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.