Archive for the ‘Behavior Eco/Fin’ Category

If everything Is getting better, why are people so pessimistic?

April 15, 2015

Steven Pinker Professor of Psychology at Harvard University discusses this much needed question. One one hand, Economists argue in many a research how things have become better for the world. Most of these economists are based in west who do not see economic progress beyond material wealth and luxuries. On other hand, disciplines like ecology and psychology are not so sure. They see a cost people are paying for all this economic growth.

Prof Pinker says  no matter the era, people always fell it was better in the past:

Evidence from academic institutions and international organizations shows dramatic improvements in human well-being. These improvements are especially striking in the developing world. Unfortunately, there is often a wide gap between reality and perception, including that of many policymakers, scholars, and intelligent lay persons. To make matters worse, the media emphasizes bad news, while ignoring the many positive long-term trends. At a Cato Policy Forum in November, Steven Pinker, the Johnstone Family Professor of Psychology at Harvard University and author of such books as How the Mind Works and The Blank Slate, discussed the psychological, cognitive, and institutional factors behind the persistence of pessimism in an age of growing abundance.

Why are people so pessimistic about the present? My own interest in this topic began when I became aware of historical data on violence and compared them with the conventional wisdom of respondents in an internet survey. I found that people consistently estimate that the present is more lethal than the past. Modernity has brought us terrible violence, the thinking goes, while the native peoples of the past lived in a state of harmony, one we have departed from to our peril. But the actual data show that our ancestors were far more violent than we are and that violence has been in decline for long stretches of time. In some comparisons, the past was 40 times more violent than the present. Today, we are probably living in the most peaceful time in our species’ existence.

This insight led me to write The Better Angels of Our Nature: Why Violence Has Declined. But it was not the end of my encounters with pessimism. After writing a book on war, genocide, rape, torture, and sadism, I thought I would take on some truly controversial issues — namely, split infinitives, dangling participles, prepositions at the end of sentences, and other issues of style and usage in writing. There, too, I found widespread pessimism. When I told people that I was writing a book on why writing is so bad and how we might improve it, the universal reaction was that writing is getting worse and that the language is degenerating.

There are a number of popular explanations for this alleged fact: “Google is making us stoopid” (as a famous Atlantic cover story put it). Twitter is forcing us to write and think in 140 characters. The digital age has produced “the dumbest generation.” When people offer these explanations to me, I ask them to stop and think. If this is really true, it implies that it must have been better before the digital age. And of course those of you who are old enough remember the 1980s will recall that it was an age when teenagers spoke in articulate paragraphs, bureaucrats wrote in plain English, and every academic article was a masterpiece in the art of the essay. (Or was it the 1970s?)

The fact is that if you go back to the history of commentary on the state of language, you find that people were pessimistic in every era. In 1961: “Recent graduates, including those with university degrees, seem to have no mastery of the language at all.”

He gets into psychology of pessimism:

these findings point toward an interesting question for a psychologist such as myself. Why are people always convinced that the world is going downhill? What is the psychology of pessimism? I’m going to suggest that it’s a combination of several elements of human psychology interacting with the nature of news. Let’s start with the psychology.

There are a number of emotional biases toward pessimism that have been well documented by psychologists and have been summarized by the slogan “Bad is stronger than good.” This is the title of a review article by the psychologist Roy Baumeister in which he reviewed a wide variety of evidence that people are more sensitive to bad things than to good things. If you lose $10, that makes you feel a lot worse than the amount by which you feel better if you gain $10. That is, losses are felt more keenly than gains — as Jimmy Connors once put it, “I hate to lose more than I like to win.” Bad events leave longer traces in mood and memory than good ones. Criticism hurts more than praise encourages. Bad information is processed more attentively than good information. This is the tip of an iceberg of laboratory phenomena showing the bad outweighs the good.

But why is bad stronger than good? I suspect that there is a profound reason, ultimately related to the second law of thermodynamics, namely that entropy, or disorder, never decreases. By definition, there are more ways in which the state of the world can be disordered than ordered — or, in the more vernacular version, “Shit happens.”

Superb stuff.. read on..

We think there is progress. Econs using their bully pulpits tell us the same. But most people think otherwise…

Indian Govt needs better nudges to limit cigarette smoking..

April 2, 2015

Harmala Gupta Founder-President, CanSupport has an article in ToI on the topic.

She says despite efforts to mitigate cig smoking, it has only risen. Infact, the rise is seen in women where companies are using better marketing:


The problem with paying people to cycle to work..behavior gets in the way

March 19, 2015

Unless you can figure interesting nudges, it is difficult to ask people to cycle to work. Even if you pay them to cycle.

More so in France, where no one really cares for anything except their leisure.


What Is Behavioral Economics?

March 5, 2015

A video on the same (though have not seen it yet)..

Can nudges help students?

January 20, 2015

Susan Dynarski of University of Michigan points to several nudges which are helping students in their own way. Right from basic school to college, nudges can be used to improve things a little.

But they don’t get the media hype and politician publicity, so are ignored:


Indore’s ‘moonwalking’ traffic cop is trying to discipline commuters..

January 16, 2015

An interesting story of an Indore traffic cop.

He moonwalks and amuses people and in the process nudges them to follow traffic rules:


How our brain determines if the product is worth the price..

December 26, 2014

As neuroeconomics gains ground, we are in for exciting times and research. This piece summarises certain experiment which look at how people react to prices and products.


Explaining what it costs to produce a product can potentially increase its sales

December 18, 2014

As a buyer one always wonders the reason behind pricing. Why does a product cost x? What goes behind this x? What are the costs for making the product and so on?

Research by  Bhavya Mohan, Ryan Buell, and Leslie John shows that if a company explains the costs of various things on the price tags, people are more favorable towards buying the same.

When a company sets a price for a product, shoppers typically have no idea what it costs to produce that item. But it turns out that consumers reward efforts to lay out these figures—to deconstruct the price tag.

In fact, new research shows that when a company selling T-shirts, for example, itemizes what it spends on cotton, cutting, sewing, dyeing, finishing, and transporting each shirt, consumers become more attracted to the brand and more likely to purchase.

“By unpacking the costs, you have the opportunity to explain everything you did for the customer in putting that product or service together,” saysBhavya Mohan, a Harvard Business School doctoral student in marketing. “When firms communicate the effort that went into making a good, consumers tend to value the product more.”

Quite intuitive..


Is giving gifts during Christmas a bad economic idea?

December 17, 2014

Kevin Albertson of Manchester Metropolitan University revisits the idea of gifting during x-mas.

Economists (the mainstream ones) think that gifting leads to dead weight loss.Better to give people cash instead:


World Bank tries to go the behavior way for development..

December 4, 2014

The change is happening gradually.

World Bank’s annual World Development Report 2015 (WDR) is based on behavioral insights..


Bill Gross exit and behavioral economics

October 10, 2014

Interesting piece by Megan Mcardle of Bloomberg.

She says post Gross exit money has exited from PIMCO but not gone to Janus where Gross is currently based. How to really interpret this? Some insights from beh eco can explain:


Choosing between Apple iPhone 6 and iPhone 6 plus..insights from beh eco

September 30, 2014

Cass Sunstein points to this really interesting insights from the field he knows best – behavioral economics.

He says people make different choices when buying a product standalone vs buying it in combination:


The Looming Death of Homo Economicus…

September 19, 2014

Dennis J. Snower, President of the Kiel Institute for the World Economy makes another attempt to dump the rational man concept used in economics.


Finmin nudging to lower paper usage/wastage..

September 17, 2014

This memorandum was released nearly a month ago by Indian Finance Ministry.

The idea is to reduce usage/wastage of paper in Finance Ministry. So it passed on certain instructions/nudges to lower the same.

More can be done like autofixing word processors to type in single space. Similarly all printers auto default should be both sides printing and so on.

Then in order to make people realise/feel guilty some kind of posters (that will use some paper alright) can be put showing how much was paper wastage last week/month and whether it has reduced this month. In the same poster one can be made to feel proud by showing that by cutting paper wastage so many trees have been saved. Likewise departments can be compared saying who saved more paper than the other..

May be these reports can be put on the website as well to let others emulate..

Framing to nudge Scots choose independence over non-independence?

September 16, 2014

Enormous amount of discussions on the Scot independence issue. We will get to know on 18 Sep.

Mark Gilbert of Bloomberg says the framing of the referendum question has given it away. It is a nudge to choose independence over non-independence:


KBC 8th edition and Nudging

September 1, 2014

Kaun Banega Crorepati or KBC (a serial based on Who will become a millionaire) is currently in its 8th edition.

In each edition there are these new lifelines which make the serial really interesting. This blog is a huge fan of the way these lifelines are framed and how people choose them. Given a choice one would love to look at the data and see at what stage do people opt for what kind of lifelines, which lifelines work (on this I am quite sure that phone a friend fails most of the time) etc etc.

So, what does KBC 8 offer? Instead of one ask the guest we have ask the three guests (called triguni), Power Paplu is gone from this edition and so on.

However, what interested me most is this new idea which reminded me of the Nudge literature.


Understanding better how people really make choices..

August 25, 2014

Prof Daniel McFadden in his new research discusses how people make choices. He says the traditional rational school does  not help understand the real behavior:

The way our brains work is key to understanding how consumers really make choices, argues Nobel Laureate Daniel McFadden.

Some consumers suffer from “agoraphobia” or a fear of markets according to new research presented by Nobel laureate Daniel McFadden that throws doubt on the classical idea that people are driven by relentless and consistent pursuit of self-interest to maximise their well-being. Professor McFadden entitled his paper The New Science of Pleasure, to purposefully play on a phrase coined by Anglo-Irish political economist Francis Edgeworth some 130 years ago.

He told the audience of young economists and fellow laureates at the 5th Lindau Meeting on Economic Sciences on 22 August that new studies of consumer behaviour that drew on psychology, sociology, biology and neurology gave economists a deeper understanding of how consumers made choices. 

Rational analysis says that we should relish choice and the opportunities offered by markets. “Yet we are in fact challenged by choice and we use all kinds of ways such as procrastination to avoid having to make choices. One of the reasons is that there are risks associated with making choices,” he said.

…Interestingly pleasure and pain are in different circuitries in the brain while decisions involving gains or losses take place in separate parts of the brain. The net result is that there is therefore a physiological basis for the cognitive anomalies such as loss aversion, the endowment effect and hyperbolic discounting that psychologists have identified.

The classical economic of choice is therefore far too simple as it does not capture what goes on in people’s brain when they make choices. “It is also much too static to capture the sensitivity and dynamics of the process,” he said.

However he said that welfare economists based on neurological measures of utility and brain functioning was coming. “But we are not there yet. Wait for it – but even better get involved in the types of research and the bridge between economics and other disciplines and play a role in making this come true.”

Behavioral economics is gradually and slowly gaining respect amidst mainstream economists..

Nudging to drive safely…

August 19, 2014

A superb summary by Katia Moskvitch of BBC on  how various nudges are being deployed to reduce road accidents and drive safely. And this too across many parts of the world. Hat Tip to Tyler Cowen.

Though, the lessons are not as easy to learn. One needs to be careful and not overdo the budges. The human mind gets used to it and starts ignoring them (we are predictably irrational always looking for short cuts and high speed):


A research agenda for behavioral economics – modelling family first in economic decisions

August 19, 2014

An interesting article in BS. The author says in developing societies “family first” remains a key economic decision. Most businesses continue to put families first when it comes to passing on power to next generation. He says behavioral economists should try and look at this issue.


The Business of Behavioral Economics..

August 14, 2014

Leslie John and Michael Norton of HBS explore how behavioral economics can help people overcome bad habits and change for the better.

This bog has covered a few of the examples earlier as well like and other variants around



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