Coloured reality

(image via Youtube/PBS)

Is reality, as we see it, anywhere near the mark?

Have a look around you, listen (and feel free to use your other senses too). That should give you a good sense of the reality of your current environment, shouldn’t it? Yet the picture we get of that reality is inevitably limited by what our senses can detect. Our eyes can only ‘see’ light with wavelengths between infrared and ultraviolet, and our ears can only ‘hear’ sounds with a frequency between roughly 30 Hz and 19,000 Hz (this range reduces dramatically as we get older).

These limits are peculiar to us: bees have no receptors for the colour red, but they have one for ultraviolet (as shown in the banner picture); dogs can detect sounds with a frequency more than an octave higher than the highest-pitched sounds we can hear. But they too have limits to their perception. Whatever reality anyone observes, it’s only a fraction of what is really out there.

Perilous perceptions

Our senses are not the only limit on how we construct reality. We do the same at a higher, cognitive level, combining existing beliefs with our perception. The polling organization Ipsos conducts an annual survey in dozens of countries, gauging people’s perception of a range of societal matters, and compare it with the actual facts. I mentioned this project in an earlier essay, but since then Bobby Duffy (until September 2018 the Global Director of the Ipsos Social Research Institute) has bundled several years of insights in a new book, The Perils of Perception.

In most cases when we get things wrong, like the percentage of teenage girls that become pregnant, or the proportion of Muslims in the population, we overestimate reality rather than underestimate it. One of the main reasons, Duffy says, is that we have an in-built bias for negative information. And of course, the media feed us plenty of that – a case of selection bias on their part (they report mostly bad news), and of the saliency effect on ours (we see this bad news as representative).

non-pregnant teenager

An unlikely headline in the media – (image: Ipsos via Twitter)

We see bad stuff more easily, and we remember it better. This is not so extraordinary from an evolutionary perspective – in face of limited data, we are more likely to survive if we are pessimistic and cautious than if we dismiss what worries us. Bobby Duffy calls this emotional innumeracy: we may try to be accurate in our estimates, but if we are concerned about something, we will project this and inflate the corresponding number. This is not a one-way process: our overestimate can feed our worry, just as much as our worry can cause us to overestimate the numbers. For this reason, overestimations are a good indicator of what worries a population. Add other cognitive tendencies like confirmation bias (we have more eye for that which supports what we already believe) and motivated reasoning (we seek to explain things based on what we believe), and you’d almost be surprised we can function at all with such a distorted world view.

Yet it is not just in our opinions and beliefs about our wider society that we get things badly wrong. Sometimes it can affect us directly, for example when we disagree with a certain behavioural norm, and mistakenly assume it is common among our peers. This phenomenon, known as pluralistic ignorance, captures how we adjust our behaviour in accordance with that misperceived reality. In a 1993 paper, Deborah Prentice and Dale Miller, two psychologists at Princeton University, described how students believe their peers drink more alcohol than they themselves do (and than they consider healthy). They found that male students then tended to not only adjust their attitude towards this perceived norm and become more tolerant, but also adjust their behaviour and drink more and more as the year progresses.

The behaviour can be detrimental in the other direction, too. A recent paper by Steven Buzinski (a psychologist at the university of North Carolina at Chapel Hill) and colleagues explores perception of the amount of time spent studying. Students were, on average, found to underestimate how much their peers studied for an upcoming exam. Interestingly, it was the students who overestimated the effort of their colleagues who went on to underperform on the exam. The authors speculate this is because, instead of being encouraged to study more, they suffered from anxiety and self-doubt as they felt deeply unprepared.

And even when we hypothesize about alternative realities, we seem to be subject to biases.

We often imagine counterfactuals to compare our current situation, past actions or future possibilities with alternatives. A quick search across my earlier posts suggest I have invited readers to “imagine” something more than 80 (!) times. But do we treat these imagined realities the same as the actual reality? Jens Andreas Terum, a psychologist at the Arctic University of Norway (the name alone makes me want to go there) investigated this question as part of his PhD Thesis.

Terum found the subjects in his studies treated counterfactuals with considerable bias in comparison with how they handled actual facts. Alternative realities were almost always imagined as opposite to actual realities, and extremely so (i.e. if in a scenario, things went well in reality, the imagined counterfactual was not a bit better or a bit worse, but very badly indeed). They also evaluated the consequences of a negative event (e.g. arriving late at a job interview) as worse when it was presented as a counterfactual, than as an actual event.

You might imagine (!) that this tendency helps us by bringing to the fore the dire consequences of ill-considered future actions. But this was not the case: the emotional intensity felt with counterfactuals was lower than with actual events. We see the outcome as worse, but we care less about it. This aligns with what he found in another study: near-accidents (where the counterfactual is of course a bad accident) were far less likely to inspire more caution in future than actual accidents. All this seems to fit with the idea that, even in imagined realities, we tend to be self-serving, first and foremost seeking to justify or absolve our actual behaviour.

Larger than you think

Perhaps the most graphic illustration of how distorted our reality is, is the way we map the world. Looking at the familiar picture below, would you say Europe is larger or smaller than Africa?

mercatorprojection

Living in a distorted world. Image: Wikimedia CC BY

The area of Africa is just over 30 million km2, that of Europe 10 million km2 – not quite what the map suggests: so Europe fits three times into Africa. The Gall-Peters projection does a much better job of showing relative sizes, but we hang on to the inaccurate, heavily distorted Mercator projection. Perhaps the reason is that it exaggerates the importance of Europe and North-America? You might very well think that, but of course I could not possibly comment…

We may not be able to swap the ubiquitous distorted world maps, but can we do something about our own misperceptions? Easier said than done, but we could try, for example, in our personal sphere, not to make too many untested assumptions about the norms others hold and apply. We could also bear in mind that imagined realities are, if anything, even more biased than our perception of the actual reality. With respect to our perception of the world at large, Bobby Duffy’s advice is to actively unfilter our world, to be critical and check facts – especially facts that chime with our values and those presented by members of our ingroup. We can counterbalance our natural pessimism by cultivating a basic assumption that things are not getting worse, but getting better (Max Roser’s work, and that of the late, great Hans Rosling – continued by his son Ola and daughter-in-law Anna – are an excellent antidote for excessive negativism).

That will leave us more than enough pessimism to help us survive… if all goes well of course.

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

Technicalities and voluntary morals

(credit: Elliot Brown CC BY)

Is what is technically right also morally right?

Maybe I should have studied law instead of engineering. One day when I was eight, my best friend and I were chatting in class when we shouldn’t, and the teacher gave us each 200 lines to write by the next day (a common punishment at the time). Writing lines was, of course, not how we had been imagining our leisure time after school.

So during the rest of the school day we forged a plan. What were the facts? We each still had our pocket money for the week (10 BEF, about £1.70 or €1.5 in today’s money). My friend had a big brother – I guess he must have been 17 or so at the time. We reckoned that he could write a lot faster than we could. What if we asked him to write the lines in return for our pocket money?

We did, and he did. The next morning, as we both handed in our lines, our teacher evidently spotted immediately that we had not written them ourselves. That was OK: we had never intended to pretend otherwise. “However,” I said, “you only told us to hand in 200 lines. You did not say that we had to write them.” I cannot recall the exact reaction of the teacher, but I do remember that this technicality did the trick: ‘our’ lines were accepted.

Bartsimpsonboard1

I was reminded of this anecdote last week when a judge ruled that David Beckham would not be convicted of speeding thanks to a legal technicality. On 23 January of this year, the former footballer had been caught driving at 59 mph (95 km/h) on a London road with a limit of 40 mph (64 km/h). The Road Traffic Offenders Act 1988, section 1(c)(ii) states that “a person shall not be convicted of an offence […] unless […] within fourteen days of the commission of the offence a notice of the intended prosecution was […] served on him [or on the registered keeper]”.  It appears the notice was sent on 2 February, but not received by the keeper until 7 February, one day outside the fourteen-day limit.

This caused some commotion in the media and on social media. A spokesman for Brake, a road safety charity, said Beckham is “shirking his responsibility” as a role model – a statement carried by numerous papers and news sites. The Daily Mirror even quoted his lawyer (known as Mr Loophole) as saying Beckham should have been convicted from a “moral standpoint”. The comments on Twitter, for example to this BBC tweet, are generally of a similar nature.

Moral legality…

This affair, though relatively trivial compared with some other issues that the UK faces at the moment, highlights two important aspects of human behaviour: a legal and a moral one. First, there is the question of these so-called technicalities.

Is the law being applied fairly by the judge for the sake of just one day? Should Beckham not, within the spirit of the law, have accepted his punishment? When his lawyer was confronted with this question in the BBC Radio 4 current affairs programme Today on 28 September, he pointed at the letter of the law which makes the 14-day term very clear, “for good reasons”.

Let us imagine there was no such limit: anyone could be prosecuted for an offence, months or even years after it allegedly took place. As an outsider, we may wonder what the big deal would be – if you did do it, then you deserve punishment, no? Yet trying to prove your innocence would be increasingly difficult, the farther in the past the alleged offence took place. I once received a notice for speeding in a town 50km away from my place of work, on a day that I had been in the office. Neither I, nor my car could possibly have been at the time and place stated. As the date of the alleged offence was just a week earlier, I could easily ask my boss for a formal statement that I had been at work – which he produced, and that settled the matter. It would, however, have been a lot more difficult to do this months or years after the event.

So it seems pretty reasonable for the legislator to require the prosecution to be prompt in notifying an alleged offender of their intention to prosecute. Allowing two calendar weeks for the administrative process and the sending by post seems reasonable too: there’s no conceivable reason why it should take longer. (A legitimate question might be why it took 10 days to send Beckham’s notice.)

This clause is no less part of the law as the actual offence of exceeding the speed limit: while the spirit of the law is that you should not speed, it is also that if you have been speeding you should be notified within a given time period. The judge’s decision seems therefore entirely defensible.

…or legal morality

But there is a second aspect worth bearing in mind, beyond the legal perspective.

Should Mr Beckham have accepted the punishment on moral grounds ‘as a good citizen’ in any case? We all know (and he apparently does not dispute the fact) that he was speeding.

There is a good societal argument to be made here. If you are caught speeding (or committing another offence), you are indisputably morally in the wrong. Legal technicalities do not change the moral significance of what you did. Even if the law, both in letter and in spirit, exonerates you, that moral transgression is not undone, and accepting the corresponding punishment would be the right thing to do to.

policemen

Enforcers of the law, AND of morals? (image: Dave Connor CC BY)

But wait. I said “if you are caught”. Should our morals depend on getting caught?

If not, then it follows that the moral obligation to accept punishment arises as soon as we ourselves know we have committed an offence. No need for a law enforcer to catch us in the act. Whenever we exceed the speed limit, drive through an amber or red light, park illegally, or indeed get behind the wheel after drinking more alcohol than we should have, we should voluntarily pay the fine, request the points to be added to our driving licence, or hand it in for a voluntary suspension.

But it is not sure whether many, or even any people would be willing to commit to such unconditional, voluntary, rather than legal morality. Nevertheless, one of the fundamental tenets of a fair legal system is that everyone should be equal in the face of the law (this principle is enshrined in the Universal Declaration of Human Rights).

Perhaps we should adopt a similar view with regard to moral obligations, and only demand that others fulfil them if we are committed to do so, unconditionally, ourselves. Because we are consistent people, of course – are we not?

 

Posted in Behavioural economics, Ethics, Law, Morality, Psychology, Society | Tagged , , | Leave a comment

Choosing and using identities

(featured image credit: Jenny Scott CC BY)

Identity is strong, and can trip us up in two ways.

Who are you? That’s a pretty existential question. It is quite hard to come up with a quick and concise answer – our identity is arguably as unique as our fingerprints, and much more complex to describe. Personality and physical presence are undoubtedly part of it. These are aspects we can only control to a very limited extent: we can exercise to keep ourselves trim and fit, but we cannot alter our height or – at least not without considerable surgical activity – the shape of our face, or our shoe size.

A meta-analysis of 207 studies has found evidence that it is possible to considerably change some features of one’s personality (with the help of a therapist), but by and large, without a significant intervention our personality traits change very little over our lifetime. We cannot choose our innate gender – the fact that some people undergo substantial discomfort to change their biological sex should suffice as evidence – and we cannot choose our innate sexual preferences.

Build your own identity

There are, however, many elements of our identity over which we do have control, directly or indirectly. We can choose our friends, our various social circles, and our professional network. We can choose the type of car we drive, the kind of clothes we wear, the music we listen to, the newspaper we read, the TV shows we watch.

Not every facet of our life qualifies as a part of our identity – few people would identify as a porridge eater. Others can be remarkably relevant to how we see ourselves: last summer’s soccer world cup stirred up many a dormant nationalist feeling, for example. And we construct identities for others in the same way: people who don’t drive a BMW or an SUV may think that those who do have a particular identity.

bmwx3

A BMW SUV – two identities for the price of one. (image: Luc CC BY)

It is not surprising that we feel close to people with whom we share important elements of our identity, perhaps the most with our family, as the old proverb blood is thicker than water exemplifies. But that doesn’t mean we always automatically side with our nearest relatives. This is something that Paul Gosar, an American Republican congressman seeking re-election in November experienced first-hand. Six of his nine siblings feature in a political advert… supporting his Democrat opponent, and denouncing the politics of their brother.

The power of the party line

This is quite extraordinary, but it neatly illustrates the power of political identity. A recent paper by Jay van Bavel and André Pereira, two psychologists at New York University, proposes an identity-based model that helps explain how people come to place party loyalty over issues of policy, and indeed over the truth.

Just last week, British Prime Minister Theresa May attended the EU summit in Salzburg hoping to plug her so-called Chequers plan and get the support from her 27 fellow leaders. It didn’t go to plan. Mrs May was told, in no uncertain terms, that her plan was unworkable. With less than two weeks to go to the annual Conservative party conference, she returned home in a less than triumphant mood. In a televised speech to the nation, she demanded that “the EU must respect the UK in the Brexit talks”. Donald Tusk, the president of the European Council, had earlier posted a picture online in which he offers Mrs May a petit four, with the caption “Sorry, no cherries” (an allusion to the refusal of the EU to allow the UK to ‘cherry-pick’ parts of its trade rulebook). For their part, the EU pointed out that they had repeatedly stated that the Chequers plan was not acceptable (the Independent helpfully lists “All the times the EU has said ‘no’ to Theresa May’s Chequers Brexit plan”).

nocherries

“You can have your cake and eat it, but no cherries” (via Instagram)

The reactions in the media and on social media were predictable. From the pro-Brexit side came angry cries of ‘insult’ and ‘humiliation’, from the pro-EU corner the talk was about self-inflicted damage, even adding to Tusk’s mockery with the odd reference to the hapless Black Knight in Monty Python and the Holy Grail (who keeps battling on despite having his limbs chopped off one by one, dismissing his predicament as ‘just a flesh wound’).

It looks as if the stronger one identifies with one or other side, the more one dismisses or plainly ignores any angle that does not support that chosen identity. There was, for example, precious little sympathy on the one side for the affront and indignity that Mrs May visibly experienced, and for the predicament she finds herself in. There was no hint of admission that there might just have been some discourtesy, intransigence and arrogance on the part of the EU. On the other side, there was little willingness to appreciate that the red lines Mrs May herself chose to draw two years ago – primarily for political reasons and with scant evidence that they were “what the British people voted for” – are the key obstacle to a compromise. There was equally little recognition that the tactic of trying to divide the EU had perhaps not been all that wise.

In the US, President Trump’s nominee for the Supreme Court Brett Kavanaugh is the subject of (at the latest count: three) accusations of sexual assault. Here too the comments divide along ideological lines. Liberal and Democrat leaning people generally dismiss the accused’s denials, and side with the accusers, the women who were allegedly the victims of Mr Kavanaugh’s undesired attentions. Conservatives and supporters of the president and his party take the side of the accused, and denounce the accusers for having waited until now to come forward. (This gave rise to a social media hashtag #WhyIDidntReport, used by victims of sexual assault to give their answers to the question. It is unclear whether the often poignant stories have had much effect on Mr Kavanaugh’s supporters’ views.)

Avoiding the identity bias

Partisanship can play hard and fast with one’s cognitive ability, stoking confirmation bias and motivated reasoning. Is it possible to avoid this? It might take some effort, but there is no fundamental reason why we could not approach a situation without colouring what we see with our identity. It is not without its risks though.

The economist Robin Hanson posted a Twitter poll shortly after Christine Ford Blasey first came forward and accused Kavanaugh:

hansonpoll

This caused quite a stream of comments (do check them out), very few of which start from the assumption that all Hanson wanted to do get an idea of how likely or unlikely such an accusation would be. Most ascribed ulterior motives (sexist, rather than political) to him. (There is some irony here, as he is the co-author of “Elephant in the Brain, Hidden Motives in Everyday Life”.) In response, Hanson explained the background to his poll in a blogpost. It was indeed a serious attempt at dispassionately approaching a highly polarizing issue (not just across the ideological divide, but also across the gender divide) without taking an a priori position – in other words, without allowing a particular identity to dominate the reasoning.

Now one may, of course, question Robin Hanson’s sincerity. (In the olden days of the internet in the UK, the acronym MRDA was more popular than it is now, wheeled out when one wished to say “Well he would say that, wouldn’t he?”) However, anyone familiar with Hanson’s work will know that this kind of detached, unemotional questioning is quite characteristic for the way he analyses the world.

The intensity of the reactions to his poll shows that it is not enough to leave your own identity to one side to ensure a serene debate around divisive and controversial topics. Others map an identity onto you – as if you were a well-behaved BMW-driver – and speculate about your motives. People who strongly embrace their own identity, it seems, perceive equally profound identities in everyone else, in particular anyone who appears to go against the tenets of their own adopted identity. (This might explain Republican US senator Lindsey Graham’s recent tweet about the identity of the lawyer for the third alleged victim – he also represented Stormy Daniels.)

grahamtweet

Identity is powerful; use it wisely

Identity is not a bad thing. We are social beings, and we have a strong need to belong to groups of people with whom we can identify. There is nothing wrong even with on occasion exploiting someone’s identity. Rebelliousness is part of many teenagers’ identity, and if you can use that as a stratagem to encourage them to eat healthily, why not?

But it is very potent. We should not allow our identity to distort the truth, to make us tolerant of questionable behaviour (or worse) if it is perpetrated by people with whom we share an identity, or to makes us assume, without any evidence, ulterior motives in the behaviour of others who don’t fully align with our views.

whoareyou

“Did The Who ever find out who you are?”

As Robin Hanson says in another post where he alludes to the controversy his tweets caused: “Let us instead revert back to the traditional intellectual standard: respond most to what people say, and don’t stretch too hard to infer what you think they mean in scattered hints of what they’ve said and done.”

Let us, whenever we feel strongly emotionally moved (favourably or unfavourably) by what someone says, or by what is said about someone, take a step back. Let us imagine the person at the centre was not someone who shares our identity, but whose identity is opposed to ours (or vice versa). Would we feel the same?

If not: let us beware of the identity bias, and reconsider how we choose and use our identity. It will make our own little world a better one – and quite likely the whole world out there too.

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

In whose interest?

(featured image credit: gaelx CC BY)

The relationship between charitable giving and nudging is an uneasy one

Charitable giving is a challenging phenomenon for neoclassical economics. What homo economicus, what rational, self-interested, utility maximizing would willingly give money away? It could even be argued that the fact itself that so many people make charitable donations is precisely why the homo economicus is illusory.

But perhaps things are not so simple. Sure, giving money away appears to violate the principle of self-interest. Yet, would someone who has just put a fiver into a collection box just as likely have dropped it on the floor, or set it on fire? Not likely. Even though the material effect of the loss is identical, clearly the different ways of disposing of a 5-pound note are not experienced in the same way.

Reasons for giving

There are underlying reasons to give money away to charity. Donating visibly, whether in plain sight, by supplying your name when donating online, or in some other way, could be a form of virtue signalling – letting others know that you are a good person. Maybe you do so in order to build or maintain a reputation, or to signal your wealth.

Recent research by two economists, Felipe Montaño-Campos at the Universidad San Andres in Argentina and Ricardo Perez-Truglia at UCLA, explored another mode of signalling. They asked participants to complete a cognitive test, much like those used for admission to a graduate school. Half of them (the meritocratic condition) then got awarded a sum of money based on their performance ($40 for the top-25%, $30 for those whose score was in the 50-75% range and so on), while the other half (the random condition) received similar sums, assigned at random.

They were then told they would be able to donate part (or all) of this money to a local charity, after both groups were further split in two: a public condition (in which the participants would receive a list showing each participant’s name and the amount donated), and a private condition (in which they would receive the list of donations in an anonymized form).

In the meritocratic condition, the public subgroup donated 57.14% of their gains, much more than the private subgroup (47.62%), and also a little more than the public subgroup in the random condition (56.85%). The authors conclude there was a tendency to signal intelligence through the magnitude of the donations.

charitytins2

Signal boxes (image: Howard Lake CC BY)

Of course we may also be generous because we feel that is the right thing to do (and in the process signal to ourselves that we are a righteous person). In 1990, economist James Andreoni coined the phrase warm glow for this.

So far so good: when we donate money, we actually do get something we value in return, so we’re not violating any economic principles. But then a new question arises: why do we give the specific amount we give? Do we wish to buy a specific amount of reputation or warm glow? Clearly, the total amount is inevitably limited by our overall discretionary budget (which, in itself is an elastic concept): few people would forego essentials or even non-essentials in order to buy some warm glow or do some heavy signalling. We may well operate a mental account for charity with a budget that limits how much we donate. But within those boundaries we make some kind of a trade-off that satisfies our desire for signalling, warm glow, and doing good.

But could we be nudged to donate more than we do?

Donating more, and more, and more

For sure. The identifiable victim effect is an example. But behavioural design firm Ideas42 believes it can be done in a systematic way. In a report entitled Best of Intentions – Using Behavioral Design to Unlock Charitable Giving they identify three dimensions to achieve this. “Tapping into the generosity” of the citizens helps them “increase the amount they donate each year”.  Tools that “allow people to plan when and where to give” ensure that the donations are more “aligned with their intentions”. And timely, relevant feedback can help establish “informed giving”, with the most impact.

They collaborated with a workplace donation platform using a variety of interventions. One example involved sending people a “year-end review” by email, offering a timely opportunity to reflect on their donations so far. The purpose was to prime donors’ philanthropic identities (“you’re doing well doing good”), make the total social activity more salient (“look how much has already been achieved with your generosity”), and establish a sense of urgency (“the year is running out”). In the group who received this email, 23% of people made an extra contribution (compared to 20.6% in the control). Also, among the 10% smallest accounts, the amount contributed was 63% higher, at nearly $11,000. It seems nudging works.

Ideas42 also believes we should be nudged. A survey they conducted indicated that Americans think that their neighbours should, on average, donate 6.1% of their income to charity. Yet statistics indicate that on average people donate just 3% of their income.

Many among us probably do indeed end up giving less to charity than we think we should if we really, consciously thought about it – much in the same way that we think we ought to snack less, or exercise more. But with charity donations, it’s hard for a third party to figure out how much that would be. (Arguably, it’s just as hard for ourselves to know our preferences – see this article.) To aggregate people’s estimates what their neighbours should donate into a target is probably not the most robust approach.

donut

“I have a weak preference for donuts, so WTF am I doing with this banana?” (image: stu_spivack CC BY)

This highlights a more general concern with nudging. The originators of the concept, Richard Thaler and Cass Sunstein, describe it in Nudge as an instrument of ‘libertarian paternalism’, and require that nudges are not “forbidding any options or significantly changing […] economic incentives”, and that they “must be cheap to avoid”. Whoever disagrees with the paternalistic choice has an easy opt-out to the nudge.

Conflict of interest

However, Pelle Guldborg Hansen, a behavioural scientist at the University of Roskilde in Denmark who has written extensively about nudging, has proposed a tighter definition, which adds a crucial clause, “in their [the nudgee’s] self-declared interests”. Why is this important?

By Thaler and Sunstein’s definition, nudges have a limited range of effectiveness. People with a strong preference either way will not be nudged by a mere manipulation of the choice architecture: if you really must have a donut, you will not be prevented from taking one simply because the fresh fruit sits at a more convenient spot. And if you already prefer an apple to a donut anyway, well, your life has just been made a little easier. That leaves people with a weak preference, some of whom may have weak preference for donuts. Because it does not manifest itself strongly enough for them to reach to the less conveniently placed sweet, sweet delicacy, they pick a banana instead.

Is this in the subject’s interest? Is it OK to impose a particular norm (fruit is better than donuts) on all the diners with weak preferences in the cafeteria, and nudge some of them against their actual preference?

Nudging like this could be defended on two grounds. First, there is no such thing as a neutral choice architecture. The eventual choice of people with a weak preference will always be strongly determined by the prevailing choice architecture. Without nudging, some people who (weakly) would prefer fruit may end up with a donut simply because it’s within more easy reach, and so their welfare is harmed by this. With nudging, it’s people whose weak preference is for donuts whose welfare is harmed. One choice architecture is not inherently better than another one, so nudging is not worse than not nudging. Second, all else being equal, a healthy population that is not overweight reduces the burden of healthcare on society. While the nudge may harm some individuals’ welfare, it is serving everyone’s welfare.

nudging

That loss of welfare to those who prefer donuts and end up taking fruit would seem relatively small (they also have the option of eating a donut later on), and the societal benefit large. Yet the same does not necessarily apply where charitable donations are concerned.

In the absence of any indication (other than a spurious 6.1% of income figure) how much an individual or a household would like to set aside for charitable donations, legitimate questions can be raised about nudging people to give more. Yes, in some cases, people may be donating less than they actually want, because they procrastinate, because they are distracted and forget, or because they don’t realize how much good their money does.

But it is inherently no different from nudging people to, say, buy more soft drinks. We just don’t know whether this different choice is welfare-enhancing for the individual (it is of course income-enhancing for the other party!)

And while the interventions in Ideas42’s report mostly leave a great deal of conscious agency with the subject, that is not so with all nudges. One example is Give More Tomorrow, an initiative for which Cass Sunstein appears to be a strong advocate.  It is similar to Save More Tomorrow, a retirement planning scheme pioneered by Richard Thaler and Shlomo Benartzi, in which employees commit to channeling a percentage of all future salary increases into their pension pot. Here, instead, they decide to donate a percentage of these raises. Unlike money invested in a retirement fund, once it has been donated, it cannot be retrieved. Furthermore, inertia will continue to work against the welfare of those who have a weak preference to donate less.

Nudging should therefore be done with great care. Nudgers are generally ignorant of the preferences of the individuals in the target group, certainly when they are not explicitly stated. There will always be people for whom a planned nudge will be welfare-reducing. At the very least, mindful of Pelle Guldborg Hansen’s proposition, nudgers should consider the self-interest of all individuals and justify whether the welfare-enhancement for some compensates the welfare reduction for others.

Otherwise, the libertarian nature of nudging may be little more than a thin veneer.

 

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

Economics in your thoughts

Economic thinking is not just about objective costs and benefits – it is also about your very thoughts

You’re driving along a road in town, and in the distance you can see a pedestrian crossing, protected by traffic lights. A figure with a pushchair is approaching it and proceeds to press the button. By the time you reach the lights, they have turned to red and you need to stop. The pedestrian is an older man, who smiles at you as he crosses, pushing a small child sleeping peacefully in the pram. The light turns green again and you drive on.

A very common scene, and one which – like so often happens in traffic – conceals economic activity. Road space is a scarce resource, which cannot be used simultaneously by different road users without causing unwelcome collisions. And allocation of scarce resources is a matter of economics.

Rules (like the obligation to stop for a red light) and mechanisms (like the push button at the crossing) make that possible in a relatively smooth manner. But when two users compete for the same resource, the benefit of the use to one of them often represents a cost to the other. In this case, the man with the child, in gaining exclusive access to the crossing, imposes a cost on you: you have to wait until the light turns green.

How big is this cost? You could estimate it by assuming a particular hourly rate (for example, what you are paid at work), and working out how much time you lose by having to wait for the light. Or you could ask yourself, how much would I be prepared to pay to ensure the light doesn’t change to read until after I’ve driven past, so my journey is not interrupted? This is a conventional economics way of looking at it. Perhaps you don’t take a single-transaction look: tomorrow you may be the pedestrian, benefiting from the ability to interrupt the flow of traffic, and imposing a cost on drivers. What is a cost today, is a benefit tomorrow – the swings and roundabouts of traffic facilitate efficient interactions, and even things out over time.

All in the mind

There is, of course, more to it. Let’s riff some more on this thought experiment. Imagine the guy pressed the button while you were still 200 metres away, but then judged it was safe to cross at once despite the pedestrian light still being red. By the time you reached the lights, he would be on the other side of the road, continuing his walk, while you would be waiting for a red light – for no obvious good reason. Would your experience be entirely the same? Or would you be somewhat annoyed at the pointlessness of your wait? What if the person had pressed the button but then changed their mind afterwards – perhaps they remembered they still had an errand to do on the same side of the road? Here too, you’d be stopped but there would be nobody benefiting from the transaction. Frustrating, isn’t it?

redtrafficlight

Not all red traffic lights are created equal (image: Matthias Ripp CC BY)

Or picture this, it’s not an older guy pressing the button, but two young kids who see you coming, wait until your stopped for the lights, and then laugh at you and run away – without crossing the road. They’re definitely deriving some benefit from having stopped you, but perhaps not in a way that you approve of.

None of this should make any difference to someone devoid of emotions – or something. Autonomous vehicles would be programmed to stop for red lights, without getting worked up if there is nobody actually making use of the green pedestrian light. In fact, you yourself may not even be that bothered if you need to stop for a red traffic light at a junction operating on a fixed cycle, and there is no traffic in the intersecting road. That’s just how traffic lights work.

But at the pedestrian crossing, being forced to stop may well feel very different in each of these situations. And that is all in your thoughts.

Two kinds of utility

A little while ago I got involved in an interesting exchange with Moshe Hoffman, an economist at Harvard. It started off with this intriguing question*:

moshetweet

We do indeed seem to derive more pleasure from finding money in the road than from receiving our salary into our bank account. That may be explained, at least in part, by the fact that we feel we have worked for or pay, so there’s a clear quid pro quo in this exchange. Finding money is different – there’s a benefit without a corresponding cost. It is rarer too, so the surprise adds to the joy.

This suggests that perhaps there are two components at play here. On the one hand, there is the aspect of pure economic utility, for example the gain of $10 – whether as part of our salary, or by finding it. On the other, there is the effect that the event of obtaining the money produces. In one case, it’s pretty meh, we’ve worked for our boss and in return we get some money. In the other, there is specific pleasure at finding money. Every economic transaction in which goods or services are traded or bartered, but also any human interaction, or indeed a simple event like finding money, could thus have both a strict economic utility (material cost and/or benefit), and a hedonic utility (pleasure and/or pain).

Moshe speaks of ‘pleasure points’ to express the latter utility. These are reminiscent of the hedons and dolors, the units of pleasure and pain in the hedonic calculus proposed more than 200 years ago by the utilitarian philosopher Jeremy Bentham. Economic and hedonic utility are not necessarily related. We can easily imagine events which do not materially affect our wealth, but which provide us with great joy: a smile from a stranger, a compliment from a colleague, a kiss from a lover. But while, say, the monthly child benefit payment increases our spending power, it’s unlikely to produce much specific pleasure.

lunch

Price: $10 – or could it really be free? (image: Asbjørn Sørensen Poulsen CC BY)

Yet the curious thing is that, even though the economic utility of an increase in wealth is realized just once, the corresponding hedonic utility seems to be reusable. Finding $10 means “our expected future consumption goes up”, as Moshe calls it – that’s the economic utility. We can spend it once, and then it is gone. Alongside, we experience the joy at our surprise and luck of obtaining money for nothing. But on top, buying a tasty lunch with this found money can provide more pleasure than doing so with money for which we’ve had to work. And quite likely actually eating that free lunch (there obviously is such a thing!) will fill us with additional delight compared to one paid with hard-earned money.

The money itself seems to be of little or no consequence in this. Imagine Moshe had found an object that had value to him – say a hammer, or a beautiful shell during a walk on the beach. He would feel delight at the find, but he would also experience pleasure every time he used the hammer, or admired the shell on the sideboard in his lounge. Arguably, he would feel more enjoyment than if he had had to buy these objects with his own money.

In charge

Are we double counting anything? I don’t think so – hedonic utility does not seem to follow the same algebraic rigour as economic utility. It is as if the event by which something that provides utility (money, a tool, an aesthetic object) is acquired somehow can endow it with extra hedonic power, which can be drawn potentially indefinitely.

Much of this hedonic stuff happens within our mind, but that doesn’t mean there is no connection with economic utility. We may not get a huge amount of specific pleasure getting paid a salary for a month’s work, but the knowledge that we have more spending power as a result does make us happy (and not getting paid would definitely make us pretty cross). Economic utility generally does not leave us indifferent, so we actually experience it as hedonic utility. In addition, we could figure out how much money would compensate us for the loss of the hammer or the pretty shell, to estimate their hedonic utility.

But while economic utility is objective in nature (a pound in your pocket or your bank account is worth exactly one pound, to you or to any other person), hedonic utility is not. The amount of pleasure we derive from our economic transactions (what we buy and sell – including our time at work), from our interactions with fellow humans (what we do for, and with, others), and from events (finding bank notes, experiencing a sunrise over a misty field) is largely of our own making.

We may not be able to control directly how much economic wealth we have, but we are in control of our subjective hedonic utility. It’s up to us to decide how much joy we get from finding $10, seeing a small child taking its first steps, a hug from a loved one, or the picture of our parents on the wall.

In a very real sense, we are in charge of deciding how rich we are.

*: There is something fishy about an economist finding money on the ground, of course. As the old joke goes, if there was a bank note on the ground, somebody would have already picked it up.

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

Bags of nudges

(featured image credit: Mitchell Haindfield CC BY)

The British government is planning to double the charge for single-use plastic shopping bags, to reduce their usage further. Will this work?

I am pretty sure that you, like so many environmentally conscious consumers, take your own reusable bags to the shops all the time. Maybe you simply have no choice – in a growing number of countries, disposable bags have simply been banned. Or if they are still available at a price, you just decide not to pay for the bags that used to be given away for free.

There are many ways to reduce the consumption of certain goods. Bans can be pretty effective, though they are still not an entirely watertight approach. People can stockpile goods (as appears to be the case in New Zealand, ahead of an announced ban on plastic bags). And while the sale of, say, hard drugs or radar detectors is illegal, anyone sufficiently motivated and willing to pay the black-market price can still obtain them. But it is hard to imagine sellers hovering around the tills in supermarkets, surreptitiously offering single-use bags at inflated prices. So if a government really wants to cut the use of such bags (and their environmental impact), a ban is probably going to be the most effective.

A bit more libertarian

But maybe bans are a bit dictatorial. Making consumers pay extra for the environmental cost they cause is a much more libertarian approach: pollute if you want, but foot the bill for the damage you cause. Sometimes this can be done in quite a direct manner. In Belgium, for example, the collection and processing of waste electrical and electronic equipment is managed by Recupel, a non-profit organization. Importers and manufacturers have a legal obligation to recover and handle discarded appliances. They can either do this themselves, or outsource it to Recupel in return for a contribution, which is explicitly added to the price the consumer pays. The “polluter” hence pays for the “clean-up” that will be needed several years in the future.

For single-use plastic bags the contribution serves a different role. It does not really directly cover the handling of the waste, but it provides a negative economic incentive. All else being equal, and with the exception of so-called Veblen goods (whose high price makes them more, rather than less attractive), people tend to consume less of something as it becomes more expensive. Hey presto!

At first sight it looks as if reducing the use of disposable bags, whether through a ban or through a charge has nothing to do with nudging. The former clearly eliminates a key choice, and the latter provides a material disincentive. But is that tiny cost really the reason why the measure has been so successful (in the UK, usage dropped by 86% since the charge was introduced)?

Let’s do the sums. In the olden days, I found that I typically needed eight bags for a weekly shop of around £100, so that would cost me 40p (€0.45, $0.50), or about 0.4% of the total amount. That is not remotely a significant economic disincentive, and in any case well worth the convenience not needing to bring your own bags.

nobags

Look ma, no bags! (image: Kat Northern Lights Man CC BY)

So there must be something more at play than just the economic cost. If the cost of the bags were absorbed in the price of the 30 most expensive items I bought every week – a penny each – I most likely would not notice. Yet, I certainly would notice it if the till operator explicitly rang up the extra charge. That would increase the pain of paying – no matter how trivial the amount (even accumulating it over time, it’d run to barely more than £1 a month, or £15 per year).

The salience of the cost of the bags functions as a covert nudge, amplifying the profoundly modest contribution so it punches well above its economic weight in terms of the effect. It’s the fact itself that we need to pay an amount – any amount – for the bag that has the power to change our behaviour.

And there are further, almost inadvertent, nudges supporting it. Reusable bags were available at the tills even before the charge was introduced, but only a small minority actually bought and used them – it was simply easier to stick to the default of taking the single-use bags that were handed out freely. Now, almost overnight, that default had changed and a sizeable, and very visible, proportion of customers, growing in numbers by the week, appeared to have embraced them. We are a social animal, and social proof is a strong influencer of our behaviour, so the snowball rolled and rolled.

More of the same?

But – here is a bit of framing for you – if bag use has dropped by 86%, four years on it is still as high as 14% of the level of what it was in 2014. On average, each British household still uses more than 30 single-use bags per year. To reduce consumption further without introducing an outright ban, additional measures will be needed.

This is why the UK government is toying with the idea of increasing the charge per bag to 10p. Standard economics would indeed predict a substantial drop in the use of any product the price of which is doubled. One might even plausible expect it to fall by the same factor again as the initial charge achieved: a reduction by a further 86% based on current usage would leave us with just 2% of the 2014 levels, or about 150 million bags.

There are reasons to be sceptical, though. A charge of 10p would indeed be a doubling, and framing it that way might reinforce the effect. But anyone who currently happily pays 5p for a bag is more likely to see this doubling as a negligible extra cost of 5p from the current reference point. It’s “pennies a day” (a concept described in depth in 1998 by John Gourville, a professor marketing at Harvard), and then we are more likely to view the increase as absolute than as relative.

To ensure the economic cost really makes current purchasers of single-use bag reconsider, the price would probably need to go up a lot more. It would probably be wiser to turn to behavioural economics for counsel. Nobel laureate Richard Thaler, who wrote Nudge together with Cass Sunstein, often states that his top mantra from the book is “Make it easy” – that is, remove the obstacles toward the desired behaviour.

But that can also be turned on its head: make it more inconvenient or more annoying to do the undesired thing. What if the cost of a bag was set not at 10p but at 6p, payable in cash only? The annoyance of having to carry change, and fishing out the coins is likely to have much more effect than the insignificant cost of adding 5p.

plasticbag

Too cheap and too easy (image: Edinburgh Greens CC BY)

Or imagine that the single-use bags were no longer available at the tills, and you’d need to buy them separately. Having to queue at the customer service desk before you start your shop would be bad enough, but it’d a lot worse if you forgot, and you had to return there to get some bags before you can pack your goods. The irritation of anyone behind you at the till would of course add to the general effect.

An alternative, perhaps even more potent intervention might be to offer the single-use bags at just one till (the furthest one from the exit, naturally). This would be normally unmanned, and you’d need to press a button to summon a cashier, triggering a recorded message, something like “Colleague announcement. Customer wishing to buy single-use shopping bags at till 45!”. Way to change behaviour.

And if that were still not enough to crank up the social proof of doing the right thing together with, by now, the vast majority of shoppers, how about imprinting the bags with a slogan like “I don’t give a damn about the environment”?

Economic interventions have their use, and it is true to say that people respond to incentives. But it’s not just incentives we respond to. Sometimes a bagful of nudges is just what is needed.

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

How effective is your altruism?

(featured image credit: Yukiko Matsuoka CC/BY)

We cannot escape profound, inevitable trade-offs when it comes to how we use our resources – including when we give them away. 

Next time you pay for your groceries at the supermarket, have a look at your till receipt. It is a document more valuable than you might think – an empirical reflection of your preferences. Of all the things that are available and that you could have bought for the amount you spent, that particular combination provides you with the maximum utility. In addition, both spending more and spending less would have reduced that utility: the least useful item in your trolley was still worth more to you than the price tag, but anything more would not have been worth the price to you.

At least, that is what conventional economic theory would make from your receipt. Anyone rationally pursuing their self-interest will have done the necessary calculations to work out, not just which of two pots of jam provides the most utility, but also whether a pot of jam provides more utility than a bag of potatoes.

In practice, of course, pretty much nobody shops that way. We don’t explicitly consider how effectively our money is spent in the supermarket. As long as what we get home is good enough, and meets our most important needs (imagine you stocked up on strawberry jam in promotion so much that you had no money left for toilet paper), overall effectiveness is not really of great concern.

The effect of doing good

The same is not necessarily true for charitable giving. Money we donate literally has the capacity to make a difference between life and death. Should we not be concerned that a pound we give to charity A will save more lives than one given to charity B?

Enter effective altruism, a concept that has gained momentum thanks to the views and activism of philosopher Peter Singer. Singer is perhaps best known for the drowning child thought experiment, first formulated in his paper Famine, Affluence and Morality. It goes something like this: if we walk past a shallow pond in which a small child is drowning, we all have a moral obligation to wade in and save it – even if it would ruin our clothes and shoes. Should we not, therefore, be willing to make an equivalent sacrifice, if it would save the life of a small child thousands of miles away?

effective altruism

The different differences $1000 make (source:  The Moral Imperative toward Cost-Effectiveness in Global Health)

The effective altruism movement seeks to channel the resources we are willing to give away in such a way that it produces the biggest bang for the buck. The introduction on the movement’s website shows what $1000 can achieve, depending on how it is used. The objective basis for this is a measure called DALY, Disability-Adjusted Life Year, used by the World Health Organization. One DALY represents the loss year of “healthy” life. Why this qualification? It recognizes that it is more worthwhile to prevent the premature death of a younger and/or healthier person than of an older and/or sicker person.

This is a very clinical, rationalist, accountant-like approach to charity, which meets a fair amount of criticism. BBC radio broadcast a programme on the topic a little while ago (recommended listening, still available on the Radio Player), which explored the objections to effective altruism. For example, altruism is supposed to be an emotional affair, and not like a company board choosing the investment proposal that produces the highest return on investment. Calculating which lives are worth saving – let alone treating older people, or those with a disability differently – feels, well, wrong.

Still feel there is some merit in seeking effectiveness, and making sure your resources are spent such that the world improves the most? How about this thought: is it OK to spend more on your own children who, by any account, already have a vastly better life than children in the most deprived areas of the world? Can you justify getting them a new bike while a few thousands of miles away, children are dying of starvation or malaria?

The science of giving

An interesting recent paper by Jim Everett, a social and moral psychologist at Oxford University, and colleagues, sheds some light on this stark tension. Effective altruism is consequentialist in nature: the moral righteousness of one’s choices is judged by their consequences. This means that the well-being of every individual – your child, or a child in Mali – must be treated the same. Resources should be allocated to strangers, rather than to a family member, if in doing so the total benefit to the strangers would be larger than the benefit to the family member.

oldbmw

It may take more than $2000 to fix, but every little helps (image: photobeppus CC/BY)

The researchers carried out four studies, in which they asked participants to report their perception of a hypothetical protagonist making a strongly consequentialist or non-consequentialist decision in impartiality dilemmas, in which either a close relative or a number of strangers were favoured. The participants were then asked to indicate whether they would see the protagonist as suitable in roles comprising a spouse, a friend, a boss or a political leader. One of the dilemmas featured Janet, an engineer, who spent either a weekend cheering up her lonely mother, or instead helped families rebuild their houses that got damaged in recent flooding. In another one Susan, a grandmother who had won a $2000 prize, and either donated this to a charity providing mosquito nets to families in the developing world to protect them from malaria, or to her grandson so he could fix his car.

The results from the studies suggest that impartial consequentialists would not be popular as a spouse, friend or boss. The researchers conclude that we actually expect partiality from people with whom we want to enter in such a close personal relationship, and are put off by impartiality.

Another recent paper by Jonathan Berman, an economist and marketing professor at the London Business School, and colleagues, looks at what might prevent donating to the most effective cause. The researchers examined various aspects of charitable giving, for example the trade-off between personal preference for a given cause and the consequences on welfare, or how others are judged based on whether they choose an effective or ineffective option.

They found that people consider it to be quite appropriate to be led by subjective preferences, rather than by how much effect a donation will have – even if there are clearly more effective options available. The emotional connection outweighs the amount of good that is done.

Against the current

So it looks as if the effective altruists are swimming against a strong current. We don’t want people who are impartial in the allocation of their resources in our social circle, and we think it is better to support a cause that is close to our heart than one that saves more lives.

And yet, perhaps the argument against effective altruism is largely a straw man argument. Portraying the effective allocation of resources as something that is important in an absolute way, in which every pound, euro or dollar we are about to spend is analysed to death, is a bit disingenuous.

physiotherapy

Not all the funds go to life-saving cancer treatment (source: andreas160578)

Consider the trade-offs facing healthcare professionals and policy makers. Given the limited resources available, they are obliged to make economic evaluations. They use a measure closely related to the DALY: the QALY, Quality-Adjusted Life Year. Does that mean that there are no funds available for physiotherapy when you sprain your ankle, because all the money goes to life-saving cancer treatment? Of course not.

Ensuring effectiveness, whether it is in healthcare, in our household budget, or in how we channel our charity, means comparing intelligently – for example two different cancer treatments. We don’t need to compare wine with laundry detergent, but we can choose between Chilean wine and French wine. (This is much like mental accounting, an important behavioural economics concept.) As the philosopher John Gray remarks in the BBC radio programme: we can choose between spending time comforting a dying person, and spending time working so we can donate the money to an effective charity. There is no right answer.

We can decide how much we give to charity, and how much we reserve for our family. And within our charity mental account, we can decide how much we give to dementia research, to supporting the homeless, to fighting parasitic worm infection in the children of the world, and to stray cats.

But within each category, we must choose whether we want to support the cause for which we have a subjective preference, or the one that maximizes the welfare in the world. And if we choose the former, we should be aware of the consequences – whether we are consequentialists or not.

 

Posted in Behavioural economics, Economics, Ethics, Morality, Philosophy, Psychology | Tagged , | Leave a comment