People weigh losses more than gains of the same size, economics professor Ernst Fehr says in an interview with finews.com. The idea behind this is that events or processes that are more readily available in our memory determine our decisions more strongly than memories that are less readily available.
Ernst Fehris always on the list of candidates for the Nobel Prize in Economics. The professor for microeconomics and experimental economics at the University of Zurich is renowned for his work on behavioral economics, which examines what people do in economic situations. We don't always act rationally, according to Fehr and other economists.
Professor Fehr, philosophers of the Scottish Enlightenment said, habit guides us through life. People get up, go to the bathroom, have breakfast without giving it much thought. The emphasis on habit by the Scots was no accident. They wanted to distinguish themselves from French philosophers who emphasized that human actions were always preceded by reason-driven deliberation. Who was right? The Scots or the French?
Habits arent necessarily unreasonable. They often have a rational basis. We brush our teeth every evening without thinking because we know that this is good for our health. There are however also habits that are unreasonable. We might eat too late, which can affect our sleep negatively. Habit is not unreasonable per se.
In economics studies of the early 1990s, the homo economicus was the standard assumption. A reasonable, rational, self-interested being who attempts to maximize their utility for both monetary and non-monetary gains. Is this assumption tenable?
Not all teachers explain homo economicus correctly. By homo economicus is not meant that people run around with a utility meter that tells them which products bring the highest utility in their local supermarket. The approach is only useful as a way to map behavior.
Without the obligation to provide for the future more people would fall into poverty
If a consumer prefers an apple over a pear, then the apple is assigned a higher number, which we call utility. This has nothing to do with substantial utility maximization. But that is not the whole answer to your question. Individuals do not, in fact, always behave rationally. People may want to act rationally, but they can only do so to a limited extent. Hardly anyone is irrational on purpose. However, many things are too complex for fully rational decisions.
Can you give some examples of this?
If there was no government obligation to make financial provisions for old age, more people would fall into poverty in retirement. Who at the age of 28 thinks about what the world will look like when they are 70? Many people are deceived by promises of high returns in financial markets that cannot be kept. Although this does not apply to everyone, of course.
You talk about bounded rationality. What do you mean by this?
One example is availability heuristic. Behind this is the idea that events or processes that are more readily available in our memory determine people's decisions more strongly than memories that are less readily available. For example, most people believe more murders than suicides occur in Berlin or New York, even though usually there are more suicides than murders. Murders get a lot of media coverage, while suicides get hardly any.
People weigh losses more than gains of the same size
The whole advertising industry is based on this kind of bounded rationality. It wants to create these readily available memories. Another example is loss aversion. People weigh losses higher than equally large gains.
What does all this mean for economic policy?
Workers, for example, are more willing to accept real wage losses through inflation than through direct reductions in nominal wages. This means an employee is more likely to cope with wagedeterioration due to inflation than due to an employer imposing a wage cut.
The outcome however is exactly the same: loss of purchasing power. Such behavioral patterns also help to understand the euro crisis. Before the introduction of the euro, countries could lower the real purchasing power of wages by devaluing their currency and thus adapt to changing economic conditions. In a monetary union, however, this is no longer possible. Real wage reductions can only be achieved by nominal wage reductions.
People feel that imposed wage cuts are unfair. A devaluation of the currency, however, is more likely to be accepted, even if it also represents a loss of purchasing power.
Should the state take advantage of people's small weaknesses for the common good? U.S. economists Richard Thaler and Cass Sunstein have called for such nudging. They say company pension plans are useful for society and everyone should get one unless they object. This leads to there being more company pension plans than if the employees had to actively go about setting them up.I welcome this kind of nudging.
But does it not encroach on our freedom?
I cannot understand this criticism, seeing as nudging restricts freedom much less than government bans or taxes. Besides, those who voice this criticism should first take a look at the marketing industry. It's one nudging event that doesn't always benefit the consumer, to say the least.
Human behavior is not determined by unchangeable external forces
When the state engages in nudging, it is based on a democratically legitimized process. If, on the other hand, companies engage in nudging, then this legitimacy is lacking and private corporate interests are at play.
Is there such a thing as freedom? Or are we slaves to our weaknesses?
Human behavior is not determined by unchangeable external forces. One can become aware of one's weaknesses. In tennis, players sometimes mourn lost points. However, nothing is worse than them doing so because it stops them from concentrating on the next point. On the same note, you can adjust your personal attitude to fully concentrate on the next point.
The Austrian-Swiss economist Ernst Fehr, studied economics at the University of Vienna. He has lectured at the University of Zurich since 1994. His research covers the evolution of human cooperation and sociality, in particular fairness, reciprocity, and bounded rationality (behavioral economics and behavioral economics, respectively).
Excerpt from:
Ernst Fehr: Loss Aversion is Another Example - finews.com
- The Smell Of Death Has A Strange Influence On Human Behavior - IFLScience - October 26th, 2024 [October 26th, 2024]
- "WEIRD" in psychology literature oversimplifies the global diversity of human behavior. - Psychology Today - October 2nd, 2024 [October 2nd, 2024]
- Scientists issue warning about increasingly alarming whale behavior due to human activity - Orcasonian - September 23rd, 2024 [September 23rd, 2024]
- Does AI adoption call for a change in human behavior? - Fast Company - July 26th, 2024 [July 26th, 2024]
- Dogs can smell human stress and it alters their own behavior, study reveals - New York Post - July 26th, 2024 [July 26th, 2024]
- Trajectories of brain and behaviour development in the womb, at birth and through infancy - Nature.com - June 18th, 2024 [June 18th, 2024]
- AI model predicts human behavior from our poor decision-making - Big Think - June 18th, 2024 [June 18th, 2024]
- ZkSync defends Sybil measures as Binance offers own ZK token airdrop - TradingView - June 18th, 2024 [June 18th, 2024]
- On TikTok, Goldendoodles Are People Trapped in Dog Bodies - The New York Times - June 18th, 2024 [June 18th, 2024]
- 10 things only introverts find irritating, according to psychology - Hack Spirit - June 18th, 2024 [June 18th, 2024]
- 32 animals that act weirdly human sometimes - Livescience.com - May 24th, 2024 [May 24th, 2024]
- NBC Is Using Animals To Push The LGBT Agenda. Here Are 5 Abhorrent Animal Behaviors Humans Shouldn't Emulate - The Daily Wire - May 24th, 2024 [May 24th, 2024]
- New study examines the dynamics of adaptive autonomy in human volition and behavior - PsyPost - May 24th, 2024 [May 24th, 2024]
- 30000 years of history reveals that hard times boost human societies' resilience - Livescience.com - May 12th, 2024 [May 12th, 2024]
- Kingdom of the Planet of the Apes Actors Had Trouble Reverting Back to Human - CBR - May 12th, 2024 [May 12th, 2024]
- The need to feel safe is a core driver of human behavior. - Psychology Today - April 15th, 2024 [April 15th, 2024]
- AI learned how to sway humans by watching a cooperative cooking game - Science News Magazine - March 29th, 2024 [March 29th, 2024]
- We can't combat climate change without changing minds. This psychology class explores how. - Northeastern University - March 11th, 2024 [March 11th, 2024]
- Bees Reveal a Human-Like Collective Intelligence We Never Knew Existed - ScienceAlert - March 11th, 2024 [March 11th, 2024]
- Franciscan AI expert warns of technology becoming a 'pseudo-religion' - Detroit Catholic - March 11th, 2024 [March 11th, 2024]
- Freshwater resources at risk thanks to human behavior - messenger-inquirer - March 11th, 2024 [March 11th, 2024]
- Astrocytes Play Critical Role in Regulating Behavior - Neuroscience News - March 11th, 2024 [March 11th, 2024]
- Freshwater resources at risk thanks to human behavior - Sunnyside Sun - March 11th, 2024 [March 11th, 2024]
- Freshwater resources at risk thanks to human behavior - Blue Mountain Eagle - March 11th, 2024 [March 11th, 2024]
- 7 Books on Human Behavior - Times Now - March 11th, 2024 [March 11th, 2024]
- Euphemisms increasingly used to soften behavior that would be questionable in direct language - Norfolk Daily News - February 29th, 2024 [February 29th, 2024]
- Linking environmental influences, genetic research to address concerns of genetic determinism of human behavior - Phys.org - February 29th, 2024 [February 29th, 2024]
- Emerson's Insight: Navigating the Three Fundamental Desires of Human Nature - The Good Men Project - February 29th, 2024 [February 29th, 2024]
- Dogs can recognize a bad person and there's science to prove it. - GOOD - February 29th, 2024 [February 29th, 2024]
- What Is Organizational Behavior? Everything You Need To Know - MarketWatch - February 4th, 2024 [February 4th, 2024]
- Overcoming 'Otherness' in Scientific Research Commentary in Nature Human Behavior USA - English - USA - PR Newswire - February 4th, 2024 [February 4th, 2024]
- "Reichman University's behavioral economics program: Navigating human be - The Jerusalem Post - January 19th, 2024 [January 19th, 2024]
- Of trees, symbols of humankind, on Tu BShevat - The Jewish Star - January 19th, 2024 [January 19th, 2024]
- Tapping Into The Power Of Positive Psychology With Acclaimed Expert Niyc Pidgeon - GirlTalkHQ - January 19th, 2024 [January 19th, 2024]
- Don't just make resolutions, 'be the architect of your future self,' says Stanford-trained human behavior expert - CNBC - December 31st, 2023 [December 31st, 2023]
- Never happy? Humans tend to imagine how life could be better : Short Wave - NPR - December 31st, 2023 [December 31st, 2023]
- People who feel unhappy but hide it well usually exhibit these 9 behaviors - Hack Spirit - December 31st, 2023 [December 31st, 2023]
- If you display these 9 behaviors, you're being passive aggressive without realizing it - Hack Spirit - December 31st, 2023 [December 31st, 2023]
- Men who are relationship-oriented by nature usually display these 9 behaviors - Hack Spirit - December 31st, 2023 [December 31st, 2023]
- A look at the curious 'winter break' behavior of ChatGPT-4 - ReadWrite - December 14th, 2023 [December 14th, 2023]
- Neuroscience and Behavior Major (B.S.) | College of Liberal Arts - UNH's College of Liberal Arts - December 14th, 2023 [December 14th, 2023]
- The positive health effects of prosocial behaviors | News | Harvard ... - HSPH News - October 27th, 2023 [October 27th, 2023]
- The valuable link between succession planning and skills - Human Resource Executive - October 27th, 2023 [October 27th, 2023]
- Okinawa's ants show reduced seasonal behavior in areas with more human development - Phys.org - October 27th, 2023 [October 27th, 2023]
- How humans use their sense of smell to find their way | Penn Today - Penn Today - October 27th, 2023 [October 27th, 2023]
- Wrestling With Evil in the World, or Is It Something Else? - Psychiatric Times - October 27th, 2023 [October 27th, 2023]
- Shimmying like electric fish is a universal movement across species - Earth.com - October 27th, 2023 [October 27th, 2023]
- Why do dogs get the zoomies? - Care.com - October 27th, 2023 [October 27th, 2023]
- How Stuart Robinson's misconduct went overlooked for years - Washington Square News - October 27th, 2023 [October 27th, 2023]
- Whatchamacolumn: Homeless camps back in the news - News-Register - October 27th, 2023 [October 27th, 2023]
- Stunted Growth in Infants Reshapes Brain Function and Cognitive ... - Neuroscience News - October 27th, 2023 [October 27th, 2023]
- Social medias role in modeling human behavior, societies - kuwaittimes - October 27th, 2023 [October 27th, 2023]
- The gift of reformation - Living Lutheran - October 27th, 2023 [October 27th, 2023]
- After pandemic, birds are surprisingly becoming less fearful of humans - Study Finds - October 27th, 2023 [October 27th, 2023]
- Nick Treglia: The trouble with fairness and the search for truth - 1819 News - October 27th, 2023 [October 27th, 2023]
- Science has an answer for why people still wave on Zoom - Press Herald - October 27th, 2023 [October 27th, 2023]
- Orcas are learning terrifying new behaviors. Are they getting smarter? - Livescience.com - October 27th, 2023 [October 27th, 2023]
- Augmenting the Regulatory Worker: Are We Making Them Better or ... - BioSpace - October 27th, 2023 [October 27th, 2023]
- What "The Creator", a film about the future, tells us about the present - InCyber - October 27th, 2023 [October 27th, 2023]
- WashU Expert: Some parasites turn hosts into 'zombies' - The ... - Washington University in St. Louis - October 27th, 2023 [October 27th, 2023]
- Is secondhand smoke from vapes less toxic than from traditional ... - Missouri S&T News and Research - October 27th, 2023 [October 27th, 2023]
- How apocalyptic cults use psychological tricks to brainwash their ... - Big Think - October 27th, 2023 [October 27th, 2023]
- Human action pushing the world closer to environmental tipping ... - Morung Express - October 27th, 2023 [October 27th, 2023]
- What We Get When We Give | Harvard Medicine Magazine - Harvard University - October 27th, 2023 [October 27th, 2023]
- Psychological Anime: 12 Series You Should Watch - But Why Tho? - October 27th, 2023 [October 27th, 2023]
- Roosters May Recognize Their Reflections in Mirrors, Study Suggests - Smithsonian Magazine - October 27th, 2023 [October 27th, 2023]
- June 30 Zodiac: Sign, Traits, Compatibility and More - AZ Animals - May 13th, 2023 [May 13th, 2023]
- Indiana's Funding Ban for Kinsey Sex-Research Institute Threatens ... - The Chronicle of Higher Education - May 13th, 2023 [May 13th, 2023]
- Have AI Chatbots Developed Theory of Mind? What We Do and Do ... - The New York Times - March 31st, 2023 [March 31st, 2023]
- Scoop: Coming Up on a New Episode of HOUSEBROKEN on FOX ... - Broadway World - March 31st, 2023 [March 31st, 2023]
- Here's five fall 2023 classes to fire up your bookbag - Duke Chronicle - March 31st, 2023 [March 31st, 2023]
- McDonald: Aspen's like living in a 'Pullman town' - The Aspen Times - March 31st, 2023 [March 31st, 2023]
- Children Who Are Exposed to Awe-Inspiring Art Are More Likely to Become Generous, Empathic Adults, a New Study Says - artnet News - March 31st, 2023 [March 31st, 2023]
- DataDome Raises Another $42M to Prevent Bot Attacks in Real ... - AlleyWatch - March 31st, 2023 [March 31st, 2023]
- Observing group-living animals with drones may help us understand ... - Innovation Origins - March 31st, 2023 [March 31st, 2023]
- Mann named director of School of Public and Population Health - Boise State University - March 31st, 2023 [March 31st, 2023]
- Irina Solomonova's bad behavior is the star of Love Is Blind - My Imperfect Life - March 31st, 2023 [March 31st, 2023]
- Health quotes Dill in article about rise of Babesiosis - UMaine News ... - University of Maine - March 31st, 2023 [March 31st, 2023]
- There's still time for the planet, Goodall says, if we stay hopeful - University of Wisconsin-Madison - March 31st, 2023 [March 31st, 2023]
- Relationship between chronotypes and aggression in adolescents ... - BMC Psychiatry - March 31st, 2023 [March 31st, 2023]