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Lawrence Hrubes

When behavioral economics meets a $700M Powerball jackpot - 2 views

  • Business Insider went out onto the streets of NYC and tried to buy people’s just-purchased Powerball tickets ahead of the $700 million drawing. They did not get many takers, even when offering twice the price they paid (which meant they could just go and buy double the number of tickets and slash their odds of winning). The video says this is an example of regret avoidance.
markfrankel18

Is Economics More Like History Than Physics? | Guest Blog, Scientific American Blog Net... - 3 views

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    "Is economics like physics, or more like history? Steven Pinker says, "No sane thinker would try to explain World War I in the language of physics." Yet some economists aim close to such craziness. Pinker says the "mindset of science" eliminates errors by "open debate, peer review, and double-blind methods," and especially, experimentation. But experiments require repetition and control over all relevant variables. We can experiment on individual behavior, but not with history or macroeconomics."
markfrankel18

Why Free Markets Make Fools of Us by Cass R. Sunstein | The New York Review of Books - 0 views

  • Very few economists foresaw the great recession of 2008–2009. Why not? Economists have long assumed that human beings are “rational,” but behavioral findings about human fallibility have put a lot of pressure on that assumption. People tend to be overconfident; they display unrealistic optimism; they often deal poorly with risks; they neglect the long term (“present bias”); and they dislike losses a lot more than they like equivalent gains (“loss aversion”). And until recent years, most economists have not had much to say about the problem of inequality, which seems to be getting worse.
  • By emphasizing human fallibility, the group of scholars known as behavioral economists has raised a lot of doubts about this view. Their catalog of errors on the part of consumers and investors can be taken to identify a series of “behavioral market failures,” each of them calling for some kind of government response (such as information campaigns to promote healthy eating or graphic warnings to discourage smoking). But George Akerlof and Robert Shiller want to go far beyond behavioral economics, at least in its current form. They offer a much more general, and quite damning, account of why free markets and competition cause serious problems.
markfrankel18

5 examples of how the languages we speak can affect the way we think | TED Blog - 3 views

  • Is there a connection between language and how we think and behave? In particular, Chen wanted to know: does our language affect our economic decisions? Chen designed a study — which he describes in detail in this blog post — to look at how language might affect individual’s ability to save for the future. According to his results, it does — big time.
  • Using vast inventories of data and meticulous analysis, Chen found that huge economic differences accompany this linguistic discrepancy. Futureless language speakers are 30 percent more likely to report having saved in any given year than futured language speakers.
  • But that’s only the beginning. There’s a wide field of research on the link between language and both psychology and behavior. Here, a few fascinating examples:
markfrankel18

Why Americans Are the Weirdest People in the World - 1 views

  • Henrich’s work with the ultimatum game was an example of a small but growing countertrend in the social sciences, one in which researchers look straight at the question of how deeply culture shapes human cognition. His new colleagues in the psychology department, Heine and Norenzayan, were also part of this trend. Heine focused on the different ways people in Western and Eastern cultures perceived the world, reasoned, and understood themselves in relationship to others. Norenzayan’s research focused on the ways religious belief influenced bonding and behavior. The three began to compile examples of cross-cultural research that, like Henrich’s work with the Machiguenga, challenged long-held assumptions of human psychological universality.
  • As Heine, Norenzayan, and Henrich furthered their search, they began to find research suggesting wide cultural differences almost everywhere they looked: in spatial reasoning, the way we infer the motivations of others, categorization, moral reasoning, the boundaries between the self and others, and other arenas. These differences, they believed, were not genetic. The distinct ways Americans and Machiguengans played the ultimatum game, for instance, wasn’t because they had differently evolved brains. Rather, Americans, without fully realizing it, were manifesting a psychological tendency shared with people in other industrialized countries that had been refined and handed down through thousands of generations in ever more complex market economies. When people are constantly doing business with strangers, it helps when they have the desire to go out of their way (with a lawsuit, a call to the Better Business Bureau, or a bad Yelp review) when they feel cheated. Because Machiguengan culture had a different history, their gut feeling about what was fair was distinctly their own. In the small-scale societies with a strong culture of gift-giving, yet another conception of fairness prevailed. There, generous financial offers were turned down because people’s minds had been shaped by a cultural norm that taught them that the acceptance of generous gifts brought burdensome obligations. Our economies hadn’t been shaped by our sense of fairness; it was the other way around.
  • Studies show that Western urban children grow up so closed off in man-made environments that their brains never form a deep or complex connection to the natural world. While studying children from the U.S., researchers have suggested a developmental timeline for what is called “folkbiological reasoning.” These studies posit that it is not until children are around 7 years old that they stop projecting human qualities onto animals and begin to understand that humans are one animal among many. Compared to Yucatec Maya communities in Mexico, however, Western urban children appear to be developmentally delayed in this regard. Children who grow up constantly interacting with the natural world are much less likely to anthropomorphize other living things into late childhood.
markfrankel18

Why We Keep Playing the Lottery - Issue 4: The Unlikely - Nautilus - 1 views

  • Blind to the mathematical odds, we fall to the marketing gods.
  • “People just aren’t able to grasp 1 in 175 million,” Williams says. “It’s just beyond our experience—we have nothing in our evolutionary history that prepares us or primes us, no intellectual architecture, to try and grasp the remoteness of those odds.” And so we continue to play. And play.
  • It may seem easy to understand why we keep playing. As one trademarked lottery slogan goes, “Hey, you never know.” Somebody has to win. But to really understand why hundreds of millions of people play a game they will never win, a game with serious social consequences, you have to suspend logic and consider it through an alternate set of rules—rules written by neuroscientists, social psychologists, and economists. When the odds are so small that they are difficult to conceptualize, the risk we perceive has less to do with outcomes than with how much fear or hope we are feeling when we make a decision, how we “frame” and organize sets of logical facts, and even how we perceive ourselves in relation to others. Once you know the alternate set of rules, plumb the literature, and speak to the experts, the popularity of the lottery suddenly makes a lot more sense. It’s a game where reason and logic are rendered obsolete, and hope and dreams are on sale.
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  • Selling the lottery dream is possible because, paradoxically, the probabilities of winning are so infinitesimal they become irrelevant. Our brains didn’t evolve to calculate complex odds. In our evolutionary past, the ability to distinguish between a region with a 1 percent or 10 percent chance of being attacked by a predator wouldn’t have offered much of an advantage. An intuitive and coarse method of categorization, such as “doesn’t happen,” “happen sometimes,” “happens most of time,” “always happens,” would have sufficed, explains Jane L. Risen, an associate professor of Behavioral Science at the University of Chicago, Booth School of Business, who studies decision-making. Despite our advances in reason and mathematics, she says, we still often rely on crude calculations to make decisions, especially quick decisions like buying a lottery ticket.
  • In the conceptual vacuum created by incomprehensible odds, people are likely to experience magical thinking or superstition, play a hunch, or simply throw reason out the window all together, says George Loewenstein, a professor of economics and psychology at Carnegie Mellon. “Most of the weird stuff that you see with decision-making and risk happens with small probabilities,” he says.
  • But even fantasy will drop its hold on us if we always lose—a point Hargrove grasped from the start. Research has shown that positive reinforcement is a key in virtually all of the successful lotteries, notes the University of Lethbridge’s Williams. Lotteries that allow players to choose combinations of four or five numbers from a total of 60 numbers are popular, he says, because many players experience “the near miss,” which creates the illusion that they came close to winning the multi-million dollar jackpot. Most players don’t realize, however, that “near-miss” is an illusion. The odds of winning get worse with each successive match.
markfrankel18

The Berlin Wall's great human experiment - Ideas - The Boston Globe - 5 views

  • But before it fell, the wall did something that most people never think of: It created a massive laboratory for studying human society.Imagine this: If you were a researcher trying to determine how a political system affects people’s values, beliefs, and behavior, you would ideally want to take two identical populations, separate them for a generation or two, and subject them each to two totally different kinds of government. Then you’d want to measure the results, the same way a medical researcher might give two sets of patients two different pills and then track their progress.Ethically, such a study would be unthinkable even to propose. But when the Berlin Wall went up in 1961, it created what London School of Economics associate professor Daniel Sturm calls a “perfect experiment.”
Lawrence Hrubes

How Do Experiences Become Memories? : NPR - 1 views

  • Nobel laureate and founder of behavioral economics Daniel Kahneman goes through a series of examples of things we might remember, from vacations to colonoscopies. He explains how our "experiencing selves" and our "remembering selves" perceive happiness differently.
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    Note: See Daniel Kahneman's TED Talk
markfrankel18

More Virtuous Than We Think : Democracy Journal - 0 views

  • Homo Economicus is a fundamentally selfish man. But what if he’s been vastly overhyped?
  • policymakers have over-learned Adam Smith’s lesson that people achieve collective good when they pursue private interest. Smith noted that pursuit of self interest often produces societal benefit. But Smith hedged his bets. Bowles charges that economists, jurists, and policymakers often don’t hedge theirs, and they have come to rely excessively on incentives based on the proposition that people’s behavior is entirely self-interested and amoral.
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