About 10 years ago, I attended a conference on behavioral economics. I’m not an economist, but a trader, and I went in the hopes of learning something that would improve my game.
The conference started out a little weird but became really bizarre when everyone discovered I was the only person there from Wall Street. During breaks I was mobbed by grad students pressing their CV’s on me, and after each talk, rather than taking questions from the audience, the speakers would look directly at me and ask what I thought.
In each instance my response was a variant of, “Assuming you are correct, what do you want me to do?” They didn’t like this. Apparently knowing things is their job but knowing what to do with their knowledge is my job.
At the end of the day the moderator asked from the podium what I thought they should research next. I asked if anyone was studying the behavior of behavioral economists.
They laughed even though I wasn’t making a joke.
Here is what I have observed about them:
1) The recommended solution for bad education is always more education.
2) The recommended solution for bad research is always more research.
3) Bizarre theories are the norm, and common sense is a last resort, at best.
4) Knowing trumps doing.
Adam Grant is one of my favorite professors because he makes sense, he is willing to be self-critical, he teaches generosity, and he walks the walk. Recently he wrote a piece for LinkedIn that Quartz reprinted with the title “Economics is making us greedier,” in which he provides ample evidence that business and economics courses self-select greedy bastards who then learn ways of being even greedier.
Adam is an educator so, as you might guess, he prescribes more education. In order to counteract the bad influence of classical economics he says you should also study social preference theories along with courses in biological anthropology, sociology, and psychology. He calls for economics courses to be revamped so, I guess in a few years when they are ready, you should go back to school and take them all over again.
But a psychotherapist friend says that her first rule is that when your current relationship isn’t working you must end it before looking for something better. In trading we have something called a “stop-loss rule” by which you commit in advance that if enough evidence mounts that you are doing the wrong thing, you’ll stop doing it even if you don’t want to.
So, why don’t academics stop imposing their WEIRD (stands for Western, Educated, Industrialized, Rich and Democratic) theories to normal people trying to make their way in the world, and restrict themselves to only talking each other? (The term WEIRD was coined by academics when they realized the claims they were making often do not generalize to people who have not been subjected to the feedback loop created when academics educate rich industrialized Westerners.)
Instead of academics teaching courses about being good, why not have grandmothers teach people how to actually be good. There are lots of ways to do well by doing good, and by the time young people are released into the wild they should be well practiced at it.
In the meantime, here’s an experiment you can do at home. It is my variant of the Ultimatum Game, and this is how it usually works: You are assigned one of two roles: a Proposer or a Responder. The game is only played once, and you will never meet the other player. If you are a Proposer you will be given $10 to split into whole number increments with a Responder. For example, you could propose giving $5 and keeping $5 for yourself, or giving $4 while keeping $6, or even offering $1 while keeping $9.
However, there is a catch. Neither you nor the Responder will be given anything unless the Responder agrees to the split.
If you are the Responder, you might accept $5 because you think that is perfectly fair, or you might consider $4 to be fair enough even though you know the Proposer is keeping $6. If you wish, you can accept $1 letting the other person keep $9, or you can choose to teach the Proposer lesson by refusing the dollar so that she gets nothing.
The funny thing is that nobody seems to know what the Ultimatum Game is really about. Mathematicians that study Game Theory say there is one optimal solution called a “Nash Equilibrium” (after John Nash of A Beautiful Mind fame). The idea is that since something is always better than nothing, the Responder should accept all offers, and therefore the Proposer should only ever offer $1. But, as it happens, few people will accept $1, and those who do often turn out to be sociopaths, psychotics, mathematicians, or economists. (Nash was both a mathematician and psychotic.)
Behavioral economists think the Ultimatum Game is about irrational behavior, while sociologists think refusing low offers simply reflects a natural human response to injustice. They say people who accept $1 are greedy, while others will forgo personal gain to teach a socially useful lesson.
My version of the Ultimatum Game is just like the standard one, except that I want you to imagine this: your boss says that you have to play to win while your grandmother says she will be ashamed of you if you are selfish.
What do you do?
Go here and take my survey anonymously. Once we know how everyone else plays, I’ll be back to show you how you can win more than the rest.
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