Here‘s another great book review by Herbert Gintis. The book: Dan Ariely’s Predictably Irrational. Its biggest flaw:
Ariely is a creative experimenter with zero capacity to deal with economic theory. By accepting the behavioral paradigm (“people are not logical, they are psychological”), he makes it in principle impossible to explain his experimental results. Take, for instance, the wonderful experiment he carried out in a tavern in university town in the USA. Disguised as waiters, and with the permission of the establishment, Ariely and his assistants offered 2 oz. of complimentary beer to clients. There were four types of beer with names that indicated nothing about their taste or quality, and clients at each table were asked to state publically which beer they wanted. He found that clients were averse to making the same choice as others at their table, so for instance, at a table with four clients, each would ask for a different type of beer. This is because, he said, Americans value individuality. He performed the same experiment in Hong Kong, finding that clients tended to choose the same type of beer, confirming that the local culture valued conformity.
This is a great experiment, but where is the irrationality? Is it irrational to value conformity or diversity? I think not. Moreover Ariely stacked the deck in his favor by ensuring that the real qualities of the beer were unknown, so clients should be indifferent among them. This self-serving experimental design (behavioral economics often use self-serving designs without acknowledging this fact in any way—why they get away with it I cannot imagine) was bound to make “culture” trump “preferences,” Why not do the experiment with known beer types? Or better yet, vary the delay in delivering the beer in the four choices… Why not use consumer choice theory to judge the strength of the desire for conformity or diversity, rather than just saying “people are irrational” and attempting no plausible explanation of behavior?
Ariely is certainly correct that behavioral economics has some important things to tell people about living their lives… But, most of the behavior illuminated by behavioral experiments is not irrational and there is no reason for people to change it.
Ariely’s book is still in my queue. What do you think he might say in his own defense?
READER COMMENTS
Phil
Jun 24 2008 at 2:23pm
Well, he DID show that Americans value individuality more than Hong Kongites. The fact that he didn’t measure *just how much* they valued individuality, relative to other goods (like delivery time), doesn’t invalidate the finding.
And the whole point of the experiment was to measure culture, so the recipients had to be blind to the quality of the beer. Otherwise, if everyone took the same beer, how would you be sure it wasn’t just that drinkers in Hong Kong prefer brand X?
dearieme
Jun 24 2008 at 2:39pm
He showed that Americans value the APPEARANCE of individuality: true individuality would arise only if the people knew something useful about the taste of the beers.
Alex J.
Jun 24 2008 at 3:26pm
It’s possible the Americans thought their fellow patrons would be interested in a beer they could not themselves try. If you try brand A and I try brand B, we can “compare notes” and share our impressions with one another. In other words the message could be “I want to share a new experience with you” rather than “I want to have an experience which is different from yours.”
On the other hand, if we both make the same order, we can compare and contrast our individual impressions of the same brew.
Different Phil
Jun 24 2008 at 5:01pm
This is a common criticism of behavioral economics that seems to miss the point. When behavioral economists challenge the assumption of rationality, they’re using a specific definition of rationality, i.e. the one that neo-classical economists usually employ. This version of rationality assumes well-ordered, stable preferences; preferences that should not change if you write down your order versus saying your order out loud. His central point is that, indeed, the usual objective function does not include “conformity” or “diversity,” and that if it did, it would not allow these to change across regions or borders. As a larger point, it’s not clear that there is a unifying “theory” of human as economic agent…there are just too many ways in which we are illogical. But his real point isn’t this despairing. Instead, we should take into account the fact that humans aren’t homo economicus when policymaking (or even when interacting). That way, our policies (or interactions) will be better. Check out http://www.omnivoracious.com/HarfordandAriely.html
for this point.
And Gintis apparently knows very little about beer: the beer styles were known (e.g. hefeweizen), which definitely conveys information concerning its taste.
Gabriel
Jun 24 2008 at 5:18pm
Awesome synergy! I was just quoting this today!
manuelg
Jun 24 2008 at 6:20pm
Huh? I read the book, and Herbert Gintis is lacking reading comprehension skills.
Ariely asked the beer drinkers (privately) about how much they enjoyed their beer afterwards. In the full round of experiments, the data pointed to the 1st beer drinker picking the beer he would if drinking alone, and enjoying it. The following beer drinkers had a tendency to choose a different beer than if they were drinking alone, perhaps because they value individuality, and enjoying the beer less.
The point is: Ariely asked them afterward how much they enjoyed their beers.
> This is a great experiment, but where is the irrationality?
The beer orderers after the first had a greater tendency to pick different beers from the people ordering before, and a greater tendency to pick beers they didn’t enjoy.
Publius
Jun 24 2008 at 9:04pm
“The beer orderers after the first had a greater tendency to pick different beers from the people ordering before, and a greater tendency to pick beers they didn’t enjoy.”
That’s not irrational. I do that all the time because I want to try new beers, and possibly discover a new taste.
I might enjoy a Schneider Aventinus more than a new microbrew I see on the menu, but I often will pick the new beer because hey, that’s how I found Aventinus in the first place.
Someone earlier in the thread made the comment that Ariely isn’t really talking about “rationality” but classical liberal understanding of rationality.
This may be the world’s largest strawman. No one thinks that people consider only direct, immediate economic interests.
bee
Jun 24 2008 at 9:55pm
The experiment offered by Ariely is quite interesting and suggests that when consumers cannot differentiate on a dimension they will employ heuristics that have a social basis. While this may violate the strong form of rationality presented in classical economics, it is unclear that the violation is material. Violations such as this one intentionally eliminate cues for decision makers, thus challenging them to employ alternative rules.
I will go a step further and suggest that we do not use the term behavioral economics and instead use behavioral decision theory. The motivation for my suggestion is that this experiment like almost all BDT experiments are not market tests, they are tests of individual decision rules. Economics is they study of exchange. While economics can be framed in classical models, game theoretical models, agency-principal models, etc., they all share the idea of an exchange. This experiment does not address market behavior (only individual choice).
dearieme
Jun 25 2008 at 4:47am
So strong is the pressure towards conformity in the US, that everyone feels obliged to conform to the need to give the appearance of individuality.
John Thacker
Jun 25 2008 at 8:08am
The beer orderers after the first had a greater tendency to pick different beers from the people ordering before, and a greater tendency to pick beers they didn’t enjoy.
Hmm. I don’t see the irrationality. If I were unfamiliar with all four beers, I might do so, and then ask everyone else at the table what their beer was like. If I’m by myself, then I’ll order the beer that I judge to be most likely my favorite, but in a group I’d like to get as many different new experiences as possible, whether from asking people how theirs is or even trying it.
Is there any evidence that people actually perform this way with familiar brands of beer, as opposed to completely unknown beers with mysterious labels? If not, then I’m not sure what it has to do with conformity and individuality as opposed to willingness to try something new and collect as much evidence as possible.
Dan Ariely
Jun 27 2008 at 9:08pm
One important point from the beer experiment is that for the people who ordered publicly (but not privately) once they got their beer they regretted their choice!
This means that taking their impression management into account when they ordered their beer was something that was, in their own minds, a mistake. I am sorry if this was not clear from the book
Also thanks to all the people who participate in this discussion.
Irrationally yours
Dan Ariely
p.s there are a few other things that seem to me to reflect religion and not science in Gintis’s review (..zero capacity to deal with economic theory…), and this perhaps is the biggest barrier to progress in economics.
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