What do we want? Control!

(image credit: Sarah Ross/CC)

Control and freedom of choice are important to us, and we are prepared to pay real money for it. But things are not always that simple…

‘A la carte’ – a posh French phrase that implies something that is bespoke, something that is tailored to our specific preferences. It means that we can choose. The term stems from the pleasant world of gastronomy, where restaurants often offer a set menu on the one hand, and a wide range of starters, main courses, second courses, desserts and goodness knows what more, on the other hand.

alacarte

Choice doesn’t come cheap (image: Alpha/CC)

The remarkable observation is that the price of the set menu is almost always a good deal lower than it would cost to order the same courses separately from the general menu. Cynics might argue that this is because the dishes in question are smaller when they are part of the set menu, but I have never seen any evidence to support such claim. It is not the motivation behind the restaurateur’s pricing approach that is really interesting, though. Far more intriguing is the fact that we appear to be willing to pay more for a menu that we assemble ourselves, than for one that has been constructed for us.

Paying for control

We are willing to pay for control. Not just in restaurants,

Such payment is not always made in money. Just this week, the commemoration took place of the mindboggling battle of Passchendaele. One hundred years ago, in the muddy fields around this tiny village, in the span of just a few days, close to half a million soldiers (just try to imagine such a number) perished. War is, in essence, about control. The aggressor wants to gain control over the resources, the land, the people of the occupied country. The other side wants to defend their control and regain what was lost already. Hundreds of thousands paid the ultimate price in that battle for control.

One recent political event is very overtly about control. In the referendum around the UK’s membership of the EU, the most prominent slogan of Vote Leave was ‘take back control’.

More than one year after the referendum, the discussion gravitates towards the economic consequences of Brexit. There is little clarity about exactly what Brexit will mean, to growing unease of the British business community. But few doubt that, in the short term at least, it will bring with it a significant economic cost.

That too is in a very real sense the price some people are willing to pay to gain control.

tynecot

They paid for our control with their lives (image: Stephen Curry/CC)

In a paper published last month, Sebastian Bobadilla-Suarez, Cass Sunstein and Tali Sharot explore that intrinsic value of choice. A fully rational approach should simply be to consider whether the payoff is likely to be higher with, or without, delegation to someone else. But immediately, other elements enter the thought process: how much effort does it take to make the decision? Would we enjoy the reward of a good choice or suffer the pain of a bad one more, or less, if we had delegated it?

Good council is worth (more than) money

The researchers wanted to test whether people would make a sacrifice to be the choosers, rather than to delegate a choice in the face of potential losses and gains. The task they set in the experiment was straightforward. Participants were repeatedly presented with a pair of shapes, one of which was ‘better’ than the other. In one version of the task, making the right choice resulted in a gain of £10 and the wrong choice in no gain. In the other version, the right choice produced no loss, and the wrong choice a loss of £10.

In a first stage, all participants executed 60 trials in the gain frame and 60 in the loss frame on their own. This was supposedly to discover the rules behind the supremacy of one shape over another. There were, however, no rules: the game was rigged, producing random outcomes with an overall success rate of 50% for every participant.

After this learning stage, participants could delegate the choice between the two shapes to a (computerized) advisor. At every trial, before deciding whether to delegate, they were shown the historical accuracy of the advisor (between 0% and 100%), as well as the fee that would be charged (between £0 and £10) if the advisor were to select the correct shape. This allowed participants to work out the expected value of delegating. For example, if the advisor’s accuracy was 80% and the charge £2, the expected value in the gain frame would be £10 x 80% – £2 = £6. Their own was, of course, £5 – by definition they got the right answer 50% of the time.

A rational participant would choose to delegate when the advisor’s expected value was higher than £5, and retain control if it was lower. The expected values for the advisor were engineered so that they were higher than £5 50% of the time, so a rational participant would delegate in half the cases.

What happened in practice? Participants delegated just 29% of the time. Even more interestingly, the ‘errors’ they made (delegating when their own performance was better than the advisor’s, and not delegating in the opposite case) were not symmetrical. The participants failed to delegate in around 43% of the cases, while they failed to retain control just 8% of the time. (There was no significant difference between the gain frame and the loss frame.)

control

The researchers then calculated the ‘control’ premium – the amount people were willing to sacrifice to retain control. This was £2.50 in the gain frame, and £3.53 in the loss frame. Compare this with the expected value, and it is easy to see the importance of this: we are prepared to give up 50% or even 75% of the likely outcome of a decision in order to be able to make it ourselves.

Back to reality

Before we project the findings of this study onto the real world, it is important to recognize an important constraint. The participants made their sacrifices out of future gains – none of them gave up any of their own money in the experiment. Furthermore, even those who ended up with a negative balance at the end were paid a positive amount in compensation.

So what about Brexit? As the actual financial and economic costs of ‘taking back control’ – become clear over the next year or so, the trade-off between control and sacrifice will also become more apparent. And here, that sacrifice will not come out of future gains, but there is a real chance that people will be worse off than they are now.

yougovmigration

Source: YouGov survey, August 20, 2016 – via Eric Kaufmann

Not long after the Brexit referendum a survey by Eric Kaufmann at the London School of Economics revealed a distinctly modest willingness to pay more than a relatively small amount of money to ‘take back control’.

When people realize what the actual price tag is going to be, and how much control will really be taken back, will they still think it is a good bargain?

Time will tell whether lab and field experiment will tell us the same story…

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About koenfucius

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

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