Economic man’s guilty pleasures
Homer Simpson, Mr Bean and Family Guy can help economic theory out of its crisis, say the scientists. Peter Hulm, whose closest connection to real science is watching The Big Bang Theory, learns how.
Zurich must be one of the few major cities where you can get a tram at 8.15 in the morning and see nothing (well almost nothing) but people looking guilty for going to work so late.
Switzerland’s business and intellectual capital, Zurich is the obvious place for a high-powered symposium on the “current conceptual crises” in economic theory. To judge from those faces in the tram, homo economicus and his working partner are not happy, particularly after 8 am.
One reason might be the horrendous cost of living in Switzerland. The trams have ads urging commuters to “bring new life into your home”, but the sales pitch is for furniture, not expanding your family. I did finally sit next to a man humming to himself and chuckling over the newspaper, but who in their right mind laughs at newspaper stories any more?
The Geneva-based Latsis Foundation and Zurich’s equivalent of the MIT, ETHZ, staged a three-day conference on 12-14 September 2012 with Nobel Prizewinner Joseph Stiglitz as its star, preceded by a one-day workshop on 11 September. The main focus of the “Economics on the Move” conference was behavioural theory, systemic risk and economic networks. The major question posed was: “Can economics [...] benefit from concepts, methods and insights developed in other disciplines, notably the natural sciences?”
Give in to temptation
The first lesson I learned (from Daniel Houser of George Mason University) is that “in work environments controlling one’s short-run desires can have a detrimental impact on subsequent productivity”. Houser started with a group of children at summer camp in Padua, Italy, and 1962 findings that children who resist (food) temptation show a diminished capacity to restrain themselves in other situations. You could call it the Homer Simpson syndrome (Homer was prominently displayed on the powerpoint Houser showed his economist audience).
The camp kids had to fold a sheet of paper while fighting the food temptation. The under-nines performed 21% worse if they did not take the snack bait. For over-nines it didn’t matter.
Mr Bean does science
So Houser moved on to other distractions. One group had to watch a series of one-minute videos of people passing a ball to each other and count the number of passes, with a reward for getting the right number. They were also shown a Mr Bean video as entertainment. The “lab rats” could hear the Mr Bean shenanigans but not see what was happening. All they saw was a red button that said something like “press to see video”.
Houser confessed that he stole the idea from TV carton hero Family Guy, who appeared on screen standing by a red button that said “Do not push the button”.
The Mr Bean watchers did much better in the competition. “Those resisting temptation did worse.”
So the George Mason professor suggested that companies should not stop their employees from using the Internet at work. They could remove the temptation (very difficult to do) or provide for breaks/vacations “to give people a chance to indulge in their temptations”.
The game theory of turning up late
Roberto Weber of the University of Zurich, a specialist in game theory, pointed out that current economic theory has a hard time figuring out how different cultural standards affect the way people behave. For example, people in Switzerland would normally consider being late for work as definitely wrong, he said. In other countries, being late might even be considered good (presumably giving people time to get ready for you).
In the interests of full disclosure, I must reveal that I gave in to the temptation to turn up late for the opening when I passed a coffee shop on the way to the symposium. Maybe it strengthened my ability to sit down later during coffee break and work on this article.
Houser did not seem to have tested yet for the productivity of people like myself who almost always give in to temptation. Weber noted that the best game theorists have suggested poets can do better than logicians at working out how people behave, and Oscar Wilde noted: “I can resist everything except temptation.”
My solution to the problem of willpower, by the way, is only to be tempted by things I want to do. Willpower, by this definition, is the energy you lose in resisting temptation. Which is how it feels to me, a definite energy drain.
Altruism and beyond
One of Houser’s most challenging experiments -- challenging to economic theory, that is -- looked at how much effort we put into a project when we work for ourselves as against working for others. If we are the sole beneficiaries of our labour, or share the “profits” -- for completing tests correctly -- with the person we are working for, the amount of effort seems to be about the same, when there is no cost to us in participating.
Some people read this willingness to put in extra effort as altruism. Another explanation, Houser noted, is that we might just be enjoying the job.
But if the “worker bees” earned nothing from the same activity and all the profit went to the boss, the amount of effort workers were willing to put in went down by half.
So the joy of work theory was ruled out.
When neither the workers nor the bosses profited, the “effort expenditure” went down to almost zero.
If nobody benefits, we just do the minimum.
It reminded me of that old saw among workers in Communist countries where currency was worth nothing: “They pretend to pay us and we pretend to work.”
Money’s evil effect
The most astonishing results came when Houser and his colleagues began factoring in a cost. When the human lab rats were “charged” for taking part with varying returns, they reacted according to the potential for returns -- low rewards attracted little effort.
When the “boss” received the earnings but testers had to pay to take part, the “altruism” effect vanished almost completely.
Can we learn anything from neuroscience about these results? Houser’s studies bring us even more disturbing findings. Brain scans of people taking these tests have shown that the brain’s main individual pleasure areas are quite different from its “social reward” systems.
Houser posits that when we work for ourselves, the “boss” we are working to reward is our future self, a self that like other people that cannot reciprocate our effort. But money, the cost of taking part in the experiment, crowds out our awareness of the future self who can benefit from our efforts today. We go for short-term rewards. “Being good to our future self requires demonitarizing our environment,” he argues.
Working with ignorance
Weber took his audience through the history of what are known as “multiple equilibria” in games theory. For example, test subjects can be asked to name a location where to meet someone else in New York and when, without any way of communicating the place and time with the other person. What would they chose?
The answer most people give: Grand Central Station at noon.
A more difficult set of questions asked people to choose a flower, a day, a colour and a first name. Then they were asked to choose what they thought the other people in the experiment would choose.
The answers here were: rose (67%), 25 December (44%), red (59%) and John (50%).
These tests might seem simple, but the same kind of questions are posed when we consider launching business products, investments, bank runs and confidence in our institutions. That is, not what we want but what we think other people will choose (e.g. the Swiss National Bank or Greece or Spain).
Investment is ignorant guessing
The great economist of the 20th century John Maynard Keynes was dismissive of people who pretend to have special ability to know what others would choose without doing experiments. Investment, he said, was a bit like guessing the winner of a beauty contest and expecting to be rewarded for it. You have to know, not who is most beautiful, but who the others will think is prettiest.
Experiments in getting people to carry out these tests -- where you could make a big killing or big loss, or be surer of getting a smaller return -- showed that groups of two performed better in prediction than groups of 14-16 (maybe this is the reason for the decline in investment clubs).
When game theorists tested the “average minimum effort” people put into tasks, they found that those who elected an internal leader did much better than those who had a boss appointed from outside or even one chosen from within.
Futures market failures
The most challenging result for economic theory came when the game modellers tested groups investing in futures markets. They did worse than outsiders at predicting how the markets would develop.
The reason: the investors paid more attention to negative results (they were more emotionally affected by losses) and this turned into a self-reinforcing spiral downwards.
Weber’s research has taught him to bring social factors into the equation and not to expect every group in society to value the same thing.
Can these ideas be incorporated into economics? He thinks “yes, but not easily”. We have to learn the benefits of bad handwriting, for example.
This is the basis of the common system by which websites check whether you are a real person clocking in or just another computer. It’s known as CAPTCHA. It relies on your being able to read those almost illegible characters you have to type into a box before it will let you through into its domain.
Computers can’t do it, but humans can recognize bad handwriting.
Finally we have a solution to the Turing test. This is how you can be certain that you are communicating with a real person: you can hardly read the writing.
Sheldon Cooper rules - OK
Sheldon Cooper, the ultimate nerd of that masterly TV series “The Big Bang Theory”, might fail this test, however. The conference is taking place in the ETHZ Computer Building and it offers enough Big Bang Theory moments to make you believe Sheldon Cooper or his animator Jim Parsons is alive and kicking in Zurich.
The massive main door of the CAB, as it is known, opens and shuts automatically at unpredictable moments when you approach it. I am sure it has been magnificently programmed.
The imposing three flights of stone steps up to the main floor seem to offer no alternative of a lift (elevator). Perhaps all the students have ultra-thin and light portable computers, and paper is so 2011.
In the coffee lounge I carefully put my cup on an empty bench a few seconds before a student with a rucksack sat down and knocked it over me with his bag and didn’t even notice.
Somehow during that coffee break I gained a heavy jacket on my part of the bench. It was still there when I left.
I blundered into a open washroom cubicle to find a man standing there (fully clothed) and texting on his cellphone.
Then the lunch cafeteria goes by the name of the Food Lab. The experiment of the day was pasta in the shape of brain coral with blood coloured Bolognese sauce. Not a pleasant sight. Perhaps the lab was testing the effects of repulsive colors on appetite.
And the coffee area had a video wall about CAB’s “solar plant” on the roof, along with an electronic legend which proclaimed (at 10 am): “Currently, the solar plant electricity production is less than the energy consumed by this video wall.”
What was I to do? Not look? Of course I read the writing on the wall. I couldn’t help myself.