Sunday 29 January 2017

On Never Getting Your Stuff Back

The adage goes like this: an only child doesn’t like to share.

Well, I don’t like to be defined by old adages. Even as a young child I knew my “sharing skills” were going to be judged with more scrutiny than other kids. I’ve always done my very best to overcompensate on the sharing front.

If I showed you a list of all the things I currently have ‘lent out’ you’d believe me. I can count around ten people in my life that have one or more of my items. A sweater, a pair of leggings, etc. YOU KNOW WHO YOU ARE! The lending time ranges from a few years to two months since I saw my zip-up.

How is it possible that all these people just forgot to give me my stuff back? I’m a poor student, for goodness sake, I need clothes!

Scholars have many ideas about the psychology of borrowing… money. Maybe there is something in this field that helps explain my friends’ borrowing behaviour.

  • The blind spot. When it comes to loans between friends or peers, borrowers and lenders recall loans differently. Research has found that borrowers self-servingly rewrite their memories where they perhaps think they paid off more of their loan than they did. Without the formality of a contract, interest, and perhaps without some key details like a specific date of repayment, the details can become shifted in the respective party’s memories. This is a form of egocentric bias, and it has been found on the part of borrowers in research by Lowenstein and Gezso (2012). In the field of psychology it is widely acknowledged that memory is highly reconstructive, and this opens the door for some amazingly powerful self-serving biases to shift the content of one’s memories to reflect more positively upon his or herself. Some other self-serving, egocentric biases include the belief that what is good for us is objectively fair, the motivation to see ourselves in a positive light, and that when good things happen to us it’s because of our own efforts rather than luck. In some cases, borrowers reconceptualise the loan as a gift (which I really hope isn’t the case with any of my friends… guys, I need my stuff back!). In the study, Lowenstein and Gezso found that fewer borrowers reported incidences of delinquent loans than lenders. Thus more often than not people tend to remember the loans they give and forget the ones they get. Great.
But that’s about money. Money has different psychological properties compared to stuff. Dan Ariely found that the further removed something is from “money”, the more it changes behaviour. For example, in a study about cheating, he found substituting tokens for money made people more freely willing to cheat (steal) and not think of themselves as a bad person[1]. Although stealing and borrowing are not the same (or are they?) there is a strong sense of morality at play in both cases. The fact that I’m lending something other than money might hurt my chances of getting it back even more. Here’s a reason why:
  • The Endowment effect. This is the principle in behavioural economics that people value things more merely because they own it. In one of my favourite experiments in the field conducted by legends Daniel Kahneman, Jack Knetsch & Richard Thaler, participants were given a mug and offered the chance to sell or trade for a good of equal value. The experiment found that the amount participants needed to be compensated in order to sell the mug was twice as high as they were willing to pay for the mug in the first place – just because they own it! How does this apply to lending: I own that hoodie, so naturally I value it more than you do. It means something to me. It doesn’t mean as much to you. Because you don’t value it as much, you don’t think about how important it is to get it back to me. Thanks a lot… NOT.
Research by Lowenstein and Gezso also looked at the impact of personal lending on the relationship between lender and borrower. There is an opportunity for the strengthening of friendship because informal loans rely on trust between lender and borrower and can show generosity on the part of the former and respect on the part of the latter. But trust can also be violated, and threaten the relationship in the first place. They write that the violation of trust could lead to mutual hostility, ending friendships, and distrust. This threat of social punishment – the potential loss of a friendship – is what motivates me to give back what I’ve borrowed as fast as I can since intuitively I know that the lender values the loan greater than I do. This threat does not seem to motivate everyone the same way (my story is evidence of that).

To my borrowers: don’t worry, I still like you. Can I have my stuff back now, please? 


DD




 -----------------------------------

Dezső, L., & Loewenstein, G. (2012). Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans. Journal of Economic Psychology, 33(5), 996-1011. Dye, Lee. (26 July 2012) Why It’s So Dumb To Lend Money To A Friend. ABC News. http://abcnews.go.com/Technology/borrower-lender-scientists-explain-loan-friend-dangerous/story?id=16857078
Goldstein, Noah, J., Ashley N. Angulo, and Michael Norton (2013) ,"The Psychology of Borrowing and Lending", in NA - Advances in Consumer Research Volume 41, eds. Simona Botti and Aparna Labroo, Duluth, MN : Association for Consumer Research.
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. The journal of economic perspectives, 5(1), 193-206.
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coase theorem. Journal of political Economy, 98(6), 1325-1348.
[1] A nice concise summary here: http://danariely.com/2008/02/01/societe-generale-%E2%80%93-behavioral-economics-at-work/

Sunday 22 January 2017

On Charity Lotteries

Trust me, I'm not trying to pick on lotteries (see my earlier post on the irrationality of lotteries here). But when you get down to it, they are fascinating - especially when you start to consider the question of rationality.
 

Why do people pay large sums to enter a charity lottery?

Young and new to the workforce, I have friends who's income barely covers their living expenses. These hardworking optimists must have exceptionally big hearts because many of them participate in charity lotteries where the buy-in can be 100-200% greater than the cost of playing standard lottery games.

Take the Canadian-based SickKids Foundation Lottery benefiting the Hospital for Sick Children in Toronto, Canada. The proceeds of this charity aim to do extremely meaningful things for this organization including ending heart failure in kids, curing allergy in the next 10 years, and raising the survival rate for kids’ cancer – a cause that is very near to my heart. Tickets start at $100 CAD for one ticket, scaling up to 20 tickets for $900. The lottery boasts 1 in 2 odds for a slew of minor prizes, and a grand prize of one million dollars. In Canada, the yearly revenue for charities from charity lotteries is $700 million, with charities accessing $200 million after expenses, marketing and prizes. This is a big deal.

How do these charity lotteries differ from standard lottery games? There are a few main differences:

  • Ticket prices are often much higher than standard lottery tickets.
  • The odds of winning any prize are much higher than winning a jackpot in a standard lottery – but the grand prize is smaller than the jackpots often found with standard lotteries which start at ten million dollars. 
  • The social benefits of a charity lottery are obviously stated – this lottery benefits SickKids. The standard lottery supports many charitable initiatives and doesn’t necessarily market on behalf of one specific cause.
Even still, this is a lottery, and the chances you will lose out from a notable prize and lose the value of your initial ticket are high. Furthermore, a research study in Canada found only 27% of each dollar ticket value was retained as funding for the charity – with the rest being spent on prizes and marketing. 

Is playing the lottery rational? And what makes charity lotteries different from conventional ones? Consumer Psychology might offer some insights: 
  • Self-Signals. The choices you make say something about you – and self-signalling refers to the self-information you gain from your choices rather than the you that is represented to the world. People are motivated to make choices that send themselves positive self-signals, such as being generous, charitable, and a ‘good person’. A charity lottery provides more positive self-signals than does a conventional lottery because of its inalienable link with the proceeds benefitting that specific charity. Charity lottery ticket-buyers may gain extra value from their participation from the self-signals because even if they don’t win they think they are making a donation to charity which reflects positively on their character.
  • Altruism. Is it really all about the prizes? Hassay and Peloza (2005) interviewed charity lottery ticket buyers who disclosed they saw the purchase of these tickets as a donation to support the charity or cause. They found that altruism was the primary motive for this behaviour, making the purchasing of charity lottery tickets a very different barrel of fish in comparison to the buying of standard lottery tickets. Altruism has long been a focus on Behavioural Economics because it may not always seem rational – for example, how can we explain individuals showing kindness or generosity to others when there is no chance for repeated future interaction with recipient? Even though this is a perplexing question, we still observe many examples of altruism in our day to day lives.
  • Deriving Pleasure from Purchasing. Putting the FUN in fundraising. Research has found that consumers derive considerable pleasure from shopping and buying, and all the more satisfaction when that shopping is in the form of experiential consumption. There is a sense of fantasy associated with experimental consumption of lottery tickets. This hedonistic aspect sweetens the deal and gets supporters involved. 
  • Reciprocity. Although buying a ticket is being made akin to donating money to charity, the charity is giving you something back in return – they are also potentially giving you one million dollars. The transformation from a one-way money transfer to a two-way street revokes the social norm of reciprocity. Reciprocity is often discussed in the context of charities – where some organizations include a small gift in their appeal for donations. This transaction is of a different nature, however, because the transaction is not guaranteed.
The reality is that generally charities are experiencing challenges in raising the money that they need to fulfill their philanthropic missions. The number of charities seeking funding is growing each year. Beyond donations, research has found that charity lotteries need to be better understood in order to get a better sense of charity support behaviour. 

Are charity lottery tickets donations – or are they another form of entertainment? Are you willing to participate in a charity lottery knowing some of the donations are going to be given away as prizes?

Back to the original question – why do my (poor) friends support charity lotteries? Perhaps they can mentally write the cost off as a donation, perhaps they get value out of the self-signal of being altruistic, or perhaps the better odds of a charity lottery offers a much more desirable chance they will earn some much needed cash back. 


Note: I can’t recall a time when any of my friends actually won something from a charity lottery, but I sure hope they do soon!

DD



------------------------------------
    Bodner, R., & Prelec, D. (2003). Self-signaling and diagnostic utility in everyday decision making. The psychology of economic decisions, 1, 105-26.
    Dhar, R., & Wertenbroch, K. (2012). Self-signaling and the costs and benefits of temptation in consumer choice. Journal of Marketing Research, 49(1), 15-25.
    Fehr, E., & Fischbacher, U. (2003). The nature of human altruism. Nature, 425(6960), 785-791.
    Grossman, Z. (2010). Self-signaling versus social-signaling in giving. Department of Economics, UCSB.Fehr, E., & Gächter, S. (2000). Fairness and retaliation: The economics of reciprocity. Journal of Economic Perspectives, 14, 159-181.
    Derek N. Hassay and John Peloza (2005) ,"Fundraising: Having Fun While Raising Funds", in NA - Advances in Consumer Research Volume 32, eds. Geeta Menon and Akshay R. Rao, Duluth, MN : Association for Consumer Research, Pages: 605-605.
    Holbrook, M. B. (2000). The millennial consumer in the texts of our times: Experience and entertainment. Journal of Macromarketing, 20(2), 178-192.
    Holbrook, M. B., & Hirschman, E. C. (1982). The experiential aspects of consumption: Consumer fantasies, feelings, and fun. Journal of consumer research, 9(2), 132-140.
    Liao, M. N., Foreman, S., & Sargeant, A. (2001). Market versus societal orientation in the nonprofit context. International Journal of Nonprofit and Voluntary Sector Marketing, 6(3), 254-268.
    Sick Kids Lottery. http://sickkidslottery.ca/
    Thompson, G. and Cheng, E. (November 2013) Charity Lotteries in Canada: An examination of charities holding mega lotteries in Canada. Charity Intelligence Canada. https://www.charityintelligence.ca/images/2013_lottery_report_web2.pdf


      Tuesday 17 January 2017

      On Bad Drivers


      Some days I face a long commute. The repetition engages my dorsolateral striatum, cerebellum, and basal ganglia, thereby freeing up my prefrontal cortex (the centre of self-regulation and thought) and every now and again I take a break from my carpool karaoke to think about people’s behaviour.

      Often I ended up thinking about people’s driving behaviour. It’s hard not to, because I am often cut off. I drive a small car, in a non-threatening colour, which I do believe makes me a less threatening option to cut off for aggressive drivers - “aggressive” which here means someone who doesn’t respect the normalized (“polite”) driving protocol.


      It turns out lots of other people think about this too from the school of Traffic Psychology. This school of thought argues that we are not simply plagued by a subset of delinquent drivers, but we are subject to cognitive roadblocks (heehee – get it?) and environmental factors that systematically influence driving on the road.


      Check this out: https://www.theguardian.com/science/head-quarters/2013/aug/19/driving-road-neuroscience-psychology


      Most interesting to me is point number 4 – where cars can be equated to status and impact aggressive driving behaviour. I notice that when I drive my car I am frequently cut off, but when I drive my parents’ car – a newer, bigger, redder SUV, people cut me off far less. My inner social scientist now wishes to set up an experiment, but it has already been done for me. Research by McGarva and Steiner (2000) showed that aggression is influenced by perceptions of ‘status’ as judged simply on the vehicles involved. Thank you, academia, for basically telling me I need to get a new car…


      Can the behavioural sciences do anything to improve the state of affairs out there on the road?


      I have a few suggestions:

      • Even though you might feel especially vengeful after that pick-up truck cut you off, stick to being polite. Although driving is a right bestowed upon us by the government agencies who award our licence and enforce traffic rules, it’s also a system and a relationship between all drivers on the road. There is an accepted system of social norms – sub-rules that won’t get you a ticket but will annoy other drivers when broken - and anyone who breaks the social norms is often considered a jerk (or worse). In non-repeated relationships, we are unable to directly punish infractors of social norms with the usual slew of behaviour-modification techniques (communication, shame, etc.). As a victim you have two options: a) take revenge to other drivers in general and start breaking the social norms yourself or b) continue to uphold the system. Path a) might cause other drivers to also forego all the rules, as when we see everyone breaking rules it becomes the new normal. Path b) actually has a chance of improving the situation in the exact same way. Continuing to be polite (or avoiding being impolite) upholds the system. Although we’ll never be able to fully limit aggressive drivers, it’ll at least stop one more aggressive driver from being on the road (you) and potentially risking the creation of a bunch more. 
      • Let cars in. Stop to let a car turn in front of you. Even if there is a space behind you. In doing so, you are potentially awakening the contagious effect of social cooperation. People often look around them for behavioural cues – that’s where the contagion plays a part. The “pay it forward” philosophy can work both with positive or negative, so I say start paying it forward with letting people in and hope for the best. Many of my friends say that if someone lets them turn into their lane, they often try to do the same for another car later. 
      • Wave. Smile. Research has shown we tend to dehumanize other drivers. The anonymity of cars is powerful. Drivers can feel more comfortable being rude when they are faced with a machine rather than a fellow human being. Break down these facades by waving, smiling, gently honking and ultimately reminding other drivers that you are all in fact humans behind the wheel. Try this technique especially when you need to scoot your way over a few lanes in a traffic jam – it might just get you there quicker.
      Driving is a complex system of coordination and for the most part it runs remarkably well. Let’s try to make it a little bit more friendly and polite.

      Stay safe out there!



      DD










      ---------------------------
      Chambers, Chris. (2013, August 19) Bad Driving: what are we thinking? The Guardian. https://www.theguardian.com/science/head-quarters/2013/aug/19/driving-road-neuroscience-psychology Fowler, J., & Christakis, N. (2010). Cooperative behavior cascades in human social networks Proceedings of the National Academy of Sciences DOI: 10.1073/pnas.0913149107
      Lowenstein, L. F. (1997). Research into causes and manifestations of aggression in car driving. Police J., 70, 263.
      McGarva, A. R., & Steiner, M. (2000). Provoked driver aggression and status: A field study. Transportation research part F: traffic psychology and behaviour, 3(3), 167-179.

      Vrabie, Alina. (2014, October 7) Are Menial Tasks the Secret to Great Achievement? Sandglaz Blog. URL: http://blog.sandglaz.com/are-menial-tasks-the-secret-to-great-achievement/

      Monday 9 January 2017

      On a Clean Room

      When I’m a guest – either at a friend’s house or a hotel – I try to make as little mess as possible. I mean, I make my bed when I’m at a hotel even though I know that a housekeeper will have to take the sheets completely off the bed to be washed anyway. Is that irrational?

      This isn’t because of habit, like most of us I don’t always make my own bed at home. But I get this overwhelming sense of guilt that someone – specifically a stranger in the case of hotels – will have to put everything back in its place after my stay. The idea of putting things in order only to have them messied up day after day sounds like its own little kind of hell.

      In fact, this closely resembles the story from Greek mythology of Sisyphus, whose punishment from the gods was to push a heavy rock up a hill for eternity. When the rock was almost at the very top, it would roll right back to the bottom and he’d have to start again. The demotivating impact of repetition of a laborious task that is ultimately futile is something that we can all relate to.

      Especially a housekeeper. So I try to reduce the amount of mess I leave in any room I stay in, even if we often think of this housekeeping service built into the price of the room and you might never see that housekeeper again.

      As for keeping my own room clean (or not), there are a couple of forces at play. Keeping my room totally clean is an accomplishable goal – and we often get a sense of satisfaction when we complete a task.[1] Accountability is another issue – if I don’t clean my room, perhaps no one else will ever see that I was untidy or lazy, so it doesn’t matter.[2] Perhaps no one in my house keeps their room clean (social norms) so I don’t feel I need to either. Perhaps it’s part of my routine to keep my room clean. I also have control over the room and the items need not be put back exactly the same way (agency). This might just be me, but I don’t go through the same effort to dutifully keep my room clean as I do someone else’s.

      Either way, I’d like to offer some parting words: make sure to thank the housekeeper.




      If you are interested in work and motivation, Dan Ariely and colleagues have done some fascinating experimentation in this area. Check out this Ted Talk: https://www.ted.com/talks/dan_ariely_what_makes_us_feel_good_about_our_work?utm_source=tedcomshare&utm_medium=referral&utm_campaign=tedspread



      ------------------------------
      [1] Lazzaro, N., & Keeker, K. (2004, April). What's my method?: a game show on games. In CHI'04 Extended Abstracts on Human Factors in Computing Systems (pp. 1093-1094). ACM; Ariely, D. (2015). Behavioural Economics Saved My Dog: Life Advice for the Imperfect Human. Oneworld Publications.
      [2] Silverman, S., Kulinna, P. H., & Crull, G. (1995). Skill-related task structures, explicitness, and accountability: Relationships with student achievement. Research Quarterly for Exercise and Sport, 66(1), 32-40.

      Sunday 1 January 2017

      HAPPY NEW YEAR!

      Intimately tied to all the merriment and optimism associated with ushering in the new year is the practice of new year’s resolutions. Maybe it’s the picture of starting fresh in a new year, a blank slate to be a better you, but many of us feel heat to come up with an exciting and ambitious resolution to make this year the best one yet.

      But if you think about it, what was so dramatically different in our lives from yesterday (December 31st) to today? What makes January 1st the best day to commit yourself to a new goal? What makes today the best day to start and not tomorrow?

      On the subject of resolutions, Behavioural Economics has a lot to say about setting and sticking to goals. I’m not touching that hot potato. Instead I am asking:

      Why January 1st? Behavioural Economics might have the answer.

      Mental accounting might be able to explain why we budget our time the way we do. Mental accounting originated to describe how people mentally allocate money to different budgetary categories even though money itself is fungible.[1] It explains why people might not be willing to spend $30 on a meal they eat alone, but will do so with friends because the former comes from the food budget and the latter comes from the entertainment budget. Rajagopal and Rha (2009, p. 774) describe this concept expertly: “a mental account is a psychological account which individuals form to evaluate costs and benefits of outcomes which are later evaluated using the principles of prospect theory (e.g. loss aversion, risk seeking behavior for losses etc.). This leads to the differential ‘‘posting” in accounting parlance of money to different accounts. For example, the loss of a $10 bill and the loss of a ticket which cost $10 could be framed very differently and assigned to different loss accounts (Tversky & Kahneman, 1981).”[2]

      What does this have to do with new year’s resolutions? I think we can explain the phenomenon with the mental accounting of time. Time is a limited resource, which makes it valuable.[3] Research has found that people create mental accounts for time, and allocate time differently for different activities – such as work and non-work.[4] The literature also acknowledges that there are differences between perceived time and actual time based on a slew of biases and heuristics of distortion, where "perception and cognition intervene between the decision maker and his objective environment” (Simon, 1959, p. 272).[5] Similar to mental accounting of money - where we get caught up thinking all money is not the same - perhaps we also think that not all time is the same. Days of the week are also treated differently in terms of perception of time – with weekends being associated more closely with leisure, and behavioural decisions following suit.[6] This goes to show we tend to allocate specific activities, and align our decisions with those activities, with specific days. Like the setting of resolutions on New Year’s Day.

      Some scholars point to our tendency to delay the start date of accomplishing a challenging goal with hyperbolic discounting. This refers to how people tend to value immediate rewards even if they are smaller than future rewards that might be greater but more uncertain, where people discount future rewards depending on the length of time that separates them from the outcome.[7] The concept points to how people prefer more immediate rewards, and why we often wait until Monday to start our diet, or next month, and instead eat the cheeseburger right now. What is the powerful force behind New Year’s Day that allows us to overcome hyperbolic discounting?

      A last piece of the puzzle could be social norms. This is the idea that people feel they ought to do something because others are doing it too.[8] Seeing our friends and family setting goals triggers the sense that we should do it too, and social norms explains why the seemingly "appropriateness" of that particular behaviour motivates us to also participate.[9] Even if we don’t actually see the achievement of others' resolutions, knowing that those resolutions are out there captivates us to join in.[10]

      Mental accounting of time and hyperbolic discounting explain why we pick January 1st to quit gobbling up the donuts, and social norms explains the collective excitement to jump on the bandwagon. No comments are being made as to how successful these resolutions will be…

      Either way, I wish you good luck with your resolutions… and a happy 2017!



      --------------------------
      [1] Thaler, R. H. (1985). Mental accounting and consumer choice. Marketing Science, 4 (3), 199–214. 

      Note: My mother would like you to know that fungible means mutually interchangeable, replaceable with an identical item. It isn't a type of little mushroom, unlike my made-up definition for it.
      [2] Priyali Rajagopal, Jong-Youn Rha, The mental accounting of time, Journal of Economic Psychology, Volume 30, Issue 5, October 2009, Pages 772-781, ISSN 0167-4870, http://dx.doi.org/10.1016/j.joep.2009.06.008; Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211 (4481), 453–458.
      [3] Jacoby, J., Szybillo, G., & Berning, C. K. (1976). Time and consumer behavior: An interdisciplinary overview. Journal of Consumer Research, 2 (4), 320–339.
      [4] Priyali Rajagopal, Jong-Youn Rha, The mental accounting of time, Journal of Economic Psychology, Volume 30, Issue 5, October 2009, Pages 772-781.
      [5] Priyali Rajagopal, Jong-Youn Rha, The mental accounting of time, Journal of Economic Psychology, Volume 30, Issue 5, October 2009, Pages 772-781; Simon, H. (1959). Theories of decision making in economics and behavioral science. The American Economic Review, 49 (3), 253–283. 

      Note: a heuristic is a mental aid involved in learning, self-education, and trial and error - it does not necessarily produce perfect results for goals but one that is sufficient and immediate. The way we systematically make errors in our learning, judgement and decision-making involving heuristics is a key underlying component of Behavioural Economics.
      [6] Priyali Rajagopal, Jong-Youn Rha, The mental accounting of time, Journal of Economic Psychology, Volume 30, Issue 5, October 2009, Pages 772-781
      [7] Loewenstein, G., & Elster, J. (Eds.). (1992). Choice over time. Russell Sage Foundation.
      [8] Cialdini, R. B., Reno, R. R., & Kallgren, C. R. (1990). A focus theory of normative conduct: Recycling the concept of norms to reduce littering in public places. Journal of Personality and Social Psychology, 58, 1015–1026.
      [9] Lindenberg, S., & Steg, L. (2007). Normative, gain and hedonic goal frames guiding environmental behavior. Journal of Social issues, 63(1), 117-137.
      [10] Goldstein, N. J., Cialdini, R. B., & Griskevicius, V. (2008). A room with a viewpoint: Using social norms to motivate environmental conservation in hotels. Journal of consumer Research, 35(3), 472-482.
      Note: This is in contrast to the Theory of Planned Behaviour, which argues that people are motivated to pursue their own self-interests based on a cost-benefit analysis (Ajzen, 1985).