Tagbehavioral economics

Electric shock study suggests we’d rather hurt ourselves than others

How about some positive news before the long weekend? Science magazine reports:

If you had the choice between hurting yourself or someone else in exchange for money, how altruistic do you think you’d be? In one infamous experiment, people were quite willing to deliver painful shocks to anonymous victims when asked by a scientist. But a new study that forced people into the dilemma of choosing between pain and profit finds that participants cared more about other people’s well-being than their own. It is hailed as the first hard evidence of altruism for the young field of behavioral economics.

Full Story: Science: Electric shock study suggests we’d rather hurt ourselves than others

Westerners vs. the World: We are the WEIRD ones

Joseph Heinrich conducts behavioural economics experiments in the countryside of southern Chile

The article, titled “The weirdest people in the world?”, appears in the current issue of the journal Brain and Behavioral Sciences. Dr. Henrich and co-authors Steven Heine and Ara Norenzayan argue that life-long members of societies that are Western, educated, industrialized, rich, democratic — people who are WEIRD — see the world in ways that are alien from the rest of the human family. The UBC trio have come to the controversial conclusion that, say, the Machiguenga are not psychological outliers among humanity. We are. […]

Others punish participants perceived as too altruistic in co-operation games, but very few in the English-speaking West would ever dream of penalizing the generous. Westerners tend to group objects based on resemblance (notebooks and magazines go together, for example) while Chinese test subjects prefer function (grouping, say, a notebook with a pencil). Privileged Westerners, uniquely, define themselves by their personal characteristics as opposed to their roles in society. […]

The paper argues that either many studies’ conclusions have to be retested on non-WEIRD cultural groups — a daunting proposition in terms of resources — or they must be understood to offer insight only into the minds of rich, educated Westerners.

National Post: Westerners vs. the World: We are the WEIRD ones

(via Josh)

Update: That link is dead, but here’s a PDF of the article

Also: Here’s a PDF of the paper.

Is Your Brain A Communist?

Communist Brain

Kind of. The article, Neural evidence for inequality-averse social preferences, doesn’t mention the C word, but it does claim to have found evidence that people’s brains display more egalitarianism than people themselves admit to. […]

When people received money for themselves, activity in the ventromedial prefrontal cortex (vmPFC) and the ventral striatum correlated with the size of their gain.

However, when presented with a payment to the other person, these areas seemed to be rather egalitarian. Activity rose in rich people when their poor colleagues got money. In fact, it was greater in that case than when they got money themselves, which means the “rich” people’s neural activity was more egalitarian than their subjective ratings were. Whereas in “poor” people, the vmPFC and the ventral striatum only responded to getting money, not to seeing the rich getting even richer.

The authors of the study concluded that this is evidence of a neurobiological preference against inequality.

NeuroSkeptic: Is Your Brain A Communist?

The moral dimensions of ditching a mortgage

The main point, he says, is that too often people’s emotions get in the way of clear financial thinking about mortgages, turning them into what he calls “woodheads” — “individuals who choose not to act in their own self-interest.” Most owners are too worried about feelings of shame and embarrassment following a foreclosure, and ignore the powerful financial reasons for going through with it, he said.

Buttressing these emotions is a system that White labels “the social control of the housing crisis” — pressures and messages continually sent to consumers by the “social control agents,” namely banks, government and the media. The mantra these agents — all the way up to President Obama — pound into owners’ heads, White says, is that “voluntarily defaulting on a mortgage is immoral.”

Yet there is an inherent imbalance in the borrower-lender relationship that makes this morality message unfair to consumers: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks and inflated appraisals. Now that property values have dropped 20 to 50 percent in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts.

Only when homeowners cut through the emotional fog and default strategically in large numbers, White argues, will this inequitable situation be seriously addressed.

Washington Post: The moral dimensions of ditching a mortgage

(Thanks Trevor)

Michael Hudson wrote back in February:

The officials drawn from Wall Street who now control of the Treasury and Federal Reserve repeat the right-wing Big Lie: Poor “subprime families” have brought the system down, exploiting the rich by trying to ape their betters and live beyond their means. Taking out subprime loans and not revealing their actual ability to pay, the NINJA poor (no income, no job, no audit) signed up to obtain “liars’ loans” as no-documentation Alt-A loans are called in the financial junk-paper trade.

I learned the reality a few years ago in London, talking to a commercial banker. “We’ve had an intellectual breakthrough,” he said. “It’s changed our credit philosophy.”

“What is it?” I asked, imagining that he was about to come out with yet a new magical mathematics formula?

“The poor are honest,” he said, accompanying his words with his jaw dropping open as if to say, “Who would have guessed?”

The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal sacrifice and what today’s neoliberal Chicago School language would call uneconomic behavior. Unlike Donald Trump, they are less likely to walk away from their homes when market prices sink below the mortgage level. This sociological gullibility does not make economic sense, but reflects a group morality that has made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank. So it’s not the “lying poor.” It’s the banksters’ fault after all!

Paul Krugman: How Did Economists Get It So Wrong?

Economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system. If the profession is to redeem itself, it will have to reconcile itself to a less alluring vision — that of a market economy that has many virtues but that is also shot through with flaws and frictions. The good news is that we don’t have to start from scratch. Even during the heyday of perfect-market economics, there was a lot of work done on the ways in which the real economy deviated from the theoretical ideal. What’s probably going to happen now — in fact, it’s already happening — is that flaws-and-frictions economics will move from the periphery of economic analysis to its center.

There’s already a fairly well developed example of the kind of economics I have in mind: the school of thought known as behavioral finance. Practitioners of this approach emphasize two things. First, many real-world investors bear little resemblance to the cool calculators of efficient-market theory: they’re all too subject to herd behavior, to bouts of irrational exuberance and unwarranted panic. Second, even those who try to base their decisions on cool calculation often find that they can’t, that problems of trust, credibility and limited collateral force them to run with the herd.

New York Times: How Did Economists Get It So Wrong?

Incidentally, here is a free behavioral economics course from the previously mentioned Peer2Peer University.

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