« Freakonomics Radio

207. Should We Really Behave Like Economists Say We Do?

2015-06-04 | 🔗
One man's attempt to remake his life in the mold of homo economicus.
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
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would you say: that's accurate Una yeah. I mean you wanna typical Friday night, if it's going well I'll, open up a micro, economic sex work and now more seriously, I'm a huge fan of economics. I studied it. Grad school, you really can papers kind enough for farming for your job if we cannot trader, but you, like you blog right. You blow a blog. I write another blog, the I write about economics and remember when the two of us were at the American Economic Association in your meetings in Boston. You look like you looked like my. credit one direction. You are you're into yeah. I was very into it so in your studies, having stated economy public policy at the Woodrow Wilson School at Princeton correctly other right. So in your studies of economics, you have surely come across a care, it's kind of a model for how economists or economics predicts that humans behave whose known as homo economic is. Yes,
member reading learning about him. Absolutely I mean if you ve ever taken in economics, class or written go from huge cross section of academic papers. It's sort of hard not to encounter this creature. I mean academics, mine, always refer to him by name, but implicit either models usually assume that the people there modeling are hyper rational and always work to make themselves as best off as possible, and would you say that what you just described, the kind of hyper, rational and working to maximize or optimize your choices near decisions? Does that describe you as a human? We know So actually what would you like it too? I don't like, I think so I mean like most people, think that you know my brain is it has various biases and Harris Dixon emotions
of cloud after more decision making in. I think I would personally be better off if I behaved that way, but I'm not you laser that society would be better off with oil. What do we do this and, let's give it a try? Let's undertake a mission which is to make you Gregg resolve ski more in a better off as you put it by becoming more like homo economic is try to live your life a little bit more. The way, the economists with this. Cried the way someone should labelling. Are you up for that kind of mission carefully adventure now You are a very bright guy. I know, but still it would be nice, don't you think I have some kind of personal Tudor like a Virgil to walk you down into the depths. Some kind of economics therapists may be Dover
walk you through these decisions. You like that idea. Now you want to go on your own yeah for sure I mean, given many academics, think that nobody behaves this way. I think, would be really helpful to have some sort of adviser or yeah, you could call a therapist, so does any particular Kano therapist to mind. Are you thinking of who I'm thinking of? I think you know, there's a good little hang on hang on and Kenneth three will see if you're think, when I'm one two three valor valor,
Is Richard sailor, professor of economics and behavioral science, at the University of Chicago Boot, school of business, but he's more than that failure sixty nine years old when the founders of the field that has come to be known as behavioral economics which to be very short Andy about it runs homo economic ass through a few lair of psychological understanding, to see how real people actually behave. Failure has been doing this work for many years, but his public breakthrough came a few years ago when he co authored a book with the legal scholar cast Sunsetting. We end up call our book and the tools we use nudges in sailors view. If you wanted people to do more, but they should be doing save more money. For retirement or eat more nutritious food or break some bad habit. Sometimes we have to nudge them into doing so, because most of us don't
necessarily respond to incentives, as rationally as economic theory would predict, because most of us from the economists perspective misbehave, which is the theme of Richard sailors new. Book saw the book is called misbehaving them. thinking of behavioral economics? Misbehaving is tailors very entertaining chronicle of how he came to recognise that the standard economists model of human behaviour is beyond the reach of most of us Well, the economic model of behaviour really can be summarised by one word: witches optimizing. The centre of this model is the creature that our producer, Gregory Zawoiski hopes to become this mythical creature is called homo economic us and I call them e commerce for short You know, none of us know any comments and econ can
make em and calculation perfectly accurately, as nor self control problems makes accurate forecast he's not overconfident as no emotions. So can we take Gregg perfectly nice and intelligent thirty year old Man and under the tutelage of Richard sailor, turn him into an income, and even if we can would that be a good idea that would mean sending out into the world interacting with all sorts of people, and let me warn you, it isn't always gonna, be pretty tired from work away. don't waste your time, some random sure yeah that will trigger my like free freeloader trigger sense. Now it's not worth it probably never act like this I'm happy
from w and my seeing this is free economics, radio, the pine camp that explores the inside of everything. Here's your nose, Stephen Dogma. today I'm turning the make over to Gregory Zawoiski producing here for economic radio, whose teaming up with the economist Richard sailor to try living as homo economic is supremely rational being as along I'm practitioner, behavioral economics sailor has a kind of experience that could make him a good adviser, my quest to become homo economic issues,
the model of human behaviour, so tall and economics wanna one there may be no better adviser than Richard Taylor has actually been described by a colleague has the world's only clinical economist that sort of like being a therapist except uses, principles from economics to improve people's lives. He's done this casually for his friends over the years and the sort of what he's evolve to do professionally? You know you can think of no just the culmination of my career as a clinical economist, because What gas and I tried to do in that book is help people think about organizing their lives in a more successful way and helping girl, events and the private sector, creed and conditions that allow people to achieve their goals more helpfully, not just a huge influence and public policy circles. Cousins
in ended up directing regulatory policy for President Obama will fail or advice a bunch of governments, including Britain, which set up an office nickname the nuts unit that office NED citizens to do things. I quit smoking, find jobs, pay their taxes on time and conserve energy, and the New Union reportedly did all this, while saving british taxpayers tens of millions of pounds so who but then Taylor to teach me how to become homo economic ass. Well, I'm not sure that I will teach you to become homo economic, yes, but you know Gulf tell me what you're Brahms put you on my couch of your life. Allow me to see its very comfortable. See. Ok, that's that's good! Ok! So Professor Diller, I'm a little problem, every morning I commute from go into Manhattan on the subway and it's always don't crowded that I can't get a seat. This means that I I can't sit down. I can enjoy my morning coffee and I can
the morning news and so its opinion about, and so think you like an economist. I devise a little experiment How much would I have to pay you for that see? How much would it cost for you to move from your see? How much would simply have the pale, but mainly sees me? Can I ask you a question how much my aunt Amy why eighty dollars? that seems pretty steep. The people on the subway have a temporary property right to their seats because they got there first. So my efforts to become pummel economic ass, it seemed like the best thing to do with this pay them for their seats. I wanted to do this for as little money is possible, but sometimes people four things. I just couldn't give them now and not Felix right now. I'm like
I have to go to work. That's how much I was hoping a quarter to would do it. Well, I think you're behaving like a very good at but my guess is that you get there. If you take those, I don't think I would get it for you, so you wouldn't but there'll be a price, though right you got a hundred you're gonna, give me a ride. So if I did I'd ten bucks says here long, they haven't comfortable c and probably a lot of dirty looks and possibly worse, oh, I definitely get up for someone who needs to sit down like an older person or pregnant person, but if it's just like some random jerk, but I'm going to be like I'm going to keep my seat. Thank you. One thing I learned about trying to buy seeds from people is that there are a couple social norms when it comes to subway seats. The first one was
You thought I was a weirdo way because seats or not thought of his foresail, because you are acting like an economist. How much would have to pay you I don't know, we request and the second social norms encountered, which is actually one in which people said they were willing to move from their see. If I were elderly, injured or pregnant depends on how to somebody was what about me. How would you how much would it cost free movement? You see? How much are you willing to pay? Let's say like Let's say: let's say what are you gonna pay mewing ETA Hobo, like fifty cents sense? Now it's not worth it kind old lady. I would just get up for free, and so, though, principally question, how does homo economic is deal with?
social norms? Well, homo economic is dozen much pay attention to social norms. Unless it's gonna hurt them financially. So I can see homo economic is running that experiment in not having a lot of success, and you know a real homo economic us would bring a cane with them. When an outcome, you, Try that maybe even a fake cast. Ok, ok, this is really smart. I think that'll that'll do it for you nice. So we can. I want start charging them this advice, you're a terrific clinical economist. I must say thank you thank you, and so what would homo economic is? Give up his or her seat too, to a stranger on the subway they would if,
money they were offered was greater than the utility of city can't buy my seat entire, asking for more away about you, men. How much would have to pay you for you see under twenty bad haven't for nothing. I would really who more I would have taken advantage of tat Kind old, Lady some very nice does it, which brings up the question why, in the world, what I ever want to be homework. Economic as well. There are few things that are really appealing. First off, he counts, as professor thaler calls them always do something called constrained, optimization, which is a fancy math term. That just means they are really really good and making themselves as happy as possible. So that means econ always save, invest and consume in a way, they won't regret
they do exactly the right thing, all the time so no econ has ever had a hangover sounds nice because don't have self control problems they always have the willpower to commit to their goals and if he says he's, go on a diet next week. It goes on a diet next week and they always follow the bedrock principles of economics like ignoring some costs. For example, let's see you got to dinner at a fancy rest, that has a prefix menu, so no matter what you're going to get an appetizer main course and dessert all for one price after downing, the main course you're really full within the desert comes, and you tell yourself I just have to eat that piece of cake, because I don't want to wait. if you do that, then your human, but your misbehaving- he can, Mercury says the only
that matters is how much it costs you to eat that cake which zero, not how much you paid for it. That's the sun cost so becomes don't fall for the sun cost fallacy which is doing something that will make you less happy only because you were about losing money. Even though that money is gone forever. It sunk, you can't get it back, so it shouldn't affect your decisions going forward. I don't know about you, but I fought for this kind of thing all the time. These are just a few examples of my being. An econ sounds pretty appealing when it comes to how we should behave, but ass they were says. Is that how actually behave, it's basically a creature that is unrecognizable. I've never met one that even though this model of behaviour still taught to students around the world has dominated the discipline for three hours entire career. So I started early,
in my career noticing ways in which people behaved that were different from the way they were supposed to be that they were Miss baby. Thus, the title of my book. It started just with making a list of funny things. People do and that list is grown and has now forty years later turned into a field. This field, behavioral economics, sport, the huge debate and its one that matters for all of us. When you sign up for a new job, should your company give you gazillion options for your retirement plan, or should it make it easy by giving you a default option? If you believe rural economy, we should get as many choices is possible and they d fortune manner. But if you believe we're feeble humans that we could be overwhelmed by choices,
be lazy and ignore fine print. Then a good default option would be best. The default is one of many examples of failures: nudges nudges, an intervention that changes your behavior, but- which you are free to ignore. If you want so you can take an example of this is an exemplary in alarm clock if they have trouble up in the morning and alarm clock, is a very useful tool, but you can, at this news button or turn it off. There does it. Companies and governments should make more use of policies that function like alarm clocks and he is colleagues, have work to do just that,
also inspired the image of new technologies. Here's an exercise idea proposed in a previous Freakin Alex radio episode by Professor Catherine Milkman of the University of Pennsylvania. So imagine that you took a company like Netflix in and you called it Jim Flax and you let people set aside certain tv shows for Jim only access. My research suggests that a product like that might be very attractive to people. If we were all kinds, something like Jim flicks wouldn't motive, it is to work out more, but movement has evidence
does yet the debate continues. One of the most contentious ones is about financial markets models that assume that we all behaviour rational. These economies see there won't be problems like stock market or housing bubbles, their causes prediction, the prices right like the game, show those ably the prices right and always right, reject evidence from the lab. They argue that in the real world, competitive markets force investors to be rational. After all, they say investors will lose tons of money if they are behavioral. Economists like they were disagree. They argue that places such as the valuation of companies are often wrong sometimes very wrong. They believe bubbles exist because we make systematic mistakes that we misbehave. This view is gain popularity in recent years, but there are still strong defenders of the traditional model, which is sometimes known as rational choice,
so the devil's advocate- and this is probably a lot of your colleagues at the University of Chicago, probably less than there were when you were for starting off, but they say: ok, sure human beings dont behave exactly as the rational choice model predicts, but within compare markets where there are high stakes and simple rule. to follow. These models have been tremendously powerful when making predictions, at least on average, and so what would you say to those types of arguments? Well, I would say two things: one in the book: I kind of possibly obnoxious phrase called the invisible and wave, and you will be Stickley using the invisible hand, question you asked me so No, the idea that somehow people want
behave in the lab, but then, when they get out in the real world they behave. Just like an econ. You know. Did people live through the last here's when we had housing a ball and people were given. mortgages, people can afford them, and people were taking those mortgages and then getting trouble. When house prices fell ocean that somehow markets are going to force. People to be rational is just silly, but there are doesn't think it's silly for us to aim at becoming counts. You know it would be great if we all had spread. She was running constantly in our brain. And making calculations, and I think we would be better off having expectation things lined up with reality, and we would be better off if we didn't have a thing:
of the population that was obese, so I've, I think, most of the time it would be. Better. If we were all he can't. There is a big exception to this with you here in a bit area. He thinks we be better off. Acting like this creature is when we make this, under uncertainty like how we should make investments or pick a job in the real world. We always do this right. We do Corky, like value, what we hold more when is taken away from us that one is given to us in this calculating the odds of events or the value of investments, because of how many times we hear about them on the new feel says: we'd be better off following the rational model of making decisions. When there's uncertainty, it's called expected utility theory. Well, the areas really quite simple, at least in principle. If you who are considering some risky option. Look at them, abilities, computer utilities and calculate and pick the best thing. So, professor
eleven relationships are big investments and yeah yeah and I've been dating. This girl for a few weeks now and I'm thinking about using expected utility theory in order to decide whether or not to ask you to be my girlfriend how wouldn t can go about making this decision well that now. The first thing you would have to do is a cancer what's think about opportunity costs so you have to compare this girl, and to all the possible other girlfriends now You do have training in economics right the idea, so there maybe a limited SEC goes right. This has to be girlfriend that presumably wants to reciprocate this relationship, so there's a set of a possible girlfriends, not all of whom you know economies, The written models about how you should search in a situation like
so you know you ve had other girlfriends in the past, and either you or they have reached, did you so the question of whether the right one to pay How likely it is you find somebody better, that's the first thing an economist would do right in the middle of Other probabilities right, I mean you know some day. I want to get married some day I want. I have kids and so that sort of that up front investment. in her being my girlfriend? You know I can't have to have some sort of knowledge of the probabilities that you know, I'm making the right investment here right and presumably You decide that this is your girlfriend and behave responsibly. and you're going to be missing out on all kinds of opportunities for sir? for better alternatives and
there will be another opportunity, cost that great single life, more economical will be considering every day each day will be another decision about whether to stick with this girl. and or resume searching. I recommend strongly not playing this particular part of the interview to this perspective growth, I might yet. I might have the do. This related question actually can homework advocates? Be romantic dough really think so No, I don't I don't things to be said for a second, this girl's really great, but and put to use she's she's, she's, really, terrific and- and I have a big question her, but
trying to live my life as homo economic is so here's my plan, I'm going to create a spreadsheet and figure out the costs, benefits and probabilities of this decision with her and then take them does that sound like a good idea? Well, it would sound like a good idea if you want to make a decision as Homo genomic is better include how much money she's gonna make it some very romantic does it, but I really like this girl, so thinking like homo economic ass, I thought of the high can maximize the chances that she'd become my girlfriend. That is, of course, in the case of my spreadsheet, ended up saying she was an optimal choice. The day I picked was Valentine's day the place, the most romantic spot in New York City I can think of,
how about the top of the empire state building. Yes, that's the nearest thing to Heaven. We haven't new York. Secondly, empire building Observatory or New York, Harmonics, three hundred and there's nothing movement. Walking upstairs is out of date is afraid that there is no life. They say take these skills, name it Now inside knowing outside right now. It's bundle before recur, wow. snowing pretty hard. You can barely see past twenty black say so
What can you see right now? I see the case. They believe oh, I guess this is a good moment, so he Rachel hankering, will ask you to come up here on Valentine's day, because I'm question ass, our aid, or ask it, although it is an Ipad for me, Actually, I just have to fill the spreadsheet row quickly. Here we go so before us. The big question have a few more questions. The UK and, as you know, I've been living. My life is homework economic issues and before we make a decision like this, you a way out of the cost benefits, abilities if you think about it, this is really an investment and I just want to make sure we're making the right decision. So, ok, here we go. What does the probability
you want to get married within the next five years, daisy like or less puncture medium too high. A great that's good! That's good! Ok, here's another what's the probability that you want to have children within the next ten years. High. Ok, great, that's awesome! So right, so just a few more little things also there's costs and benefits. Alden this decision. So I mean we live about a half an hour away from each other on the train, but that's kind of a pain in the butt right I mean ok and also your view again, so that so that carries no limits are half we felt intends to quote so. Yes,
so that limits are restaurant options. Little bit even begin to euro. That's true, but it does limit options, but you know what you're right, maybe all of which are being. If you can do, and then I mean if the opportunity cost of us being single, but you know what I mean: that's that's overrated so, but on the other hand, there's just tremendous benefits. As I see it, I mean you're, so smart and you're, beautiful and you're funny, and I have such a great time with you and I thought about it, weighed everything and I'm wondering if you want to be my girlfriend I mean is one issue for others to never. Act like this and get your liver are so Gregg. It's been a few months since you Rachel officially became a couple
the empire state building, hath how're things going on that front. Are you still together? Well, you're, not not Stephen unhappy report. Yes, we're songs other and giving us because of dissipate. Despite the romantic spreadsheet, you up that night. You know, I'm really happy with the relationship, so I guess you could say I made the optimal decision, but I can only say that, because of the Cost benefit analysis. I did with my spreadsheet itself and but maybe so I'm curious have you found that having a girlfriend now has affected you're pursuit to be me like Homo economic essay. I got something in it about this in at least two directions. You no one you might. see yourself now as half of a couple with a different future trajectory than if you were purely single and then too there is the opportunity asked angle you aren't having to spend a lot of time pursuing a girlfriend so how's that working out generally well suited to put in economic terms
I think there are a lot of complementarity between me and repeat. We like hanging out. We like doing things together and I think we're happier together. Then we would be apart. So nothing and I think that's even truer us since Valentine's day. Ok Gregg, I want you to tell us what we are going to hear from you and act to as you continue to live your life a bit more like almost economic ass. If you haven't already guessed Stephen, this creature doesn't quite fit in the world that we live in and a big part of that comes from what sailor said at the top and econ emotions, as you, from failure. This is some big downsides for society how much are a lot nicer than he comes, but it's a different economist tells me there might be a real upside to going through life. Thinking like an econ without all that emotion, Haiti. Doesn't it envy so think about terrorism
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from W and Y see. This is for economics, radio, here's, your host Stephen Doktor Gregory asking a producer and the show is trying to live a life more like homo economic, ass, the economists idealized version of the human being so far he is gone advice on how we could improve as morning commute and he's had. Some success on the finding a girlfriend front, although we don't really know the counterfactual, whether he might have been just as successful even more so without the springy. Now it is time to think about how a guy like him would be econ fits more broadly into society in what he can and should be contributing to society. He starts small with a musician playing a subway station in Greenwich village schemes.
yes, I can ask you a question: how many people walk by and enjoy you playing Vila and do not give you money? How many people give me money It's definitely a small percentage of the people who are by their, like, probably thousands of people who work by even in like our and yet I also have made me, looking at it for months this way so soon the same, I'm completely cynical or I'm a sociopath- and I just see here, and I listened to you play this beautiful music and I dont pay. What would you think, then? I admit I get kind of a night if someone sits directly in front of me listens to multiple movements. I like give my like actual best because there there and then they don't pay anything yet that will trigger my like free freeloader trigger when people do give you could this is in Economics- is what is known as a public good, where
can get access to it without paying for it. So there's a there's, an incentive problem there, and so, when people do give you money for something they don't have to pay for. What do you think they do it? Well, I like to think it's out of love, but they're probably are a lot of different reasons, including, like pity and compassion or your guilt know. There have been through a lot of reasons why people give, but I like to think the main reason is like patient and what's your name Allison, awesome. Thank you. So much the world is filled with. Clean air roads, the rule of law, fireworks. The list goes on and on public goods have a specific definition in economics, and most important part is that they are non exportable
that is, public goods are really hard to exclude other from consuming. So, in the case of thousands music, which was placed in a public space- There is no real way to prevent me from listening to it. That's nice it means I can enjoy her music for free, but there's a problem. If everyone thought that way, ST musicians wouldn't get any money and a lot of them might decide to stop. This is known as the free rider problem, by economists believe free markets cannot always provide public goods. I asked professor there were about this socio economic theory predicts that public goods will not be provided at the optimal level because it was called the free. Our problem. Basically many people will not contribute to something that can get for free. So is it. I have to say that homo economics is a free rider, yes and proud of it. I can't think that it's a fool's gang too
contribute to charity or donate to public radio boom because why should I donate? Because I can listen for free, The decision to give money to a sweet musician is similar to many other decisions. Should you clean up there space of your share department. Should you support the accuracy of yelp by uploading reviews yourself? Should you give money to that charity. They help starving children. I want to come your government. Should you contribute to the public good? It is a well functioning democracy by say voting we're in double my c on election day November. Fourth, twenty fourteen you can about that's our executive Preserve Susie, lectern Bird, I'm not quite sure of because
thinking about what homo economical would do and I don't think he would fail to be sure. I called up the economist, Brien Kaplan Professor George Mason University and author of the myth of the rational voter, hello, Professor Kaplan glow. I explained the professor, when that I was attempting to live. My life is homo economics seclusion of this creature is completely selfish, so Ass Kaplan, if I really the selfish or more economic is what I vote or not for total selfish the odds that your vote is going to change the Akron election is so slim that you simply would not bothered about. even if your voting on your own execution are more likely to die on the way to the polls in order to get extra sell. You might as well just take your chances and set it out and stay home, but maybe There are some reasons why the super selfish homework on costs would want to vote like say signalling to his friends and his colleagues. So who say I want to get that nice. I voted sticker and put it on my shirt and then show my friends and say: hey. Look at me
as long as they didn't realize what was going on You have your all homo economic S than they do very little point, but if you are trying to pass so a normal economic guess, but all my friends very upset me if I don't vote so what I d like it, either take two hours out of my life and vote go online and pronounced some stickers which will take care of I voting requirements the next twenty years. Every time this election, I posted Europe a sheet my friends none Dorothy Election Day and I didn't have access to counterfeit. I voted stickers. Wasn't really an option for mean characterise homo economicus, furthermore, bunch of non homework and as friends and colleagues who did vote in urged me to do so too that was my friend John, who worked at a destiny or mine. He emigrated to this country and he actually put in the work to become a natural, ices and He cares about democracy. My name shown Sean from the host of the podcast called side show from studio three sixty I explained my situation has shown
I saw you haven't sticker anew, sweatshirt and I'm wondering why did you go? I voted because I consider it a privilege to vote that's. Why? So? What what I mean you're from Canada, so I mean you're not allowed to vote up their wise. Why is it a privilege, means are allowed to vote. I moved to the United States, where I was sixteen years old and by the time I turned eighteen and would have been a legal voter in Canada? I was no longer vested in canadian politics and I became a nap why citizen of the United States in two thousand Levin at the age of twenty six- and that was the first time I could We vote. That was the first time I voted. Its
it has been a passion of mine politics. I find politics to be a little disheartening at times it's a nice word, but to be so apathetic that I wouldn't vote seems like not not to be that the correct course of action. I don't think he'd be helping situation. So, what's your advice for me? Can you personal ills? Let's get person ok great, I know where you live and you live in Williamsburg, perhaps on the hip neighborhoods in Brooklyn. This more I went to our local polling station and Williamsburg, and there are three people and there it was really sad that we have become cliche. We're just non voting apathetic hipsters counter that narrative, Gregg, gather and vote for the record. I'm not a hipster, but maybe shown how to point. If I was really homer economic. Maybe this peer pressure will in effect be much which
words were enough to lease motivate me to go to my local polling station. After all, it was only one block for my apartment, So now in Winesburg, Brooklyn, outside of a polling station tryin to find irrational reason go in there and vote as economic Miss Hales again, you can talk to go for a second. Did you guys vote today? why didn't you both I'll go? There's a kindly ways, I believe in accounts, so I disagree with you what's in it for me and voting for me, I guess right and then you can chew off. If you re selfish by events on Facebook, in situ lotta legs, I'm not sure how much Facebook or Instagram likes are worth, but it's hard for me to believe. Democracy runs on them with,
things at the question: how do economists who subscribe to this view of human behaviour? Think democracy works? Kaplan again it's good! and so in a way you would have to ask them by demeaning standard answer which is well once enough, be drop out the probability that change the outcome will finally get to be appreciable and then people finally out. So protection area in the world of homo economic? Is it not that nobody would vote, but the voter turnout we'd, get to be so low that it actually started to pay so basically a most circumstances, the new class economic models that we should vote. Of course, not everyone feels that way, American. You have a duty to vote. That's enough! This a more economic is. Why did I vote because each vote counts as a citizen? Is our responsibility in all our community needs a lot of things like you know that a school for teachers, I don't have kids and I'm not sure I would reason here
So if I were really selfish, I wouldn't care about the quality of my community schools and even if I weren't in character his homework anomalous My one vote when it matter anyway, it's not just a simple matter of vote and walk away, but we have to vote they win. We make sure we them to it. So one of the ways in which we do that is through joint Civic Association block associations get together in groups its power and organizing Orient organised in this thing, and that's the only way we can get them to ask her to what they say they do what they say they are going to do So we know that more economic, his wooden vote in most circumstances, what about organise while the leader role is kind of night, because you might be able to get a lot of attention for herself and turn it into a successful career through question is: would homo economic ever want to be a rank and file follower and that's a definite now in eighteen, sixty
five economists Mansour Orson publish an influential book called the logic of collective action which applied the homo economic model to the political world. He argues that political action is a public good like the street music. We heard before that's because people who don't contribute to organise political causes can peaks from the benefits just like we can't be prevented from listening to music in a public space answers. A huge free rider problem for collective action. Now back to normal economic is his extremely selfish. He's no emotions. He has a cost benefit analysis of everything he's a typo creature who, as Richard there were says if we encountered one of those give a penny, take up any trace of convenience store, would take all the penny
if collective action, is a public good. What does that mean? The answer is of everyone or Roma economic ass. Then collective action would never happen. You might be thinking. We live in a democracy. Large groups of people worked together for the greater good all the time. The late Mr Olsson would disagree here is explaining his theory to the? U S: Congress in nineteen, any let's think, first of a lobbying organization that we might think of setting up just to serve the public interest or to serve the interests of consumers or taxpayers. or the poor or any other large glass will. If we had such a lobbying organization, the benefits of it would go to a huge number of people where
or not? They pay dues and because people cannot be excluded from the benefits in if they dont european. These incentives created destructive, free rider problem. So that means that we lack organizations that lobbying for the public interest in general, such as we have our tiny and relatively unimportant, but also argue that smaller groups, like big corporations and unions, could lobby effectively. The free rider problem is less serious for them, because one or two or three organizations get a large part of the benefit, as a result also believed he had the answer to why, in a democracy, special interest groups trumped the public interest again and again, but what about those political causes that did actually benefit large groups of people, these stories Phil History, books, movements that ended slavery and apartheid fought communism and fascism, preserve freedom and one independence. How do people who believe we all act like homework inimical, explain these big change?
Kaplan again elsewhere question so my late colleague, Gordon tell like I had a paper called the paradox revolution I he was firm of leave, homo economic is anyone I have ever met and he really had to stories. since during number one. Is that also the history for it is wrong and really wider? What are painted by stories as mass movements are mainly struggles between rival elites, who then right? history books to claim the people are on their side and then tell the story is It is also the entertainment elements. So telecom during the student revolt, the sixties, and he saw them in his own eyes and said, look these kids. They know it's very unlikely that actually getting it shod, there's not going to be a lot of islands, so what are they doing running a little party you're a big, neither going and their dancing around in their cheering and smoking support and if the police, actually start doing what happens in scary country they will run away like frightened, rabbits or would have
Tal Exterior shows how, if you believe, we're all completely selfish, it's possible to concoct explanations for the big changes we ve seen in history, but there's a problem with that theory. There's a mountain of evidence is we're not completely selfish. How could so many economists lose sight of that? Richard Taylor. Again how Mr Econ came to dominate the profession? It was not always there Adam Smith was a behavioral economist and economists up Tell world war two had no choice realizing that they were trying to talk about real people? Charity volunteering, public service, street music, real people contribute to things all the time for nothing having to do with financial or social game. That's what a huge volume of research tells us
What we know is, thankfully, some people do contribute. The real world is a mixture. There are free riders and there are cooperators if the extreme version. Homo economic model. Where the truth, we would all be free riders, everything that requires an ounce of compassion or pity or love which shrivel up and die. We would all follow the logic. Why should I give to something when I can? get it for free, the great economist and philosopher Amartya SEN, wrote an article describing people who think glad as rational foods, because you know the theory but their fools, because they, They should realise that, if every Annette society behaved that way. The world would not be a very happy place, so there are huge downsides to living on planet, homo economic, yes, but Kaplan points to the potential.
sides, people often focused on the goodwill, since then homework in August doesn't have so. It doesn't have love and compassion that kind of thing, but they tend to forget. The things you sent me doesn't have Haiti? Doesn't it envy so think about terrorists, in a world where everyone is homo, economic guess who, with the terrorist, be who are good, you're gonna stamina go kill myself went to kill me I will make an enjoy the world the world that our terrorism is going to great for us, if I'm dead, not doing it. This thing What would be like if every guy on every side is like right? Well, I'm only gonna do this was a very tiny risk, so how more economical? and terrorism could give us world peace for better or or worse we don't live in a world of homo economic ass. We live in a world of homo sapiens, where some people contribute to public goods someday public beds and some people do nothing summer, free riders and others who are
writers and neither extreme model is a good description of the way people actually bathe. Professor Richard sailors in his career, urging his fellow economists to recognise just that how people actually behave and if I can excess was to be a science, not a dogma. Its models must take them into account. The neoclassical model that we poked fun of on this programme is still talk in economics, one to one. The rational choice models have undergone major visions. In recent decades, behavioral economists have played a big part in that, for example, what could be called Homo economic is to point out how many economists have dropped the classic assumption that everyone completely selfish, and I think most economists would agree that the second one is closer to the truth. But I think It depends on where you want to draw the line, so I think no economist would,
deny that people behave altruistically toward their family members and close friend, and you can make an argument about reciprocity, This is all rational, but its clear that people show more other regarding behaviour, and even that expansive definition would suggest, and the phrase that I like to use for this is people are conditional, cooperators so you don't want to be the only one. Put some money into the guitar case for the street musician, but it other people are, then they will too that's. Why he's Smart street musician starts by putting some money in the case for this deadline
and just as some people are conditional cooperators when they give money to a street musician conditional cooperation can explain why many people volunteer for causes for the greater good or, depending on your perspective, in place the greater bad no more economic is too porno. According the Kaplan, this non selfish version can, when why we would rationally vote in some cases right right, so homework I guess to buy now, might vote if the stars line, so we want you to have the stars line. What you need the candidates tax would be really differ from each other. More economical has to figure out which this actually better whole lot of people to be effected. emulation us be close. Put that altogether an economic problem, so more economical. All I know is an improvement, bring closer to explaining how the real world works. That's important, because economic models, how bursting think through problems and come
solutions, but even homo economic is two point. Zero is ugh sees away from homo sapiens. In fact, there are still things: Like a half alien from the planet. Vulcan Mr Spock STAR Trek Logical flawlessly logical. It was any com If you remember, you found humans, quite amusing you'd make a splendid computer. That is very kind of you get homework and on the costs is not human because he doesn't have a brain. Here's a utility function, a simple formula for obtaining his needs and wants, and this utility function comes complete with superpowers like constrained, optimization, a power that makes them ridiculously good. I mean himself the happiest he can be. Why would economists cling to assumptions like this? There were things
Don't you how hard the math becomes without it. It's very much the case that neoclassical economics and concept of homo economic is has evolved in part. because of the limited rationality of economists. And by that I mean constrained. Optimization problems are the easiest ones to solve. to solve problems where people behave differently depending on what who'd therein and if the probable these they assigned to various outcomes Arthur correct ones. It's very hard to do in a mathematical way. Now we're making a lot of progress on that
what's a voice in the wilderness fellers. Now the president of the American Economic Association, the main professional organisation? For U S. Economists asked for, though the profession I'm pretty optimistic. The younger crowd seems open minded. They were, those becoming economists, at least at the graduate school level, or being taught idea. From behavioral economics and behavioral insights are becoming more widely accepted by his profession. most cantankerous objectors are the ones closer to my age, and whether or not its rational for him to be. There were optimistic about the future. I hope fifty years from now, maybe sooner the field of behavioral economics will no longer exist and he can mix will just be s, behaviour or was it needs to be
that was Gregg results. Key a producer here for economic shriek next week on the show there are certain crimes for which the criminal pay and pays and pays I'm guessing the first year that an individual is charged. Convicted there, easily in the ten thousand dollar range? Why is it so costly to be a sex offender in its next time for economic renewal, Fr Economics. Radio is produced by W N Y, see and governor productions are. Staff includes Gregg, resolve ski care. an english Susie, Lichtenberg Marriage Jacob in Christopher Worth. We had help this week from David Herman did Mozilla and we ensure Meister. If you are more free
comics radio, you can subscribe to our Pakistan Itunes or go to free economics, dot com, we'll find lots of radio blog the books and more hither, Stephen Dublin again one more thing if you like for economics, radio, I think you'll also like the latest episode of people, I mostly admire the podcast hosted by my free economics friend and co author Steve Levin here's what it sounds like a guest today Sue Bird, she collects championships she's for you and be a champion ships. Five euro, the best about championships to end, see a championship for International Basketball Federation, world cups and for limpid gold medals. I'd love to talk about the economic the professional basketball? So the average player in the NBA made eight point three million dollars into doubt. The nineteen and
in the W Nba the average with eighty thousand is frustrating just now. I think. Actually, if you look, at twenty twenty our minimum is now higher, but we all but in the same amount of work. So is it a heart Call the swallow knowing that somebody else's work is being rewarded at times by I live in reality. I understand business and economics. Some people look at us, as like charity like oh, will, help them out like an it in a terrible. What sense, not unlike this business, investment way, everything do look at us as an investment immediately its talked about how we don't make money, and it's like fifty regarding the NBA did either. But people are willing to make that investment get behind it and growing people I most We admire you can find it on your favorite podcast, app
here there Stephen dubbing again one more thing: if you liked the episode you just heard, we think you like something else in the friggin Alex radio network. Look for this interview on the new podcast people. I mostly admire with host Steve, live it up. My guest today Sue bird. She collects championships she's for double when Ba championships, five euro, the best while championships- to end, see a championships for International Basketball Federation, world cups and four olympic Gold medal. I would think that, in order to be the player you are, you would have to be a person who acted gets better under pressure rather than worth, while. Obviously, there are people, who are known for hitting big shots, her known for playing well in big games that exists for sure, but I think we kind of frame it there.
anyway. It's not that you're gonna make nine out of ten. It's that you might make three at ten. But somebody else is making zero its I'd, whose mode Successful it's like who's. The most successful the least successful. That is people. mostly admire. You can find it on your favorite podcast app subscribe now, so that you don't miss single episode,
Transcript generated on 2021-01-31.