Posts Tagged ‘behavioral economics’

Some things I learned from THE POWER OF HABIT

July 8, 2014

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The Power of Habit: Why We Do What We Do In Life And Business by Charles Duhigg was a fun behavioral econ read about how our brains turn one-time decisions into repeated behaviors, and how that can be manipulated or optimized—for ourselves, organizations, and society. 40% of our actions are the result of habits, and not conscious decisions—so it’s wise to think about what we spend a lot of doing and not thinking about.

I have some minor gripes with the book. Duhigg goes off the rails in applying the habit framework. Instead of interpreting clearly identifiable habits, he applies it to behaviors and trends that strain the definition (like the civil rights movement). The book suffers from that condition of a hammer, to whom everything looks like a nail. To this guy writing about habits, everything looks like a habit.

Nonetheless, it’s written with an enjoyably brisk journalistic style and I learned a bunch, including…

  • Habits have a 3-part structure: Our brains form habits as a means to conserving effort. I once exerted precious brain-energy to actively seek out some sweet fresh morning bakery. Now I just automatically make a bakery stop on the way back from my Crossfit workout. (The brain is good at habit formation, not so good at mitigating cognitive dissonance.) The habit structure is as follows: 1. the cue (I’ve finished my sweaty morning workout); 2. the routine (I eat a sugary baked treat); 3. the reward (I exalt in the sugar-endorphin haze).

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  • It’s more effective to tweak an existing bad habit than it is to eliminate it: When it comes to the self-help portion of the book, there’s no new age (and grammatically incoherent) talk of being “more present” in our actions. Duhigg accepts habit formation as inevitable. Such brain-energy-saving strategies are how our brains are able to function.  I could try to just stop wolfing down pain au chocolats in my sweaty gym cloths, but that’s unlikely to work. Once a habit is formed, it’s difficult to eliminate altogether. It’s more effective to tweak the unwanted routine part of the “habit loop.” This is how Alcoholics Anonymous can be effective. For many alcoholics, it’s not the drunkenness that’s their reward, but the bar-room social interactions that accompanies it. So AA responds to the loneliness cue that might compel one to a bar by replacing the evening drinking routine with an evening meeting routine, while generating the same social reward. However, this takes an acute awareness of the cues and rewards that drive a habit, which isn’t immediately evident. For my post-workout bakery routine, is my cue the workout? Should I really stop blasting my quads? Is my reward really the sugar-endorphin buzz? Some helpful suggestions are posed on how I might go about figuring this out.
  • The strength of weak ties: This insight came out of the problematic portion of the book regarding the habits of societies, and how the civil rights movement was mobilized from out of a society habit formation pattern. I’m skeptical of how much habit formation plays into this, but I thought his description of the role of social networks in motivating action was insightful. Rosa Parks was not the only African American to be arrested for sitting in the wrong part of the bus in Montgomery in 1955. But she was extremely well connected, as an active member of many organizations. As a result, she had many “weak ties,” many acquaintances from these social groups.  Weak-tie acquaintances can be more important than close friends because weak ties “give us access to social networks where we don’t otherwise belong,” introducing us to new ideas or opportunities or issues we would not be familiar with. In this way, our weak ties can be more influential than our strong-tie relationships. Parks’ many weak ties help to encourage the Montgomery masses to get involved after her incarceration, and not the many racist bus incidents that preceded it. (So if this bug-eating movement is to take off, I need more shallow pals…)
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Some Things I Learned From Dan Ariely’s “Predictably Irrational”

June 16, 2009

Picture 25I just finished Dan Ariely’s Predictably Irrational: The Hidden Forces That Shape Our Decisions, which is in the recent tradition of popular behavioral economics-type books (which includes Freakonomics, Buyology, Logic of Life, Nudge…all which are pretty worthwhile). Ariely focuses on the predictable ways in which we are ridiculous.

Here are a few insights/ideas that struck me:

  • Decoy Effect: Ariely describes how we don’t choose on the basis of absolutes (“How good is this thing?”) but instead focus on the relative advantages of one thing over another (“Is this thing better than that thing?”). As a result, our preference to make comparisons between things that are similar can influence when we’re confronted between two options that aren’t similar (and furthermore how pricing strategists take advantage of this preference). For example, it’s difficult to compare(and thus choose between) similarly priced vacations to Paris that’ll include free breakfast and one to Rome that will also include free breakfast.  However, if you introduce a third option, a trip to Rome without free breakfast (the decoy), people will tend to choose the trip to Rome with free breakfast over the similarly priced and breakfasted trip to Paris. He uses the alarming example of a kitchen equipment store that couldn’t sell the one bread machine model they had. The solution: add another bread machine, but one that’s 50% more expensive. As a result, the original model start selling. He also notes how you can use this decoy effect for evil in singles situations by hanging out with a friend slightly less attractive or witty. By comparison, you come out far more appealing than you would otherwise. The way to overcome this effect is to think more broadly.  Sure the cheaper bread machine is more appealling, but do you really need a bread machine period.
  • Endowment Effect: This effect describes how we tend to value what we own more than others would. Areily proves this phenomenon with a few of his own experiments (BTW … If I were a student of M.I.T., I’d be really weary about becoming duped by one of this guy’s “experiments,” most which occur on campus and involve some degree of manipulation … but they’re still fun to read about.) Ariely connects this over-valuation to our fear of change and of loss. It’s a psychological myopia that it would be best to be detached from. Perhaps with yoga? 
  • Imprinting/Arbitrary Coherence: Apparently, when it comes to pricing we’re like goslings. Just like when a gosling hatches and unquestioningly assumes the first moving thing it sees is Mom (called imprinting), just so do we uncritically accept the price of a new product we’ve never seen before. After which, they assume an “arbitrary coherence,” meaning however arbitrary the initial price was, once established and “imprinted,” it will shape the present and future price (thus its coherence). Phenomena like this debunk the traditional notion that the market forces of supply and demand determines optimal price. Since free markets won’t maximize our utility, government regulation becomes really attractive.

These was also a chapter on how we split the world into 2 parts, one where market norms rule, and the other where social norms. For a really neat take on the latter, I strongly suggest The Gift: Creativity and the Artist in the Modern World by Lewis Hyde, which talks about the gift economy and how it functions in creative production.