Traps

1. A heffalump is a type of fictional elephant in the Winnie the Pooh stories by A. A. Milne. In the fifth chapter of Winnie-the-Pooh, Pooh and Piglet attempt bravely to capture a heffalump in a trap. The term “heffalump trap” has been used in political journalism for a trap that is set up to catch an opponent but ends up trapping the person who set the trap (as happens to Winnie the Pooh in The House at Pooh Corner). Traps 1 Sunday, 13 July 20142:43 AM

2. “Thank you for calling. All of our operators are temporarily busy. Please stay on the line and your call will be answered in the order received.” A minute passes. Two minutes. You begin to wonder whether you should hang up and redial. Maybe you got transferred to an empty line – a telephone twilight zone of some kind. If a call rings in the forest and no one is there to answer it! Behavioural Traps 2 Sunday, 13 July 20142:43 AM

3. On the other hand, hanging up probably means starting over. Other people will advance in the queue and you will lose whatever priority you had. Better to keep waiting. Who knows you may even be next in line. You wait a while longer. Three minutes. Four minutes. What is taking so long, you wonder? Finally you make a decision. If an operator doesn’t pick up the phone in the next sixty seconds, you will hang up. Thirty seconds goes by, Forty seconds. Fifty seconds and still no answer. As the deadline passes you hesitate a few hopeful moments, then slam the receiver down in frustration. Behavioural Traps 3

4. Sound familiar? This situation has all the features of a “behavioural trap”. A behavioural trap is a situation in which individuals or groups embark on a promising course of action that later becomes undesirable and difficult to escape from. This definition is similar to one developed by Platt (1973) in his pioneering work on social traps, and explored by Cross and Guyer (1980). Because traps can be non-social as well as social, however, the general term “behavioural trap” will be used rather than the more traditional “social trap”. Behavioural Traps 4

5. In 1980, Cross and Guyer published a taxonomy of traps and counter-traps. In the words of Cross and Guyer (1980 p. 18) “Counter-traps (sins of omission) arise when we avoid potentially beneficial behaviour while traps (sins of commission) occur when we take potentially harmful courses of action.” As mentioned above, one common trap involves waiting for a telephone operator. Behavioural Traps - A Taxonomy Of Traps 5

6. Ordinary counter-traps include aversive cleaning chores (in which messes worsen with time) and overdue correspondence (in which embarrassment increases with the length of delay). There are several distinct types of traps, each with a corresponding counter-trap. Behavioural Traps - A Taxonomy Of Traps 6

7. Using the Cross-Guyer taxonomy as a starting point, we can divide traps into five general categories: • Time delay traps • Ignorance traps • Investment traps • Deterioration traps • Collective traps Although the elements of these five traps often combine to form hybrid traps, each trap works on somewhat different principles. The following sections therefore discuss each type of trap separately. Behavioural Traps - A Taxonomy Of Traps 7

8. If you find it hard to diet or exercise regularly, you know the power of time delay traps, momentary gratification clashes with long-term consequences. What begins innocently enough with a favourite dessert or a few cigarettes ends up many years later in obesity or lung cancer. Or, in the counter-trap version, the avoidance of what is momentarily unpleasant – aerobic exercise for some people, dental examinations for others – eventually leads to a heart attack or periodontal disease. Behavioural Traps - Time Delay Traps 8

9. In fact tooth decay and heart disease are related? Sounds weird, but it is true. Many studies have found out that there is indeed a connection. Periodontal (gum) disease is an infection caused by bacteria that gets under the gum tissue and begins to destroy the gums and bone. Teeth become loose, chewing becomes difficult, and teeth may have to be extracted. Gum disease also may be connected to damage elsewhere in the body; recent studies link oral infections with diabetes, heart disease, stroke, and premature, low-weight births. CDC - Chronic Disease - Oral Health - At A Glance Behavioural Traps - Time Delay Traps 9

10. What is striking about these traps and counter-traps is that relatively small pains and pleasures in the short run are sufficient to produce behaviour that is devastating or even lethal in the long run. Any situation in which short-term consequences run counter to long-term consequences has the potential for becoming a time delay trap. Behavioural Traps - Time Delay Traps 10

11. Prototypic conflicts include the euphoria of drinking versus the next day’s hangover; the momentary pleasure of unprotected sex versus the deferred prospect of AIDS or unwanted pregnancy; the convenience of disposable products versus the long range environmental consequences the “buy now, pay later” option afforded by credit cards and higher purchase schemes; the quick but ultimately counter productive results brought by corporal punishment. Behavioural Traps - Time Delay Traps 11

12. the euphoria of drinking versus the next day’s hangover; However, 11 Nov 2013, David Nutt (Director of the Neuropsychopharmacology Unit, Imperial College London): “Science now allows us to develop a safer way to get drunk. But before we can sober up in minutes, the drinks industry needs to embrace this healthier approach.” … “All that is needed now is funding to test and put them on the market.” David Nutt - The Guardian But is this new!! Alcohol substitute that avoids drunkenness and hangovers in development - Telegraph - 26 Dec 2009 Behavioural Traps - Time Delay Traps 12

13. Even the apple in the Garden of Eden can be regarded as bait in a time delay way – the ultimate symbol of temptation and its potentially entrapping consequences. Behavioural Traps - Time Delay Traps 13

14. People in time delay traps often realise the long-term consequences of their behaviour. Over-eaters are usually very aware of putting on weight. Smokers some times even refer to cigarettes as “cancer sticks” or “coffin (coughing) nails”. Warnings about weight gain or cancer are rarely effective against time delay traps. Behavioural Traps - Time Delay Traps 14

15. Doyle (2013) surveys over twenty models of delay discounting (also known as temporal discounting, time preference, time discounting), that psychologists and economists have put forward to explain the way people actually trade off time and money, see Reed et al. (2012) for a simple Excel model. Behavioural Traps - Time Delay Traps 15

16. Aggregate indifference curves for participants in the gambling and non-gambling contexts. Data points represent medians of the individual indifference points. Error bars represent the interquartile range of the individual indifference points at each delay. The solid line shows the best fit in the gambling context, and the dashed line shows the best fit in the non-gambling context (Dixon et al. 2006). Behavioural Traps - Time Delay Traps 16

17. Behavioural Traps - Time Delay Traps People are constantly making decisions that involve whether they take gains (also losses) now or at some later time(s). Individuals ‘discount the future’ when they value imminent goods over future goods. Discounting is typically assessed by offering real or hypothetical choices between different monetary sums after different delays. 12.17 17

18. Behavioural Traps - Time Delay Traps For example if we offer a person who likes apples a choice between receiving one apple today or receiving two apples in a month, that person may choose the apple today because (a) the future apples are discounted such that they are worth subjectively less as a result of the delay, (b) the person does not trust us to deliver the apples in a month, (c) arranging to obtain the two apples in a month might be costly or inconvenient, thereby offsetting the value of the additional apple. 12.18 18

19. Behavioural Traps - Time Delay Traps Indifference between a smaller, earlier reward (£tomorrow) and a larger, later reward (£future) indicates the following hyperbolic discount parameter k (Kirby and Santiesteban 2003): 12.19 19

20. Behavioural Traps - Time Delay Traps Wilson and Daly (2004) found that seeing pictures of the faces of attractive women induced men to discount money more steeply than if the faces were unattractive. Van den Bergh et al. (2008) reached similar conclusions for men who were asked to handle bikinis. After looking at sexually arousing images, men, but not women, become more impatient for financial rewards and more willing to take financial risks. 12.20 20

21. Behavioural Traps - Time Delay Traps Now a study has shown that women too show these changes to their decision making if they touch "sexually laden stimuli" - in this case men's boxer shorts (Festjens et al. 2014)! 12.21 21

22. Behavioural Traps - Time Delay Traps What explains these effects on behaviour? Festjens and her colleagues believe that the touch of men's boxer shorts has sexual connotations that triggers the general reward circuitry in the women's brains - hence their subsequent risk-taking and willingness to pay more for other rewards. For men, a similar, yet broader, process is triggered by the sight or touch of stimuli with sexual connotations. They said, “We call upon further research to investigate the gender-specific sensitivity to sexual cues and their effects”. 12.22 22

23. Ignorance traps operate differently. In these traps, the negative consequences of behaviour are not understood or forseen at the outset. Behavioural Traps - Ignorance Traps 23

24. For example, smokers in the nineteenth century did not realise that smoking was related to lung cancer, and if this information had been available, many people would never have begun to smoke (of course smoking still has the properties of a time delay trap, and millions of people continue to be trapped even though the link with lung cancer is now well known). Behavioural Traps - Ignorance Traps 24

25. Sir Richard Doll (Doll and Hill 1954) made history in the 1950’s as the scientist who established beyond doubt that smoking caused lung cancer. He is revered in the medical and scientific establishment not only for what he achieved but the way he achieved it: through painstaking analysis of the evidence. More recently Sir Richard Doll and colleagues from Oxford presented findings from the 50 years of follow-up of British doctors in relation to cancer risk (Doll et al. 2005). There are many important aspects surrounding this article, some of which deserve wider and deep reflection. Behavioural Traps - Ignorance Traps 25

26. Ignorance traps are common when new life paths are taken. For example, college students some times end up specialising in a field that is not as exciting as initially imagined; workers some times find themselves trapped in a job that does not live up to expectations; lovers some times get involved with partners who are less appealing than they first seemed to be. Such traps are an inevitable part of life, though there are ways to minimise the chances of being trapped (techniques to reduce or avoid entrapment are discussed later in the chapter). Behavioural Traps - Ignorance Traps 26

27. One particular tragic example of an ignorance trap is the story of insecticide dependence in American agriculture. When synthetic organic insecticides such as DDT were introduced in the 1940’s, they appeared to be an effective way to protect crops against insect damage. Soon after these products became available, American farmers adopted them as the method of choice for insect control. Behavioural Traps - Ignorance Traps 27

28. Then two unforeseen events occurred: Birds and other insect predators began to die. Insects developed a resistance to the chemicals that were used. Insect damage began to increase. New insecticides were invented, but resistant strains of insects emerged once again. After 400 hundred million years of evolution, the insects were not giving up without a fight. Behavioural Traps - Ignorance Traps 28

29. For decades this battle has been fought on the farmlands, yet each new round of chemical weapons serves only to provoke further pestilence. The percentage of American crops lost to insects doubled between the years 1950 and 1974 (Robbins 1987), and according to entomologists at the University of California, 24 of the 25 most serious agricultural pests in California are now insecticide induced or insecticide aggravated (Luck et al. 1977). Each year, more than 100 million pounds of insecticides are used in the United States, much to the detriment of wildlife, vegetation, waterways, and human safety. Behavioural Traps - Ignorance Traps 29

30. Payday loans in the United Kingdom are a rapidly growing industry, with four times as many people using such loans in 2009 compared to 2006 - in 2009, 1.2 million people took out 4.1 million loans, with total lending amounting to £1.2 billion. The average loan size is around £300, and two-thirds of borrowers have annual incomes below £25,000. There are no restrictions on the interest rates payday loan companies can charge, although they are required by law to state the effective annual percentage rate (APR). Behavioural Traps - Ignorance Traps - PayDay 30

31. According to Consumer Focus, “the cost of obtaining a loan online (often £25-£30 [per month] per £100) exceeds the costs of obtaining a loan on the High Street (often £13-£18 per £100)” because the lenders reject fewer applicants and face higher rates of fraud and default. Marie Burton, Consumer Focus, Keeping the plates spinning: Perceptions of payday loans in Great Britain Behavioural Traps - Ignorance Traps - PayDay 31

32. In 2009, the payday loan industry generated around £242m in revenue - around 20% of the total lending. The largest lender is Dollar Financial Group (which includes The Money Shop and Express Finance), which provided around a quarter of all payday loans in 2009. In February 2011 Dollar Financial additionally acquired the largest British internet payday lender, PayDay UK, and suggested The Money Shop's network could grow from around 350 shops to around 1200. US payday loan firms plan rapid expansion in cash-strapped Britain | Peter Walker Peter (11 February 2011) | The Guardian Behavioural Traps - Ignorance Traps - PayDay 32

33. As the BBC report (25-11-2013) report Payday lenders are facing a cap on the cost of their loans, under new government plans. An official study in 2010 said they provided a legitimate, useful, service that helped to cover a gap in the market. But in early 2013, the Office of Fair Trading said that there was widespread irresponsible lending in the industry. Behavioural Traps - Ignorance Traps - PayDay 33

34. And by the end of the year, the government said there was “growing evidence” in support of a cap on the cost of a loan, including the fees and interest rates. Why borrowing £400 can cost from £3 to £130 - Telegraph 30 Jan 2014 Use to compare different loans. Behavioural Traps - Ignorance Traps - PayDay 34

35. Using the BBC (3-12-2013) monthly PayDay interest rate calculator with an APR of 4670% Behavioural Traps - Ignorance Traps - PayDay 35

36. Under-fire FCA spells out its targets for the year ahead | The Guardian 31-3-2014 A review of how firms can prevent traders manipulating key benchmarks in a bid to stop a new Libor scandal and an investigation into how lenders treat borrowers who have fallen behind on repayments are among the City regulator's plans for the year ahead. The FCA takes over regulation of the consumer credit sector on Tuesday, and it also outlined plans for a review of how struggling borrowers are treated by the industry, and how loans are advertised. It has already signalled that it plans to get tough on the payday lenders that offer short-term loans at high interest rates, with new restrictions set to come into force in July, and it said it planned to visit the top five firms to check they are following the rules. Wheatley said: "Taking on the regulation of consumer credit is an enormous task which effectively doubles the number of firms we regulate. "Using our new power we want to tackle harm to consumers who are most at risk and our work will focus on protecting vulnerable consumers." Behavioural Traps - Ignorance Traps - PayDay 36

37. Britain’s crackdown on payday lending is forcing a mass exodus from the quick credit market, with up to half the lenders pulling out in the past 18 months. A Financial Times analysis of data from the Financial Conduct Authority found that at least a third of the UK’s 210 payday lenders had failed to apply for permission to operate under the new regulatory regime introduced last month. That was on top of about 30 lenders that had surrendered licences or had them revoked by the Office of Fair Trading since the end of 2012. The OFT said in 2012 that about 240 lenders were operating in the market. Tougher UK rules drive payday lenders away - FT - 22/5/2014 Behavioural Traps - Ignorance Traps - PayDay 37

38. Cross and Guyer (1980) did not explicitly include investment traps in their taxonomy, but this type of trap has recently become the topic of a great deal of research. Investment traps occur when prior expenditures of time, money, or other resources lead people to make choices they would not otherwise make. In the parlance of decision research, these traps result in “sunk cost effects”. Behavioural Traps - Investment Traps 38

39. Arkes and Blumer (1985) illustrated the effects of sunk costs in ten different mini-experiments. In one of these experiments, a group of subjects were given the following problem: As the president of an airline company, you have invested 10 million dollars of the company’s money into a research project. The purpose was to build a plane that would not be detected by conventional radar, in other words, a radar-blank plane. Behavioural Traps - Investment Traps 39

40. When the project is 90% completed, another firm begins marketing a plane that cannot be detected by radar. Also, it is apparent that their plane is much faster and far more economical than the plane your company is building. The question is: should you invest the last 10% of the research funds to finish your radar-blank plane, yes or no? What would you do? Behavioural Traps - Investment Traps 40

41. Arkes and Blumer found that 85 percent of their subjects recommended completing the project, even though the finished aircraft would be inferior to another plane already on the market. Then a second group were given the following problem. As president of an airline company, you have received a suggestion from one of your employees. Behavioural Traps - Investment Traps 41

42. The suggestion is to use the last 1 million dollars of your research funds to develop a plane that would not be detected by conventional radar, in other words, a radar-blank plane. However, another firm has just begun marketing a plane that cannot be detected by radar. Also, it is apparent that their plane is much faster and far more economical than the plane your company could build. Behavioural Traps - Investment Traps 42

43. The question is: should you invest the last million dollars of your research funds to build the radar-blank plane proposed by your employee? What would you do? Only 17 percent opted to spend money on the project. (This version of the problem did not mention prior investments.) A sunk cost of $10 million made the difference. Behavioural Traps - Investment Traps 43

44. In another experiment, Arkes and Blumer (1985) showed that sunk costs could have long lasting effects. The subjects in this study were 60 theatre patrons who approached the ticket window to buy season tickets for the Ohio University Theatre. Behavioural Traps - Investment Traps 44

45. Unbeknownst to these people, they were randomly sold one of three tickets a normal ticket for $15 a ticket discounted by $2 a ticket discounted by $7 Subjects lucky enough to receive discounted tickets were told that the discounts were part of a promotion by the theatre. Behavioural Traps - Investment Traps 45

46. Each type of ticket was a different colour, so Arkes and Blumer (1985) were able to collect the stubs after each performance and determine how many subjects attended each play. For purposes of analysis the theatre season was divided into two halves, each with five plays that ran over the course of six months. Although Arkes and Blumer did not find significant differences in the second half of the season, they found that, for the first six months, subjects who had paid the full ticket price attended more plays than those who had received a discount (regardless of the size of the discount). Behavioural Traps - Investment Traps 46

47. Thus, even a paltry $2 difference in investment continued to influence behaviour for up to six months. This study is important for two reasons. First, it shows that sunk cost effects are not limited to paper and pencil measures. Second, it shows that differences in investment can have relatively enduring effects on behaviour. Behavioural Traps - Investment Traps 47

48. As Fischhoff et al. (1981 p. 13) wrote, “The fact that no major dam in the United States has been left unfinished once begun shows how far a little concrete can go in defining a problem.” Behavioural Traps - Investment Traps 48

49. Behavioural Traps - Investment Traps Pseudo-Certainty Effect Investors will limit their risk exposure if they think their portfolio/investing returns will be positive – essentially protecting the lead – but they will seek more and more risk if it looks like they are heading for a loss. Basically, investors avoid risk when their portfolios are performing well and could bear more, and they seek risk when their portfolios are floundering and don't need more exposure to possible losses. This is largely due to the mentality of winning it all back. Investors are willing to raise the stakes to “reclaim” capital, but not to create more capital. How long would a race car driver survive if he only used his brakes when he had the lead? 12.49 49

50. Hammond et al., 2006 1. Seek out and listen carefully to the views of people who were uninvolved with the earlier decisions and who are hence unlikely to be committed to them. Investment Traps - Avoidance 50