Tag Archives: Behavioral economics

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.


Of behavioral economics, The New Yorker, climate change and soft paternalism

In What Was I Thinking, the New Yorker reviews two books on behavioral economics: “Predictably Irrational: The Hidden Forces That Shape Our Decisions” by Dan Ariely and “Nudge: Improving Decisions About Health, Wealth, and Happiness” by Richard H. Thaler and Cass R. Sunstein.

The New York Times also discusses Nudge and the idea of soft paternalism the book supports in A Nudge (or Is it a Shove?) To the Unwise: “For the case against nudges, see “Paternalism and Psychology,” (PDF) an essay by the Harvard economist Edward Glaeser. For the case in favor, see “Nudge” or this essay by Mr. Sunstein and Dr. Thaler.”

Another article in the New York Times, Are We Ready to Track Carbon Footprints?, discusses Nudge in relation to climate change. Here is an extract:

The authors of “Nudge,” Cass Sunstein and Richard Thaler of the University of Chicago, agree with economists who’d like to reduce greenhouse gas emissions by imposing carbon taxes or a cap-and-trade system, but they think people need extra guidance. Getting the prices right will not create the right behavior if people do not associate their behavior with the relevant costs,” says Dr. Thaler, a professor of behavioral science and economics. “When I turn the thermostat down on my A-C, I only vaguely know how much that costs me. If the thermostat were programmed to tell you immediately how much you are spending, the effect would be much more powerful. It would be still more powerful, he and Mr. Sunstein suggest, if you knew how your energy consumption compared with the social norm.” read more

The economics of regret on Science

This week Science publishes yet another paper on neuroeconomics. In Predicting Human Interactive Learning by Regret-Driven Neural Networks, Davide Marchiori and Massimo Warglien incorporated regret in a relatively simple model. They showed that their model fits well the behavior of players in 21 different economic experiments. Marchiori and Warglien defined regret as the difference between the outcome the actor choice yielded and the best outcome that could have been attained if the actor had made a different choice.


Marchiori Davide and Warglien Massimo (2008) Predicting Human Interactive Learning by Regret-Driven Neural Networks, Science, 22 February 2008; Vol 319, no 5866, pp.1111-1113 abstract

Cohen, MIchael, D. (2008) Learning with regret, Science, 22 February 2008; Vol 319, no 5866, pp.1052-1053.

Behavioral economics on Science this week

Steven D. Levitt and John A. List discuss behavioral economics in Homo Economicus evolves , Science 15 February 2008:ol. 319. no. 5865, pp. 909 – 910, DOI: 10.1126/science.1153640). They write:

Perhaps the greatest challenge facing behavioral economics is demonstrating its applicability in the real world. In nearly every instance, the strongest empirical evidence in favor of behavioral anomalies emerges from the lab. . . Some evidence thus far suggests that behavioral anomalies are less pronounced than was previously observed in the lab . . . Behavioral economics stands today at a crossroads. On the modeling side, researchers should integrate the existing behavioral models and empirical results into a unified theory . . . To be empirically relevant, the anomalies that arise so frequently and powerfully in the laboratory must also manifest themselves in naturally occurring settings of interest.

4th International Meeting on Experimental and Behavioral Economics

4th International Meeting on Experimental and Behavioral  Economicsin Alicante, Spain from 27. March 2008 to 29. March 2008.
Deadline for paper submission: 31. January 2008

JEL classification(s): C, D

Further information at: http://www.uv.es/lineex/imebe/

Barack Obama, behavioral economics, and libertarian paternalism

Behavioral economics is entering the US presidential elections. David Leonhardt reports on the New Your Times in Democrats: More Than Health Care:

Senator Obama’s ideas, on the other hand, draw heavily on behavioral economics, a left-leaning academic movement that has challenged traditional neoclassical economics over the last few decades. Behavioral economists consider an abiding faith in rationality to be wishful thinking. To Mr. Obama, a simpler program — one less likely to confuse people — is often a smarter program.

and Mr. Obama would “require companies to deduct money automatically from their employees’ paychecks and place it in a savings account the employee owned. Employees could opt out of the program. But if they did nothing, they would end up saving money. It’s an idea that comes directly from academic research showing that savings rates have jumped when individual companies have adopted such plans.”

Free Exchange criticizes Mr. Obama’s libertarian paternalism (and libertarian paternalism in general) in Obama’s new-school paternalism. While economists Mario Rizzo’s and Richard Thaler’s debate on libertarian paternalism in Should Policies Nudge PeopleTo Make Certain Choices (on the Wall Street Journal Econoblog) and Richard Thaler  and Russ Robert  discuss libertarian paternalism on EconTalk.