Friday, February 15, 2008

Cutting off your nose... spite your face.* That is one phrase which has never made sense to me. I'm sure I wasn't the only kid to hear it and think it was the dumbest things I'd ever heard. I mean, really. Who would do something that stupid?

The answer? Us.

Michael Shermer, at the LA Times, has written about envy, evolution and economics.
Would you rather be A or B?

A is waiting in line at a movie theater. When he gets to the ticket window, he is told that as he is the 100,000th customer of the theater, he has just won $100.

B is waiting in line at a different theater. The man in front of him wins $1,000 for being the 1-millionth customer of the theater. Mr. B wins $150.
I would like to be Mr. B, with $150. I could do some sensible or fun stuff with $150. The next part of his story surprised me though:
Amazingly, most people said that they would prefer to be A. In other words, they would rather forgo $50 in order to alleviate the feeling of regret that comes with not winning the thousand bucks. Essentially, they were willing to pay $50 for regret therapy.

Regret falls under a psychological effect known as loss aversion. Research shows that before we risk an investment, we need to feel assured that the potential gain is twice what the possible loss might be because a loss feels twice as bad as a gain feels good. That's weird and irrational, but it's the way it is.
It's not a human thing, it's a primate thing. It's something they've found in the behavior of monkeys, too. Capuchin monkeys would rather take less fruit, if taking more means another monkey receives more as well.

All the class warfare rhetoric we hear on the news about the evil rich... the calls for salary caps, for progressive (punitive) income taxes, for wealth redistribution... it's genetic?

The story is worth reading. There's a little experiment I may modify by replacing money with hershey's kisses and try out on my children:
Consider one more experimental example to prove the point: the ultimatum game. You are given $100 to split between yourself and your game partner. Whatever division of the money you propose, if your partner accepts it, you each get to keep your share. If, however, your partner rejects it, neither of you gets any money.

How much should you offer? Why not suggest a $90-$10 split? If your game partner is a rational, self-interested money-maximizer -- the very embodiment of Homo economicus -- he isn't going to turn down a free 10 bucks, is he? He is. Research shows that proposals that offer much less than a $70-$30 split are usually rejected.

The idea of turning down 2 good things because someone else will get 3 good things is completely irrational to me. Let's see if that was passed down to my munchkins.

*Since I was crying over spilt milk yesterday, I decided to stick with idiomatic phrases today.

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