The Situation of the Inequality Getting Inequalitier

From PBSNewsHour:

Financial gains over the last decade in the United States have been mostly made at the “tippy-top” of the economic food chain as more people fall out of the middle class. The top 20 percent of Americans now holds 84 percent of U.S. wealth, as Paul Solman found out as part of a Making Sen$e series on economic inequality.

The Situation of Cheating

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.”

Dan Ariely on the Situation of Expectation

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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Vodpod videos no longer available.

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

Dan Ariely, a Situationist

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.”

The Market’s Personality: Dispositionalizing Situational Characters

Joel Garreau and Shankar Vedantam have a nice article, “Dealing with Scary Mr. Market,” in Tuesday’s Washington Post about the human tendency to see human tendencies in non-humans.  The inclination to anthropomorphize is, in our view, better understood as another example of the inclination to dispositionalize — a misleading bias even when directed at the human animal.

Here are some excerpts from the article.

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A rough beast prowled yesterday. If you read the business press, the market woke up with “jitters” after playing “a game of chicken.” It wound up suffering from “dizziness,” recoiling from a “campfire” possibly turning into a “forest fire,” or a destructive “tsunami.”

Really?

The market has a personality? Intentionality? A psychology? It can save us with transcendent behavior or ruin us like a demon?

What’s up with the way we anthropomorphize markets — the way we tell stories about them as if they are creatures with minds of their own?

“We do it for everything. We see clouds in skies and we can’t help but see patterns,” says Dan Ariely, a professor of behavioral economics at Duke and the author of “Predictably Irrational: The Hidden Forces That Shape Our Decisions.”

“We did a study in which we had random shapes on a computer screen bouncing around. Within two minutes, people had stories. The circle was evil and was chasing the little triangle, eating him up. Some other shape was protecting him. It’s incredibly natural for us to do it,” Ariely says. “We want to see causality. We want to understand the world. We want to see order. If things are just random, it’s not comfortable. We find patterns when there are no patterns. We’re really, really good at this. It’s important to our psychological well-being. If we thought we had no control and no understanding of what’s happening, it would be very tough.”

Making amorphous forces into characters we can grapple with has a long history. The Greeks made the idea of wisdom into the goddess Athena. To this day, we name our storms: Hanna, Ike.

Our markets, in turn, have invisible hands, bulls and bears, even “animal spirits,” as John Maynard Keynes in 1936 called the optimism or pessimism that can drive economics.

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The greater the unpredictability of a system, the more likely people are to ascribe volitional qualities to it, says Nicholas Epley, a professor of behavioral science at the University of Chicago.

Rocks or billiard balls don’t move unpredictably. But if a billiard ball were suddenly to move on its own, we no longer would have an explanation for what we are seeing and would ascribe intentionality to the ball.

Epley has also found that people are more likely to anthropomorphize when they are feeling lonely. It is as though seeing humanlike qualities in inanimate objects and systems can give us a sense of social connection.

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“In the same way being deprived of food makes you hungry, and eating makes you feel better, so, too, when you are deprived of predictability and social connection, anthropomorphism can be satisfying,” Epley says.

“The most impressive aspects of the human brain involve making sense of our social environment,” says George Loewenstein, a professor of economics and psychology at Carnegie Mellon. “It’s natural when we confront the inherently incomprehensible. We often talk about countries as if they are individuals.

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In an unusual set of experiments published earlier this year in the journal Organizational Behavior and Human Decision Processes, Columbia University business school professor Michael Morris showed that up markets are more likely to be given human characteristics than crashes.

We have the Dow “fall like a brick” but “climb to a new high.” You see the financial markets “drop off a cliff” — an inanimate object moving as a result of gravity — but “recovering lost ground.”

“There is a lot of evidence that our brains categorize something as animate or alive to the extent it moves in ways that a physical object can’t,” Morris says. “One cue that something is alive is if it moves uphill. Rocks never roll uphill. If you see something rolling uphill, you make an ontological judgment that the thing is alive.”

Morris found that anthropomorphizing markets has serious risks. Volunteers who heard market movements described in human terms were more likely than those given inanimate descriptions to believe that market trends were likely to continue.

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To read the entire article, click here.  For a related Situationist post, see “Seeing Faces.”  Situationist contributors, Jon Hanson and Michael McCann argue in their forthcoming article “Situationist Torts” (downloadable here) that the tendency to dispositionalize situational characters distorts our understandings of everything from people to law and from legal theory to legal pedagogy.

Denial

Last November, Benedict Carey of the New York Times penned an intriguing piece on the psychology of denial. As discussed by Carey, recent research suggests that denial helps form and cultivate close relationships, including those between spouses and siblings. We excerpt his piece below.

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Everyone is in denial about something; just try denying it and watch friends make a list. For Freud, denial was a defense against external realities that threaten the ego, and many psychologists today would argue that it can be a protective defense in the face of unbearable news, like a cancer diagnosis.

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[R]ecent studies from fields as diverse as psychology and anthropology suggest that the ability to look the other way, while potentially destructive, is also critically important to forming and nourishing close relationships. The psychological tricks that people use to ignore a festering problem in their own households are the same ones that they need to live with everyday human dishonesty and betrayal, their own and others’. And it is these highly evolved abilities, research suggests, that provide the foundation for that most disarming of all human invitations, forgiveness.

In this emerging view, social scientists see denial on a broader spectrum — from benign inattention to passive acknowledgment to full-blown, willful blindness — on the part of couples, social groups and organizations, as well as individuals. Seeing denial in this way, some scientists argue, helps clarify when it is wise to manage a difficult person or personal situation, and when it threatens to become a kind of infectious silent trance that can make hypocrites of otherwise forthright people.

“The closer you look, the more clearly you see that denial is part of the uneasy bargain we strike to be social creatures,” said Michael McCullough, a psychologist at the University of Miami and the author of the coming book “Beyond Revenge: The Evolution of the Forgiveness Instinct.” “We really do want to be moral people, but the fact is that we cut corners to get individual advantage, and we rely on the room that denial gives us to get by, to wiggle out of speeding tickets, and to forgive others for doing the same.”

The capacity for denial appears to have evolved in part to offset early humans’ hypersensitivity to violations of trust. In small kin groups, identifying liars and two-faced cheats was a matter of survival. A few bad rumors could mean a loss of status or even expulsion from the group, a death sentence.

In a series of recent studies, a team of researchers led by Peter H. Kim of the University of Southern California and Donald L. Ferrin of the University of Buffalo, now at Singapore Management University, had groups of business students rate the trustworthiness of a job applicant after learning that the person had committed an infraction at a previous job. Participants watched a film of a job interview in which the applicant was confronted with the problem and either denied or apologized for it.

If the infraction was described as a mistake and the applicant apologized, viewers gave him the benefit of the doubt and said they would trust him with job responsibilities. But if the infraction was described as fraud and the person apologized, viewers’ trust evaporated — and even having evidence that he had been cleared of misconduct did not entirely restore that trust.

“We concluded there is this skewed incentive system,” Dr. Kim said. “If you are guilty of an integrity-based violation and you apologize, that hurts you more than if you are dishonest and deny it.”

The system is skewed precisely because the people we rely on and value are imperfect, like everyone else, and not nearly as moral or trustworthy as they expect others to be. If evidence of this weren’t abundant enough in everyday life, it came through sharply in a recent study led by Dan Ariely, a behavioral economist at the Massachusetts Institute of Technology.

Dr. Ariely and two colleagues, Nina Mazar and On Amir, had 326 students take a multiple-choice general knowledge test, promising them payment for every correct answer. The students were instructed to transfer their answers, for the official tally, onto a form with color-in bubbles for each numbered question. But some of the students had the opportunity to cheat: they received bubble sheets with the correct answers seemingly inadvertently shaded in gray. Compared with the others, they changed about 20 percent of their answers, and a follow-up study demonstrated that they were unaware of the magnitude of their dishonesty.

“What we concluded is that good people can be dishonest up to the level where conscience kicks in,” said Dr. Ariely, author of the book “Predictably Irrational: The Hidden Force that Shape Our Decisions,” due out next year. “That essentially you can fool the conscience a little bit and make small transgressions without waking it up. It all goes under the radar because you are not paying that much attention.”

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For the rest of the piece, click here.

For a few related Situationist posts, see ” The Situation of Lying,” “Mistakes Were Made (but not by me),” “Um, I don’t make misteaks . . . ,” and “Predictably Irrational.”

Free To Not Choose

In February, John Tierney wrote a great column in February for the New York Times about Dan Ariely’s new book, Predictably Irrational. We already posted about Ariely’s book last week (see here). In this post, we simply wanted to highlight Tierney’s excellent summary of some of Ariely’s experiments.

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In a series of experiments, hundreds of students could not bear to let their options vanish . . . .

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They played a computer game that paid real cash to look for money behind three doors on the screen. . . . After they opened a door by clicking on it, each subsequent click earned a little money, with the sum varying each time.

As each player went through the 100 allotted clicks, he could switch rooms to search for higher payoffs, but each switch used up a click to open the new door. The best strategy was to quickly check out the three rooms and settle in the one with the highest rewards.

Even after students got the hang of the game by practicing it, they were flummoxed when a new visual feature was introduced. If they stayed out of any room, its door would start shrinking and eventually disappear.

They should have ignored those disappearing doors, but the students couldn’t. They wasted so many clicks rushing back to reopen doors that their earnings dropped 15 percent. Even when the penalties for switching grew stiffer — besides losing a click, the players had to pay a cash fee — the students kept losing money by frantically keeping all their doors open.

Why were they so attached to those doors? The players . . . say they were just trying to keep future options open. But that’s not the real reason, according to Dr. Ariely and his collaborator in the experiments, Jiwoong Shin, an economist who is now at Yale.

They plumbed the players’ motivations by introducing yet another twist. This time, even if a door vanished from the screen, players could make it reappear whenever they wanted. But even when they knew it would not cost anything to make the door reappear, they still kept frantically trying to prevent doors from vanishing.

Apparently they did not care so much about maintaining flexibility in the future. What really motivated them was the desire to avoid the immediate pain of watching a door close.

“Closing a door on an option is experienced as a loss, and people are willing to pay a price to avoid the emotion of loss,” Dr. Ariely says.

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To read the entire column, which is terrific, click here To play the three-door game, click here. For related Situationist posts, see “The Situation of Regret,” “Why You Bought That,” “Just Choose It,” and “Can’t Get No Satisfaction” (Part 2).

Finally, below you can find a fifty-minute video of Ariely discussing and answering questions about his book.

Vodpod videos no longer available.

Predictably Irrational

Dan Ariely, Professor of Economics at Duke University, has an article in the UK publication “The Independant,” in which he details some of the scenarios his team studied that show how people can behave irrationally in various situations. Part of the article is excerpted below.

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Relativity

Next time you hit the town in search of a date, take a friend who looks similar to you, but is slightly less attractive. We presented participants with two portraits – Mike and John – and asked them to choose whom they’d rather date. For half the participants we distorted the picture of Mike and added it to the set, so they had John, Mike and an ugly version of Mike to choose from. For the other half of the students, we distorted John, so they had Mike, John and an ugly John.

When the ugly version of Mike was presented, the attractive version of Mike became the most desirable date. And when the ugly version of John was presented, John’s attractive version became the most desirable.

It is very hard for us to evaluate things in absolute terms. So, we evaluate products and people in relative terms, which makes us vulnerable to this kind of trap, called the asymmetric dominance effect.

Spending power

We asked a group of MBA students to write down the last two digits of their Social Security number next to the descriptions of a few products. We then asked them if they would pay the amount of money indicated by these numbers (79 became $79 and so on) for each of the products.

We then asked them to bid on the items in an auction. It turned out that people with higher Social Security numbers were willing to pay more.

What was going on? It’s not that people with high Social Security numbers are willing to pay more for everything in general. Instead, it is what’s known as the power of first decision. Once people start thinking of something as having a specific value, they do so not just once, but repeatedly.

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Dan Ariely’s book is called Predictably Irrational: The Hidden Forces that Shape Our Decisions. Below is an excerpt from the book.

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So we live in two worlds: one characterized by social exchanges and the other characterized by market exchanges. And we apply different norms to these two kinds of relationships. Moreover, introducing market norms into social exchanges, as we have seen, violates the social norms and hurts the relationships. Once this type of mistake has been committed, recovering a social relationship is difficult. Once you’ve offered to pay for the delightful Thanksgiving dinner, your mother-in-law will remember the incident for years to come. And if you’ve ever offered a potential romantic partner the chance to cut to the chase, split the cost of the courting process, and simply go to bed, the odds are that you will have wrecked the romance forever.

My good friends Uri Gneezy (a professor at the University of California at San Diego) and Aldo Rustichini (a professor at the University of Minnesota) provided a very clever test of the long-term effects of a switch from social to market norms. A few years ago, they studied a day care center in Israel to determine whether imposing a fine on parents who arrived late to pick up their children was a useful deterrent. Uri and Aldo concluded that the fine didn’t work well, and in fact it had long-term negative effects. Why? Before the fine was introduced, the teachers and parents had a social contract, with social norms about being late. Thus, if parents were late — as they occasionally were — they felt guilty about it — and their guilt compelled them to be more prompt in picking up their kids in the future. (In Israel, guilt seems to be an effective way to get compliance.) But once the fine was imposed, the day care center had inadvertently replaced the social norms with market norms. Now that the parents were paying for their tardiness, they interpreted the situation in terms of market norms. In other words, since they were being fined, they could decide for themselves whether to be late or not, and they frequently chose to be late. Needless to say, this was not what the day care center intended.

But the real story only started here. The most interesting part occurred a few weeks later, when the day care center removed the fine. Now the center was back to the social norm. Would the parents also return to the social norm? Would their guilt return as well? Not at all. Once the fine was removed, the behavior of the parents didn’t change. They continued to pick up their kids late. In fact, when the fine was removed, there was a slight increase in the number of tardy pickups (after all, both the social norms and the fine had been removed).

This experiment illustrates an unfortunate fact: when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish. Once the bloom is off the rose — once a social norm is trumped by a market norm — it will rarely return.

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To listen to an interesting, nine-minute All Things Considered interview of Dan Ariely, click here. In addition, a podcast with an interview of Professor Ariely and describing more of his research can be found at Open Source, while an interview with him from ABC Radio National can be heard by clicking here. Image from Harper Collins. We’ll have another post on Ariely’s book later this week.