-violating T-shirt. In reality, it was not even a quarter.

The spotlight effect, the emanation of our reluctance to violate prevailing norms, prevents us from doing things that might get us expelled from our social circle. It is a feature that we probably have been carrying with is since our ancestors were still living in small tribal communities, a strong force that protects us from embarrassment or worse. Would you leave our house in just your underwear or even with no clothes on? Probably not.

Under pressure

Would you do so if you woke up in the middle of the night, smelling gas and realizing your house may be about to explode? Probably yes. The force is strong, but not absolute, and what you would be doing here is hedging. You would be paying a small cost (the potential embarrassment of standing in the middle of the street in your birthday suit) to avoid the disastrous consequence of being blown to smithereens while you’re still putting on your socks.

in the spotlight

Nobody is paying any attention, you know… (image: Rebecca Orlov/Unsplash)

But, as Annie Duke – world class poker player, psychologist and author of an excellent book about decision making under uncertainty, Thinking in Bets – explained in a recent episode of the Behavioral Grooves podcast, we don’t always make this sensible trade-off. If the urgency of a gas smell, or the sound and sight of flames licking the staircase, are not there to encourage us to hedge our bets and ignore the risk of embarrassment, we are more reluctant.  As the COVID-19 crisis was in its early stages, most people continued to shake hands instead of tapping elbows “because they didn’t want to look stupid. I went to a restaurant just before the lockdown, I have my disinfectant wipes with me and I am wiping everything down – and people are looking at me like I’m insane. The reason is that nobody wants to look dumb. ‘I’ve just spent a couple of weeks wiping everything down with Lysol, and it turned out this was nothing, and boy, do I feel stupid! I was tapping elbows with people, and man, I feel like an idiot!’

We are deeply uncomfortable under uncertainty, and we are deeply uncomfortable acting in a way that goes against social norms. There is, or at least there was no norm about what to do and not to do when there is a pandemic about to break out. So the prevailing norm – don’t act like an idiot – applies: as long as we are not certain, we will not be seen as someone who is acting like an idiot.

That combination is not good. Most of us were reluctant to do all these weird things that now seem totally normal, until it was clear that COVID-19 was serious – and a lot of damage was done. There was no gas smell or fire in the hallway to kick us into action. Our insecurity and our fear of looking foolish prevented us from hedging our bet, and we made a trade-off that may, with the benefit of hindsight, not have been the best possible bet.

The spotlight effect can, as so many cognitive biases, beneficial and adaptive. But it can also be overprotective. It can deprive us of the joy of, as the song has it “dancing like nobody’s watching”, of dong what feels right, regardless of what others might think. And it can prevent us from adopting behaviours that may safeguard our own lives and that of others.

Britt Ekland

It’s as simple as that. (image: BBC screenshot)

Being aware of the spotlight effect might allow us to enjoy life a bit more, and perhaps even, one day, save our life. Perhaps we can become more like Britt Ekland, the (now 78-year old) actress who, in the BBC show The Real Marigold Hotel, declared: “The best thing about growing old… it’s, you don’t give a shit. I can be a bit naughty… and I don’t really care what other people think. It’s as simple as that.” The spotlights are, for her and for us all, mostly, off.

 

 

 

 

 

 

 

 

 

Posted in Behavioural economics, Cognitive biases and fallacies, Emotions, Psychology, Society | Tagged , | Leave a comment