Did emotions kill economic man?

‘Emotional’ is not the opposite of ‘rational’

It may not strictly be considered the same as ‘irrational’, but the term ‘emotional’ is often regarded as diametrically opposed to ‘rational’. Perhaps dividing people in ‘emotional’ and ‘rational’ types would be all too simplistic, but we seem to have no particular problem with distinguishing between emotional and rational choices.

Not only that: it is sometimes also implied that emotional decisions are somehow inferior to those made rationally. The assumption is that emotions lead to impulsive choices, which fail properly to take into account the pros and cons of the options, and which we often regret some time later.

A good example of this thinking can be found in a New Statesman article from 13 July 2016, with the unambiguous title “Time to bury Economic Man: why we make political decisions based on emotions over facts”. It paints this economic man as “an independent agent who makes decisions in his own best interest, after having examined all the information”, the kind of person that uses “facts” rather than emotions to select the best option. Real humans, in contrast, are the kind of people whose energy consumption is not determined by the cost of a kWh, or what proportion of the household income is spent on gas and electricity, but by what their neighbours are doing.

What is ‘better’?

At first sight that distinction seems to make sense – even the idea that those who appear to use reason and facts to make decisions are smarter than those who are led by a competitive drive with the family next door.

And yet…

Here’s a thought experiment. Imagine that you are asked to help another person make a decision – someone you’ve never met or will never meet, and about whom you know nothing. You could not possibly be more emotionally detached. The choice is simple: this person must choose the better of two envelopes, A and B. They don’t know the content, but you know that B contains £20 and A £50, with no further conditions attached. You know which is which, and you need to advise the unknown person on which one is the best. In all likelihood you will recommend they pick envelope A.

But is this choice really as unemotional as it appears to be? How do you know that they will find envelope A the better choice? Perhaps you make the assumption that this person will have the same straightforward preference as you: more money is better than less money, all else being equal. But what exactly  is this preference – is it simply rational, and utterly unemotional knowledge, or is there something else at play? The way we handle questions involving money suggests that emotions do play a role. If you get a pay rise, or you find a £20 note (or even a pound coin!), does that leave you totally cold, or do you get a hint of something pleasant inside?

Decisions rely on determining what is ‘better’ than the alternative. It is tempting to treat this as a test that belongs in the domain of logic, and the outcome of which can be objectively determined, based on facts, not subjective emotions. Economic man would do that in the same way a cleverly constructed computer program would: list all the facts for each of the possibilities, apply suitable weights to them, aggregate the lot into a single number, and compare the outcomes using a cold “>” sign: if X > Y, then X is preferable and a ‘better’ option than Y.

Preferences and rewards

The rub lies in that comparison. £50 is so obviously ‘better’ than £20 that we are led to believe that all choices can be reduced to such comparisons. But imagine that one of the envelopes contained a ticket to a performance of Hamlet with David Tennant and Patrick Stewart, and the other one a ticket for the Wimbledon women’s singles final. How would you advise your unknown client – indeed how could you advise them, without knowing what their preference is? And how is that preference discovered?

We can ask others what their preference is, of course, or observe their behaviour to establish their revealed preferences. But how can you tell your own preferences? That little twitch of pleasure you feel when even something as ‘objectively’ beneficial as an unconditional sum of money becomes much more visible when it concerns choosing between theatre and tennis. Now, some people may find that choice agonizing, because they like both. Many more would have little difficulty choosing, because they would find one experience much more pleasurable than the other.

dopamine

The anatomics of economics (source)

And that is, of course, a matter of emotion. As neuroscience helps us peer deeper and with more accuracy in the brain, explanations begin to emerge on how this works in practice. The so-called reward system is the collective name for a set of neural structures that are involved in decision-making in response to stimuli (even imagined ones). In a fascinating paper, Cambridge neuroscientist Wolfram Schultz describes in great detail how our brain circuitry embodies this reward system through dopamine neurons (brain cells that release this particular neurotransmitter to send signals to other nerve cells), and how it is the seat of what economists call utility and thus central to much of our behaviour.

No comparison without emotion

Emotion is our “>” sign – not just for choosing between Hamlet or Wimbledon, but also for choosing between Coke and Pepsi, between a blue shirt and a yellow shirt, between two job offers, and indeed for choosing between Leave and Remain in the EU-referendum. Ultimately, no matter how many facts we have looked at in considering the difference between two options, we make the choice between one and the other with our emotions.

spock

Homo emotionomicus

Still, would pure logic and rationality not be better for making decisions than emotions? Should we not try to emulate Mr Spock, the enduring half-vulcan, half-human character from Star Trek, who almost looks like he is economic man brought to life? That perception is, it seems, wide of the mark. Ali Mattu, the science fiction psychologist, has a great post on the psychology of Spock, in which he explains how Spock’s fast limbic system enables him to experience emotions more powerfully and deeply than humans, and therefore to make decisions very quickly.

So it is not only us humans who make these choices with our emotions – so do Spock and economic man, even in his most idealistic incarnation. If economic man decides to switch off the lights when he exits a room and to turn down the radiators when he leaves home because it saves him money, then that is no less the result of emotions than the motivation of the humans across the road who don’t want to be outdone by their neighbours in the energy conservation stakes.

Emotions are not preventing us from making good, fact-based decisions. Without emotions we could simply not make sense of facts: they enable us to determine what these facts mean for us, and to work out which set of facts we believe serves us best. They are essential to all decision-making.

And economic man, hypothetical as he may be, is as reliant on emotions as we, real humans, are to make his hyper-rational decisions. Any proposals to bury economic man – for this reason, at least – are therefore somewhat premature.

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About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Economics and tagged , , . Bookmark the permalink.

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