Category Archives: Behavioral economics

George Loewenstein – The economist as therapist – video lecture

I have just found a video lecture by George Loewenstein titled: The Economist as a therapist: Behavioral economics and “light paternalism”. The lecture was given during the 2007 IAREP conference.

See also on SSRN the working paper The Economist as Therapist: Methodological Ramifications of ‘Light’ Paternalism by  George Loewenstein and Emily Celia Haisley February 28, 2007.

Does thinking of money makes us less helpful and more hard-working

So it seems, at least according to the recently published article by Kathleen Vohs, Nicole L. Mead, and Miranda R. Goode (2008) Merely Activating the Concept of Money Changes Personal and Interpersonal Behavior , Current Directions in Psychological Science , Volume 17 Issue 3, Pages 208 – 212).

Here is the abstract:

Money plays a significant role in people’s lives, and yet little experimental attention has been given to the psychological underpinnings of money. We systematically varied whether and to what extent the concept of money was activated in participants’ minds using methods that minimized participants’ conscious awareness of the money cues. On the one hand, participants reminded of money were less helpful than were participants not reminded of money, and they also preferred solitary activities and less physical intimacy. On the other hand, reminders of money prompted participants to work harder on challenging tasks and led to desires to take on more work as compared to participants not reminded of money. In short, even subtle reminders of money elicit big changes in human behavior.”

The concept of money was activated in the participants via four different manipulations. The first had participants play monopoly and being given at the end of the game different amounts of money “for later” before moving to another task. The second manipulation asked participants to imagine life with either abundant or limited finances. In the third manipulation participants had to organize phrases that were or were not related to money. The fourth and last manipulation made participants sit near images of cash or neutral images. The authors found that all of these manipulations had similar effects.

The authors underline that the emotional states reported by participants did not seem to be affected by whether they were reminded of money or not. This suggests that the results are unlikely to depend on emotional impacts of money on making participants less trustful, more anxious, or prideful. The authors believe that the explanation does not lie in money making people more selfish or greedy. In fact, exposure to money clues did not make participants more likely to ask for help when given a tough assignment nor more likely to reject more work than was necessary.

The authors conclude:

We are eager to explore the idea that money leads to a perspective on the world that emphasizes inputs and outputs with an expectation of equity (cf. Fiske, 1991)—a perspective that would emphasize performance and, consequently, may harm interpersonal sensitivity.” (p. 211).

See also the earlier article “The Psychological Consequences of Money,” Kathleen D. Vohs, Nicole Mead, and Miranda Goode, Science (2006). Nov. 17, 2006.

Pointer by Greg Mankiw and comment by Peter Singer.

An Austrian View on Nudge

Gary Galles on the Ludvig von Mises Institute site takes an Austrian, critical view at Thaler’s and Sunstein’s argument, presented in their book Nudge, that governments can increase economic welfare by paying greater attention to choice architecture. Choice architecture can help alter people’s behavior in a predictable, desirable way without restricting the options available or significantly changing economic incentives. Galles writes:

“While those interested in liberty should read those and other careful considerations of the theory behind Nudge, there is another fatal but overlooked flaw in the book’s argument. They begin by assuming that people’s current choices reflect the results when they are left alone to make them (i.e., reflecting self-ownership and voluntary market choices). That is why any shortcomings must be the fault of irrational individuals, who need paternalistic nudges to improve things. However, our current savings, organ-donation, and health choices are not those of free individuals; they are the choices made in large part because current government policies — taxes, regulations, mandates, etc. — impair incentives. They are government failures presented as market failures.”

Read Galles’ article

Behavioral economics podcasts and webcasts

Here is a list of lectures and interviews on behavioral economics, which can be used as additional materials for teaching.