Re: life is beautiful - fairplay a cornerstone of humanity?

From: Matt Jensen (
Date: Wed Feb 28 2001 - 08:36:02 PST

On Wed, 28 Feb 2001 wrote:

> i've been away from this list for a while...

Welcome back!

> - falling into FoRK recently for ten minutes to discover a gem of a book
> by Thaler [2] about behavioral tweaks to game theory and the implications
> for economics.

Thaler and associates believe the traditional economic model of humans as
rational, self-maximizing actors, is basically still true, but needs a
handful of additional rules (e.g., those involving "fairness") to be more

My own view is that most people are inherently irrational enough
(regarding money) that you'll have a Rube Goldberg monstrosity of a model
before you can predict new behavior well. And it will need plenty of
If-Then rules to break the population down by personal history and
political philosophy.

For example, take Thaler's case of people driving to another store ten
minutes away to save $5 on a $25 radio, but not to save $5 on a $500
TV.[1] The new rule created to explain this is that people view gains and
losses on an S-curve, because "the just-noticeable difference in stimulus
is proportional to the stimulus" [the Weber-Fechner law of psychophysics].

Putting aside the damage this scenario does to the rational actor model of
economics, it's not a complete description of behavior after all. I asked
a friend what she would do, and she said "probably drive over for the
cheaper TV." Why? It could be because "fairness" rules make her avoid
someone who charges her more. Or maybe she's a thrifty person who enjoys
bargain-hunting. Or maybe she was raised during the Depression and feels
compelled to bargain hunt, even though she doesn't enjoy it. She might
have so much guilt as to have outrageous search costs that keep her from
maximizing utility and making "good" decisions.

Now look at what Thaler writes in his academic book in 1991[1]: "Many of
the examples have also been used as questionnaires -- I can informally
report that a large majority of non-economists say they would act in the
hypothesized manner. ... For readers who remain unconvinced, I suggest
they try out the examples on some non-economist friends."

With a wink, he gently reminds his economist readership that most people
do not act like economists. Some do, including economists. Some
economists don't always behave rationally though, such as when they play
poker with Thaler and are loose with "house money". Some economists
probably try to be rational and self-maximizing because they will
earn/save more money, and some probably do it because it is in line with
their professional and political philosophy of the world does and should
work. That's artificial and irrational, of course.

In short, economic theory works well enough for people who buy into the
rational actor model and use it themselves (professional managers,
bankers, etc.). But even with patches I think it's still very, very far
from describing the economic reality of most people. Thaler and company
are still in the tiny minority of economic theory, and will remain so as
long as traditionalists hold on to their irrational superstition that
people are always rational.

> - an article in this week's New Scientist [3] magazine echoing Thaler, but
> about why we queue - ....


> - altruism: we're happy to queue (at least in uk!)

Yes, I was go to say, New Scientist is a British magazine, and I'll bet
it's a British study :-) Even the use of "queue" as a verb is a
Britishism that you won't hear in everyday American speech (we say "get in

In Seattle, where I live, people do queue up pretty fairly. But in much
of the crowded northeast, people will push you out of the way at the train
station, airport baggage carousel, etc. In other parts of the country,
though, people are "abnormally" helpful :-)

-Matt Jensen

[1] This is the version from Thaler's original paper, "Toward a Positive
Theory of Consumer Choice". In "Quasi Rational Economics", 1991.

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