Psychology can be improved by adding some economics

February 10, 2013

(This article was originally published at Statistical Modeling, Causal Inference, and Social Science, and syndicated at StatsBlogs.)

On this blog I’ve occasionally written about the problems that arise when economists act as amateur psychologists. But the problem can go the other way, too. For example, consider this blog by Berit Brogaard and Kristian Marlow (link from Abbas Raza). Brogaard and Marlow give several amusing stories about ripoffs (a restaurant that scams customers into buying expensive bottles of wine, a hairdresser that sucks customers into unnecessary treatments, a ghostwriter who takes thousands of dollars in payments and doesn’t do the job, etc.). Then they ask, “How did it happen? Why did you act in this impulsive way? Why didn’t you learn your lesson the first time around? Do you have some kind of brain damage?”

They continue with some discussion of the ventromedial prefrontal cortex, the anterior insula, etc etc etc., and then conclude with the following advice:

Is there anything we can do to avoid these moments of crazy decision-making? Yes but only by intentionally turning on our hypercritical attitude before entering potential sales deals. Make it a habit to take a breather and think about a purchase before completing it. When the waiter brings a more expensive wine, ask to see the wine list again. You might end up going with the more expensive wine but looking over the list will give you a chance to think. When your hairdresser all of a sudden wants to make you his regular on Tuesdays, say that you will call in and make the next appointment. Perhaps your next appointment will be Tuesday, but you will have had a chance to make your own decision. . . .

That’s all fine but I think they’re missing the point. Economists talk about the best alternative to a negotiated agreement. I think in many of these fraud situations, a key problem is that the person getting ripped off is afraid of losing out. Rather than just giving generic advice to slow down, I’d suggest a more specific recommendation, that in a situation where there is a choice, don’t be afraid of saying no. Or, consider the consequences of saying no. I’m guessing that a key part of people getting suckered is that they’re afraid of losing out on some opportunity.

I’m reminded of a story from a couple years ago where a science writer described certain political behavior as the product of irrationality and “unconscious bias.” In that case, it was political science rather than economics that was being neglected in favor of purely psychological explanations.

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