(featured image: Martin Cleary CC BY)
Economics can help us understand our choices and behaviour even better if it looks inside our heads
Isn’t language wonderful? Particularly when you’re learning a language different from your mother tongue and you come across idiomatic expressions, you realize the rich diversity in how we convey incredibly complex concepts. The English phrase “a penny for your thoughts” (apparently first recorded by none other than Thomas More), is one such expression. It filled me with wonder when I first came across it, and it has since acquired additional significance for me.
I learned that it is what one says to someone deep in thought, inviting them to share what preoccupies them. But it also hints at the idea that thoughts may be exchanged for money, or even that they can have monetary value. That is an intriguing possibility for an accidental behavioural economist.
Information can, of course, have value. Imagine someone had reliable information on who is currently carrying the novel coronavirus and who isn’t, and who has antibodies (and is therefore most likely immune) and who hasn’t. Such information would allow governments to accurately plan and effectively implement a swift relaxation of lockdowns, and enable social and economic activity to start up again. We cannot begin to calculate, even approximately, how much such information would be worth, but there is no doubt that it would be extremely valuable.
Dad’s old banger
Information is not the same as thoughts, however. Information can be bought and sold, withheld or shared. Thoughts emerge and remain within our own mind. Information can make a material difference – knowing that a used car has been in a serious accident can prevent us making an expensive mistake, and having inside knowledge about a company’s successful trial of a new product can make us a killing in the stock market. Thoughts do not have that power, but they do have the power to make us feel good, or bad. And that is often what matters to us.
The British television show Bangers and Cash follows an auction house in rural Yorkshire that specializes in classic cars, motorcycles and assorted paraphernalia. The classic car market can be volatile, and many models move into (or out of) favour. One of the vehicles offered in a recent episode was an old Hillman Minx. When the owner died, his children could not bring themselves to sell the family car with which they all grew up, and it had stood idle ever since – now in one of the children’s garage, then in another one’s shed. Thirty years later they realized it had to go, but as the auctioneer observed, they would have got considerably more money for it had they sold it back then, rather than now. “Ah well, at least we know it will be going to a good home”, was the response of one of the descendants of the original owner.
Perhaps it is understandable that people attribute value to the thought that someone will restore and look after an object that carries so much emotion. But it does not just happen with treasured possessions: we see it in much more ordinary circumstances. Earlier this year, my daughter’s car broke down, and turned out to be beyond economical repair. She’d been driving this ordinary family estate for about five years, so any emotional attachment would have been modest in comparison with a fifty-plus year-old model that symbolizes one’s childhood years. A scrap dealer had offered £2,200 for it, but she eventually decided to sell it for £2,000 to one of the mechanics at the garage who would fix it for his wife to drive.
The value of a thought
Here we have a clear indication of the value of a thought – of that thought, at least. It was worth £200 to my daughter, to know that the car would not be broken up for spare parts, but would continue to be useful for someone else in the same way it had been for her – to take her son to school, doing the shopping, going on camping trips, you name it. Was it really a wise thing to give up £200 for that?
Well, who am I to judge? A couple of years ago I gave my twenty year old Yamaha stage piano, which had started to become quite noisy, to my music teacher to pass on to one of his young students who did not have a proper piano. At the time (and it seems even now) I could have sold it on eBay for £250 or more. Just two weeks ago (during a Zoom session) my teacher told me that the piano is now on its second outing (the first pupil had taken to piano lessons, and his parents had decided to buy an instrument). Somehow, the thought that my old instrument is being, er, instrumental in helping kids discover the joys of playing the piano, is indeed worth more to me than the money I could have made by selling it online.
There is quite likely a limit to how much we are willing to sacrifice for a thought. When it comes to selling our house, we may well feel happier to sell it to a nice family, than to a property developer who will tear it down and replace it with a block of flats. If the latter offered just £200 or even £500 more, we may well turn him down. Do we care enough about what happens to our old home to say no to £1000 or more, though?Probably not. But we have established that thoughts can be valuable. Is it really thoughts, and not information? I don’t know about the sellers of the old Hillman, but my daughter never actually checked what did happen to her old Volvo, and neither did I about my piano. It is not really the knowledge we care about, but the thought.
Economics in mind
The emerging field of cognitive economics is concerned with how our thoughts influence our decisions and our behaviour. It may well be onto a way to understand some of the otherwise quirky behaviour of us humans, when you only look at material costs and benefits. What we glibly call ‘sentimental value’ comes to life when we realize that artefacts we associate with people or situations from our past have the capacity to activate pleasant thoughts – just watch the end of any episode of the TV show The Repair Shop, in which people bring old, often broken, items to be repaired by master craftspeople, and they are confronted with the result. Their reaction speaks volumes.
Looking at our thoughts helps explain the power of anticipation – the thought of good things to come – and indeed the power of literature: the magic of ink on paper that puts thoughts in our minds. We may be able to explain our tendency to conform to social norms from a material viewpoint: just like in the tribes of our distant ancestors, signalling our willingness to adopt the rules of a group gives us access to protection and support when we need it. But our tendency to persuade others to do like us – go to see the same movies, buy a car of the same make – is more easily explained when you realize that we enjoy the thought of others following our lead.
Economics is, in essence, the study of human behaviour, but to fully understand it, we need to look beyond the material, and into our minds.