Books like Predictably Irrational (and its sequel, Upside of Irrationality) painstaking document the ways that we fall victim to our own cognitive biases, tripping over our own brains.
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On the occasion of the publication of a new book, behavioral economics writer Dan Ariely (a great favorite of mine) answers questions with Wired about the underlying causes of lying and cheating, and the huge gap between what the evidence tells us and what be intuitively believe.
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Ariely: If you thought that crime or dishonesty is driven by a cost-benefit analysis, then you have some very basic solutions — for example, put people in prison. And people who were going to commit a crime would say, ‘Okay, I’ll go to prison, not worth it.’ I’ve been talking to big cheaters, including people who have been to prison, and I tell you, nobody I’ve talked to has ever thought about the long-term consequences of their actions. How many people who did insider trading thought about the probability of being caught and how much time they would get in prison? The number is incredibly close to zero, maybe exactly zero. What will happen if we increase the prison sentence? Basically nothing, because it’s not part of their mindset. What we need to understand is the process by which people become dishonest.
We can look at a cheater and say, we would have never been able to do that. But when we look at the long sequence of events, you see it happened over time. You can ask, did the person who was the criminal think they would take all of these actions, or did they just take one? They took one step that they could rationalize.
Welcome to the second half of the 2010 Boing Boing Gift Guide, where we pick out some of our favorite books from the last year (and beyond) to help you find inexpensive holiday gifts for friends and family. Can you guess who chose a Sarah Palin book?
Here's a fun and revealing interview with Penn Jillette (of Penn and Teller), talking about the artistic satisfaction he gets from doing the kind of magic he does, and the working relationship he has with his longtime business and performance partner, Teller. Penn and Teller are in London for their first show here in more than a decade (I've got tickets to see them tonight -- an early birthday pressie from my wife!).
He couldn't care less what they think. "I have always hated magic," he says. "I have always hated the basic undercurrent of magic which Jerry Seinfeld put best when he said: 'All magic is "Here's a quarter, now it's gone. You're a jerk. Now it's back. You're an idiot. Show's over".' I never wanted to grow up to be a magician. It was never my goal." He would rather have been a rock star, he says, but the business seemed already saturated with extraordinarily talented people. "So my thinking was, and I will say this outright, music is full of people I absolutely love. I don't have a chance. They are all better than me. Magic has, ooh, nobody in it that I like." He rocks back in his chair, cackling. "This is the field for me!"
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Everything about Penn and Teller seems to defy conventional wisdom. Here are two men who value the world of ideas: Penn counts Bob Dylan, Stephen Fry and Richard Dawkins among his friends; when in New York, Teller has tea with Sondheim.
Behavioral economist Dan Ariely's The Upside of Irrationality
is the followup to his wildly successful (and wonderful) Predictably Irrational
, a book summarizing his many years of ground-breaking research on the ways in which people reliably behave in ways that run contrary to their best interests (something that flies in the face of neoclassical economic orthodoxy).
Upside of Irrationality is a mostly successful attempt to transform the scientific critique of the "rational consumer" principal into practical advice for living a better life. "Mostly successful" only because some of our habitual irrationality is fundamentally insurmountable -- there's almost nothing we can do to mitigate it.
But even when Ariely fails to deliver easy-to-follow advice for improving our lives, he still does deliver the same thought-provoking, fascinating experimental evidence for irrationality itself. For example, the sections on online dating (the return on your investment in an online dating service is so poor that you might as well not bother) and charitable giving (it's nearly impossible to feel the visceral sympathy for a million sufferers in some terrible genocide that you feel for a man choking to death at the next table) are both engrossing and well-written, but the advice that Ariely gives on both amounts to, "Be aware that you're apt to make a bad decision in these situations."
On the other hand, there are sections in which the science of irrationality is readily converted into practical techniques for living better, and these really shine. My favorite is the section on adaptation, that is, the way in which both terrible pain and incredible delights fade down to a kind of baseline normal over time. Read the rest
I just finished William Poundstone's Priceless: The Myth of Fair Value (and How to Take Advantage of It)
, a popular book on the history and present state of the art in analyzing how people arrive at prices (Poundstone's publisher, Hill and Wang, were kind enough to send this along).
As with other behavioral economics texts, Poundstone is setting out to demonstrate how our own cognitive blindspots cause us to behave irrationally, and how this pervasive irrationality has more to do with the price of goods than any "rational consumer" (as posited in the traditional economic model). Poundstone liberally cites the greats of the field, notably, Dan "Predictably Irrational" Ariely, but even if you've read other recent books on the subject, Poundstone's book brings some new material to the discussion.
First, Poundstone's treatment of the history of behavioral economics is both funny and fascinating, a kind of counterpoint to the history set out in Myth of the Rational Market. The mavericks who set out to investigate the ways in which we are both a) weird, and b) ignorant of how weird we are, were themselves very weird in an enormously entertaining way.
Poundstone's subtitle hints that there will be some kind of Dale-Carnegie-style set of tips and tricks for exploiting pricing weirdness, or at least not falling prey to them. And there are a few of these -- such as taking the time to seriously set out all the reasons an item isn't worth the price you're considering -- but by and large, the book's cautionary tales about how bad we are at understanding our own irrationality are the best tool of all. Read the rest
Over the weekend, I finally
picked up and read Dan Ariely's Predictably Irrational: The Hidden Forces That Shape Our Decisions
, an accessible intro to the subject of behavioral economics -- that is, the study of how people behave in the real world and why that varies from the predictions made by classical economic theory (which predicts that people behave rationally and in their own interests). This is a subject I've been very interested in for some years and I'd read and blogged a lot of material about Ariely's work, but somehow never got 'round to reading it for myself.
I'm very glad I did! Ariely's a very engaging writer and a smart social scientist with a knack for illustrating his hypotheses about human behavior through elegant and simple experiments. There's no better time than now to read Predictably Irrational, as Ariely's theories about cheating, incentives, self-fulfilling prophecy, self control, and how we value the things we own versus the things we desire go a long way to explaining the econopocalypse, and also provide an excellent framework for analyzing proposals to get the economy moving again.
For example, Ariely describes a series of experiments that measure work performance among randomly selected groups of people where one group is paid nothing, one group is paid a little, and a third is paid a lot. The group that was paid a little did a little. The group that was paid a lot did a lot. The group that was paid nothing did even more. Read the rest
Predictably Irrational author Dan Ariely used to enjoy taking Airborne, until he read reports that it didn't prevent colds. Before he read the reports, he was "97.5% sure" Airborne didn't work, but that tiny bit of doubt was enough for the placebo effect kick in. The news reports killed the placebo effect. He was sad that he didn't have a cold placebo to depend on, but his mother recently sent him a new nostrum and he is happy again. (I think it is Oscillococcinum, a homeopathic "medicine.").
Dan Ariely: Got My Placebo Back
Previously:Fake cold remedy Airborne settles lawsuit -- get your cash back
Lawsuit loser Airborne changes its packaging art
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From Dan Ariely's "Predictably Irrational" blog:
This shows Google’s remarkable power as a source of data on a range of human behaviors, emotions, and opinions. It gives us insights into what people might care the most about concerning a given topic. When people search a particular political leader, what are their main concerns? What are people secretly guilty about? For better or for worse, Google’s obsession with collecting and refining data has given us a window into each other’s fascinating and telling curiosities. Read the rest
Bad Science Begets Ridiculous Results: A professor at Middle Tennessee State University thought his MBA students were cheaters. So, to deal with the problem, he had them sign a pledge...wherein they agreed that their immortal souls would go to hell if they'd ever cheated in his class. He claims he got the idea after reading about an academic study that showed students who read the 10 Commandments before an exam were less likely to cheat.
UPDATE Bad Writing Begets Ironic Results: I need to apologize to Dan Ariely for the terrible headline above. I meant this to be about bad science writing, which I'd assume would have something to do with the professor misinterpreting this so terribly. But you know how you sometimes type half an email, come back later and finish it and then, after sending, realize you did a terrible job of saying anything even close to what you meant? Yeah. The result, unfortunately, was a sentence that was extremely unfair to Dr. Ariely and put me squarely in that bad writing camp. My apologies. Read the rest
Here are some of my recent posts about money for Credit.com
Credit Report Card: A Truly Free Look at Your Credit Record (left): "Credit.com launched a new, truly free online tool called Credit Report Card, which gives you an easy-to-understand snapshot of your credit report, along with estimated scores from the different reporting agencies."
Should I Buy It? A Flowchart to Help You Decide: "The purpose of my 'should I buy it?' question and the purpose of April's flowchart is the same: to force you to stop and think before buying something. Sometimes, a small delay between impulse and action is all it takes to avoid making an unnecessarily costly purchase."
Immunize Yourself Against Sneaky Sales Tactics: "Using insight gleaned from Dan Ariely's book Predictably Irrational, Jeff Atwood goes through marketers' sleazy tactics, one-by-one, telling you how to avoid falling prey to them."
Can You Save Money with a Self-Watering Gardening Container?: "I bought three 'Ready to Grow Complete Kits' from EarthBox for $55 each and set them up on my deck. Besides all the components (including casters so you can roll the boxes around), they come with potting mix, a bag of organic fertilizer, and a bag of dolomite with trace elements. As the website says, all you need are plants and water."
Using Brain Scans to Beat the Free Rider Problem: "The house I live on is on a private street shard by about 20 other houses. The City of Los Angeles does not maintain the street, so when repairs are needed, the residents must pay for them. Read the rest
Inspired by Dan Ariely's book Predictably Irrational: The Hidden Forces That Shape Our Lives
, Jeff Atwood used its list of cognitive blind-spots endemic to our species and produced a list of nine ways to avoid making decisions that will make you unhappy later.
5. Design for Procrastination
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Ariely conducted an experiment on his class. Students were required to write three papers. Ariely asked the first group to commit to dates by which they would turn in each paper. Late papers would be penalized 1% per day. There was no penalty for turning papers in early. The logical response is to commit to turning all three papers in on the last day of class. The second group was given no deadlines; all three papers were due in the last day of class. The third group was directed to turn their papers in on the 4th, 8th, and 12th weeks.
The results? Group 3 (imposed deadlines) got the best grades. Group 2 (no deadlines) got the worst grades, and Group 1 (self-selected deadlines) finished in the middle. Allowing students to pre-commit to deadlines improved performance. Students who spaced out their commitments did well; students who did the logical thing and gave no commitments did badly.
* Steer clear of offers of low-rate trial periods which auto-convert into automatic recurring monthly billing. They know that most people will procrastinate and forget to cancel before the recurring billing kicks in.
* Either favor fixed-rate, fixed-term plans -- or become meticulous about cancelling recurring services when you're not using them.
Here are some of my recent posts about money for credit.com.
A Look at Amish Finances: Amanda Grossman was interested in finding out how it was possible that the Amish, who don't use electricity and shun many modern conveniences, are able to own large, well maintained houses surrounded by plenty of farmland.
How to Prevent Your Waiter from Altering Your Credit Card Bill: Take a cell phone photo of your receipts and check them against your statement or use a geeky checksum method to alter-proof your receipt.
Obama's Policy Advisors Are "Devotees" of Behavioral Economics: In Greensboro, NC, teenage mothers are paid $1 a day by the city if they don't get pregnant. That's not a lot of money, but the small incentive is enough to reduce the rate of teenage pregnancy in the town.
25 Traits of the Not-So-Well-To-Do: People who are in debt share 25 similar traits. Those include buying the latest consumer technology, eating out frequently, getting a new car every few years, and maintaining poor health habits.
A Visual History of Credit Cards: Caitlin McDevitt of Slate's The Big Money site has written a fun, brief history of the credit card, starting with a photo of the very first credit card, The Diners' Club from 1951.
Interview with "Nudge" Author Richard H. Thaler: Google invited Richard H. Thaler, author of the book Nudge: Improving Decisions About Health, Wealth, and Happiness, to come to the Google campus and talk about behavioral economics. Read the rest
I've been having a lot of fun writing for CreditBloggers. My most recent entry is about Predictably Irrational author Dan Ariely's recent TED talk about his experiments to learn more about the psychology of cheating.
Ariely decided to conduct a series of experiments to understand cheating. He gave test subjects a math quiz with 20 problems, and promised to give a dollar for each correct answer. The problems weren't hard to solve, but Ariely imposed a five-minute time limit, making it impossible for anyone to complete the test. After five minutes, Ariely collected the test from the volunteers, scored them, and paid them for their correct answers. On average, volunters solved four questions correctly.
Dan Ariely: Why people think it's OK to cheat a little bit
Next, he tempted people to cheat. He told a new group of test takers to score their own tests and tell Ariely how many questions they got correct. These volunteers reported, on average, that they solved seven questions. The interesting thing about this, says Ariely, was that the higher average wasn't because a few people cheated a lot; rather, it was because a lot of people cheated a little. Equally interesting was the fact that the amount of cheating didn't change when the reward for a correct question was increased or decreased; nor did it change when the chances of being caught cheating were increased or decreased.
Here are my other posts:
•Consumer Sentiment on the Rise (for now)
•Afflicted with Allelomimesis -- Why People Behave as if They’re Broke When They’re Not
•Half-empty supermarket shelves act like consumer magnets
•Bringing Your Kids to the Supermarket is Hazardous to Your Wallet
•The Allure of the "Near-Miss"
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