Wednesday, February 20, 2008

Practical advice for next Halloween (and why it's probably not a good idea to Trick-or-Treat at the behavioral economist's house)

Elizabeth Kolbert has a nice little article in the current (Feb. 25, 2008) New Yorker magazine on a book by Dan Ariely called Predictably Irrational:  The Hidden Forces That Shape Our Decisions in which he tracks regularities in people's irrational economic behavior.  Her opening example of the kind of thing that interests Ariely certainly struck home with me — namely how suckers buyers into ordering something else (and therefore spending more than they would otherwise) just to save a little on shipping.  The upshot is that our valuations of things prove wildly susceptible to contextual factors, including those that have nothing whatsoever to do with the choices at hand. Example:  One experiment demonstrated that simply asking people to write down the last two digits of their Social Security numbers influenced their responses as to the maximum amount they would pay for a fancy bottle of wine.  Those with lower Social Security numbers maxed out at a significantly lower levels than those with higher numbers.  (Perhaps this effect can help explain a little of my own economic tendencies, which is to say cheapness.)

But behavioral economics isn't just for college students anymore.  Kolbert notes:
One of the more compelling studies described in the book involved trick-or-treaters. A few Halloweens ago, Ariely laid in a supply of Hershey’s Kisses and two kinds of Snickers—regular two-ounce bars and one-ounce miniatures. When the first children came to his door, he handed each of them three Kisses, then offered to make a deal. If they wanted to, the kids could trade one Kiss for a mini-Snickers or two Kisses for a full-sized bar. Almost all of them took the deal and, proving their skills as sugar maximizers, opted for the two-Kiss trade. At some point, Ariely shifted the terms: kids could now trade one of their three Kisses for the larger bar or get a mini-Snickers without giving up anything. In terms of sheer chocolatiness, the trade for the larger bar was still by far the better deal. But, faced with the prospect of getting a mini-Snickers for nothing, the trick-or-treaters could no longer reckon properly. Most of them refused the trade, even though it cost them candy. Ariely speculates that behind the kids’ miscalculation was anxiety. As he puts it, “There’s no visible possibility of loss when we choose a FREE! item (it’s free).”
Interesting results, no doubt.  But I'm more curious to know whether Ariely will get more trick-or-treaters next year than last.  In any event, turning trick-or-treating into a psychological trial — trick-for-treating, in fact — would put a refreshing spin on all the gluttony.  Something to think about for next October.

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