Wednesday, January 13, 2016

Why Being Irrational Is Your Sanest Choice

1001 Books To Read Before Your Kindle Battery Dies, Part 65
Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions


Let’s start with this simple premise: human beings don’t behave according to conventional economic models. Whether the capitalist supply-demand arc, or the Marxist labor dialectic, human behavior steadfastly resists slotting into categories experts consider “rational.” We often ignore our best interests, make choices which render us poorer and less happy, and cannot value our options reliably. Yet we do this in completely consistent, reliable ways. Why?

Israeli-American professor Dan Ariely holds doctorates in psychology and business. Through appointments at MIT, Stanford, and Duke, he has helped mold the still-young discipline of Behavioral Economics, a research field which examines human choices without preconceived models. His discoveries shed light on human reasoning, and why what seems unreasonable actually serves very consistent purposes. This book provides an interesting thumbnail introduction to a discipline still new and somewhat dangerous.

Consider how people will treasure something that costs more, assuming it’s more effective, better quality, or whatever. Anyone who’s ever slipped box wine into a posh bottle already knows this. Higher prices, subconsciously, translate into better products. Yet the arc shifts when the price hits zero. We’ll chose a measurably inferior but free product rather than pay one thin dime. This seems counter-rational, but actually has well-rooted human behavioral causes.

Late in the book, Ariely writes: “Behavioral economists… believe that people are susceptible to irrelevant influences from their immediate environment…, irrelevant emotions, shortsightedness, and other forms of irrationality.” Though this makes a decent definition of his field, it sounds harsh and judgemental, which this book mostly isn’t. Unlike standard economics, which literally assumes humans are money-driven reason machines, Ariely sees human behavior as driven by forces we cannot see.

Dan Ariely
However, these invisible forces, unlike the fabled “invisible hand,” actually have measurable traits. For instance, consider volunteer activities. If Habitat For Humanity needed to pay its workers the going rate for construction labor, it couldn’t afford to build homes for the destitute. Why will people people donate freely time and labor they’d charge dearly for if money became involved? Because society is bound together by forces economics cannot value monetarily.

Likewise, given complete impunity, most people will cheat slightly to pursue their own advantage. But most people will cheat far less than they possibly could. What forces keep chiseling to a reasonable minimum? Apparently we have complex neurological structures that let us monitor ourselves, asking whether we’re upholding our own basic judgments. Our brains literally stop healthy people from swindling others. Honesty isn’t merely a morality, it’s a neural imperative.

Ariely demonstrates we could prevent even limited cheating with simple steps. Honesty oaths and honor pledges work effectively, as do simple reminders of moral codes like the Ten Commandments. We can also minimize cheating by keeping consequences close-by and visible, as by transacting business in cash, not credit. The bankers who imploded the economy shortly after this book appeared probably wreaked havoc because, psychologically, they were handling Monopoly money.

Through-lines develop across Ariely’s chapters, without his need to notice. We don’t cheat profligately, and moral nudges halt even minimal cheating, because social standards are based upon trust. Economies where trust runs high, like America, thrive because we’ll keep money flowing, trusting few people will deceive. Economies with limited trust, like Iran, struggle with minimal growth. But it takes remarkably little to undermine trust, and when it’s gone, it’s gone.

These examples aren’t thought experiments or mathematical models. Ariely draws conclusions based on experiments in the laboratory and the field. Some are only possible now because of advancing technology—in one example, a colleague replicates the famous Pepsi Challenge with subjects strapped into an fMRI machine. Others involve simple field tests anyone could replicate by offering free chocolate or beer. But they’re all based on real-life trials and empirical data.

In consequence, these discoveries challenge both the traditional Left and Right in American politics. Because people aren’t theory machines, prefab theories cannot encompass our choices: we’re driven neither by profit, as neoclassical economics insists, nor by the class-based identity Marxism demands. Our motives defy standard categorization, threaten anyone who’d predict or control our choices, and expand regular citizens’ views of themselves and their choices.

Ariely’s experiments make humans more, not less, complex. They demonstrate we’re ore powerful and sophisticated than even we ourselves realize. But our complexity also makes us vulnerable to forces we cannot see externally. Behavioral Economics makes humans both more and less reasonable, both more and less predictable. And in so doing, arguably, it makes us more human, overthrowing the theories which bind us.

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