One of the fundamental assumptions of normative economics is that what
people prefer (like) is their business, but once we know what they like we can
consider the preference stable. Throughout a series of posts, I have given
examples of violations of this assumption. Now
it is time to ask a more fundamental question, namely: “Why we like what we
like?”.
Let’s imagine the following scenario: you have some unexpected time
off and you want to do something fulfilling for yourself. You decide that doing
some work in a different area is a good idea. You search on-line and find that there is an organization that has a program
to “save the foxes in Norway” (I have no idea if there are foxes in
Norway). The organization asks you to
pay 200 Euros for the privilege of saving Norwegian foxes. Would you pay
200 Euros for this privilege? If you are like most people, you will say “NO”.
Now, assume that you go on that organization’s web-site the following day and
you see that there is a “limited opportunity” to save the Norwegian foxes for
free. Would you do it now? If you are
like most people you would say “Yes”.
Now, imagine that your best friend in the world is in a similar situation.
She finds a different but very similar
organization that saves the foxes in Norway. She goes on the organization’s
website and sees that the organization
pays 200 Euros for her participation in the project of saving the Norwegian foxes.
Do you think she will say about enrolling in the project? If your friend is a
normal person she will say “Yes”. Before she gets to sing in the program,
however, the doorbell rings and some friends come over. The next day your friend
goes on the organization’s website and finds an announcement that says that for
a limited time they can’t pay the people who enroll in the saving Norwegian
foxes program, but they are happy to welcome people who would do the work for free. Do you think your friend
will enroll? The answer is most likely “No”.
If we look at the two scenarios
we see that they are very similar. The only
difference is that in the first scenario the organizations usually asks people
to pay for the privilege of saving Norwegian foxes, while in the second
scenario the (second) organization usually pays for people to save the Norwegian
foxes. This difference has a huge impact on the willingness to save the
Norwegian foxes for free. When people are initially asked to pay for saving
the Norwegian foxes they are more than happy to do it for free, whereas when
people are initially offered a payment for saving the Norwegian foxes they are
unwilling to do it for free.
The source of the difference is the lack of knowledge on how the
experience of saving Norwegian foxes will be. The simple hint of either
paying or being paid for saving the Norwegian foxes makes a huge difference in
people’s preferences towards this experience.
Now, let’s imagine two slightly different
scenarios. Let’s assume that the two programs of saving Norwegian foxes offered
by the two organizations last for two weeks each.
The organization asks for 200
Euros for the privilege of saving Norwegian foxes for two weeks. On this
organization’s website there is a poll asking:
“How much would you pay for saving the Norwegian foxes
for: 1 week/ 3 weeks/ 4 weeks?”
What do you think your answers
will be? For sure if you are assumed to pay 200 euros for two weeks of saving
Norwegian foxes, then you will be willing to hypothetically pay less than 200
for one week, more than 200 for three weeks and a bit more than for three weeks
for saving the Norwegian foxes for four weeks.
Now, let’s go the organization
that is willing to pay 200 euros for two weeks for you enrolling in the saving
the Norwegian foxes. On this
organization’s website there is a poll asking:
“How much would you want to be paid for saving the Norwegian
foxes for: 1 week/ 3 weeks/ 4 weeks?”
What do you think your answers
will be? For sure if you are paid 200 euros for two weeks of saving Norwegian
foxes, then you will ask to hypothetically be paid less than 200 for one week,
more than 200 for three weeks and a bit more than for three weeks for saving
the Norwegian foxes for four weeks.
As you can see the patterns are quite similar. However there is a
fundamental difference, namely that in the first scenario you are willing to
pay, whereas in the second you ask to be paid. Regardless of this, we can see
that there is coherence in the payments (willing to be made or demanded),
namely that for one week you asked to pay/be paid less than for two week and so
on.
Coherent arbitrariness is a very good example of the interaction
between the “Bird Brain” and the “Computer Brain” (System 1 and System 2). In one type of interaction the “computer
brain” will work using inputs from the “bird brain”. In the case of Coherent
arbitrariness the starting point is arbitrary (suggested by system 1) while the
subsequent judgments and behavior are coherent (actions of system 2) with the
starting point.
Another implication of Coherent
arbitrariness is that choices made at an
earlier point in time will influence related choices that take place at a later
time. In other words, a choice made
on a topic (such as saving the Norwegian foxes) will influence the subsequent choices with regard to the same topic.
Moreover, people will chose (behave) in
a manner consistent with the first choice (behavior).
A note has to be made on two
aspects of Coherent arbitrariness. First, there is a considerable dose of ambiguity regarding how the experience
of “saving Norwegian foxes” will be like. For sure in real life we encounter
many events or products that are clearly good or bad. At the same time we are
often faced with situations that abound in ambiguity.
Second, the degree of coherence is dependent on the extent to which a person
will be able to detect inconsistencies in her own behavior. The easier is for someone to detect inconsistencies in her own behavior, the more likely is that she will act coherently with her initial decision or behavior.
To sum up, when faced with decisions that involve ambiguity it is very
likely that people’s choices have a consistent dose of arbitrariness.
Subsequent decisions and behavior regarding the same topic will be coherent
with the initial (arbitrary) decision or behavior. The degree of arbitrariness
depends on the level of ambiguity, while the degree of coherence depends on the
ease of detecting inconsistencies in one’s own behavior.
This post is documented from: Ariely,
Dan, George Loewenstein, and Drazen Prelec (2006), "Tom Sawyer and the
Construction of Value." Journal of Economic Behavior & Organization,
60 (1), 1-10.
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