Tag Archives: Economists

Absolutely, Positively Free…If You Think You can Afford It

Consider Ellen Ruppel Shell’s “Cheap,” Chris Anderson’s “Free” and the story of the one-cent Hershey’s Kiss. This story appears in both books, but the versions are different. Both come from the same source, but these two authors can’t even agree on what to call him. He is Daniel Ariely to Ms. Shell, Dan Ariely to Mr. Anderson, and the author of “Predictably Irrational” to both of them.

Mr. Ariely did an experiment that used chocolate to dramatize the difference that a small shift in pricing could make. According to “Cheap” he offered his subjects a choice between the 1-cent Kiss and a 26-cent Ferrero Rocher hazelnut. At those prices the test subjects were divided 40 percent to 40 percent, with 20 percent opting for neither. Then the prices came down by one penny each, and 90 percent of the subjects took the free chocolate. Only 10 percent chose the higher-priced brand.

Off we go to “Free,” playing fast and loose with different facts and telling the story in somewhat zingier fashion. “Note: behavioral economists have limited budgets and limited time,” writes Mr. Anderson, the editor of Wired magazine and author of “The Long Tail.” “So a lot of their experiments involve a folding table, candy and random college students.”

In its “Free” version the non-Kiss candy is a Lindt truffle initially priced at 15 cents while the Kiss cost a penny; 73 percent of subjects chose the truffle and 27 percent picked the Kiss, with nobody abstaining. Then the prices were lowered by 1 cent each, and 69 percent of the subjects chose the free Kiss. Mr. Anderson doesn’t bother to account for the rest of the sample group, but he does use a quotation from Mr. Ariely to bolster the case that his “Free” makes: “Zero is not just another price, it turns out. Zero is an emotional hot button — a source of irrational excitement.”

Irrational is an apt word, what with the above-mentioned discrepancies. But what’s the upshot of either version of the experiment? And which book can be trusted? Bear in mind that Mr. Anderson has lately been called to task for making uncredited use of free Wikipedia material. But also realize that “Cheap” refers to the Ponzi scheme of the disgraced financier “Michael” Madoff and includes the following thought, which Ms. Shell means to apply to discount shopping: “Actually being eaten by a saber-toothed tiger was not what got early man running; it was the dread of being eaten by that tiger.”

So neither author is entirely to be trusted. Neither was well-advised to use that chocolate story. And neither has written a book that is as sharp as its one-word catchy title. Ms. Shell’s “Cheap” touches very predictable bases in describing and lambasting discount culture (or as she would rather label it, Discount Nation). She parses the obvious and addresses her book to consumers, often drawing upon personal experience to tell them more than they need to know. (Her 3-for-$15 underwear from Target shreds in the dryer.)

Ms. Shell also relies so tediously on quotations from academic experts that she needs to bring a professor of marketing to a Nevada outlet mall to tell her that its bargains are phony. Surprise: The mall’s excitement is not as galvanizing as a saber-toothed tiger would be.

Ms. Shell deals with the mundanity of shopping from the consumer’s point of view. Mr. Anderson peers into the future and aims his arguments at the business world. Here is what he means by “Free”: If you want to know what he really thinks, you’re going to have to pay for more than his book. He acknowledges that he is giving his book away online, as well as selling it at the not-free price of $26.99, so he can be hired for much more lucrative speaking and consulting jobs.

“I’ve got a lot of kids, and college isn’t getting any cheaper,” he writes. He is sufficiently crass, reckless and lazy to have had someone else read the science-fiction books he uses to illustrate the perils of scarcity and abundance.

Still, Mr. Anderson has come up with a lively conversation piece. Even when the particulars of his argument are easily assailable, the gist is clear: Now that a cornucopia of Internet material has been made available without fee, and in some cases without scruples, the smart business must find ways to adapt to that new reality. “The way to compete with Free is to move past the abundance to find the adjacent scarcity,” he writes. And “Free” is full of specific examples of how to do just that.

But after beating the drum for giveaways throughout most of his book, Mr. Anderson eventually acknowledges that his idea is in fact not viable. Such are the perils of his sloppily constructed sweeping argument. No, he doesn’t envision an economy based entirely on giveaways. “Free may be the best price, but it can’t be the only one,” he says. He advocates the balancing of differently priced versions for different markets, acknowledging that this tricky balance is not easily achieved.

Mr. Anderson sees that consumers think not only about money but also about intangibles like convenience, access, quality and time. Ms. Shell’s intangibles are different; she argues that moral accountability and responsibility are often sacrificed for the sake of cheap pricing. But her self-righteousness can backfire.

At the end of a chapter largely devoted to the horrors of Asian shrimp farming, she describes being in a Red Lobster restaurant with friends and being enlightened enough to eschew cheap shrimp in favor of chicken. Yet cheap chicken-farming isn’t any less ghastly. It just doesn’t happen to be addressed by this book.

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The Politics of Happiness~ Joy to the World

The Politics of Happiness~ Joy to the World

The Politics of Happiness~ Joy to the World

Joy to the World

Economists, especially those who cross the disciplinary boundary into psychology, have recently begun informing us about what makes people happy. The American political system, as Thomas Jefferson memorably declared, seeks among its three objectives the pursuit of that very thing. The conclusion seems self-evident: Apply what psychology teaches us to the way the system works and the achievement of a good society will be one step closer.

Such, in brief, runs the argument of “The Politics of Happiness,” Derek Bok’s new book. Eighty years old this March, Bok, since retiring from the presidency of Harvard University in 1991, has become a prolific author and commentator, addressing vital issues like affirmative action, nuclear weapons and problems of governance. In all his books, he writes out of a commitment to social improvement, with a realistic ability to separate the possible from the utopian. We have, alas, all too few wise people in our media-saturated and celebrity-driven public life. Derek Bok is one of them.

Wise Bok may be, but persuasive, at least in this book, he is not. For Bok’s argument to work, two conditions have to be met. One, empirical in nature, is that the findings of the economic psychologists must be shown to be trustworthy. The other, a normative issue, requires a demonstration that happiness is indeed something government ought to maximize. “The Politics of Happiness” satisfies neither one.

“Happiness research,” Bok writes, “is most interesting when its results challenge conventional wisdom about what people want,” citing as an example the finding that societies experiencing higher incomes are not necessarily happier. It is certainly true that unexpected findings are interesting. But this does not make them reliable. On the contrary, the path to academic fame lies in challenging conventional wisdom, which means that researchers have an incentive to come up with attention-grabbing results. The entire field of behavioral economics — the term used to describe the intersection of economics and psychology — has about it a maverick temperament, as if its practitioners are determined to disprove the silly notion that people know what is best for them. We ought to be skeptical of any findings trumpeted so insistently as ­counterintuitive.

Such skepticism is especially warranted when matters of public policy are at stake. It is one thing for a social scientist to be wrong, for other studies will most likely discover what is right eventually. Basing a public policy on an incorrect finding, by contrast, sets it in concrete. Because it is difficult to pass laws under our political system — and next to impossible to repeal them — we need real certainty before we allow experiments in the lab to become experiments in ­governance.

To be sure, Bok is aware of this difficulty and urges appropriate caution; he is neither an unreconstructed utilitarian seeking to maximize pleasure whatever the consequences nor a brave new worlder in search of nirvana. But his very care raises the question of why we need behavioral economics to begin with. Bok’s actual policy recommendations — promoting greater equality, helping to stabilize marriage and the family, improving public health — require no presumably paradigm-shattering science to back them up. They are the stuff of moderate liberalism and have been with us since the Victorians. Even Bok’s most radical recommendation — abandoning our fetish with economic growth — has its roots, as he himself recognizes, in 19th-century thinkers like John Stuart Mill.

Libertarians would argue that even if we can establish what makes individuals happy, we should leave its pursuit to them. Bok is no libertarian; government in his view is generally a force for good. Although the danger of paternalism always accompanies that point of view, Bok faces it squarely: lawmakers using the findings of happiness research “are relying on persuasive evidence of what will make constituents happy instead of accepting what people mistakenly think will promote their well-being.” In principle, I find nothing wrong here: democracy is not government by public opinion poll, and legislators have an obligation to do what is right.

At the very least, however, those who appreciate the need for democratic law­makers to do unpopular things ought to distinguish carefully between policies that are vital to the public good and those that are discretionary. Laws and court decisions that promote racial equality or immigrant rights are not always popular but are justifiable because they require us to live up to the ideals enshrined in our history and founding documents. But should government help those who suffer from restless leg syndrome? Bok is genuinely dismayed that so many Americans are forced to live with sleep disorders and believes that helping relieve their pain ought to be one of those things government should take on. Libertarians would see in such a recommendation a nanny state out of control, and they would not be wrong.

Government has the potential to produce happiness, but Americans dislike government. Ever logical, Bok concludes that the state should therefore do more to encourage trust in it. Believing that the public’s attitude toward government is too “extreme” and its judgments of politicians too “harsh,” he also calls for the news media to balance their frequent stories of corruption and inefficiency “with accounts of success and accomplishment in order to give an accurate picture of the government’s performance.” It may be true that Americans are too skeptical of government for their own good. Yet something tells me that such Mugwumpish ways of trying to overcome the problem will only make matters worse. Americans are most certainly misinformed. Dumb they are not.

One final policy recommendation Bok makes struck me as particularly inappropriate. I am not sure any behavioral economist has studied the issue, but my guess is that reading “Othello” or “Crime and Punishment” does not make one happy. Bok wonders whether our colleges and universities ought to do more than just assign such materials, no matter how great their literary merit. We need to teach students to appreciate more fully what makes them happy. So let’s teach them . . . happiness research. “A number of colleges are doing just that,” he notes, without any apparent dismay. “Indeed, if interest in Great Books courses has declined, the opposite is true of offerings by behavioral scientists on happiness.” I’d rather have sleepless nights.

The flaws in “The Politics of Happiness” do not flow from any designs on the part of its author to put one over on us. Bok is always straightforward, honest and well intentioned. It is to his credit that he follows his arguments to their conclusions even if those conclusions expose the flaws in his arguments. He is right to search for a more positive view of the American purpose. To achieve that, however, we need far more than behavioral economics. Maybe we could start by reading more Plato.

Alan Wolfe teaches political science at Boston College and is writing a book on political evil.