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Archive for the ‘Behavioral Economics’ Category

Dan Kahneman on the Situation of Experience and Memory

Posted by The Situationist Staff on April 23, 2010

From TedTalks: “Using examples from vacations to colonoscopies, Nobel laureate and founder of behavioral economics Daniel Kahneman reveals how our “experiencing selves” and our “remembering selves” perceive happiness differently. This new insight has profound implications for economics, public policy — and our own self-awareness.”

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To sample some related Situationist posts, see “The Situation of Becoming Happier,” Dan Kahneman on the Situation of Well-Being,” Dan Kahneman on the Situation of Intuition,” and “Martin Seligman on Positive Psychology.” For a sample of other Situationist posts related to Kahneman’s work, see Dan Kahneman’s Situation,” “The Situation of Financial Risk-Taking,” “Some (Interior) Situational Sources War – Part I,” and “Some (Interior) Situational Sources War – Part II.”

Posted in Behavioral Economics, Choice Myth, Life, Positive Psychology, Video | Tagged: , , , | Leave a Comment »

The Neuro-Situation of Moral and Economic Decisions

Posted by The Situationist Staff on March 21, 2010

From ThirteenWNET:

To Steven Quartz & Colin Camerer the brain is a huge number-cruncher, assigning a numeric value to everything from a loaf of bread to our most deeply held moral “values.” In that sense, moral decisions are also economic ones. Using a brain scanner (fMRI), they want to catch the brain in the act—to see what it’s doing at exactly the moment a tough moral decision gets made. Their research is pioneering a new branch of neuroscience — neuroeconomics.

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To review a sample of related Situationist posts, see “The Legal Brain,” Read My Brain – From Science Friday,” “The Situation of Neuroeconomics and Situationist Economics,” and “The Interior Situational Reaction to Inequality.”

Posted in Behavioral Economics, Distribution, Emotions, Neuroeconomics, Neuroscience, Video | Tagged: , , , | 2 Comments »

The Evolutionary Situation of Behavior

Posted by The Situationist Staff on January 28, 2010

Thomas Brennan and Andrew Lo recently published their interesting paper, titled “The Origin of Behavior,” on SSRN.  Here’s the abstract.

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We propose a single evolutionary explanation for the origin of several behaviors that have been observed in organisms ranging from ants to human subjects, including risk-sensitive foraging, risk aversion, loss aversion, probability matching, randomization, and diversification. Given an initial population of individuals, each assigned a purely arbitrary behavior with respect to a binary choice problem, and assuming that offspring behave identically to their parents, only those behaviors linked to reproductive success will survive, and less reproductively successful behaviors will disappear at exponential rates. This framework generates a surprisingly rich set of behaviors, and the simplicity and generality of our model suggest that these behaviors are primitive and universal.

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You can download the paper for free, here.

Posted in Abstracts, Behavioral Economics | Tagged: , , , , , | Leave a Comment »

Taking the Situation of Consumers Seriously

Posted by The Situationist Staff on January 9, 2010

Situationist Contributor David Yosifon recently posted his superb article, “The Consumer Interest in Corporate Law,” (43 UC Davis Law Review 253-313 (2009)) on SSRN.  It’s an important, well written, and very situationist analysis of the influence of corporate law and corporations on consumers. Here’s the abstract.

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This Article provides a comprehensive assessment of the consumer interest in dominant theories of the corporation and in the fundamental doctrines of corporate law. In so doing, the Article fills a void in contemporary corporate law scholarship, which has failed to give sustained attention to consumers in favor of exploring the interests of other corporate stakeholders, especially shareholders, creditors, and workers. Utilizing insights derived from the law and behavioralism movement, this Article examines, in particular, the limitations of the shareholder primacy norm at the heart of prevailing “nexus of contracts” and “team production” theories of the firm. The Article concludes that fundamental reforms in corporate governance may be needed in order to vindicate the consumer interest in corporate enterprise.

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You can download the paper for free here.  For a sample of related Situationist posts, see “Hey Dove! Talk to YOUR parent!,” “The Situation of Our Food – Part II,” The Situation of Our Food – Part III,” “The Changing Face of Marketing?,” “The Illusion of Wall Street Reform,” “Reclaiming Corporate Law in a New Gilded Age – Abstract,” “Deep Capture – Part VI,” and “Deep Capture – Part VII.”

(The illustration above is by Situationist artist Marc Scheff.)

Posted in Abstracts, Behavioral Economics, Deep Capture, Law, Situationist Contributors, Social Psychology | Tagged: , , , | Leave a Comment »

The Situation of Climbing Stairs

Posted by The Situationist Staff on December 8, 2009

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To read a related Situationist post, see “Busker or Virtuoso? Depends on the Situation” “Journalists as Social Psychologists & Social Psychologists as Entertainers,” “Changing Choices by Changing Situations.”

Posted in Behavioral Economics, Video | 1 Comment »

A Mental Budget for the Holidays

Posted by The Situationist Staff on November 23, 2009

From EurekaAlert:

If you feel like you’re in a losing battle with a triple-chocolate cake, a “mental budget” can help, according to a new study in the Journal of Consumer Research.

“There are some behaviors that consumers try to limit but have trouble doing so,” write authors Parthasarathy Krishnamurthy . . . and Sonja Prokopec . . . . “Even as one aims to curtail consumption of sugars and fat, one ends up consuming the tiramisu or the triple-chocolate cake. Such discrepancies between one’s goals and actual behaviors represent instances of self-control failure.”

Overconsumption is a serious issue in the United States. For example, National Institutes of Health statistics show that two-thirds of American adults are overweight, with associated direct economic medical costs of $78.5 billion each year. About 70 million Americans are attempting to control their food intake.

So, how do consumers rein in overeating? In weight-loss systems like Weight Watchers, each food is assigned a point value and members are encouraged to limit their total daily consumption to a pre-specified amount of points.

The authors conducted several studies where they encouraged some participants to set mental budgets and compared them to people who did not set budgets. They examined their consumption of sweet treats.

They discovered several patterns. First, having a mental budget alone was not sufficient. Participants also needed to have an active goal of not wanting to consume sweets. Second, the information about the products needed to match the units of the mental budgets. Third, mental budgets succeeded when consumers followed specific numerical recommendations, like the Weight Watchers points.

“For those who wish to cut out those desserts, our research suggests some simple tips,” the authors write. “First, it is important to have a mental budget. At the very least, it allows you to keep track of how you are doing with respect to your goal. Second, make sure the budget works as a limit rather than a license for the consumption behavior. To do this, it is important to have an active goal of controlling the consumption.”

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You can find a preprint of the article, “Resisting That Triple-Chocolate Cake: Mental Budgets and Self-Control,” here. For other Situationist posts on food and drug issues, click here.

Posted in Abstracts, Behavioral Economics, Food and Drug Law, Life | Tagged: , , | Leave a Comment »

The Situation of Cheating

Posted by The Situationist Staff on November 22, 2009

Behavioral economist Dan Ariely, in the following video, describes one of his fascinating studies on the situation of cheating.

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For a sample of related Situationist posts, see “The Interior Situation of Honesty (and Dishonesty),” The Situation of Lying,” “The Facial Obviousness of Lying,” Cheating Doesn’t Pay . . . So Why So Much of it?,” “Dan Ariely, a Situationist,” Dan Ariely on Cheating,”and “Unclean Hands.”

Posted in Behavioral Economics, Life, Video | Tagged: , , , | Leave a Comment »

The Situation of the “Invisible Hand”

Posted by The Situationist Staff on November 17, 2009

Invisible HandYesterday, Paul Rosenberg published an intriguing situationist piece at Open Left about the context and meaning of Adam Smith’s “invisible hand.”   Here are some excerpts.

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What if Adam Smith’s “invisible hand” argument doesn’t mean what we think it means?  What if it doesn’t mean that everything else but the “free market” can and should be ignored?  What if if Smith actually depended on social and historical context in order to make his argument in the first place? What if it was an argument deeply dependent on what . . . The Situationist blog calls “the situation”?

In fact, that’s exactly what happened!

Recently, Berkeley economist Brad DeLong posted

“Yet Another Note on Adam Smith’s ‘Invisible Hand': What It Is and What It Is Not”, in which he points out that the phrase “invisible hand” only occurs once in the whole of Adam Smith’s The Wealth of Nations. He then quotes a good-enough chunk of text to give the full context in which the phase occurs-an argument that merchants prefer to ship goods through their home port, even though it costs more (even needlessly unloading cargo), and thus produce much the same result as mercantilism in promoting domestic economic activity.

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It is within this context-the argument above-that Smith writes, “By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

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In this passage, Smith is overtly talking like a behavioral economist, rather than a more orthodox “rational actor” or related sort of practitioner.   However, there’s an even deeper intellectual departure here, since his entire argument is based on a particular set of social institutions, expectations, past experiences and resultant practices, all of which contribute to his particular predilections that silently shape what is rational to him.

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We recommend the article in its entirety, which you can read here.  For a sample of related Situationist Ayn Rand’s Dispositionism: The Situation of Ideas,” “Posner on Keynes and the Economic Depression,” “Conference on the Free Market Mindset,” “Juliet Schor on the Situation of Consumption,” “Economist Stephen Marglin Thinking about Thinking Like an Economist.”

Posted in Abstracts, Behavioral Economics, Deep Capture, History, Ideology | Tagged: , , | Leave a Comment »

The Situation of Lawyers’ Complicity

Posted by The Situationist Staff on November 13, 2009

LawyerCassandra Burke Robertson recently posted her intriguing article, “Judgment, Identity, and Independence” (Connecticut Law Review, 2009) on SSRN.  Here’s the abstract.

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Whenever a new corporate or governmental scandal erupts, onlookers ask “Where were the lawyers?” Why would attorneys not have advised their clients of the risks posed by conduct that, from an outsider’s perspective, appears indefensible? When numerous red flags have gone unheeded, people often conclude that the lawyers’ failure to sound the alarm must be caused by greed, incompetence, or both. A few scholars have suggested that unconscious cognitive bias may better explain such lapses in judgment, but they have not explained why particular situations are more likely than others to encourage such bias. This article seeks to fill that gap. Drawing on research from behavioral and social psychology, it suggests that lawyers’ apparent lapses in judgment may be caused by cognitive biases arising from partisan kinship between lawyer and client. The article uses identity theory to distinguish particular situations in which attorney judgment is likely to be compromised, and it recommends strategies to enhance attorney independence and minimize judgment errors.

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You can download the article for free here.  For a sample of related Situationist posts, see “Gatekeepers Inside Out – Abstract,” “The Situation of Lawyers and Practicing Law,” Law, Chicken Sexing, Torture Memo, and Situation Sense,” The Situation of John Yoo and the Torture Memos,” “Why Do Lawyers Acquiesce In Their Clients’ Misconduct?,” Part I, Part II, and Part III, “The Illusion of Wall Street Reform,” “On the Ethical Obligations of Lawyers: Are We Snakes? Are We Supposed to Be?.”

Posted in Abstracts, Behavioral Economics, Law, Social Psychology | Tagged: , , | 2 Comments »

Dan Gilbert on Why the Brain Scares Itself

Posted by The Situationist Staff on November 8, 2009

Dan Gilbert1For the Harvard Law Record, Harvard Law Students, Anush Emelianova and Gustavo Ribeiro, wrote a nice summary of Dan Gilbert‘s recent lecture at Harvard Law School.  His lecture, titled “Why Does the Brain Scare Itself?,” drew a  crowd of roughly 150 students and contributed to Gilbert’s reputation as an amazing and captivating speaker.    Here’s Emilianova and Ribeiro’s description.

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Why does the brain scare itself?  On Monday, October 19, Professor Dan Gilbert confronted this question in an event sponsored by first-year Section VI. Professor Gilbert, who wrote  the bestselling book Stumbling on Happiness, is a Professor of Psychology at Harvard University and the Director of Harvard’s Hedonic Psychology Laboratory. He opened his remarks by stating that the power of the mind to automatically make predictions by simulating outcomes is the key feature that distinguishes humans from other animals.

Because the brain is made up of semi-independent systems, it can talk to itself or even “scare itself.”   But Prof. Gilbert believes that the limited mental capacities of humans impose limits on the accuracy of predictions about the emotional impact of future events. He demonstrated this by identifying four limitations of the brain’s ability to simulate the future: unrepresentativeness, essentialization, truncation, and presentism.

According to Prof. Gilbert, humans’ mental simulations are unrepresentatively based on the individual’s best or worst memories, failing to correspond to the average experience.  When the mind produces imaginary scenarios, the images tend to be essentialized, that is, distilled to a simplified image with the details cut out.  Remembered experiences also interfere with accurate prediction because they are truncated and fail to incorporate the ability to adapt to different situations over time.  Furthermore, Prof. Gilbert believes the human mind has a “presentist” bias, accepting in most circumstances the fiction that tomorrow will be exactly like today and that the feelings at the moment of making a decision will persist until the outcome of that decision arises. As an example, Professor Gilbert demonstrated a photograph of a 16-year-old who had tattooed Pac-Man on her head, suggesting that the excitement of the moment would eventually give way to regret.

Professor Gilbert does not believe humans have the capacity to systematically prevent errors in mental simulations.  “As I marinate you in the bloopers and foibles, the mistakes and biases of the human mind, you must be thinking, is there anything we can do about this? I’m happy to tell you the answer is no,” he said.

Despite the failure of predictions to account for dynamic circumstances, humans tend to adapt or rationalize outcomes to make themselves feel better.  Prof. Gilbert illustrated this tendency with the satisfied attitude of Pete Best, the original drummer for the Beatles.

Despite missing out on being part of one of the most successful bands ever, Best said in a 1994 interview that, “I’m happier than I would have been with the Beatles.” Professor Gilbert argued that this was a striking example of rationalization.

Prof. Gilbert also indicated that there may be techniques available to minimize some types of cognitive error.  “Surrogation,” or asking others about their experience of a similar situation, can act as a more reliable guide than one’s own expectations. In fact, according to Prof. Gilbert, any random person’s actual experience of a given situation is likely to be much more predictive of our future enjoyment than our imaginary simulation of that same experience.

“Human beings are all basically the same.”

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The Project on Law and Mind Sciences will make the video of Gilbert’s talk available within the next few weeks.  To review a sample of related Situationist posts, see “Dan Gilbert To Speak at Harvard Law School,” “Dan Gilbert on the Situation of Our Decisions,” Dan Gilbert on the Situation of Psychology,”The Situation of Climate Change,” The Heat is On,”The Situation of Happiness,” and “Conversation with Dan Gilbert.”

Posted in Behavioral Economics, Emotions, Events, Illusions, Life, Social Psychology | Tagged: , , , | Leave a Comment »

Dan Gilbert on the Situation of Our Decisions

Posted by The Situationist Staff on October 19, 2009

Situationist friend Dan Gilbert, who will be speaking today at Harvard Law School (details here), recently completed another fascinating TedTalk. Here is their summary:   “Dan Gilbert presents research and data from his exploration of happiness — sharing some surprising tests and experiments that you can also try on yourself. Watch through to the end for a sparkling Q&A with some familiar TED faces.”  Here’s the video.

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For a sample of previous Situationist posts by or about Dan Gilbert and his work, see “The Situational Consequences of Uncertainty,” “Dan Gilbert on the Situation of Psychology,” “Something to Smile About,” “The Situation of Climate Change,” The Heat is On,” “Don’t Worry, But Don’t Be Happy, Either?,” “The Situation of Happiness,” “The Unlucky Irish: Celtics Fans and Affective Forecasting,” and “Conversation with Dan Gilbert.”

To review a collection of Situationist posts about the psychology of happiness, click here.

Posted in Behavioral Economics, Choice Myth, Conflict, Cultural Cognition, Social Psychology, Video | Tagged: , | 1 Comment »

Dan Gilbert To Speak at Harvard Law School

Posted by The Situationist Staff on October 18, 2009

Gilbert Poster

For more details, click here.

Posted in Behavioral Economics, Events, Ideology, Politics, Social Psychology | Tagged: , , | 1 Comment »

The Problem of Old Fears and New Dangers

Posted by Adam Benforado on October 6, 2009

Credit Card Lock1A few weeks ago, the grandfather of law and economics, Richard Posner, decided to weigh in on President Obama’s proposal for a Consumer Financial Protection Agency (CFPA), which would regulate consumer financial products including mortgages and credit cards.  He bemoaned the idea of a new regulatory body—dismissing it as the misguided vision of a cadre of idealistic behavioral economists.

As he explained, in an op-ed in the Wall Street Journal, “Behavioral economists are right to point to the limitations of human cognition.  But if they have the same cognitive limitations as consumers, should they be designing systems of consumer protection?”

The enemy is a familiar one for Posner and any self-respecting classical liberal: paternalism.

Posner’s concern is that “the agency will steer consumers to those financial products that it thinks best for them, whatever they naïvely think.”

That statement is misleading and problematic for two reasons.

First, the aim of the CFPA is not to force consumers to agree to something they wouldn’t otherwise agree to; the point is to promote real disclosure so that consumers can make informed decisions.  Thus, the impetus behind the plan for pre-approved “plain vanilla” financial product forms, for example, is not a desire to constrain choice, but to ensure a format that customers can understand.  Without understanding there is no free choice.

Second, even if we accept Posner’s inaccurate and unfair characterization of the agency as paternalistic, that must certainly be better than the status quo that Posner tacitly supports in which companies steer consumers to those financial products they think best for the company, whatever consumers naïvely think.  For someone committed to preserving the autonomy of the individual to pursue his own conception of the good, the world Posner affirms is a coercive nightmare far worse than his caricature of America’s future under the CFPA Act: at least in the latter case, the implicated entity is attempting to pursue the best interests of the American public, not its own.

What is to explain Posner’s inability to see that under the current system individuals lack free choice?  After all he is a very smart guy and the evidence on how mortgage and credit card products are deliberately created and marketed to compel consumers to step into higher cost products is overwhelming.

Why is Posner so ready to see the government as the totalitarian bogeyman and so unwilling to see the consumer financial products industry in this role?

It is hard to say, but I expect part of it grows out of being stuck in a mid-20th-Century mindset.

Richard Posner, born in 1939, came of age during the Cold War.  (Interesting aside: a thirteen-year-old Posner agreed to give his electric train set to the Rosenberg children when they visited his house shortly after their parents were executed.)  During that time, the enemy was the totalitarian state—the overbearing government that thought it knew what was best for the people.  Corporations, by contrast, were the good guys.  They listened to our wants and responded to our desires.  They helped keep us free and happy.

Today, rather than looking objectively at what presents the greatest danger to liberty; he is stuck looking for the nefarious influence of big government.  And that’s where he has gone wrong.

The CFPA isn’t a big government command-and-control-style creation.  It is minimalist, reflecting the ideas of a younger generation of law professors and economists—including Posner’s colleagues, Cass Sunstein and Richard Thaler—dedicated, like Posner, to an environment of free choice, but aware that the government must sometimes act to ensure that such freedom exists.  It is hard to see how an agency that requires credit card companies to not print their U.S. contracts in Arabic or incomprehensible legalese is a real threat to liberty; it seems like a sensible way to make sure that consumers can accurately compare products and that markets work efficiently.

And it is not clear that the CFPA’s oversight would actually hurt the profitability of companies.  Sure, entities that have survived the last few years on trickery and outright deceit would struggle in the new climate of openness, clarity, and disclosure, but what about all of those honest consumer financial businesses that were kept out of the market because they were undercut by sharp practices?

Posner needs to get with the times or get out of the way.  His refrain, “too much, too soon, too costly,” is a tired old mantra that ignores the dangers, abuses, and costs hidden in the status quo.

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Some of the themes touched on in this post are developed in much greater detail in several  law review articles by Situationist Contributors, including the following two (which can be downloaded for free at the given links): “Naive Cynicism: Maintaining False Perceptions in Policy Debates,” “Legal Academic Backlash: The Response of Legal Theorists to Situationist Insights,”

For a sample of related Situationist posts, see “The Situation of Credit Card Regulation,” “Naïve Cynicism in Election 2008: Dispositionism v. Situationism?,” The Financial Squeeze: Bad Choices or Bad Situations?” “The Situation of the American Middle Class,” “Are Debtors Rational Actors or Situational Characters?,” and “The Situation of College Debt” – Part I, Part II, Part III, and Part IV.

Posted in Behavioral Economics, Choice Myth, Marketing, Public Policy, Situationist Contributors | Tagged: , , , | 2 Comments »

Posner on Keynes and the Economic Depression

Posted by The Situationist Staff on September 25, 2009

John Maynard Keynes Time CoverJudge Richard Posner just published an essay, “How I Became a Keynesian” in the New Republic.  In it he describes how the economic depression led him to go back to read Keynes’s The General Theory of Employment, Interest, and Money and his new-found appreciation for Keynes and elements of Keynesianism.  Here are some excerpts.

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I knew that John Maynard Keynes was widely considered the greatest economist of the twentieth century, and I knew of his book’s extraordinary reputation. But it was a work of macroeconomics–the study of economy-wide phenomena such as inflation, the business cycle, and economic growth. Law, and hence the economics of law–my academic field–did not figure largely in the regulation of those phenomena. And I had heard that it was a very difficult book, which I assumed meant it was heavily mathematical; and that Keynes was an old-fashioned liberal, who believed in controlling business ups and downs through heavy-handed fiscal policy (taxing, borrowing, spending); and that the book had been refuted by Milton Friedman, though he admired Keynes’s earlier work on monetarism. I would not have been surprised by, or inclined to challenge, the claim made in 1992 by Gregory Mankiw, a prominent macroeconomist at Harvard, that “after fifty years of additional progress in economic science, The General Theory is an outdated book. . . . We are in a much better position than Keynes was to figure out how the economy works.”

We have learned since September that the present generation of economists has not figured out how the economy works. The vast majority of them were blindsided by the housing bubble and the ensuing banking crisis; and misjudged the gravity of the economic downturn that resulted; and were perplexed by the inability of orthodox monetary policy administered by the Federal Reserve to prevent such a steep downturn; and could not agree on what, if anything, the government should do to halt it and put the economy on the road to recovery. By now a majority of economists are in general agreement with the Obama administration’s exceedingly Keynesian strategy for digging the economy out of its deep hole. Some say the government is not doing enough and is too cozy with the bankers, and others say that it is doing too much, heedless of long-term consequences. There is no professional consensus on the details of what should be done to arrest the downturn, speed recovery, and prevent (so far as possible) a recurrence. Not having believed that what has happened could happen, the profession had not thought carefully about what should be done if it did happen.

Baffled by the profession’s disarray, I decided I had better read The General Theory. Having done so, I have concluded that, despite its antiquity, it is the best guide we have to the crisis.

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[The General Theory] is an especially difficult read for present-day academic economists, because it is based on a conception of economics remote from theirs. This is what made the book seem “outdated” to Mankiw–and has made it, indeed, a largely unread classic. (Another very distinguished macroeconomist, Robert Lucas, writing a few years after Mankiw, dismissed The General Theory as “an ideological event.”) The dominant conception of economics today, and one that has guided my own academic work in the economics of law, is that economics is the study of rational choice. People are assumed to make rational decisions across the entire range of human choice, including but not limited to market transactions, by employing a form (usually truncated and informal) of cost-benefit analysis. The older view was that economics is the study of the economy, employing whatever assumptions seem realistic and whatever analytical methods come to hand. Keynes wanted to be realistic about decision-making rather than explore how far an economist could get by assuming that people really do base decisions on some approximation to cost-benefit analysis.

The General Theory is full of interesting psychological observations–the word “psychological” is ubiquitous–as when Keynes notes that “during a boom the popular estimation of [risk] is apt to become unusually and imprudently low,” while during a bust the “animal spirits” of entrepreneurs droop. He uses such insights without trying to fit them into a model of rational decision-making.

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Posner’s essay is reviews many of Keynes’s arguments and insights and then concludes as follows.

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Although there are other heresies in The General Theory, along with puzzles, opacities, loose ends, confusions, errors, exaggerations, and anachronisms galore, they do not detract from the book’s relevance to our present troubles. Economists may have forgotten The General Theory and moved on, but economics has not outgrown it, or the informal mode of argument that it exemplifies, which can illuminate nooks and crannies that are closed to mathematics. Keynes’s masterpiece is many things, but “outdated” it is not. So I will let a contrite Gregory Mankiw, writing in November 2008 in The New York Times, amid a collapsing economy, have the last word: “If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront. . . . Keynes wrote, ‘Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.’ In 2008, no defunct economist is more prominent than Keynes himself.”

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In March of 2009, Judge Posner spoke at the Third Annual Project on Law and Mind Sciences Conference, titled “The Free Market Mindset.”  In his talk, “A Failure of Capitalism,” Posner discussed his own explanation for the economic depression, informed by his then-recent reading of The General Theory.  You can watch a video of his talk here.  (Thanks to Goutam Jois for sending the link to Posner’s essay.)

Posted in Behavioral Economics, Ideology, Law, Legal Theory, Public Policy | Leave a Comment »

Toward a Situationist Perspective on Regulation

Posted by The Situationist Staff on August 27, 2009

New PerspectivesTobin Project Program Officer and Situationist friend, John Cisternino, has an important new co-edited book, titled “New Perspectives on Regulation.”  Here’s the abstract.

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New regulation shouldn’t rely on old ideas. Since the 1960s, influential research on government failure helped to drive the movement for deregulation and privatization. Yet even as this branch of research was flourishing, very different ideas were sprouting in the social sciences with profound implications for our understanding of human behavior and the role of government. Some of these ideas, particularly from the field of behavioral economics, have begun to enter into discussions of regulatory purpose, design, and implementation. The process is far from complete, and many other exciting new lines of research – on everything from social cooperation to co-regulation – have hardly been incorporated at all. It is imperative that lawmakers and their constituents be able to draw on the very latest academic work in thinking anew about the role of government. This is the purpose of this book: to make the newest and most important research accessible to a broad audience.

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The book contains several relatively situationist chapters, including the following (which you can download below):

  1. The Case for Behaviorally Informed Regulation PDF
    Michael S. Barr, Professor of Law, University of Michigan; Sendhil Mullainathan, Professor of Economics, Harvard University; Eldar Shafir, Professor of Psychology and Public Affairs, Princeton University
  2. From Greenspan’s Despair to Obama’s Hope: The Scientific Basis of Cooperation as Principles of Regulation PDF
    Yochai Benkler, Jack N. and Lillian R. Berkman Professor for Entrepreneurial Legal Studies, Harvard University

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To read more about the book and to download individual chapters or the entire book, click here.

For a sample of related Situationist posts, see “Conference on the Free Market Mindset,” “Hanson’s Chair Lecture on Situationism,” Behavioral Economics and Policy,” “Do You Implicitly Prefer Markets or Regulation?,” “The Illusion of Wall Street Reform,” “Situationism’s Improving Situation,” “The Situation of the Mortgage Crisis,” and “Innovative Policy: Zoning for Health.”

Posted in Abstracts, Behavioral Economics, Book, Law, Legal Theory | Tagged: | Leave a Comment »

Dan Ariely on the Situation of Expectation

Posted by The Situationist Staff on August 24, 2009

The good folks at Big Think interviewed behavioral economist Dan Ariely and asked him about the the nature of objective reality. Among other things, Ariely had this to say:

It turns out that if a physician comes to you and injects you with whatever – saline water – your body expects pain relief.  And your body secretes substances that are very much like morphine.  So it doesn’t matter what you get from the injection.  You actually get pain relief from your own body as a reaction to that.  Now you can’t just close your eyes and say, “Please can I have some pain killers.”  That doesn’t work.  But when a physician injects you with anything – even saline water – you get the pain relief that is actually a substance you can’t buy over the counter.  It’s like morphine.  But what is the reality there?

The video of his complete response is below.

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To review previous Situationist posts about Dan Ariely’s work click here.

Posted in Behavioral Economics, Choice Myth, Illusions, Life, Video | Tagged: , , | 1 Comment »

The Situation of Parochialism – Abstract

Posted by The Situationist Staff on August 19, 2009

ParochialJonathan Baron recently posted his interesting paper, titled “Parochialism as a Result of Cognitive Biases” on SSRN.  Here’s the abstract.

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I discuss several forms of bias, or fallacious thinking, that lead to parochialism, that is, a willingness to sacrifice self-interest for in-group members while neglecting or underweighing negative effects on outsiders, so that an out-group could lose more than the in-group gains from the sacrifice. In the self-interest illusion, people fallaciously think that their contribution to their group comes back to benefit them and make their sacrifice worthwhile. This illusion is larger when an outgroup is affected, and it is specific to group benefits; it is unrelated to the desire to hurt another group out of sheer competition. A second bias is the tendency to de-personalize the individuals involved and think about the groups. This is reduced when people make analogous decisions about individuals. I suggest that approval voting — at least when both groups vote — can lead people to take the out-group into account. Omission bias, the preference for harming others through omissions rather than actions, is greater for out-group members. Parochialism can be moralized: people think of it as absolute and objectively moral, they are willing to impose it moralistically on others, and they consider the support of the in-group to be their duty as citizens. I conclude with suggestions for reducing the harmful effects of parochialism.

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To download the paper for free, click here.  To review a sample of related Situationist posts, see “The Situation of Ideology – Part I,” “The Situation of Ideology – Part II,” “The Situation of Biased Perceptions,” “Attributing Blame — from the Baseball Diamond to the War on Terror,” “Situationist Theories of Hate – Part IV,” and “Some (Interior) Situational Sources War – Part I.”

Posted in Behavioral Economics, Ideology, Life | Tagged: , , , , | Leave a Comment »

A Situationist View of Criminal Prosecutors

Posted by The Situationist Staff on August 2, 2009

ScalesBarbara O’Brien has recently posted her interesting article, “A Recipe for Bias: An Empirical Look at the Interplay between Institutional Incentives and Bounded Rationality in Prosecutorial Decision Making” (forthcoming in Missouri Law Review, 2009) on SSRN.  Here’s the abstract.

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Prosecutors wield tremendous power, which is kept in check by a set of unique ethical obligations. In explaining why prosecutors sometimes fail to honor these multiple and arguably divergent obligations, scholars tend to fall into two schools of thought. The first school focuses upon institutional incentives that promote abuses of power. These scholars implicitly treat the prosecutor as a rational actor who decides whether to comply with a rule based on an assessment of the expected costs and benefits of doing so. The second school focuses upon bounded human rationality, drawing on the teachings of cognitive science to argue that prosecutors transgress not because of sinister motives, but because they labor under the same cognitive limitations that all humans do. In this article, I begin to unify these two schools of thought into a comprehensive approach. I apply the lessons of cognitive science to identify the ways in which prosecutors’ distinctive institutional environment may undermine not just their willingness to play fair, but their ability to do so. Research on the psychological effects of accountability demonstrates that when people are judged primarily for their ability to persuade others of their position, they are susceptible to defensive bolstering at the expense of objectivity. I argue that prosecutors operate under precisely such a system, and are therefore particularly susceptible to biases that undermine their ability to honor obligations that require some objectivity on their part. In support of this claim, I present the results of two original experiments demonstrating that holding people accountable for their ability to persuade others of a suspect’s guilt exacerbates common cognitive biases relevant to prosecutorial decision making, and discuss the implications of this research for reform.

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To download the paper for free, click here.   To read a sample of related Situationist posts, see “Leaving the Past,” Behavioral Criminal Law and Economics – Abstract,” “Clarence Darrow on the Situation of Crime and Criminals,” “The Racial Situation of Criminal Juries and the Consequences,” “The Situation of “Justice” in Tulia Texas,” Jena 6 – Part I,” and “Jena 6 – Part II.”

Posted in Abstracts, Behavioral Economics, Law | Tagged: , , , , | 2 Comments »

The Situation of Homogeneity

Posted by Adam Benforado on July 20, 2009

NudgeThis summer, I have finally gotten around to reading Richard Thaler and Cass Sunstein’s book Nudge and, unsurprisingly, there is much in the book that parallels situationist work.  Indeed, many (if not most) of the referenced social psychology experiments and dynamics should already be familiar to readers of this website.

One paragraph that I came across this morning particularly struck a chord with me because it took up a topic that I addressed not a month earlier in an op-ed in the Baltimore Sun: the problem with “collaborative filtering,” whereby consumers are given recommendations based on the preferences of others with identical tastes.  As Thaler and Sunstein explain,

[S]urprise and serendipity can be fun for people, and good for them too, and it may not be entirely wonderful if our primary source of information is about what people like us like.  Sometimes it’s good to learn what people unlike us like—and to see whether we might even like that.  If you like the mystery writer Robert B. Parker (and we agree that he’s great), collaborative filtering will probably direct you to other mystery writers (we suggest trying Lee Child, by the way), buy why not try a little Joyce Carol Oates, or maybe even Henry James?  If you’re a Democrat, and you like books that fit your predilections, you might want to see what Republicans think; no part can possibly have a monopoly on wisdom.  Public-spirited choice architects—those who run the daily newspaper, for example—know that it’s good to nudge people in directions that they might not have specifically chosen in advance.

As my op-ed, included below, suggests, Thaler and Sunstein’s faith in daily newspapers may be misplaced . . .

Segregating markets – and people

What do people interested in recent conservative attacks on federal appellate Judge Sonia Sotomayor buy? Portable pet carriers, moisturizing liquid hand soap, and flat screen televisions. The fact that I know this is not something I find comforting.

Let me explain. After I wrote a recent op-ed, a friend drew my attention to something at the bottom of the online version of the article. I have grown used to advertisements with my news and links to “most read articles,” but this seemed to raise the stakes. Alongside the helpful recommendation of other articles the newspaper imagined the reader might like based on her decision to read an op-ed on Supreme Court nominations was a list of “paired” products that other readers of the piece had purportedly purchased.

The list ought to be reassuring, I suppose: I would hate to think that readers were only purchasing catamarans and caviar. Still, I am not sure that this is an encouraging development.

True, the various technologies that make product linkage possible are not particularly mysterious or menacing. In a typicaAlso Readl scenario, when you visit a Web site, a tracking “cookie” may be placed on your computer. These cookies store data about the places you have visited on the Internet. By collecting such information for millions of people, advertisers know what individuals with an identical browsing history subsequently looked at and can direct you to the same page.

I wonder if it is good to assist individuals in this way – and, more specifically, for newspapers to be involved in this process.

Desire can be manufactured. Hummers can be sold to Manhattan housewives. Water that is by all measures inferior to that flowing out of the tap for free can be bottled and priced at $4 a pop.

Maybe readers of my op-ed do not really need or want a new flat screen TV, but what is the problem with a newspaper encouraging them to buy one? The paper makes a little revenue; Sam’s Club sells a TV; and the reader gets a fun status symbol.

The answer is that although “funneling” might be fairly harmless when it comes to being guided to other albums while shopping for a CD, the same may not be true on the broader scale. What does it mean for society when individuals who read the same articles are, as a result, encouraged to go to the same movies, wear the same clothes, drive the same cars, vacation in the same resorts and eat in the same restaurants?

Creating and reinforcing insular communities is likely to hurt us in the long run. Humans may gravitate toward those most like them, but we should resist the impulse to help the process along.

If I am going to be swayed into buying a product or watching a show, I would like to think that, at least, everyone else is being moved in the same way. In a country still deeply divided along racial, religious, economic, and ideological lines, wouldn’t it be nice if the liberal, black teenager in L.A. was encouraged to read the same book as the conservative, white soccer mom in Nashville?

How will we ever close the gaps, if we are constantly steered to opposite sides of the lunch counter?

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To review previous Situationis posts discussing marketing, click here.

Posted in Behavioral Economics, Book, Choice Myth, Conflict, Entertainment, Ideology, Life, Marketing, Situationist Contributors | Tagged: , , | 2 Comments »

Dan Ariely, a Situationist

Posted by The Situationist Staff on June 5, 2009

In the following TED Talk video, Dan Ariely, Professor of Economics at Duke University, behavioral economist, and the author of Predictably Irrational, offers some now-standard but still interesting illustrations of how situation influences our perception and choices.

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To read (or watch) some related Situationist posts, see “Dan Ariely on Cheating,” “Free To Not Choose,” Why You Bought That,” “Just Choose It,”Neuroscience and Illusion,” Brain Magic,” Magic is in the Mind,” and “The Situation of Illusion,” “Irrelevant Third Options in Presidential Campaigns.”

Posted in Behavioral Economics, Illusions, Social Psychology, Video | Tagged: , , | Leave a Comment »

 
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