Behavioral topics for CTBP projects

1. Behavioral topics for CTBP projects Benito Arruñada

2. Theories you have studied • Neoclassical economics • Experimental psychology & economics • Evolutionary psychology

3. Neoclassical economics • The individual as a «black box» • Selfish • Rational • Contribution • Powerful simplification to explain reality, especially markets • Risk • Application outside the appropriate «methodological context», which leads to failure • Personal relations • Business management • Politics

4. Experimental psychology and economics • What do they do? Accumulation of «anomalous» observations” • Altruism • Limitations on rationality • Contribution • Description of patterns of conduct in controlled situations • Problem • Lack of theory Lack of generality difficult to draw conclusions

5. Evolutionary psychology • What does it do? • It tries to open up and explain the individual’s «black box» • Hypothesis: modularity, poor adaptation • Utility: what does it contribute? • Explanation (more or less valid) of patterns of conduct • Diversity of «heuristic» relations • Emotional nature of rationality • Risks • Non testable hypotheses & ad hoc explanations • Determinism? • It emphasizes interaction of nature & nurture • Does it matter for personal management if cause is nature or nurture?

6. Consequences of being cognitive specialists: e.g., we are born “prematurely” • Physiological: • big brains • big hips • born helpless, • learning; and • But also institutional: • Family • Responsible fatherhood

7. General consequences of being cognitive specialists: • Modular mind (≈ “apps” in smartphones) • More efficient in using information that presents different structures in different environments • Content-full with innate solutions (instincts, in brief) • grammar acquisition, sex attraction, fear, social exchange, etc. • Hypothesis: Our mind is maladapted • Cognition  technological change faster than evolution  success & maladaptation • Success because animals only adapt biologically • Maladaptation b/c we modify our environment faster than our instincts

9. Humans as “domesticated animals” success

10. Our mind is modular (instinctive, emotional) & ecological • Modular, instinctive  better than rational • Hunger  search of food  feeding • Disgust  poisoning avoidance • Fear  mobilization of resources • Sex drive  reproduction • Happiness  effort? Does it last? Etc., etc. • Ecological  well adapted--but to what environment?

11. Instinctive rationalityis better than rational • Vision = 2D  3D • Is the horse coming or going? • Presence of several heuristics noticeable when only one is present  • poor perception • “anomalies” (often, no more than tricks)

12. Applications to projects • Ideas & beliefs • Stark on conversion: we think alone, believe socially • Pinker on stereotypes: save info costs, when are they risky? • Career: Emotional intelligence • Emotions need to be «managed»: e.g., aversion to change • Expectations: subjective discount rate • Men and women in business: • Symmetric biases towards family & career? • Competing males, boasting about how much they work • Competitive pros and cons? • Business reputation: personal relations with brands

13. Rationalization(a possible basis for several projects)

14. Smarter, better-educated individuals are also better at... rationalizing excuses • The power of rationalization • Individual examples: perhaps the most prominent, on our own performance: examples? • The power of socialization • Social examples: collective killings (Nazi Germany) and suicides (from Numantia to Jonestwon) • How do we react when friends start believing / thinking different from us? • Big risk: we all suffer it… in different areas • How to cure or prevent? I.e., how to grow up from beliefs into ideas? • Diverse socialization: How homogenous are our groups? • Dilute stereotypes by knowing different persons, groups

15. Rationalization examples: Deflecting hard questions • Proposed project: • “Identify the particular challenges of men and women in pursuing their professional careers” • Students’ counter-proposal: • Emphasis on how the environment must or can be changed • Triple deflection: • Only women • Changed to make their lives easier • Avoid hard personal questions • The subtlest risk: working many hours serves us to justify not asking the hard questions, not thinking

16. How do we react to criticism? • Defensively: taking it as personal attack • Rationalization: producing excuses • Why do brilliant people often under-perform? Use their higher mental power to produce better excuses • Practical advice • No excuses: your default should be “the critique is right, in some way”, and you must discover that way • Take critiques as signals of failure, not as solutions: • e.g., in correcting texts, teachers shouldn’t provide alternatives but just mark mistakes. When seen that the alternative is worse, students tempted to think there was no problem • Distance yourself from your work  you do not like it

18. Self-control’s main problem • Conjecture: Our innate subjective discount rate is too high (it’s adapted to less stable environments)  Main function of education: to lower it

20. Applications to projects • Ideas & beliefs: we believe socially • Career: aversion to change • Expectations gap: subjective discount rate • Women & men: managing drives aspirations • Financial contracting: judicial hindsight bias • Reforming public sector: “Libertarian Paternalism”  • Reputation of business: emotional branding • Online universities: learning without face-to-face? • Blockchain: bounded rationality in P2P for assets

21. Applications: “Libertarian Paternalism” (in, e.g., managing public services and regulation)

22. “Libertarian Paternalism” • What is it about? • Lots of stories, but what argument or point of view does it defend? • What theories does it link up with? • How do we assess it?

23. What is it about? • Regulation may make us more rational • Examples: • Ulysses and the sirens’ song • Join a list of gamblers not allowed into casinos • Moral? • Who is going to regulate? • How can we be sure preferences will not be imposed on us? • Humiliating: it is the search for freedom that «makes us rational»

24. What theories does it link up with? • Market failures • Regulation only justified by externalities (including monopolies and public goods)–Stuart Mill’s On Liberty • Experimental economics: failures in rationality justify soft interventions • Set a «framework» or default rule giving freedom to opt out • Pensions: 49%  86% with change in default rule • Possible familiar example: separation of estates? • “Taxes on sin” or “licenses to sin”? Smoking • Political failures (hardly covered in the article) • Our cognitive limitations are often used (?) to reduce transparency in political decisions: tax withholdings, differential income tax rates

25. How can we assess it? (I) • Can what we have studied about Evolutionary Psychology help? • Especially the role of institutions as a complement for adaptation • Can history help us? How have we become more rational? • Religion: e.g. relation between self-control and capital sins (pride, avarice, lust, rage, gluttony, envy and idleness • Lay version: education • Our own experience?

26. How can we assess it? (II) • In favor • Does it increase or reduce our freedom? • Some sort of default rule has to be defined • Against • Why should the government favor the individual’s «planning» half as opposed to the «consuming» half ? (Whitman, applying the Coase theorem) • Workaholics, misers, etc. have a planning side • But, from the Evolutionary Psychology viewpoint, if the consuming half is maladapted, wouldn’t it be more sensible to favor the planning half? • Rationalization campaigns promote a feeling of guilt as if it were not a real cost (Glaeser) • Long-term effects: paternalism reduces incentives to be rational, it reduces opportunities to be human (Mill): “The nephews of the avuncular state have no reason to grow up”