Real repugnance

Should some transactions – even between two willing parties – be forbidden?

The other day, I came across a picture from the US, showing a small sign attached to a tree announcing that someone was willing to buy diabetic test strips for cash. The sign suggests there is unmet demand for such products, and invites people who can meet that demand to do so, thus facilitating a market. But some people think this is wrong. Do they have a point?

Diabetic test strips are disposable pieces of plastic used by people with type 1 diabetes to test their blood glucose level, typically four or five times a day. Individuals with health insurance receive these free of charge, but uninsured people will need to buy them at a cost of around $0.50 each (prices in the UK and Europe are equivalent at around 40p and 45 eurocents).

This may sound like a relatively small amount, but the daily cost of $2-$2.50 is considerable for someone on a small budget without insurance. At the same time, for someone on a small budget, but with health insurance (perhaps through their employer), the opportunity to gain extra income by selling some of their strips might be appealing.

Repugnant markets and transactions

Hey presto: we have supply and we have demand, so we have a market. But it is what is called a repugnant market.

Some people think it is objectionable that individuals buy and sell this kind of medical supplies, just like they think trading in organs is objectionable, or indeed trading in horse meat for human consumption.

Repugnant markets, or more widely, repugnant transactions (they do not have to take place in an actual market) are a fascinating, complex phenomenon that Nobel laureate and economist Alvin Roth has been studying for many years.

What is so repugnant about a nice piece of horse meat? (Image via Wikimedia CC BY 2.0)

He is perhaps best known for his work around designing matching ‘markets’ for kidneys. Many people who need a kidney transplant have a spouse or a close relative who would be more than willing to give up one of theirs, but who cannot because they have incompatible blood types. Roth was instrumental in the creation of a kidney exchange, in which one non-compatible donor-recipient could be matched with another non-compatible pair, so that the donor of the one pair could donate their kidney to the recipient of the other pair, and vice versa (with chains of multiple pairs as necessary). Such an exchange was necessary because it was impossible to create an ordinary market: trading kidneys is repugnant and indeed illegal just about everywhere (except in Iran).

The very existence of such a thing as a repugnant transaction is intriguing. Why should anyone object to a free exchange between two willing parties of sound mind, if this does not inflict harm on anyone not involved – let alone find it so repugnant that it ought to be forbidden? If I have something to sell that you want to buy, and nobody outside the two of us is affected, why should this be anyone else’s business?

The complexity of repugnance regarding transactions has at least two major components. One is that it is not an invariable characteristic, but one that can vary along space and time. Slavery was once commonplace, but repugnant (and illegal now). Lending money for interest used to be repugnant (and still is under Islamic law), but is now widely practised.

The other one is that repugnance has multiple facets: it can be rooted in taste, morality, utilitarian concerns, public health, animal welfare, religion, ideology and more – often in combination. Eating horse meat is taboo in many countries, and its sale is banned in several US states, and elsewhere the consumption of pork and beef is against the tenets of some religions. Many countries prohibit, or at least regulate, prostitution, and the same applies to the sale of drugs or alcohol and to gambling, typically for reasons of morality, public safety or public health.

A reasonable trade-off?

Repugnance, in all cases, can constrain what people may buy or sell. And, like trading, that in itself implies a trade-off: prohibiting a transaction because it is deemed repugnant is welfare-reducing for both prospective parties. It is, as economists would call it, inefficient. Is that always a reasonable trade-off? Is the world a better place without these transactions?

While there is no clear-cut answer to this question, we may try to apply some broad principles when evaluating a repugnant transaction, and establish perhaps a spectrum on which they can be placed.

At one end, we may put the trade in horsemeat for human consumption. Perhaps it is objectionable for reasons of animal welfare, but that would hold little water if at the same time selling beef, pork, and lamb is fine, or it is OK to slaughter horses to produce dog food. Sure, horse lovers may find the idea of eating horsemeat distasteful, but is it really any of their business that someone else enjoys a juicy horse steak or a few slices of paardenrookvlees? It seems, in general, hard to argue that the yuck factor for a certain subset of a population outweighs the economic benefit to the participants in the supply chain for a certain good (or service), and the enjoyment of its buyers, if such transactions are not causing harm (or at least no more harm than equivalent transactions).

At the other end, we would find… well what would we find? If we exclude any transactions that are not between willing participants, or that would cause harm to third parties, criminal activities like human trafficking or contract killing are immediately out of scope. Drugs? Arguably, there is a public health concern, but that same concern does not seem to hinder the market in alcohol, so the case would be weak. Antisocial behaviour in most guises generally harms others, so that is out of consideration too.

A violation of human dignity, but is it worse than restrictions on the freedom to sell one’s possessions? (image via YouTube)

One interesting candidate is mentioned in a paper by Al Roth: dwarf tossing. Attempts to ban it in France reached the supreme court, which in October 1995 declared it to “violate human dignity”. This verdict was supported by the United Nations’ Human Rights committee, which “essentially concluded that dwarf tossing was so repugnant that it imposed a negative externality by diminishing human dignity, a public good,” Roth writes. The repugnance is in the immaterial harm to an immaterial public good.

Where does that leave people buying and selling diabetic blood test strips? It’s hard to see how it would fall in the same category as dwarf tossing. Perhaps the reason why some object to these transactions is that it is an affront that people are so poor that they need to sell their own essential medical supplies, or that they cannot afford to buy them. But banning the practice would not rectify that problem, while it would harm both the seller (who has better use for the money they get in return) and the buyer of the items (who cannot afford them at the full price).

And the dwarf tossing verdict of the French Conseil d’État and the UNHR committee regarding human dignity might provide a further insight. A recent small-scale study by a local London charitable organization supporting families in need with food parcels found that people prefer the cash equivalent (£36, €42, $48) over a weekly food parcel: it provides more choice, less waste, and better opportunities for budgeting. More importantly, it eliminates the undignified process of visiting a food bank with its queues and penetrating questions to make sure you are entitled. Instead, it treats the recipients as mature, emancipated individuals capable of making their own decisions. Is the freedom of people to buy and sell what they want, whether it is diabetic test strips, kidneys, or whatever, not just as much a matter of human dignity?

Perhaps a hidden category of really repugnant situations worthy of scrutiny lies in the paternalistic rules and policies that constrain and restrict people’s liberty to act in their own interest as they see fit.

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

Disruptive benefits

Featured image: Dave Schumaker/Flickr BY-CC-ND 2.0

How a change of plans and expectations can act as shock therapy to help us properly consider our choices… or not

Imagine you’re going on a city break with your spouse to celebrate a special occasion. You’ve decided to push the boat out and book a suite in a swanky hotel for four nights, but as you arrive, the receptionist tells you that there has been a plumbing problem in the bathroom of your suite, making it unusable. All other suites were in use, but you are offered an ordinary room (at the ordinary price) until the bathroom is fixed plus £200 ($270, €240) in compensation. You are a little annoyed (who wouldn’t be), but it is a fair offer, so you accept.

As it happens, the ordinary room – while lacking the opulence of a suite – is perfectly good, and after a good night’s rest and a hearty breakfast, you cheerfully embark on an exploratory walk around the city. When you return in the afternoon, the receptionist informs you that the bathroom in the suite you had booked has been fixed. You can move into it straight away (and a hotel worker will move your luggage), but if you wish, you can also opt to stay in your current, lower-priced room. What do you do?

A change of perspective

Well, it might depend on the price, but this kind of situation gives you a perspective that you rarely have. When you face two purchase options, your baseline is that you have neither at present, and either spend the smaller amount for one option, or the larger amount for the other one. You compared what you’d get in each room (the benefit) with what it will cost you, and decide accordingly.

But now, you start from a different baseline: you already have the cheaper option, and have the opportunity the pay extra for the more expensive option: you consider the increment in cost with the increment in benefits of the more expensive suite. Chances are that the trade-off works out differently now, and you might no longer prefer the more expensive choice. How come?

Not how much for this, but how much more for this? (image: Club Med/Flickr CC BY-NC 2.0)

Perhaps your mindset at the time of the original booking was so focused on the special occasion that you did not even perform a real cost-benefit analysis: the situation merited an extraordinary choice. But even if you did explicitly compare the different options’ costs and benefits, your focus is now different. The experience of the perfectly adequate cheaper room reframes the perceived value of the posh suite: your choice is now between sticking with the room you have for no extra cost, or paying extra – an amount that you could spend on something else. The larger the difference in price between the two rooms, the more likely you will find better ways to spend the money, and stay put.

And while costs are neatly cumulative (the price of the suite equals the price of the ordinary room plus the difference between the two), that is not necessarily true for the benefit. Seen from your kitchen table at home, the suite may well look better value for money than the ordinary room, but seen from the cheaper room, its additional benefit is not worth the extra cost. There is nothing irrational about this. And so, ending up elsewhere than you planned may turn out to be a rather beneficial disruption, helping you reconsider and perhaps make a better decision than your initial one.

Disruption at work

An unexpected pipe burst in a hotel room is one thing, a pandemic that shocks the global economy in pretty unprecedented ways is quite another one. It certainly imposed two big changes on organizations: the sudden switch to remote working, and the suspension of international business travel.

Remote working did, of course, exist before COVID-19 threw a spanner in the global economy’s works, but in the last 18 months both workers and employers have had an unplanned opportunity to experience what it is like to abandon the old status quo. For many employees that experience has been quite beneficial: no more commuting to work, and much more flexibility to deal with domestic matters without having to take time off. If the employees had their say, more than 50% of them would work remotely at least three days a week, according to one survey in the US (one of very many, most of which tell a very similar story). That would be a major change from the pre-pandemic status quo, though employers may not quite go that far. The same survey found that more than 2/3 of bosses believe that, to retain a strong company culture, their staff would need to be in the office at least three days per week. Yet it is very likely that a new status quo will emerge, quite different from the pre-pandemic situation (according to an American survey, in 2019 only 6% of the workforce worked primarily (at least 3 days a week from home, and 75% had never worked from home).

Business travel too is unlikely to return to pre-pandemic patterns. A survey found that only 1% of companies would maintain or increase their travel budget, while 45% expects to reduce it by 25-50%, and 24% to even more than half.

Why, if boosting flexible working and spending less on business travel is now considered the right thing to do as the economy returns to normal (fourth COVID-19 wave notwithstanding), were those choices not made before the pandemic? The answer is the similar to that in the hotel anecdote: the difference in perspective brought about by a disruption enabled a deliberate evaluation of costs and benefit that was not carried out before.

Scaling up

[Out with the lockdown… and out with the clean air? (image: State Library of Victoria/Flickr CC BY-NC 2.0)

Might it also apply at a larger scale than individuals and organizations? Governments imposed a wide range of measures to stem the spread of the virus, but these had often additional consequences, from a drop in air pollution to a reduction in traffic casualties (not to forget a reduction in cases of other diseases like the ful). Lockdowns led to cleaner air in many cities around the world, with reductions in NO2 directly attributable to the measures ranging from 8% in London to more than 50% in Delhi. While there is considerable diversity across countries, road deaths declined during the pandemic in most of them, with reductions between 2019 and 2020 as high as 26% in Bulgaria (22% in Belgium, 14% in the UK). The flu, usually a considerable killer during the winter months, all but disappeared in 2020 (in the US, 700 people died of it, compared to 22,000 in 2019), mostly thanks to social distancing and mask wearing.

We could look at the relaxation of the specific pandemic measures as a policy change, with benefits (the enablement of economic and social life) and costs (a deterioration of air quality and more deaths on the road). What would the cost-benefit analysis look like? The natural experiment of the pandemic offered policymakers a rare opportunity to actually perform it. But was it actually done, and did the benefits of dropping the restrictions so great that they outweighed the consequences – more air pollutions, and more dead from traffic and disease? Or did nobody bother, because the pull of the old status quo, the old normal is so strong? We may never know.

Still, even though policy makers may ignore the opportunities of a new perspective brought about by a sudden shock, at other levels we can still happily make use of it. Of course, we don’t have to change our mind. The benefit of the disruption is that we are encouraged to think about it – something we probably didn’t do before – and make a conscious choice.

Moreover, the beauty is that we don’t even need to wait until the unexpected happens: with a little bit of imagination, we can pretend we have left the status quo behind already, and overcome our inertia (and maybe our status quo bias) without the downsides of the disruption. Imagine that!

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

The meaning of things

The value of an object to us is closely tied with its meaning, and that is tied up in the emotions we experience

The art market can be peculiar, but by and large there are some principles that generally seem to hold. One such principle is that an original by a sought-after artist will almost always fetch a sales price that is a large multiple of what a perfect copy would sell for. Simple enough. But what is the value if the authenticity of a work is uncertain? And what else might influence an artwork’s value?

The provenance of a work of art is not always entirely certain. Some experts might believe it really was produced by a famous artist, while others think it is by a pupil, or perhaps even a forgery. This uncertainty will then be reflected in the price at auction of what is, in comparison with an undisputedly authentic work, a speculative purchase. That price is an indication of how certain the buyer is that they are acquiring something with real market value.

But what if that chance was known exactly?

A valuable bargain (image: MSCHF/moforgeries.com)

Well, now we know a bit more about that. A New York based artist collective by the name of MSCHF (derived from the term ‘mischief’) acquired an original print, Fairies, by Andy Warhol from 1954, and made 999 copies of it. They used a robot arm to ensure they looked identical to the original, and then subjected the copies to a degradation process (check out the video here) to make it impossible to distinguish the copies chemically. And for good measure, they destroyed any internal information that could identify the original print, valued at $20,000.

Art(ificial) value

All 1,000 items – the original and the 999 copies – were offered for sale for $250 each, and sold out in no time. That gives us an interesting perspective on the authenticity of an object.

What did the buyers actually buy? One part of it was definitely the chance that the item they purchased was authentic (though we need to bear in mind there is no way that could ever be established). We can work out how that one particular aspect was represented in the price: the total revenue was $250,000, for one original worth $20,000, and 999 copies. This makes each copy worth approximately $230.23 ($230,000/999). In practice, this means that the difference in price between a simple copy (with no chance of its being the original) and one of this peculiar set is just under $20.

To some buyers, this characteristic may well have been worth much more than that, but to most of them the possibility that they now possess a genuine Warhol would not have been the only reason to buy it. The value of a work of art (and indeed of any object) is in the eye of the beholder, and hence artificial. It is also a composite of many different aspects.

Perhaps the most obvious one is the aesthetics. We may value the craftsmanship of the artist, or simply the way the object looks. This is of course entirely subjective: what one person likes, another may find abhorrent. If it concerns a reproduction, we may also care about the nature of the work – we might be willing to pay $345 for a copy of Van Gogh’s Starry Night with real oil colour on real canvas, but not for a fine art print of the same work. (Part of this may be our perception of the production cost and our willingness to compensate that.)

We may also perceive specific value in the subject itself (a view of the village where we were born), or in the context of the work (maybe it is connected to a special occasion, like the Warhol prints). An older work may, all else being equal, also represent more value than a more recent one. Age can be seen as a specific case of scarcity: we see older works as rarer. Numbered prints are also scarcer than unnumbered ones (and sometimes those with a lower number fetch a higher price, despite being otherwise entirely identical). Related to scarcity, yet different from it, is the aspect of exclusivity: we don’t just value what is scarce, we also value what others cannot have, according to research by economists Alex Imas and Kristóf Madarász.

And of course, bringing us back to the real/fake Warhol pieces, authenticity can definitely have value (even if it is only probabilistic), as can market value: we may prize an inherited work of art depicting a subject we don’t care about and that we find repulsive, but that experts have estimated to be worth £20,000.

Object(ive) emotion

Why do any (or indeed all) of these aspects contribute to the value of a work of art? Because of the meaning they have to us, and because of the emotions this evokes. We can see this by means of a simple thought experiment.

In our spare room, we have had an old painting standing on the floor for years. It comes from my wife’s late parents’ house, where it hung above the dresser since she was born until her father died. It is not a particularly nice painting, depicting a rural scene by someone who clearly did not understand perspective, and with a damaged frame. Last year, my wife wanted to get rid of this piece of old tat. So, I asked her whether she would take a hammer to it so we could put it out with the trash. She was horrified at the thought – and the painting is still in our spare room.

Even the market price is a matter of emotion (photo: M C Morgan/Flickr CC BY-SA 2.0)

One aspect I missed out earlier was sentimental value, perhaps the most personal and subjective of all reasons why we may value an object – of art or otherwise. We all recognize this feeling – I suspect you too have plenty of objects in your house that nobody else would be remotely interested in, but that you wouldn’t give up for the world – from early drawings of your children and old crockery or saucepans from your mother’s kitchen, to perhaps a tatty painting that you inherited. We would not dream of deliberately destroying them, and would definitely mourn if we lost them.

Yet sentimental value is no more tied to our emotions than all the other aspects. If a buyer of one of the mostly fake Warhols were to lose his newly acquired possession, she or he too would mourn. Even if the only loss they felt would be that of the market value, that sense of mourning is a manifestation of the emotional ties to the object.

The meaning of an object is in our heart.

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

Why slowing down climate change is hard (and how it might be done anyway)

(featured image: <flooding,jpg> Sue Thompson/Flickr CC BY-ND 2.0)

Countries get together to discuss how to address climate change, but it’s people’s behaviour that needs to change

If, one evening, you were to discover that your house is on fire, I would guess that your response would be as swift as it would be robust: without hesitation or procrastination you would make sure that every member of your household is safely outside, and contact the emergency services. But when was the last time you checked the batteries in the smoke alarms? (You do have smoke alarms, don’t you?)

We are better at addressing what demands our immediate attention than on what is distant and not so urgent – however important it is. Urgent situations that we neglect tend to get more urgent very quickly, so we promptly get the lesson that we had better get our socks on. What is merely important, though, usually doesn’t get more important, or even noticeably more urgent, if we ignore it – and we can continue doing so with impunity for quite a while. When it eventually does become urgent, responding is much harder or more costly – and what’s worse, we rarely learn the lesson.

Nice graph, but I don’t see much change right here, right now (image: Met Office)

In behavioural science, this is phenomenon is sometimes called present bias. Retirement saving is often cited as an example: it is more fun to spend money now than to save it for the dim and distant future. In many ways, climate change – the theme of the COP26 mega conference currently taking place in Glasgow – is similar. We hear that the seven hottest years since 1850 occurred in the last ten years. But for most of us, the consequences are far away or decades into the future. We hear UK prime minister Boris Johnson saying, in his opening speech to the conference, that the world is at “one minute to midnight”. But most of us don’t feel that urgency at all. And so taking action (which would involve giving up things we enjoy) is not a priority.

Climate change may be similar to retirement saving, but the comparison only goes so far. Steering the policy making of nearly 200 countries, the activities of millions of companies, and the behaviour of billions of people away from a potentially rather unpleasant future, that is a challenge of a different scale.

Countries are not people

One important difference is that addressing climate change involves collective action. We can save for our pension and don’t need anyone else to do so, but no single country can slow down climate change just for itself – not Liechtenstein, not China. This is only going to work if countries representing the vast majority of the world population take action together. It’s like a small town, threatened by a wildfire. If every household sends one person to join the volunteer fire brigade, the fire can be put out, but if there are too many who don’t participate, those who do will risk their lives for nothing. The risk is real that everyone waits to see what the others do, and nothing happens until it is too late.

Now in a small town, and with real people, social conformity might well influence behaviour. Provided the town is saved in the end, anyone who failed to join the efforts may well find themselves shunned and ostracized. That prospect might be enough to encourage most people to sign up.  But countries are not people, and the fear of being rejected later on, what would that even mean for a country – being kicked out of the UN? So what?

Political leaders are people, though, and they face the same tension in their policy making that we all experience in our decisions, the tension between the present and the immediate future on the one hand, and the future decades away on the other. In particular, politicians’ time horizon rarely reaches much beyond the next general election. Committing to significant sacrifices in the short term (even if they will – hopefully – deliver benefits in tens of years’ time) is not the kind of choice they believe wins many votes. Just ask Australian premier, Scott Morrison, who “plans to keep coal mines open for as long as possible.

Governments do have leverage

Yet ultimately, it is not countries that must change their behaviour. It’s policy makers, business leaders and ordinary citizens. And this is where governments do have some indirect, but very powerful, levers that can bring about change of the magnitude that will be required.

One such measure is as drastic as they come: mandates. The UK brought forward by 10 years its anticipated ban on the sale of fossil fuel powered cars by 2040, and joins Germany, the Netherlands and Ireland (only Norway is more radical, with a ban from 2025). This is reminiscent of a similar challenge in the 1990s, when emissions of ozone-depleting substances (like the CFCs then widely used in refrigeration) needed to be halted to close the hole in the ozone layer. Germany mandated that new refrigerators should be CFC-free, and the German white-goods manufacturers took op the gauntlet, leading the world in the development of more efficient, ozone-friendly products. We see a similar response now, with Ford committing to selling only electric cars in Europe from 2030 and Jaguar becoming electric-only by 2025. When business gets a clear, realistic steer from governments, such wisely formulated mandates can – and do – provide the necessary focus for profound behaviour change.

In a sense, this way of announcing a decision well ahead of when it will be implemented echoes a classic behavioural intervention in retirement saving: the Save More Tomorrow approach, developed by Nobel laureate and nudger extraordinaire Richard Thaler and Shlomo Benartzi. Its core idea is that workers commit now that they will allocate a portion of a future pay rise to their retirement fund. This time delay lowers the threshold of making the decision itself – including for political leaders! – and reduces the chance they get cold feet and postpone the decision when the time has come.

But electric cars (and heat pumps instead of gas boilers etc) alone won’t fix the problem. Ultimately, it is every individual’s fossil fuel usage that needs to be cut. Some of that we control directly (the energy we use in our households), but there is a big chunk that is encapsulated in the production and supply processes of the products we buy. How can we, the citizens, be encouraged to reduce our carbon footprint? Social proof – copying what other, similar people do to fit in – might help, but there are many obstacles, including present bias, the intention-action gap, and the same collective action challenge that exists at country level.

Not everyone is sold to the idea of a carbon tax just yet (photo: Global Panorama/Flickr CC BY-SA 2.0)

Here, one of the oldest conventional economic instruments in the book holds a lot of promise – and again, it is a policy decision for governments: a carbon tax which, as economist Tim Harford explains, chops the huge challenge up into innumerable tiny, but feasible steps. Even if levies are placed on industry, that will be reflected in the price to consumers. And if they have to pay for every kg of carbon their actions cause to be released in the atmosphere, they will be ready for cheaper alternatives. This will then encourage suppliers to develop them. Whether it’s a holiday flight, a new smartphone, tomatoes from heated greenhouses or simply how we heat our homes, our choices will drive change. (In case anyone is worried that this will hit the poorest disproportionately, I have no doubt that clever economists can devise mechanisms that spread the burden fairly.)

What, no behavioural economics?

So, while it’s not countries and governments that need to change their behaviour, a country’s political leadership can develop and adopt policies that bring about crucial changes in the behaviour of firms and people – altering both supply and demand. But we’ve seen mostly conventional interventions. Is there no way that more behavioural interventions can also provide a nudge, if not a shove?

I am reminded of an op-ed I wrote for a Belgian newspaper in which I made a case for 100% inheritance tax, on the basis of its economic efficiency, and its equality promoting power. It received more than 500 reactions, most of them of outrage: how dare I take away people’s right to pass on their wealth to their children! Well, perhaps there is an opportunity here to make a similar connection to people’s offspring. If that is what they find important, just like they can enhance their kids’ inheritance by making sacrifices now and save rather than spend, they can make choices that help keep the global temperature increase below the threshold needed so generations of their descendants will have a pleasant environment to live in.

Ultimately, all decisions are rooted in emotions. And this emotional connection might be just the cornerstone that provides – at least to parents and prospective parents – that little extra motivation.

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

The good death

Featured image: <verdiende rust.jpg> image: Martine/Flickr CC BY-NC 2.0)

Decisions are a matter of trade-offs, and end-of-life decision-making is literally a matter of trading off life and death. But our society exhibits a status quo bias that raises big ethical questions*

Earlier this week I had a conversation with my father about his death. He is 94 years old, and he has recently been diagnosed with Alzheimer’s. He is presently in good physical and psychological health, with symptoms of the condition sporadic and minor. But that may change soon, and suddenly, so we spoke about the choices he might want to make in this regard.

A decision denied

For others, though, things are rather different. They have reached the final episode of their life and suffer excruciating pain, no longer recognize their nearest and dearest, or have sustained irreversible brain damage. Some of them would, if given the choice, opt to not wake up tomorrow morning and die peacefully.

Bearing in mind that not making a decision is also making a decision, we literally decide whether we live or die every day. For the vast majority of us, this is not a conscious choice. We simply get up, and go about our daily business. We then go to bed, firmly expecting to get up again the next morning to repeat the process. Deciding to live is, for most people, the unconsciously chosen default.

Thankfully, for my father, that option is real. He lives in a country where euthanasia (from the Greek eu – good – and Thanatos – death), sometimes also referred to as assisted dying (which technically applies only to people in a terminal condition) is legally possible under certain circumstances. Anyone experiencing persistent, irredeemable psychological or physical suffering caused by a serious and incurable condition as a result of illness or accident can apply. As long as the application has been made voluntarily and is well-considered, the applicant can legally be administered a lethal substance, and effectively choose the time of their death.

Should it be an obligation? (image: fair use via Wikimedia)

This right, however, does not exist in most countries – including the UK, which has been my home for many years now. Not for the first time, parliament is debating a private member’s bill that would legalize assisted dying, for people who have less than six months to live. As before, the debate has become heated once again. Proponents wheel out individuals who, were they to live in my father’s country, would have no problem applying for euthanasia relating their plight. Opponents, alongside moral imperatives that are beyond reasoning, invoke the potential for pressuring the old and disabled to sign on the dotted line so inheritances can be collected early, or so they stop being a financial and practical burden on their relatives. Some even suggest it might protect rogue doctors like Harold Shipman, who was convicted of the murder of 15 people, but who probably killed around 250 people over 27 years, from prosecution.

These concerns are for a large part quite valid. But they are not insurmountable.

So the resistance almost seems to be a pernicious case of status quo bias: if you are alive, you must stay alive. Of course, most people do want to keep on living, at least for most of their lives. But the unquestioned assumption that everyone does, unconditionally and unchangingly, no matter their condition or age, is, well, questionable. Opponents of assisted dying point out that good palliative care can alleviate many of the discomforts and indeed the suffering that being old, ill and decrepit brings about. This is quite likely true – but one wonders who should make the judgement it does so sufficiently to make the final few months of life worth living. Should we not recognize that nobody is better placed to make the trade-off whether the benefit of another day of being alive outweighs the cost of the indignities and pain they experience, than the person herself or himself?

The trade-off of life

25 years ago, my mother was dying of cancer. She was in great pain, and when I saw her for the last time, 10 days before her death, she confided in me that she no longer wanted to fight on. I had a hard time understanding that at the time – for me life just had to be worth living, with several small grandchildren to see grow up, a husband of nearly 40 years to spend time with, and so on. But it made me think, and gradually I came to understand what she had meant: she made the trade-off.

Trade-offs should be about establishing whether benefits outweigh costs, or whether additional cost produce sufficient additional benefit. Denying people the right to die when they want is tantamount to rigging the scales so that there is effectively no amount of suffering and pain so great that it would be reasonable to decide life is no longer worth living. No question: you shall live.

But should it be only about pain and suffering? If we consider it reasonable for people to be able to determine when the amount of suffering they experience is no longer outweighed by the joys of being alive, and to act in accordance, then there may be another trade-off that we should consider.

When I’ve had enough of this party, I want to go (image: Edoardo Tommasini/Pexels)

Imagine you are at a fantastic party. Among the thousands of guests are your nearest and dearest – your partner and your children, your siblings – and your best friends, and even some more distant acquaintances. There is a wonderful buffet, and you have a great time talking to everyone, joking, reminiscing. But as the day goes on, you start noticing that some of the people you know have gone. Gradually, fewer and fewer of your friends, people your age, are left. At some point, your partner has disappeared too. Only some of your children remain, and they are chatting with people their age. You’re now thinking of leaving as well, as there really is nothing left to do there for you. You have tasted all the food and you are not hungry any more. You don’t want any more to drink, and the entertainment is really not your kind of thing. It’s getting late, and your tired and you just want to go. But every time you get up to leave, someone comes over to you and says you are not allowed to go. The party is still in full swing, and you have to stay.

Now imagine this is actually your life. You are old, your spouse, the people you grew up with, your friends and your old colleagues – they’re all long dead. You are not in pain, and your brain works fine. But you’re just tired. There is nothing left for you to do. You’ve lived enough, and the benefit of going on living does not outweigh even the minor inconveniences of life.

Nobody should be obliged to stay at the fantastic party once they’ve had enough. Should people be obliged to keep on living? That is exactly the situation for people who are denied the right to die. In the Netherlands the concept of a ‘completed life’ (“voltooid leven”) has entered the public discourse, but even in this pioneering nation as far as euthanasia is concerned, it is nowhere near being accepted as a valid reason. There, and in other countries where people who suffer psychological or physical pain can get euthanasia, those who are simply tired of life must keep on living until they drop. That is an ethically questionable state of affairs.

Moral philosophers and economists alike talk of the ‘good life’ (an idea that goes back at least as far as Aristotle’s concept of eudaimonia), something every human should have a right to pursue according to their own needs and preferences. This good life cannot imply the obligation to keep on living indefinitely and unconditionally.

People should also have a right to a good death.

*: for the sake of clarity, this article is not about suicide or suicidal tendencies.

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Ethical liars

(featured image: Will Temple/Flickr CC BY 2.0)

Our morality is not quite so black-and-white as we sometimes like to believe

One of my earliest memories, I must have been four or five, is when my mother, to her embarrassment, forgot her hairdresser’s appointment. As she rang to make a new one, she made up an excuse for missing it, involving a wholly fictitious sudden illness of my baby sister. “Isn’t that lying?”, I asked her as she put the phone down. That was the moment my moral compass acquired the notion of the white lie.

I like to think that I have not abused the concept in the many years since that time, but I would be lying if I said I have never used it. (Strangely, I cannot quite recall any particular instance at this very moment, though that may well be a case of motivated amnesia.) Nevertheless, the lesson my parents and other educators tried to instil in my youthful person – that lying is wrong – still dominates my sense of morality, and that view is one I most likely share with the vast majority of my fellow humans throughout the ages, regardless of their nationality or culture.

Lying is wrong, except when it isn’t

It is not hard to see why lying seems to be universally condemned. A community in which lying would be the norm, or more precisely, in which adherence to the truth was optional (so you would never know whether someone was truthful or not) would have a hard time functioning effectively. Trust would be non-existent, and cooperation or long-term plans (for which one needs to be able to rely on promises others make) would be almost impossible. The evolutionary imperative to be trustworthy, and therefore to be truthful, is as obvious as it is strong.

There are bigger ones (image: .Martin./Flickr CC BY ND 2.0)

But at the same time, it is odd that we seem unable to consistently apply this. Psychologist Bella DePaulo found that it is not untypical for people to clock up a couple of lies every single day. These could be like my mother’s white lie and the ambiguity of “No, your bum doesn’t look big in this (…well it depends what you call big, I’ve seen bigger)” to technically-not-a-lie like “Yes, I did go to Harvard (…but as a tourist)” and being economical with the truth, all the way to full-blown lies (“I did not have sexual relations with that woman”). In almost all situations where we – or ‘someone’, let’s not get too personal – resorts to deception, there is some kind of justification, extenuating circumstances that take the sharp edges off, and soothing the cognitive dissonance that would otherwise be experienced when breaking one’s moral code. Sometimes this relates to what is being said or implied (perhaps the untruth is not that far from the truth, or it could very well have been true). Sometimes it also relates to the result (another person’s welfare is enhanced or safeguarded).

Unnecessary harm

Levine focuses specifically on deception, and takes it out of the laboratory setting and into routine interaction, where things can be much fuzzier. For example, a liar’s motives may not always be clearly either self-serving or benevolent – is false praise inspired by concern for the target, or for the deceiver’s own reputation? The nature of the relationship (if, indeed, there is one) between the deceiver and the deceived is also likely to play a role in the judgement. Everyday lies are found to be well-reasoned, intentional acts, and justified when telling the truth would have little or no instrumental value, and would harm the target.

It seems there is some system to this second justification. Despite broadly condemning deception as a rule, people actually perceive it as ethical when it prevents unnecessary harm, according to new research by Emma Levine, a professor of behavioural science at Chicago University. When benevolence and honesty are in conflict, the former seems to have the upper hand, and functions as a get-out-of-jail-free card.

To establish how people concretize unnecessary harm in practice, she asked some of the research participants to give examples where they would they prefer to be lied to (e.g., when their dog died through being hit by a negligent driver, being told it died peacefully in its sleep). Others were asked for concrete instances where they themselves would consider lying as ethical (e.g., temporarily withholding distressing information from a friend, to avoid compromising her result on an imminent exam).

Subjective or trivial information? (image via youtube)

From this input, the author distilled eight distinct community standards over three dimensions (the deceived person, the subject and the context). People consider it acceptable to lie to people who are emotionally fragile, do not have the capacity to understand the truth, or are at the end of their life. Lying is considered as ethical if it concerns subjective or trivial information, or information about what cannot be controlled. And it is also OK to lie if the truth would disrupt special events or moments, or if it would embarrass someone in front of others. The avoidance of unnecessary harm is a common thread across all eight.

Levine then empirically tested the framework in two ways. Presented with prepared scenarios and vignettes, participants took different perspectives to judge the right action (as deceiver – “I should lie”, observer – “Others should lie”, andtarget – “Others should lie to me”). In addition, she asked participants to relate real situations in which they – perhaps reluctantly – deceived another person, and rate their actions according to the same key variables (whether telling the truth was instrumental, and whether it would cause harm). This confirmed the validity of the unnecessary harm framework.

Consequences matter

Her conclusion is that there are clear conditions under which people systematically endorse (and indeed practise) deception. In those circumstances, people consider deceiving another person as more ethical than honesty, and people prefer to be lied over being told the truth.

While, superficially, morality may seem to be a matter of somewhat simplistic and rigid rules – like lying is wrong – our personal ethics appear to be much more nuanced and pragmatic. In practice, we are quite capable of considering the consequences of strictly applying those rules, take into account the trade-offs involved and, where necessary, at the very least bend the rules.

But this research focused on unnecessary harm to others. What of the self-serving white lie from the beginning of this piece? Arguably the very same reasoning is at play here. The instrumental value of revealing that my mother plainly forgot her appointment was very low: it is hard to see what material benefit it would have given the hairdresser. At the same time, telling the truth rather than pretending my sister was ill would have led to uncomfortable embarrassment for her.

Perhaps, deep down, we are all utilitarians.

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Important futilities

Sometimes what we do seems to be unduly influenced by what appears to be utterly futile. Is that as unwise as it seems?

Last Saturday was Luka’s 6th birthday. We had some balloons to decorate the house, and for just £1 my wife had bought a self-assembly garland with cardboard flags spelling “Happy Birthday”. But when we opened the pack, all it contained was just enough letters to make the word “pitday”. Return it to the shop and ask for a replacement?

The item was clearly not suitable for purpose, but the idea of returning a faulty product bought for the futile sum of £1 felt, well, a bit petty. What if we made up the missing flags ourselves with cardboard, markers, and a pair of scissors? That sounded even crazier, so I set off to the nearby shop anyway to purchase another, hopefully complete, garland, with no mention of the faulty one. It would surely look better than anything we’d concoct ourselves, and well worth the cost of just a pound – a no brainer, really.

Not all futilities are perceived equal

Earlier that morning I had popped into the local fishmongers on my way back from the baker’s shop in the next town (they sell the kind of bread for which I am quite happy to drive the extra mile). Now, the fishmonger’s street is one where you need to pay to park, as a friendly traffic warden reminded me a couple of months ago. I had always known this, of course, but that day I had, as always before, betted that it would be exceedingly unlikely for a traffic warden to turn up in the five minutes it’d take me to collect the order I’d phoned in earlier. I was, very much, the rational criminal that the late, great economist Gary Becker describes in Crime and Punishment.

Thankfully, the traffic warden on duty that day was a benevolent man, who advised me to put just 5 or 10 pence (about 4-8 euro- or dollar cents) in the meter and avoid a pricey fine. At 5p for three minutes’ worth of parking, it makes sense, even for a rational criminal. Our local fishmonger’s does not only supply excellent seafood, they are also very efficient at serving customers, so since then a 10p parking fee has been the norm for me. If I see there is nobody in the shop before parking up, I can even get away with 5p. (Reader, if you are wondering why on Earth I am going on about such a futility, remember the title. Also, we are not quite done yet.)

What has this got to do with the price of fish? (image: DCRC-UWE/Flickr CC BY-NC 2.0)

Back to last Saturday. I noticed the smallest coin I had on me was 20 pence (small change is scarce these days: since the start of the pandemic everyone, me included, is paying contactless). I could not possibly contemplate paying twice as much as normal – what a waste! I was ready to start the car and drive home, to come back later on foot, when – thankfully – my more rational self woke up.

“Imagine”, it argued, “that someone offers you 1 penny a minute for wasting 20 minutes of your time (roughly the time it takes to walk to the fishmonger’s and back). Would you do it?” Even on a Saturday morning, or perhaps especially on a Saturday morning, that felt like a gross underpayment for my precious time, so no, I wouldn’t do it. “So, it must be worth at least 20p to avoid wasting 20 minutes then, yes?”, my rational self suggested – but I had already got out of the car with my 20p coin, on my way to feed the parking meter.

These two anecdotes illustrate two apparently rather different perspectives on relatively insignificant amounts of money. In the first one, a materialist course of action (getting a refund for a faulty purchase) was rejected for one that took into account emotional motives (not appearing miserly). In the second one the opposite happened: the initial emotional response (I am not paying twice the amount needed!) was displaced by a more reasoned one (make a good time/money trade-off). How can we (or at least I) be so inconsistent?

Ruled by rules and emotions

Perhaps it is not so inconsistent after all. The idea that we act either rationally, or irrationally – perpetuated by a simplistic interpretation of Daniel Kahneman’s bestseller Thinking, Fast and Slow – does not fit reality. Many of our decisions are driven by diverse motives, even if they are made with little or no deliberate, explicit reasoning.

All but the most trivial trade-offs are complex, and would require comparing not just apples with proverbial pears, but with cherries, bananas, celery, yoghurt and washing up liquid. There is no way we can make such comparisons in an consistently analytical manner. Instead, we mainly use rules of thumb that we are taught, that we learn, or that we develop ourselves – sometimes called heuristics.

The first anecdote features at least two such rules. One is “if you are sold a piece of junk, ask for redress”, the other is “if you demand that someone pays you a trifling amount of money, even if it is legitimately owed, you come across as a miser”. Arguably there is even a third rule at play: “if it makes little difference either way, take the course of least resistance/cost/inconvenience etc.”.

In the second anecdote, “If you have to pay more for something than it is worth, walk away” or “Don’t pay more than you need to” would be a good stab at the first one. A second rule might be something like “If you are about to act impulsively, consider the consequences first”.

Many more rules could be playing a role here, for example, “Do what you have always done in situations like this”, “Do what others would do”, “Don’t waste time”, or “Ignore small amounts”. Naturally, your rules may (and probably will) be different from mine – and even if some are the same, we will give different weights to them.

No decision without emotion (image: Wayhomestudio/Freepik)

But some of these simple rules inevitably contradict each other, like “demand a refund” and “don’t come across as a miser” in the first situation. To solve that kind of conflict and get to a decision, our emotions get involved. Antonio Damasio, a Portuguese-American neuroscientist, established that superior intellect is not sufficient to make good decisions. After surgery to remove a brain tumour, one of his patients, pseudonymously named Elliot, had no apparent impairment to his cognitive abilities (his IQ continued to be in the top-3%). Nevertheless, he appeared incapable of making the simplest decisions, such as how to categorize his documents at work – by date, by size, by topic? What Elliot lacked was not intelligence, but emotion: the tumour and its removal had led to permanent damage to his frontal lobe – a part of the brain that is highly important in our emotional processing. Damasio realized that, without emotion, Elliot was no longer able to determine which option was better (or worse) when faced with a choice, and had become profoundly indecisive.

Each rule triggers either positive or negative emotions to some degree, and our amazing brain manages to integrate all this and come up with the option that feels the best. In one situation, that can be the more materialist option, in another it might be the less materialist one. Homo economicus fans may well consider the former as the superior solution in all circumstances, but ultimately it is our emotions decide how important futilities are to us.

(I have since decided to adopt another mental accounting rule: “treat small amounts as part of a larger one”. When I consider the parking fee as part of the price I pay for the fish – 10 pence is less than 1% of my typical order – it gets lost in the noise. Problem solved!)

Epilogue

And sometimes the right decision unexpectedly turns out to be very much the right decision. As I tried to verify that the “Happy Birthday” garlands in the shop actually contained all the necessary flags, I began to suspect there was in fact nothing wrong with the one at home. I did buy a “replacement”, but as I got back, a quick inspection revealed that my hypothesis had been correct. Had I tried to return the original garland, coming across as a cheapskate would have been the least of my worries as the shop assistant pulled apart the flags that were stuck together to show me that the pack was indeed complete. I would have saved myself £1, but at what emotional cost…

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The relativity of mysterious overconfidence

(featured image: kues1/Freepik)

Both doubt and confidence have benefits, but is there anything worthwhile in overconfidence?

It is the season of party conferences in Britain. Over the years I have lived here, my attitude towards them has evolved from interest to irritation, and on to indifference. What has been a constant throughout, though, is the overconfidence the political leaders exhibit at a conference: not a hint of doubt that the proposed policies will be effective, serve everyone and lead to electoral victory.

The conundrum of persistent bad decision-making

Of course, overconfidence is not something that just politicians exhibit. We are all occasionally guilty of being too certain for our own good, discovering later on that the viewpoint we thought was unassailable or the watertight course of action we undertook were not quite that unassailable or watertight as we thought. Overconfidence is a cognitive bias – one of the most pernicious ones, argues Nobel laureate and éminence grise of the behavioural sciences Daniel Kahneman. It is the one, given a magic wand, he would eliminate first. But he entertains no illusions: in the same article, he admits it “is built so deeply into the structure of the mind that you couldn’t change it without changing many other things”. One problem is that overconfidence is widely rewarded: given a choice, audiences generally prefer pundits and commentators who self-assuredly proclaim to know what is going on and what will happen, to colleagues who express more nuanced viewpoints. And naturally the same holds for politicians: you get more votes by being 110% certain (and coming across that way) than by admitting that you’re not entirely sure and that you could be wrong.

“You don’t need to be overconfident to be a polit… actually, you do” (image via YouTube)

Nevertheless doubt – in moderation at least – is a useful cognitive state, in which we have not (or not yet) decided between belief and disbelief. It stops us jumping to conclusions, prevents us picking the first answer to a question or the first solution to a problem that comes to mind, and encourages us to consider multiple potential options, so we can make better decisions. As we make up our mind, we develop confidence in our conclusion, and that triggers our own internal reward system – no audience needed! Research by neuroscientist Pascal Molenberghs and colleagues found that the more confident people are, the stronger the activity in brain areas associated with reward processing, like the striatum. And that is useful too: once we have a solution or an answer that we feel sufficiently confident about, the reward tells us we can move on.

The trouble is that this can tempt us to imagine we are more confident than we ought to, just to experience a stronger reward. Ever more confidence can easily lead to overconfidence, and poor decision-making. But if that is so, how come such a maladaptive characteristic has not been evolved away, and is instead so ubiquitous? Of course, not all poor decisions are fatal, and it is quite possible to overconfidently survive until a ripe old age. But presumably, at some point we ought to realize that this overconfidence is serving us badly, and learn our lesson. So why don’t we?

Alice Soldà, an economist at Heidelberg University, and colleagues, investigated this apparent mystery. In particular, they focused on whether there are benefits to overconfidence that might outweigh the costs after all.

Central to their study was an experiment in which participants were paired up, and individually answered multiple choice general knowledge questions. Each correct answered earned money for a joint account, which they would be able to divide between them at the end of the experiment. After completing the questionnaire, they were asked to state how many answers they believed they got correct, and to indicate on a scale of 0-100% how likely they thought it was that they had done better than their partner.

Next, the participants were given feedback on their actual performance, but in order to allow participants to develop overconfidence, some uncertainty was introduced. Those who had outperformed their partner received either a green signal with a probability of 75%, or a red signal with a probability of 25%. In the opposite case, this was reversed, with red more likely than green. After receiving this feedback, participants indicated once again the likelihood they had performed better than their partner.

Negotiating for a worse outcome… or is it?

Then the bargaining started. Initially, the participants were told that the money earned jointly had been split into two unequal parts: 70% and 30% of the total, and their task was to agree with their partner who would receive which share. To this end, they had to write a message to their partner in which they justified their choice. If both participants chose a different part (and hence immediately agreed who was the better performer), the negotiation was complete, and the money was distributed. If, however, they both chose the larger part (in none of the nearly 150 pairs both participants chose the small part!), they received an additional three minutes to reach an agreement. During this time, they could communicate with each other through a chat facility (with one key condition: they could not reveal which colour signal they had received). If one of the participants switched from claiming the larger part to accepting the smaller part, again the negotiation would be concluded and the money divided. In the absence of agreement by the end of the period, they were granted a further 30 seconds to settle the difference, but with every passing second, the amount in the account was reduced by 1/30, so that after 30 seconds nothing was left. As soon as one participant switched to the smaller share, the clock stopped, and the remaining sum was divided 70/30.

Just over 6% of the pairs reached an immediate agreement, around 36% agreed who would get the larger share in the second stage (14% in the last 10 seconds!), and nearly 43% did so in the last stage (33% in the first 10 seconds). Nearly 15% of the pairs did not reach an agreement and went home empty handed (!).

Of course, the researchers knew precisely how each participant actually performed, how they thought they did, and how strong their belief was that they outperformed their partner before and after they received the feedback. Thus, they could establish the influence of (over)confidence on the monetary outcomes, mediated through the negotiation process. However, the researchers considered not just the payoff as a percentage of the total amount of money earned, but also as a percentage of the actual amount left, taking into account the situation where the negotiation went against the clock.

“I was a little overconfident too” (image via Hetemeel.com)

This was revealing. While, on average, participants with the highest levels of confidence, who kept their nerve all the way to the last stage, collected less money (and caused their partner to collect less, too, as the clock ticked away), they did on the whole end up with larger share of the actual prize than their partner.

They lost out absolutely – which supports the idea that overconfidence can lead to poor decisions – but they gained relatively. This can explain why overconfidence persists: we tend to value relative positions more than absolute positions. A telling paper by Sara Solnick and David Hemenway describes how over half the respondents in their study would prefer a child with an IQ of 110, if she is more intelligent than other kids, to a child with an IQ of 130 if her peers were smarter still. More than 50% said they’d prefer infrequent praise from their boss over more frequent praise, as long as they got more than their colleagues, and even that they’d rather earn $50,000 if their peers earned $25,000, than earn $100,000 if their peers took home $200,000.

Overconfidence, in this experiment, clearly comes with an absolute cost – at first sight, it leads to a poor decision. But if we are prepared to pay that cost to obtain the relative benefit of gaining more than someone else, then perhaps the persistence and ubiquity of overconfidence is not so mysterious. I mean, then that is 110% certain.

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Real prices can be about more than supply and demand

(featured image via Twitter)

How to turn an unfair price rise into a fair one

This last week, the UK has been experiencing a freak petrol* crisis. A handful of filling stations on the south coast had run out of fuel because of minor supply issues. The news led to a vicious circle of spreading panic buying, dozens more stations running dry, even more panic buying with demand up to 5 times its normal level, and so on. Why did such a demand-supply imbalance not push prices up?

The law of supply and demand in economics is much like the laws of thermodynamics in physics: it describes a natural phenomenon. The market price of a good is largely determined by how much there is on offer (the supply) and how much is required (the demand). Whatever its price is right now, if there is more than needed (i.e., supply exceeds demand), it will come down. Some suppliers want to get rid of their surplus, which they need to offer more cheaply in order to attract more buyers, and this raises demand. The price reduction may also lead to some producers halting production, thus reducing supply. Once supply and demand are matched, the price stops moving: every unit produced is sold, and every unit demanded is fulfilled – “the price is market clearing”, economists say.

Conversely, if there is not enough of a good to meet the demand, the price will rise: buyers who value it the most will offer a higher price, at which other potential buyers will drop out, and demand will fall. The price rise may also encourage producers to make more, or new producers to enter the market, thus increasing supply. And again, this will happen until supply and demand are in balance.

The market to the rescue… if we let it

So, whenever something happens that pushes the supply-demand equilibrium out of kilter, markets enable human behaviour to affect the price, which in turn affects behaviour, and so on, until rest is restored. In a splendid video, part of the equally splendid Marginal Revolution University’s course in micro-economics, economist Alex Tabarrok explains that a price (or perhaps more accurately, a price movement) is a signal wrapped up in an incentive. It signals that something becomes more (or less) scarce, and gives an incentive to act upon this signal to both buyers and sellers. Magic.

How would such a ‘natural’ price rise in the case of this specific petrol crisis work out? It is hard to see how it might boost supply. There is enough fuel in the depots, so producing more would not help at all. The problem is that there are not enough drivers to replenish the petrol stations at the rate drivers are filling up. But using a higher price at the pump to increase their pay is obviously also not a practical solution to peak demand. What higher prices would very likely do, though, is dampen demand, and thus facilitate a quicker return to normality. Yet, the prices did not budge.

See what happens when you overcharge customers? (image: Jeffrey Rolinc/Flicker CC BY NC ND 2.0)

This is one of the situations where rationalist economics clashes with real life economics – as economics Nobel laureate and behavioural economist Richard Thaler would say, ‘econs’ (reasoning, emotionless creatures) versus humans (complex bags of contradictory emotions, motives and preferences). The boss of the British Petrol Retailers Association put it pithily: “The one thing we do not condone is profiteering in situations like this.” Customers have long memories, he argued, and would remember how their local filling station offended them by overcharging them. Thaler himself alludes to the problem of profiteering – regardless of how much economic sense it makes – in Misbehaving: together with Jack Knetsch and Daniel Kahneman, he explored how people perceive fairness in economic transactions. One of the questions they asked concerned a hypothetical hardware store selling snow shovels at $15, but the morning after a snowstorm raises the price to $20, as the demand outstrips the supply. Unfair, 82% of the respondents found. (I wrote about this phenomenon a while ago here.)

Still, a situation where supply cannot meet demand and prices cannot rise is not ideal. Long queues at the pump, but not everyone needs fuel equally badly. Some people’s tanks are genuinely nearly empty; others are simply topping up or even bring along a collection of jerrycans to stockpile. Some people need their car to get to patients, pupils or to their job as an ambulance driver, or to drive to the hospital for important medical consultations; others only to take the dog for a walk in the woods. There are calls to give certain categories of key workers priority to fill up to avoid this problem, but that is easier said than done.

A fair allocation through an unfair price hike?

A market in which the price can freely move to bring demand and supply in line with each other could help. In a recent episode of the Rationally Speaking podcast, host Julia Galef discussed the practice of price gouging (or profiteering) with two economists, Raymond Niles and Amihai Glazer. Along with the other effects of pricing (the signal and incentive), they also considered the related aspect of the allocation of scarce goods: who gets what?

Niles argues that not allowing the market to set the price leads to inefficient allocation: people will buy more than they need, and so inevitably some people end up with less than they need. He also points out that rationing does not ensure that the scarce good goes to those people who value it most. (Here, for example, the person who just wants to fill up their car but leaves it on the drive for days gets as much as the person who needs their car to go to work every day and earn a living.) Glazer observes that misallocation (which can become full-blown hoarding) when prices are kept low is primarily a problem for goods that can practically be stashed – and that is indeed the case (at least in the short term) for petrol.

If there is no practical mechanism to ensure the efficient allocation of a scarce good during short term peak demand other than allowing the price to rise, and at the same time such price rises are considered hopelessly unfair by the consumers, is there nothing that can be done? Richard Thaler hints at a way to circumvent the aversion apparent profiteering: the perceived fairness of a transaction can depend on how it is framed.

What if a price hike did not, as is assumed by default, take extra money out of the buyer’s pocket only to add to the seller’s profit, and was framed differently? Sure, it would then not act as a signal and an incentive to the supply side, but since that is not where the problem is, that is just fine. It would send a signal and an incentive to the demand side, though: dearer fuel discourages those buyers who value petrol the least, and ensure that what is available can go to the drivers with the highest need. Yes, dearer fuel would also irk people, but arguably, wasting time frantically searching for petrol, and wasting more time queueing when you’ve finally found some is also not without irksomeness.

“Move on, you pillock, so I can fill up with cheap fuel too!” (image: John Greenfield/Flickr CC BY 2.0)

That leaves the question what to do with the surplus income that cannot go to the seller. What if that went to a good cause? In Britain, the national treasure of the NHS would be a most suitable recipient of these funds, and it would make many drivers a lot less irked at having to pay more.

One way to implement this could be a special levy imposed by the government, but my inner curious libertarian would prefer leaving the setting of the price to the market, and limiting the government’s role to creating the legal framework for raising prices in emergencies and funnelling the proceeds. Not only would this ensure it is market forces rather than bureaucrats or, heaven forfend, politicians setting prices, but it would also leave the decision whether or not to engage in this mechanism to the retailers. That might create diversity in the market, and provide drivers with a true choice between cheaper petrol that is hard to find and costly (in time) to obtain, more expensive, “NHS+” fuel… or simply staying put and waiting until things calm down.

What an interesting economic field experiment that would be!

(Between writing this article and publishing it, I noticed that none other than the FT’s undercover economist, Tim Harford, proposed something very similar on Twitter. Modesty stops me from saying that great minds think alike :-).)

* ”gas” if you are in America

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Incentives in the balance

(featured image: Ruslan/Flickr CC BY SA 2.0 and Thamizhpparithi Maari/Wikimedia CC BY SA 3.0)

We respond to incentives, that is true – but not always in the way that might be expected

An insight to which I often return is the following economic observation, from Steven Landsburg’s The Armchair Economist: “People respond to incentives. The rest is commentary.” It has an irresistible simplicity, and it’s not hard to find plenty of evidence for it: positive incentives make a choice more attractive, and negative incentives less so. But things are rarely quite that simple.

Incentives work because we have a built-in mechanism to establish and evaluate costs and benefits. From our most ancient unicellular ancestors all the way to us here and now, only those individuals who reliably made choices that were better for them – so they were able to live long and prosperous enough to procreate – and who avoided worse choices were able to persistently pass on their genes. This ability allowed all our predecessors, and allows us today, to respond to and navigate nature, seeking out and pursue what is good for us, and evade what is not.

Human activation of incentives

For almost ever, this was a passive affair, in which nature provided the situations and living things responded to them. But one day, very recently (in historical terms), we humans figured out that we could actively manipulate costs and benefits to others (and to ourselves), and thus influence behaviour: we invented incentives.

Since then, reward and punishment – for desired and undesired behaviour, respectively – are widely used instruments to change behaviour, from bribes (extra pocket money) and threats (confiscation of smartphone) in the process of education our children, to, well, bribes (bonuses and promotions) and threats (sanctions and firing) in the workplace. And of course, we see incentives in the world of commerce, with special offers, discounts, coupons, free pens and whatnot, encouraging us to buy cheese or insurance.

You can picture a decision (to either do, or not do, something) as a set of scales on which one side represents the costs and the other side the benefits. What an incentive does is either put extra cost or benefit on the corresponding scale, or take cost or benefit away from it, in order to make it tilt the other way. (Often one and the same intervention can be seen either way. If a coffeeshop charges less for a croissant with a cappuccino than for both items separately, that can appear as an incentive to buy two items rather than one, or a disincentive to buy just one item.)

Making things cheaper or more costly is an obvious application, which can even be done conditionally, like off-peak prices for public transport or holidays. But practically anything that is important to the decision-maker (convenience, effort, time, risk, timing etc), can be manipulated to alter the balance between one choice and the alternative, and hence act as an incentive.

The miracle of the Passe Sanitaire (via ourworldindata.org)

From 9th August 2021 the French government, for example, has made the passe sanitaire – proof of immunity to COVID-19 or a recent negative test – compulsory for a wide range of public activities, including eating or drinking in the outside areas of bars and restaurants. This was at least in part intended as an incentive for people to get immunized: it makes failing to do so costly (no vaccine, no fun). It is also coercive in nature: it takes away a previously existing right from people who choose not to get their jab. And it worked: France’s rate of vaccination accelerated remarkably, overtaking the EU curve which it had been lagging since May of this year.

Stuff the scales

The British government attempted a similar tactic with the personnel of care homes. These house people who are often quite vulnerable through age and various morbidities, even when they are fully vaccinated, and so minimizing the risk of infection is very important. Many employees, however, appear reluctant to get immunized. By the end of July, only 78% of personnel in older adult care homes was vaccinated, and the government itself estimates that some 7% of the 570,000 care home staff (40,000 people) will refuse. Last month, it therefore decreed that anyone working in a care home who is not exempt (for medical reasons) must be fully vaccinated by 11th November.

Like the French pass, this too is a coercive incentive. Hey, if people are prepared to get immunized just to be able to continue to have a beer, they should surely be at least as willing to do so in order to keep their job. That assumption would very likely be valid if jobs were scarce. But there are over a million vacancies in the UK, many of which are for jobs with no more qualification requirements than in the social care sector, for instance in hospitality.  Adding conditions to employment in such a climate will certainly work as an incentive – only not necessarily in the intended direction. Unsurprisingly, the measure is a big worry for care home operators, who already face the most severe acute staff shortages in living memory, according to a open letter to the government issued this week.

A jab to keep my job — but who says I actually want to keep it? (photo: Mufid Majnun/Pixabay)

Exactly how people respond to an alteration to the costs and benefits balance depends on what the alternative is. For government ministers and civil servants with a well-paid job that they enjoy, and who consider vaccination at worst as a minor inconvenience, getting the jab and keeping their job might look like a total no-brainer. But imagine someone in a tough, underpaid job, who is deeply suspicious of a new vaccine that is pushed by people with whom they have little affinity, in a climate with plenty of other low-paid, but less burdensome jobs around. They may well opt for the alternative, choose to check out completely, and move on.

Similarly, the Brussels regional government announced earlier in September that a coronapas will be essential to visit places like gyms or, like in France, bars and restaurants. They hoped this would provide a boost for the vaccination rate in the Belgian capital which, at 51%, limps way behind the national rate of 72%. Now maybe the unvaccinated Bruxellois care little about gyms and bars, or they plan simply hop over the boundary into nearby Flanders (which surrounds the city) for a beer or a steak frites, where at present no pass is needed. In any case, unfortunately the compulsory pass appears to have little effect.

Incentives can be a powerful instrument to change people’s behaviour. But it is advisable to take a good look at what their alternative options might be – especially if the incentive assumes they need or profoundly want to do something. Above all, it is important to evaluate how the incentive will influence the choice they ultimately make from their perspective, not yours, otherwise they may well tell you to stuff your balance leave you alone with your set of scales.

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