What Was I Thinking?

Books review of two books on irrationalism and behavioral economics. The writer describes ordering a book on Amazon and adding money to her order in order to qualify for free shipping. She cost herself an extra $12.91. Why do people do things like this? Actual economic life is full of miscalculations. By Elizabeth Kolbert in the New Yorker.

Some extracts:

Dan Ariely says in his book Predictably Irrational: The Hidden Forces That Shape Our Decisions: “Our irrational behaviors are neither random nor senseless—they are systematic.” Anchoring seems to be in play, or a cognitive bias that describes the common human tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions. But there is also the Endowment effect, or people place a higher value on objects they own relative to objects they do not, and several other strange behaviour.

The second book, Nudge: Improving Decisions About Health, Wealth, and Happiness, agrees that faced with certain options, people will consistently make the wrong choice. Therefore, they argue, people should be offered options that work with, rather than against, their unreasoning tendencies. These foolish-proof choices they label “nudges.”

So what to do with this information ? We can try to become more aware of the patterns governing our blunders, as “Predictably Irrational” urges. Or we can try to prod people toward more rational choices, as “Nudge” suggests.

The Porcupine Illusion

It began as an urbane fable about how to brush down bristling nerves. Sometime in the summer of 1909, not long before Sigmund Freud was due to embark on his only visit to the United States, he was enjoying a cigar in the company of his inner circle in the busy Biedermeier interior of Berggasse 19, when he suddenly announced, “I am going to America to catch sight of a wild porcupine and to give some lectures.”

A tale about Arthur Schopenhauer and Sigmund Freud and of course porcupines. See also hedgehog’s dilemma.

The moral instinct

“Moralization is a psychological state that can be turned on and off like a switch,” explains psychologist Steven Pinker in an entertaining and enlightening article on the workings of the moral instinct. But whether an activity flips our mental switches to the “moral” setting isn’t just a matter of how much harm it does. We don’t show contempt to the man who fails to change the batteries in his smoke alarms or takes his family on a driving vacation, both of which multiply the risk they will die in an accident. Driving a gas-guzzling Hummer is reprehensible, but driving a gas-guzzling old Volvo is not; eating a Big Mac is unconscionable, but not imported cheese or crème brûlée. The reason for these double standards is obvious: people tend to align their moralization with their own lifestyles.