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For Dan Ariely, ABCs of economics are alcohol, ‘bubbles’ and comedy
By NIV ELIS
20/06/2014
Behavioral economics can have lessons for some of the toughest problems Israeli policy-makers face, including peace negotiations.
 
Ariely makes a living by finding offbeat, counterintuitive, research-based solutions to problems.

Having trouble getting a date? Go out with someone who looks like you but is a bit uglier (an OK choice looks far more appealing in a crowd when it’s presented alongside a comparable, but slightly worse, one). You want customers to be happier with your product? Make them work for it (the “Ikea effect” shows that people who put some effort into making the final product value it more).

It is perhaps no surprise, then, that the Israel-raised Duke professor is bringing his alternative style of thinking to spreading the economic gospel. Why use PowerPoints and classroom lectures when an evening of comedy and drinking could do just as well? On Thursday, Ariely launched the first “bubbles,” an experimental evening of TED (Technology, Entertainment, Design)-style talks with jokes, comedians and, of course, booze.

The hypothesis, as described by the event website, is that “the right mix of alcohol and jokes, shared by A-list speakers and comedians, has a ‘down-to-earth-ing’ effect on ideas that are traditionally confined to the ivory worlds of academia, government and big money.”

Why the alcohol? “I think part of it is to make things more fun and loosen the notion that economics is serious,” said Ariely.

Yet economics is serious.

The lessons of research, of the ways people consistently behave irrationally, can provide insights on ways to improve people’s lives.

“The goal is for people to start thinking about economics in their own lives in a different way. If we ask how to get people to contemplate the serious economic questions they’re dealing with, from salaries to inequality to pollution to healthcare, they’re inherently economic questions.”

Ariely quotes philosopher John Rawls’s concept of the “veil of ignorance.” Imagine that before you were born, you could choose which society you wanted to live in. If you didn’t know what position you would hold in society, whether you would be rich or poor, black or white, elite or proletariat, which society would you choose to live in? With only a small chance of living the good life, most people would prefer a place where the masses, not just the elite, had a good standard of living.

But people, it turns out, are terrible at judging what society really looks like. If they had a better idea of the way things really are, Ariely reasons, people would want to change a lot about society.

Take the following thought experiment. Imagine dividing the population in the US according to wealth, lining up everyone in order of their net worth. What percentage of the total wealth would the poorest 40 percent control? Write your guess down.

Most people guess close to 8%. I guessed 2%. The real answer is .3%.

Taking it further, if you ask people how much the lowest 40% ought to control, most people give an ideal that would put Sweden to shame.

“If people knew what was going on in society for real, they’d do more about it. And if they thought about it from the perspective of a ‘veil of ignorance,’ they’d demand much more equality,” he said.

Israel may be fertile ground for “bubbles” to take off – it produced not only Ariely, but also the two fathers of behavioral economics, Amos Tversky and Daniel Kahneman.

“Part of Israel is that we share a culture and closeness that brings Israelis into the field. But I think it’s a field that requires a bit more entrepreneurship than standard economics or standard psychology,” says Ariely. That said, he attributes most of the Israeli concentration in the field to the fact that its founders cultivated it here, and their students and students’ students carry on the tradition.

Israeli policy-makers should take note: Behavioral economics can have lessons for some of the toughest problems they face, including peace negotiations.

“I think modesty, data, not relying on our intuition and trying new things are essential,” says Ariely. People tend to rely on their intuition, which evidence shows fails in many situations. “Have less faith in your own certainty,” Ariely urges.

Sometimes the least expected methods produce the best results. In research he is conducting on getting people in Kenya to save more money, Ariely tried a variety of approaches: sending reminder text messages, sending texts from their kids’ phones, offering matching funds of 10%, offering matching funds of 20%, and so on.

In the end, the most effective instrument was giving each family a special coin to put in their home that they could mark on weeks that they saved. The reason, he speculates, is that it is a physical representation inside the home, one that can serve as a reminder and spur discussion when financial decisions are made.

If Thursday’s event goes to his satisfaction, Ariely will hold similar events outside Tel Aviv and perhaps expand internationally. But he’s taking a wait-and-see approach.

After all, he explains, “I’m an experimentalist.”
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