Saturday, December 05, 2009

Last One, I Swear

Okay, I finished SuperFreakonomics last night, and I found an anecdote the demonstrates my frustration with economic thought (as demonstrated in pop econ books). The anecdote is about monkeys, but the topic is actually beside the point, so I'll make the point without spoiling the book.

You flip a coin. If it's heads, you give your subject $1. If it's tails, you give them $2. Simple. Here's the twist: in one scenario, you put $1 on the table. If it's heads, they get that $1; if it's tails, you add $1 and they get both. In the other scenario, you lay $2 on the table. If it's heads, you take $1 away and they get the remaining one; if it's tails, they get both.

Now, it's very clear that these are the same scenario, and you get the same chance of getting the same amount of money. But people (and monkeys) prefer to play the game where $2 means you got a bonus dollar, rather than where $1 means you were penalized a dollar. This is irrational.

Well, yes, of course. That's what rational means, and I don't deny it. You'd think, though, with all their talk about 'incentives,' that they'd look for the incentive that's causing that decision. Something like the idea that hoping and being disappointed is a more uncomfortable feeling than having low expectations and having them met instead of exceeded. Maybe it's just that that's the province of psychologists, but for people so intensely interested in incentives and how we're shaped by them, they stop looking at the non-material things we care about mighty quickly.

And that's all I have to say about that.

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