Discover your inner economist


Author: Tyler Cowen

A short, quick read discussing the impact of incentives on behavior.  Chapter 4 on appreciating art was thought provoking.  Chapter 6 on self-deception is well worth quickly reading if you are in a relationship, planning on going shopping, studying for exams or making a big decision

1. I want a banana, I buy one
– Incentives: anything that motivates behaviour or encourages an individual to make one decision over another
-> central concept of economics
– Can use economics to expand our repertoire of recognition chunks for seeing patterns in human behaviour

2. How to control the world, the basics
Penalties and rewards

– Dirty dishes parable: payment won’t help to get them done.  Praise even if untrue may hel
– e.g. school and criticising students for being messy vs prasing for being tidy (3x more litter collected
– Car salesman parable: paid on # sold and % price otherwise low price
– Parking tickets parable: ppl respond to incentives in diff ways; Sweden vs Kuwait parking violations in NYC. Factors = corruptions and liking USA levels
Fundamental attribution error/correspondence bias
: assume single instance of individual behaviour represents a deeply rooted personality trait. Also typcasting
When does each parable apply
: amount of money on offer (car)
A. when performance of task is highly responsive to extra effort e.g. shown with cold water reward vs none but dollar vs 100
B. when intrinsic motivation is weak
C. when receiving money for a task elicits social approval
But high rewards can make individuals choke
Person’s commitment
Understanding others’ expectations

3. How to control the world, knowing when to stop
– Incentives can be counterproductive if ppl feel they have lost control
– People want to feel in control, even from self imposed constraints
– Difficult to impose incentives to change behaviour if we don’t have control e.g. Dentist and tour guide
– Duration of pain little bearing on memory of pain
– Key factors: how bad worst pain was, start and end

4. Possess all the great art every made
– ‘What is the scarcity hindering a better outcome’ = economist way of looking at a problem
– Applying incentives to ourselves:
a. what is the scarcity
b. admit that you may not care as much as you think you do – ‘admit the me factor’

Appreciating art

i. Rank the exhibits in the room
ii. Pretend we are shopping on a budget
iii. Skip room 1 of blockbuster exhibit
iv. At end of exhibit ask which paintings stuck with you
– Museums not meant to be fun/easy: tickets cover. 1/10th of running cost in US => key = keeping donors happy.  Visits only indirect reason
– Overexposure can lead to loss of power of art to shock and awe e.g. Mona Lisa

5. Look good while at home on a date or while being tortured
– Signal = whenever incur a cost to send a message to outside world about ourselves
– often not explicit/ signs only more interested or aware will note
– Women value as gifts flowers/ diamonds partly because men don’t care for them
– Pickup lines test showed those where man displayed some valuable quantity
=>When see puzzling or wasteful behaviour should assess what it’s signalling
– Signalling often about showing that you care
– not sensible to rebuild New Orleans
– generally avoid warranties (high margin unlikely to get benefit)
– avoid economics with family situations
– Adverse selection hypothesis – best drivers least likely to buy insurance (wrong)

– Healthcare expenditure and life expectancy not correlated 

– Gnostic: reality we observe mere shroud for deeper set of truths.  Modern day – everything guided by instinct to propagate genes

– Dating ad methods

– Highly specific wants: Megan ‘bearded grad student’ -> attempt to limit choice

– Honey trap: inducing as many responses as poss

-> debottleneck: I’ll respond to all inquiries thus removing bottleneck that ppl don’t get responses

– Torture resistance

– Successful methods:  adhere to ideology/religion, think of comrades, be polite, play mental games to seem in control

-> e.g. Fr 1510-1750 90% refused to confess despite threat of drowning, crushed joints

– Best way to show that not a CIA agent: no real option = stuck in pooling equilibrium – can’t distinguish oneself from CIA

– Finding truth: average person lies 1.5x a day

– When lying, less: movement, blinking, stumbles in speech, likely to backtrack and make mistakes

– Detection sucess:

– ave. person: 55% success detecting liars

– 70-80% w/ brain scanning

– Sherlock’s/superdetectors: 80% in 2 secs video clip can tell 8 things about ppl

– Ways of detecting lying

– Bayesian truth serum: ask what person thinks others believe, as self is datapoint more likely to believe the same

– Ask for advice: ppl give own view

– Countersignalling: most common in professions with high upside but low downsides e.g. academics or programmers

– business card with only name, Stephen Hawking (not Prof…), don’t reveal good news

6. The dangerous and necessary art of self deception
– Couples who stay together look back w/ rose tinted glasses = ‘martial aggrandisement’
– Ppl see themselves as better than were in past, above ave. successful = life all about them
     – useful as ppl who feel gd about themselves achieve more
     – can use to your advantage i.e. ‘I’m a doer’
– Depressive realism: depressed more realistic world view.  Underestimate one thing: that will not come & go but last forever
– Self deception & gym membership:
     – ave person 4.3x/month
     – 2.31 months after stop using until they terminate: 20% 4 months+
– Shopping: avoiding buying frenzy
     – Buy guilty pleasure first => remorse
     – Pay for each item individually
– Work & exams:
     – Exams: study under method you will be tested
     – Teach for reality e.g. driving lessons – hitting curb, ppl screaming in the back
     – Share drafts early rather than late
     – Brainstorming session 19 out of 22 less productive; free riders, mutual backslapping
– Making the best decisions:
     – If in control feel risks are lower e.g. driving vs. flying
     – Think more rationally when think about others

7. Eat well, bananas aside
– Restaurants: only for what you can’t do
     – Menu – expensive = what sounds least appetizing then order (logic if menu well devised & sounds bad then will be esp. good)
                – ethnic: avoid dishes relying top quality ingredients, appetizers often better than main courses, avoid desserts, order more dishes than normally
                – ask waiter: what is best? what is the speciality? want immediate answer
                – eat where low rents close to high rental areas
     – Cooking – cook what can’t find locally
                   – leave unhealthy cooking to restaurants

8. Avoid the 7 deadly sins
1. Hubris/pride
2. Greed
3. Lust
4. Envy
5. Gluttony
6. Wrath
7. Sloth

– Line cutting: higher payment => higher chance skipping, most ppl don’t want payment 
– Happiness
     a. Sex: more correlated with happiness the more highly educated you are/ happiest ppl those with a single partner
     b. Time with friends
– Self control
     i. Cultivate healthy self image & set of narratives
     ii. Train yourself to use better markets
     iii. Don’t say yes to everything

9. How to save the world? More Christmas presents won’t work
– Volunteering free time: 52% Norway, 30% UK
– Doing good
     a. Supply side:
          i. Begging: more give to beggars => harder they try => rent exhaustion.  Give to poor but not those occupied in begging
          ii. Giving: charities should makes us feel
               a. good when we give
               b. engender loyalty
          iii. Mailing cost is large thus either sign out or sign up (if don’t like a charity!)
          iv. Large scale giving can => problems (corruption & what to do with money)
     b. Demand side:
          i. bang for buck i.e. matched donations work but doesn’t matter how much
          ii. seed money (lining up certain amount works): 10%-67% seed => 6x the donations [ppl like being on winning side]
          iii. refunds (if don’t raise all) => 20% increase
          iv. door to door: most effective selling lottery tickets 
– Using speculations to discourage development of a market
     – buy up a great deal
     – when others ready to take profit, dump all stock
– Gifts: ppl value @ 83.9% of cost
     – need selfish gains from giving to make it worthwhile
     – experiences remembered for longer than posessions