Inescapable philosophy?

(featured image credit: Thor Edvardsen)

Do we need philosophy to fully understand and explain our behaviour?

(I am going to make a quick assumption here about your honesty.) How come you never engage in something like shoplifting? Surely doing so is to your economic advantage. Is it because it is against the law? Maybe because you are scared of being punished or humiliated? What if you were certain you wouldn’t get caught – would you then choose to do it? Do you actually consciously consider the possibility every time you are in a shop?

Behaviour and choice are two sides of the same coin. Almost all our behaviour is determined by choices we make. Neoclassical economics treats us largely as rational, self-interested, utility maximizing beings – the so-called homo economicus  – and seeks to explain how we choose, and hence behave, from that perspective. Not so fast, say psychologists and behavioural economists (the line between the two can be a bit fuzzy). We may like to think we are good at making rational decisions, but we have a few problems with willpower and self-control, quite a bit of our behaviour is a matter of habit or unconscious choice, and on top we bulge with cognitive biases and we fall prey to fallacies. We need those insights to explain our behaviour too.

Do these two approaches together give us all we need to understand people’s behaviour, and improve our decision-making? Not quite. Our choices are sometimes also determined by what we think is right and wrong – our moral intuition. Morality may not play a large part in choosing between a dark red or a beige jumper when we get dressed in the morning, but it creeps in when we are shopping (fair trade sugar or own brand?), want to get out of a visit to the in-laws (tell a white lie, or go anyway?), or indeed between sneaking an item past the attention of the shop assistant… or not.

Is it half a century already?

Questions relating to ethics belong in the domain of philosophy. In the same way that a behavioural economist can get excited by situations where people’s intuitions are not necessarily a good guide to what is best for them, a philosopher’s eyes can light up at the thought of moral dilemmas, where moral intuition is likewise not necessarily a good guide. A classic thought experiment that explores such a dilemma is the trolley problem.  British moral philosopher Philippa Foot first formulated it (almost as a by-the-by) in a 1967 paper in the Oxford Review.

Over the last 50 years, it has gained an unusual amount of fame for a philosophical device. In case you’ve never heard of it, or have forgotten, it is about the following question. Should you divert a runaway tram (as in Foot’s original) or trolley (in current parlance) headed for a track where five workers will be killed onto another track where just one worker will be killed, or instead do nothing?


A difficult choice. (image: Minnesota Historical Society)

Not everyone is convinced of the value of such thought experiments, though. A couple of weeks ago, an article in Current Affairs entitled “The trolley problem will tell you nothing useful about morality” left little doubt as to the view of the authors. They believe it is so far removed from any ordinary moral choices that it’s ‘close to nonsensical’.

Yet this very problem is being wheeled out to explore and debate the behaviour of autonomous cars. What if a self-driving car is confronted with a situation in which it can either mow down five pedestrians and save the two people it carries, or avoid the pedestrians by crashing into a concrete wall, killing the two passengers? MIT’s Media Lab turned questions like these into scenarios in its Moral Machine. Kill three elderly men and two elderly women who are legitimately crossing road on a green signal, or a couple with two boys and a baby who are crossing on the red signal? Try it out for yourself: there are 13 standard scenarios and hundreds of user-made ones (you can make your own too).

Not a good guide

The trolley problem is not a good guide to help design the algorithms that (literally) drive an autonomous car. For the foreseeable future, cars will not be able to determine whether a person on the crossing is a devout church-goer or an evil killer. They will not know whether the café to the left is empty or hosting a kids’ birthday party, nor whether there is a mother with a baby in a pram about to emerge from behind a parked van.

Self-driving cars cannot help us make better moral choices in emergencies, based on better or more information. What they can do is help us avoid being distracted, or reacting impulsively but unwisely when something unexpected comes into the vehicle’s path. At best the artificial intelligence in self-driving cars can overcome our own weaknesses – from to the temptation to check our phone when it beeps and the susceptibility to road rage, to a tendency for tailgating the car in front and then slamming on the brakes when it slows down. But it is not some kind of superpower that can solve moral dilemmas.

A good guide

On the other hand, the authors of the Current Affairs article are too quick to dismiss the trolley problem as guidance for our human moral choices. Some people, for example those working in healthcare, face tough choices much like it. A paramedic confronted with two critical victims of a car crash must decide on the spot who to treat first. When the UK’s National Institute for Health and Care Excellence (and equivalent bodies in other countries) recommend or reject a new medicine, they effectively make decisions about who will live (longer) and who will not. Funds are limited, and every pound spent on a new anti-cancer drug cannot be spent on diagnostic equipment for ambulances. These choices are barely less horrific than those in the trolley problem.


Or maybe an anti-cancer drug would be better? (image: Biotechnose)

And even in our more mundane lives, it is not because our moral dilemmas don’t always involve the choice between killing one person or five people that the choices we do face are trivial. A recent paper by Amitai Shenhav and colleagues describes how banal choices can cause as much anxiety as having to choose between options that are of great importance. Maybe a hypothetical life and death choice is not such a bad thought experiment to help us understand the nature of decisions that involve a moral dimension.

Should we let down our colleague who’s asking us to go for a drink and discuss a serious problem at work, or instead our partner who is cooking a meal this evening? If you’re deciding the fate of an underperforming member in your team, should you give them another last chance, or sack them (knowing that they won’t easily find a new job)? We frequently face situations not unlike these two examples: forced choices leading to a no win outcome… just like in the trolley problem. We can try to avoid them or look away, but that is not always possible.

Unlike irrational decision-making, where there is at least a rational benchmark against which it can be evaluated, such ethical dilemmas never have an obvious correct answer. There is no nudging, no behavioural economics trickery (and no artificial intelligence) that can help us make the right choice.

The best we can do is being aware of such quandaries. And the trolley problem, 50 years old this year, can still be a pretty good guide for us to learn to understand their complexity. If it makes undergraduate students, and the rest of us, realize the limitations of our simple moral intuitions, maybe we should wish it well for the next fifty years.


Posted in Behavioural economics, Cognitive biases and fallacies, Economics, Ethics, Morality, Philosophy | Tagged | Leave a comment

Social norms and sexual misconduct

(featured image credit: geralt)

If how we behave is motivated and moderated by what is socially desirable and acceptable, how can this be squared with the unending stream of allegations of inappropriate behaviour?

Social norms influence how we make choices. We are social beings, so it is unsurprising that we take our cues from others, and from how they respond to what we do. We want to belong and identify with our preferred social groups, and behaving in such a way that we conform to the group’s norms helps us do that.

Strong power or weak power?

Understandably, social scientists have been seeking to use social norms as an instrument to change people’s behaviour. In 2008, Noah Goldstein, Robert Cialdini and Vladas Griskevicius looked at how different messages placed in hotel bathrooms affected the reuse of towels. Compared with a standard message (use your towels again, and save lots of water and energy), one that pointed out that 75% of hotel guests reused their towels led to a 20% increase in towel reuse. If the message referred to the guests that had stayed in the same room, the increase was more than 30%.


…if you can be bothered. (source: A Room with a Viewpoint)

Social norms are now prominent in the toolkit of behaviouralists – it is represented by the ‘S’ in the British Behavioural Insights Team’s EAST framework for example.

But all this makes you wonder to what extent social norms are implicated in the unending string of allegations of sexual harassment and sexual violence, in the entertainment industry, in politics, in sports, and in workplaces everywhere.  If such behaviour is not acceptable, how come it is still happening?

Social norms are of course not black and white. Even the most powerful message in the hotel bathroom did not make 100% of the guests reuse their towels. Some people simply not have been be engaged enough, or distracted. Others may have had (in their eyes) good reasons to require new towels perhaps they were especially sweaty and grubby before showering, or they soiled the towels in some unspeakable way).

Norms influence our behaviour, but they generally don’t fully determine it. We rarely treat them as absolute and unconditional, and they compete with other factors. So we tend to be rather flexible in applying norms, even the ones we hold high, and we may trade off adherence against other considerations. If we are normally a well behaved driver who stops before an amber light and sticks to the prevailing urban speed limit, we may justify deviating from that norm and turning into a rather more aggressive driver when we’re late to get to the airport and catch the last flight.

And perhaps some people just believe that certain norms don’t apply to them – in the hotel bathroom, as in their relationships with co-workers. Like a medieval potentate who, not content with the taxes he raises on the meagre harvest of his serfs, still feels entitled to grab the best looking apple or carrot they’re taking to market, take a bite and then casually and ostentatively throw it away, so they feel entitled to ignore the rights and dignity of those over whom they have power.

Social norms have no grip on people who are convinced they don’t apply to them.

The norm of silence

But social norms appear in more than one way in this context. For a long time, the women and men at the receiving end of sexual harassment and sexual violence were stuck in a social norm in which victims remained silent. The behaviour of the perpetrators may have been unacceptable, but it was, de facto, accepted.

The informal #metoo movement may just be the catalyst that is needed. When victims feel it is OK speak out, the norm of silence is starting to crumble.


It should be *us* too. (photo: surdumihail)

But it’s not just among the victims that there is a need for a change in social norms. Those of us who are, thankfully, not victims, but witnesses are also stuck in social norms. We may find sexual harassment and sexual violence unacceptable, but do we really, unequivocally refuse to accept it? We’re often subject to a conflict of norms: we see someone do something that is not acceptable, but it turns out to be a friend or a relative, and ‘we are not a grass’, or ‘boys will be boys’. Or we turn a blind eye because we don’t want to get involved, or we appease ourselves with the thought that it’s always been like this.


We should change our own norm of silence too. Sometimes there is no room for trade-offs. If behaviour is unacceptable, we should not tolerate it or seek to justify it.

Such social norms may not eradicate the behaviour of sexual predators. But they will more and more limit their ability to intimidate and attack others. And it is down to every single one of us to help them become the new norm.


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Is it our business?

(Image credit: stevepb)

Sometimes characteristics of products or services, or of those who sell them, immaterial as they are, can greatly influence our willingness to pay. Should they be any of our business?

500 years ago, on 31 October 1517, Martin Luther is said to have nailed his so-called 95 theses to the door of the chapel of the university where he was a professor of theology, in the German town of Wittenberg. In it he set out his fundamental objections to key elements of the Catholic doctrine and practices at the time. One of Luther’s main beefs with Rome was the widespread selling of indulgences, a kind of fast track ticket to heaven for sinners. In return for a generous donation to the Catholic Church they could redeem some of the time they would have to spend in Purgatory in the afterlife.

Luther’s objection was primarily theological: his conviction was that forgiveness for one’s sins required spiritual repentance, not cash transfers. But in a sense, he acted also as an early-day version of a consumer advocate, exposing indulgences as a product unfit for purpose. Ordinary people at the time had no way of verifying or challenging the claims of dodgy clergy, and so were effectively hoodwinked out of their money.

Unfixed values

Such practices are generally considered fraud nowadays. If you sell fake Rolex watches or Gucci bags, you risk prosecution. Misrepresenting material information in order to fool your customer into paying over the odds is generally illegal.


Early consumer champion with hammer

But that kind of fraud aside, knowing certain facts (or not knowing them) can significantly influence the price we are willing to pay for a good or a service. One of Richard Thaler’s classic thought experiments reveals the different price we are prepared for a beer on the beach (see ‘What’s the price?’). Standard economic theory says that we would establish the value of a beer based on how much we desire it, and irrespective of its provenance. But in practice, if we know the beer comes from a posh hotel we are willing to pay a good deal more than if we know it comes from a beach shack.

Let’s take this thought experiment a bit further. Imagine both you and your friend have read Thaler’s paper, and you agree two prices: a low one if she can buy the beer from a shack, and a high one if she needs to get it from a fancy hotel. She returns with the drinks, and you get your wallet to pay her. But how much? At that moment you don’t know where the beer came from, and none of its material features can make you any the wiser.

Your friend also happens to be a behavioural economist. To tease you, she refuses to tell you where she got the beer, and asks you to name your price. If it’s equal to or more than what she paid, you get the bottle, and if it’s less, she’ll drink it herself. Would you offer the true value of a beer to you, there and then, above which you’d rather stay thirsty? And would you feel miffed if that ends up being more than needed?

Not our business

This kind of reasoning, adjusting our willingness to pay to the underlying cost to the seller, doesn’t normally happen when we buy stuff from shops – a cup of coffee on the go, a loaf of bread, a winter coat…. Maybe that is because we assume that there is a reasonable mark-up, but usually we really don’t know. Perhaps the T-shirt for which we’re quite willing to pay the £20 shown on the price tag is bought in for just £2. If we knew, should that affect our willingness to pay?

Rationalists would of course say that is none of our business. As buyers, we should not concern ourselves with the details on the seller’s side prior to the transaction. No nonsense about beer from a shack or a fancy hotel, about mark-ups and profit margins. We should simply establish what a beer, a coffee, or a winter coat are worth to us, and use that to determine how much we’re prepared to pay. When we are thirsty we shouldn’t really be willing to pay less for a beer from one source than from another, any more than we should be offering less for a house that the seller inherited than for a house for which the seller made numerous mortgage repayments.

But it is it really irrational for us to incorporate the provenance of an item, or even the motives of the seller in our price deliberations? Isn’t it perfectly reasonable for someone to attribute value to the fact that their car used to belong to Steve Jobs, or to be inspired when they play on a guitar once owned and played by Beatle George Harrison… and pay literally over the odds for it? And isn’t it equally reasonable to take into account the negative emotions we might feel when we believe we are being overcharged by a seller only interested in a quick buck (and hence to reduce our willingness to pay)?

Our business

Perhaps it is our business after all. Just look at the practices of some el cheapo airlines. Zach Weinersmith captured the trend quite well in a cartoon last weekend:


Things may not be quite that extreme yet, but what about extra legroom seats? In the olden days, the seats next to the exits were actually a bit inconvenient: backrests that couldn’t recline, and awkward tray tables. But as airlines squeezed more seats into their planes, the safety obligation to leave enough space near the exits became an opportunity. These seats don’t cost them any more than the other seats, yet they charge more for them, because they can. Fast track boarding (not to heaven, though) is a similar case of economic rent: let ordinary people wait longer, and charge those who are in a hurry extra money, simply because you can.


Ouch, my knees! (source: StelaDi)

Ultimately it is our choice whether we want to make those immaterial aspects our business. Yet we should be careful not to actually become irrational in the process. If we are prepared to pay $7 for a beer from a fancy hotel, wouldn’t we be cutting of our nose to spite our face if we refused, out of principle, to buy a beer from a simple shack at the same price, if that was the only place selling it? If it really is worth £10 to us to travel in comfort, would it be rational to refuse to pay for an extra-legroom seat simply because we don’t want to give extra  money to an evil airline?

There is no right answer to this: it depends on how much we value our principles. But that means we need to weigh them up against our thirst or our comfort, and not unconditionally let principles dominate.

The boundary between rational and irrational can be narrow and fuzzy.


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Comparing minds

(featured image: qimono)

A relativity principle possibly even more fundamental than Albert Einstein’s

A little while ago I sat working with the radio tuned to a show in which the hostess quizzes a celebrity for a couple of hours on the big things in their life: love, money, work, death. I was only half paying attention, but all of a sudden my interest was piqued, and I stopped doing what I was doing. The guest was saying that you can be happier when your car is completely wrecked and written off, than when it has just a few cosmetic scratches and a €1000 (£900) repair bill.

His explanation went like this. When you have a minor collision, the damage, and certainly the amount of money you’ll need to fork out to get the dent undented or the scratches unscratched seem disproportionate. Not just disproportionate compared to the actual severity of the bump, but there’s also the feeling that it was all just really bad coincidence, a millisecond of inattention, a moment of distraction. The price to pay for an event that, in any alternative universe, would never have happened, is way too high.

Good luck and bad luck

When you walk away with nothing worse than a bruised elbow after an almighty crash that reduces your vehicle to a bunch of tangled metal, however, you praise yourself lucky that the damage is just stuff. And this time the alternate universe that was just a millisecond away could have meant death, or worse.

In short: with the small accident, you were unlucky, but with the serious one, you were lucky.

The show’s guest is, to the best of my knowledge, not a behavioural economist, but he did twig an important behavioural economics observation: often the value we perceive in something depends greatly on how it is framed. It depends on what you compare it with.

As is the case for so many behavioural economics insights, this one too goes back to before even the first mention of the term. In 1890, philosopher and psychologist William James wrote (in The Principles of Psychology):


Image: based on Wikimedia

So we have the paradox of a man shamed to death because he is only the second pugilist or the second oarsman in the world. That he is able to beat the whole population of the globe minus one is nothing; he has pitted himself to beat that one; and as long as he doesn’t that nothing else counts.

One century later, psychologists Victoria Medvec, Scott Madey and Tom Gilovich looked at the emotional reactions of silver and bronze medal winners at the 1992 Summer Olympic Games in Barcelona. Both immediately after their performance, and subsequently when they are handed the medal, the silver medalists were rated as significantly less happy than the athletes who won bronze. Strange, isn’t it?

The researchers explain this through the counterfactual thinking of the persons concerned. The silver winner’s prominent counterfactual is the gold medal – a mere step away. Sure, the bronze medal is also just a step away, but that difference is a bit meh. It doesn’t feel like silver is so much more valuable: both silver and bronze are non-winners, and both still merit a place on the medal podium. For the bronze winner, in contrast, the defining counterfactual is not making the medal stand at all. The difference between third place and fourth place is huge.

This is very similar to the hapless driver, whose counterfactual in the one case is no accident at all, making the damage look very large, and in the other case being dead or severely injured, which makes mere material damage look insignificant.

Grounds for comparison

This kind of phenomenon arises even when it doesn’t involve loss (or not winning the big prize). A few days ago my daughter mentioned she was going to see the Royal Opera House ballet performance of Alice’s Adventures in Wonderland. Only, it wasn’t actually at the London Royal Opera House: it turned out to be a live satellite streaming event in a local cinema.

Tickets for the live performance in London were priced between £25 and £165. The cinema ticket cost £15.45, so even compared with the cheapest seat for the real thing (unlikely to be the best one in the house) that feels like a bargain. But the cinema’s other screens show ordinary movies, and then the cost of the Alice ballet is 50% higher than that of, say, Blade Runner. Not quite such a bargain, if that is the basis on which you make the comparison.


Cheap or dear? You choose. (image: zeeh)

Small wonder clever marketers make use of how we make comparisons too. In Wiki Man, advertising executive Rory Sutherland explains how Nestlé succeeds in making consumers pay 31p for a cup of coffee they make themselves. A coffee made with the recommended 1.8g of Nescafé from a 200g jar priced at £5 would cost about 4.5p. If you were to buy your Nespresso pods from a similar jar, you’d pay an eye watering £33. Evidently, no one in their right mind would even contemplate that.

But of course they don’t make you compare their pods with (their own!) instant coffee. Instead they ensure the counterfactual is the £2.20 you pay for an Americano at Starbucks. And now your 31p coffee is a bargain for sure – making even the most expensive Nespresso machine (at over £400) pay for itself after just 200 cups. And the more you drink, the more you save!

Our minds are built to compare – or better, we evolved to be the successful species we are thanks to our mind’s ability to compare things.

But we should remember that our conclusions depend a lot on what we compare things with. Everything is relative. And as long as we’re well aware of that, we can truly benefit from our comparing mind.


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Context counts

In our search for universal truths we should bear in mind the importance of the context

Nobel prizes don’t typically cause much commotion outside their respective scientific domains. Occasionally though, something about the award resonates more widely, perhaps because some people in the media believe it is of particular interest to their readers, viewers or listeners.

So it was when Richard Thaler was awarded the prize for economics on 9 October. Only people who were on a different planet last week will be unaware that Professor Thaler is a behavioural economist. Pretty much every self-respecting newspaper and news programme around the world ran a profile of the man. And local experts were wheeled out to explain what behavioural economics is all about, with stories of (mostly) boosted retirement savings and healthier eating.

You may have been left with the idea that there has been a revolution in the staid old dismal science of Economics. But we should keep a sense of proportion. Thaler himself is rather modest about the status of his niche. At the end of Misbehaving, his very readable autobiography, he sees Behavioural Economics eventually disappear: “All economics will be as behavioural as it needs to be.”

Yet that didn’t stop (and probably won’t stop for a long time) semi-informed journalists going on about the quasi miraculous insights of behavioural economics that have the potential to transform our lives and our businesses. Watch out for articles the title of which consists of a claim and the phrase “according to behavioural economics”.  Be critical of what they proclaim. Better still: just skip them. Such headlines are rarely the sign of a nuanced discussion.

A bit of a crisis

Uncritical treatment of behavioural economics (and more general behavioural science) findings is not confined to the popular press, though. One of the most widely discussed instances is that of the so called priming effect, referring to the phenomenon in which people’s behaviour is influenced by subconscious cues.

In 1996, John Bargh, a psychologist (then) at New York University, and colleagues conducted an experiment in which they purported to activate an ‘elderly stereotype’ in a group of undergraduate students. In the treatment condition the participants had to unscramble sentences which contained words associated with old age, such as worried, old, lonely, grey, retired, helpless and so on. In the control group, participants had the same task, but with sentences that contained no such words. What the experimenters found is that, after the experiment, participants in the treatment group walked down the hallway a second more slowly than those in the control group.

Fifteen years later, Daniel Kahneman called this study an “instant classic” in his book Thinking Fast and Slow. However, not long after, doubts were being raised by other researchers who failed to replicate the effect. (Kahneman acknowledges the problem in a note he wrote as the validity of Bargh’s and other priming studies was being challenged.)


And don’t forget to pay! (photo: Newcastle University)

The same fate has befallen other findings that caused a big stir at first. Do images of money make people act more selfishly? Does a poster with Big Brother eyes really make people behave more honestly? Does adopting a power pose really boost your confidence? Certainly not always. By 2015, a large replication study by Brian Nosek and 269 colleagues, found that the conclusions of over half of 100 recent psychology studies they investigated were dubious. A true replication crisis.

One explanation for the initial lack of critical evaluation is quite likely confirmation bias, which affects scientists as well as ordinary mortals. (In his email, Kahneman admits to being ‘a general believer’ in priming.)

Context matters

But another possibility is that the context is not fully taken into account. And context matters – also for nudges, the brainchild of Richard Thaler and his co-author Cass Sunstein.

In 2015, a group of Dutch scientists led by René van Wijk of the university of Wageningen, investigated whether they could nudge supermarket customers to buy (healthier) wholewheat bread instead of white bread by giving it a more prominent display position. However, they found that no more whole grain loaves were sold as a result of their manipulation. Making the healthy option more accessible had no discernible effect.

More recently, a field experiment in India by Ling Bai of Edinburgh University and colleagues, evaluated the use of so-called commitment devices to increase preventive doctor visits for patients with high blood pressure. The commitment contract consisted of prepayment for three appointments over six months, plus an additional (imposed or chosen) commitment amount that the patients would receive back in instalments when they kept to their appointments. The researchers found no effect on actual doctor visits or health outcomes: a substantial number of patients paid (and lost) money without experiencing any benefit.

And in the last week, Google trialled and quickly removed a nudge in their Google Maps service. They introduced a feature that showed not just the walking time between two points, but also the number of calories that would be burned in the process. The idea was ostensibly that this would remind people of the health benefits of walking, and encourage them to do so. But instead it was perceived as a crass attempt at ‘body policing’ and ‘guilt inducement’.


White bread sold out, wholemeal still available? (Photo: source)

Do these three examples prove or even suggest that nudges don’t work? Of course not. What they do show is that the context is of supreme importance, and that no amount of scientific studies can deliver a guaranteed way of achieving a certain result. In the article Nudges that fail, Cass Sunstein explores several reasons why behavioural interventions may be ineffective, from strong prior preferences, to time-limited influence. It is a plea for thoughtful analysis and intelligent experimentation, rather than blind belief.

Unfortunately this subtlety and complexity is not always mentioned by advisors – whether in business or in the popular media. When we are given simple tips, certainly when it is based on the authority of a Nobel Prize winner, it is tempting to accept it as gospel.

In our relentless quest to understand, describe, and predict the world around us, we are sometimes too quick to perceive universal, unconditional truths. Binary thinking is the enemy of progress, though. We should be careful not to accept too easily results that look cool, or that confirm our prior beliefs. We should also not dismiss insights because they fail to replicate, or because an implementation built on it is unsuccessful.

Humans are complicated beings, and if we should draw a single lesson from behavioural economics, it’s that there are no simple explanations for our behaviour.  Behavioural economics refines our understanding, but it is not a magic explanation of everything.

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Selling your soul

(featured image: wikimedia)

The trade-offs we don’t want to make (but believe others should)

Not much is known with any certainty about Johann Georg Faust. Wikipedia describes him as an alchemist, astrologer and magician, who was born in either 1466 or 1480, and who may even have been two different people. However, after his death in 1541, he became the subject of legend, immortalized by numerous writers including Christopher Marlowe and Goethe. Even the cartoon show Futurama had an episode that was based on the Faustian legend.

Faust’s claim to fame was that he is assumed have sold his soul in exchange for unlimited knowledge and worldly pleasures. And his name lives on in the term Faustian pact. The different versions of the legend vary somewhat in their depiction of the hero, but he is essentially a tragic figure who makes a morally wrong choice. You should not trade in spiritual values.

No spiritual economics

Neoclassical economics has little interest in spiritual matters, otherwise someone would surely have come up with a price discovery mechanism to establish the correct sale price for a soul. (Arguably repugnant markets get close, but even those tend to involve the trading of tangible goods like organs, and not ethereal souls.)


A tragic figure (image: wikimedia)

Behavioural economics may not deal directly with the buying and selling of souls, but at least it recognizes the existence of distinctive mental accounts for different kinds of economic transactions (a concept first named by the recent Nobel laureate, Richard Thaler). It also distinguishes between transactions in the market domain and those in the social domain. This explains why we are sometimes willing to do something for free, but refuse to do the same for a very small sum of money.

Yet even that doesn’t really cover the tension that can arise when a choice needs to be made between money and moral values.

A few months ago, Amazon got some bad press for not pulling its advertising from the Breitbart website unlike some 2,600 other companies, from car company Audi to social games developer Zynga. (Breitbart is the brainchild of alt-right political activist Steve Bannon, who for a short while was Donald Trump’s Chief Strategist.)

We can only speculate as to Amazon CEO Jeff Bezos’ reasoning, but it is not unreasonable to assume that economics play a part in some way. Breitbart attracts around 75 million unique visitors per month, and it would be very strange if cutting off all advertising on the site did not have an impact on Amazon’s sales. Does the man have no moral principles? Or is he a closet alt-right supporter?

In a similar vein, the recent allegations of sexual harassment and worse concerning movie director Harvey Weinstein have led to extra indignation from Republicans in the US. Weinstein has donated more than 1 million dollar to the Democratic party since 2000, and they now demand that the recipients of his generosity pledge that money to charitable causes rather than to funding the party.


Weinstein’s money: as clean as his manners? image: wikimedia

There are differences between the two cases. Amazon is well aware of the role of Breitbart in the spread of fake news, and so can be said to make a deliberate decision to continue advertising. The Democrats (mostly) were not, and could not have been aware of Weinstein’s debauchery, so whatever they accepted, they accepted in good faith.

But they share the same fundamental question: is it morally acceptable to benefit materially from sources of dubious moral standing? The calls to companies to stop funding Breitbart through ads, and the calls to Democratic politicians to give over Weinstein’s donations would suggest it is not. It is seen as tantamount to selling out one’s morality – selling one’s soul, if you like.

However, there is one important common aspect to this kind of calls: it is people who have not personally benefited who want others to give up their gains, or forego future benefits. Demanding that others put their money where your own mouth is, is easy to do, and not a particularly clear sign of moral rectitude.

Trading of our own morals

Would we act with such purity if we had to choose between morals and material advantage? Experiments on this theme would be ethically tricky to set up. However, an interesting thought experiment, known as the Heinz Dilemma * (nicely described here) shows how hard it is to maintain pure moral standards.

Some people choose to invest only in ethical funds, refuse to work for organizations involved in practices that go against their morals (like arms manufacturers), or boycott the products of companies that make use of child labour. But is this more than superficial virtue signalling? It is the sacrifices we make that indicate what is truly important to us, and the cost of such choices is small.

Would we in general really be as pure as we expect others to be if it were costing us real money? If we ran a shop, would we choose not to serve people who act in conflict with our own morals? And as a customer, would we choose not to buy things from a shop whose owner has an attitude that we find reprehensible… also if the nearest alternative was half an hour away, and 20% more expensive?

Maybe we are not in a position to make that choice – we’re not a shopkeeper, or we are ignorant of the morals of the owners of the places where we shop. But do we always act entirely in accordance with our own morals and values? We could choose to live a carbon-neutral life, but that would mean foregoing some precious material benefits: no car, not flying to distant holiday destinations and so on. We could choose to alleviate poverty and child mortality by donating more money to famine relief and medical charities. But that would mean less (or if you want to be really pure, no) money for pleasant frivolities like going to the cinema, eating out or even a drink in the pub.

Whenever we fall short of our own professed moral norms, we sell a little bit of our soul to the devil. And in the real world with its more than 150 shades of grey, were purity is an unattainable ideal, maybe that is OK.

But perhaps we should be less demanding of others when they do so too.


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

Monty Hall forever

(credit: khiemtran87/Wikipedia)

A baffling decision-making problem that illustrates surprising irrationalities

Last Saturday, Monty Hall, a Canadian game show host died at the ripe old age of 96. He presented more than 10 different programmes, both on radio and television, in a career spanning over 70 years. But his name will forever be associated with a probability problem bearing his name, which was central to the format of Let’s make a deal.

The problem is deceptively simple. Imagine three closed doors. Behind one of them, there is a big, desirable prize (like a car). Behind the other two, there are undesirable prizes (a goat). The host invites you to pick one of the doors, and you will get whatever is behind it. The host (who knows which of the three doors conceals the car) then opens one of the remaining two doors, revealing a goat, and asks you whether you want to switch from your original choice to the other closed door. Is it advantageous to do so?

Mathematically, the answer is yes. But this appears counterintuitive: there are two remaining closed doors, one with the car behind it, the other one hiding a goat. How could the probability of the car being behind either door be anything else than 50%?

And yet, it is: the chance of it being behind the door you originally picked is 1/3, the chance of it being behind the other remaining closed door is 2/3. (An explanation is at the end of this piece.)

The wrong kind of irrationality

This puzzle is often wheeled out to illustrate the ‘irrationality’ of not switching. But are people who just don’t know how to work out conditional probabilities truly irrational? When my nephew was four years old, he preferred two 5 euro banknotes to one 20 euro note. Quite reasonably, he assumed that two notes were worth more than one – because he did not understand that two very similar pieces of paper could have such a different value. That lack of understanding shouldn’t be really called irrational – and for the same reason, neither should the assumption be that the chance of a car being hidden behind one of two closed doors is fifty-fifty.

However, the Monty Hall problem is an excellent illustration of truly irrational behaviour, which has nothing to do with mathematical ignorance. Only a small number of contestants actually switched doors (and some of those probably had worked out it was better). If people truly believed there was an even chance that the car was behind either door, you would expect them to choose to stay, or to switch, in roughly equal proportion. How come they didn’t?

Maybe the most obvious reason for this aversion to switching is that people are led by the status quo bias. This describes our tendency to take the option with the least effort. We picked a door, the other remaining one (we think) doesn’t offer us an improved chance, so why bother? Arguably, even this is not irrational behaviour if we assume the chances are even: there is indeed a small cognitive effort needed to switch, for no discernible material benefit.

The right kind of irrationality

But some people might decide to stay put because of the endowment effect. This captures the observation that, on the whole, we perceive what we have to be more valuable than what we don’t have – even if both what we have and what we don’t have are identical. Once a contestant has chosen a door, that door becomes ‘theirs’, and even though there is no objective reason to prefer it over the alternative, they are reluctant to swap.


A goat or a car, or a goat *in* a car? – via imgur

Another reason why people might stick with their original choice is regret aversion, which holds us back from making a decision that we could later regret. What is interesting is that we seem to regret an active decision that turns out wrong much more than a passive decision. Imagine the car was behind the door you first picked, but you switched and ended up with a goat. You actually, literally had the car in the bag with your first choice, and you blew it by switching! That is quite different from the alternative losing scenario, in which you first picked a door with a goat, and decided to stick with it. That is bad luck, whereas the alternative is a bad choice.

But the most striking irrationality related to the Monty Hall problem is not that of the contestants, but that of the people who believe that the probability of the car being behind either door is 1/2. What we see here is the backfire effect, a phenomenon that not only makes us blind to facts that contradict our beliefs, but that strengthens our mistaken belief.

When Marilyn vos Savant dealt with the Monty Hall problem in her Ask Marilyn column in Parade Magazine in 1990, she received many indignant replies from learned professors and doctors (some of which were shamefully sexist) claiming she was wrong to say the contestant would be better off to switch. The one positive takeaway from the unedifying comments to her piece at the time is that we shouldn’t be too downtrodden about our own propensity to fall foul of the backfire effect, if this is what it does to the great and the good.

An explanation

So, why is it better for a contestant to switch, and indeed why is the chance that the car is behind the other door 2/3 and not 1/2? Imagine you are playing the game, and after you’ve picked one of the doors, instead of opening one of the remaining doors, Monty offers you what is behind both remaining doors. Should you switch? Of course: the chance the car is behind your door is 1/3, and so the chance it is behind one of the other two doors is 2/3. The fact that, in reality, he opens one of the other two doors before offering you the swap makes no difference: the chance the car is behind the doors you didn’t pick is still 2/3. And since it is not behind the door he just opened, the chance it is behind the other closed door is… 2/3.

If this explanation hasn’t helped (or if you are still battling the backfire effect!), there are plenty of internet sites which explain the conundrum in numerous ways. And if you do get why it is advantageous to switch, here is a twist to check if you really got it. Imagine your friend walks in just after Monty has opened one of the two remaining doors, and she hasn’t seen the discussion earlier: all she sees is two closed doors. Which one should she pick to maximize her chance of getting the car: the one you originally picked, or the other one?

Monty Hall is dead, but he will live forever. Let’s remember him with this joke that economist Alex Tabarrok tweeted:

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