Comments on: The painting is beautiful, and the smile mysterious, because we are told it is so

By: Bjørn Stærk

Bjørn Stærk — Tue, 13 Jul 2010 15:43:08 +0000

Sheena Iyengar touched on some of those difficult choices in The Art of Choosing. Ulysses is a good example on how we can make difficult choices, (his crewmates is perhaps a better one). We just need to be smart, have good rules of thumb. So irrational tendences are just a starting point, not destiny.

By: Konrad

Konrad — Tue, 13 Jul 2010 14:58:41 +0000

Experiments are of course designed to isolate a single phenomenon, this phenomenon of course also occurs in real-life but then in a complex context of countless other factors.

“Cold” irrationality (errors in reasoning and logic) we can to some extent counteract (given that we are aware of the pitfalls), but “hot” irrationality (emotions, weakness of the will) are difficult to control (important reason why people favour short term satisfaction, such as when trying to control to weight). Ulysses bound himself to the mast because he was aware. So you are right, knowing about the pitfalls can change our tendency to act irrational.

By: Bjørn Stærk

Bjørn Stærk — Mon, 12 Jul 2010 22:09:45 +0000

Yes, absolutely. Which is why I find all this stuff so interesting. It steps out of theory into the real world. What I’m saying is that it only takes one step – the rest of the steps we have to take without the aid of science. There are no iron laws of how people make decisions, and that’s fundamentally what this is about. Behavioral economics reveals strong tendencies with simple experiments, but the problem with all psychology is that the output of the research becomes the input to future decision making. Most of our real life decisions are made in contexts that I don’t see how you can fully capture with an experiment.

By: Konrad

Konrad — Mon, 12 Jul 2010 18:04:54 +0000

Behavioral economics is certainly an important field, perhaps more so with regard to micro decisions than with regard to macro policy. But still, assumptions about hyper-rationality often used as a basis for macro-economics are of course wildely unrealistic. Not only do we humans lack the capacity to be hyper-rational (we can not foresee all possible long-term consequences of private or political decisions), nor are we able to treat the information we do have fully rational. The result is all the well-known irrational pitfalls, such as gambles fallacy, winner’s curse and sunk cost.

Kahneman (with Tversky) pioneered this field. Yes, using students is methodological weakness, but the problems they and others identified are real.