This year’s Nobel Prize for Economics has gone to Richard H. Thaler for work exploring “the consequences of limited rationality, social preference, and lack of self-control.”
Or, how and why people don’t always make the brightest decisions where money is concerned.
While most economic models assume people act rationally, (ie start by asking “So what’s in it for me?”) Dr Thaler says people can sometimes be guided by the part of the brain labelled “bat-shit crazy”.
Thaler has come a long way since writing his doctoral dissertation, The Value of Saving a Life, at the University of Rochester, where his adviser, Sherwin Rosen said “We didn’t expect much of him.”
Dr Thaler though, who confesses to being lazy, poor at maths and bored by philosophy, started on the road to the Nobel jackpot when he began to notice that people behaved differently in situations where the value of their decisions was the same.
Like this example quoted in Wired:
“Imagine that you have decided to see a movie and have paid the admission price of $10 per ticket. As you enter the theater, you discover that you have lost the ticket. The seat was not marked, and the ticket cannot be recovered. Would you pay $10 for another ticket?
*When Thaler conducted this survey, he found that only 46 percent of people would buy another movie ticket. However, when he asked a closely related question he got a completely different response.
Imagine that you have decided to see a movie where admission is $10 per ticket. As you enter the theater, you discover that you have lost a $10 bill. Would you still pay $10 for a ticket to the movie?
*Although the value of the loss in both scenarios is the same – people were still losing ten dollars – 88 percent of people said they would now buy a movie ticket. Why the drastic shift? According to Thaler, going to a movie is normally viewed as a transaction in which the cost of a ticket is exchanged for the experience of seeing a movie. Buying a second ticket makes the movie seem too expensive, since a single ticket now “costs” $20. In contrast, the loss of the cash is not posted to the mental account of the movie, so we don’t mind forking over another $10.”
Even though most people are yet to get to the end of the title of his book, let alone the last page, these “behavioural sciences” have now been incorporated in the work of 136 different countries.
One of those countries is this one, and the Behavioural Insights Team, created by David Cameron in 2009, come across as magnificently WIA on their website (“Our objectives remain the same as they have always been…. enabling people to make ‘better choices for themselves’.”)
While they fiddle around trying to work out how to prevent people from falling asleep while reading their website, the more disturbing issue raised by Dr Thaler’s work slides past largely unnoticed.
As the Observer says in its review of Nudge ““Belief in the absence of free will ebbs further with every page… it is fascinating but also a little alarming.”
They probably mean “belief in free will”, but you get the idea.