Although each choice may be close to maximizing and therefore result in only small losses, the cumulative effect of a series of repeated errors may be quite large. Thus, in my examples, decision makers are quite close to the intelligent, well-informed individuals usually assumed in economic analysis, but cumulatively they make seriously wrong decisions that do not occur in standard textbook economics. This lecture discusses and illustrates sev- eral "pathological" modes of individual and group behavior: procrastination in decision making, undue obedience to authority, membership of seemingly normal individu- als in deviant cult groups, and escalation of commitment to courses of action that are clearly unwise. In each case, individuals choose a series of current actions without fully appreciating how those actions will af- fect future perceptions and behavior.
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Although each choice may be close to maximizing and therefore result in only small losses, the cumulative effect of a series of repeated errors may be quite large. Thus, in my examples, decision makers are quite close to the intelligent, well-informed individuals usually assumed in economic analysis, but cumulatively they make seriously wrong decisions that do not occur in standard textbook economics.
This lecture discusses and illustrates sev- eral "pathological" modes of individual and group behavior: procrastination in decision making, undue obedience to authority, membership of seemingly normal individu- als in deviant cult groups, and escalation of commitment to courses of action that are clearly unwise. In each case, individuals choose a series of current actions without fully appreciating how those actions will af- fect future perceptions and behavior.
The standard assumption of rational, forward- looking, utility maximizing is violated. The nonindependence of errors in decision mak- ing in the series of decisions can be explained with the concept from cognitive psy- chology of undue salience or vividness. I gratefully acknowledge support from the Insti- tute for Policy Reform, the Sloan Foundation, and the National Science Foundation for research support un- der grant no.
Procrastination occurs when present costs are unduly salient in comparison with future costs, leading individuals to postpone tasks until tomorrow without foreseeing that when tomorrow comes, the required action will be delayed yet again. Irrational obedience to authority or escalation of commitment occurs when the salience of an action today depends upon its deviation from previous actions. When individuals have some disutil- ity for disobedience and a leader chooses the step sizes appropriately, individuals can be induced to escalate their actions to ex- traordinary levels; the social psychologist Stanley Milgram led subjects to ad- minister high levels of electrical shock to others in fictitious learning experiments.
The subjects were induced into actions that were contrary to their true moral values. In the latter half of the lecture I will give examples to illustrate how sequences of errors, each error small at the time of the decision, cumulate into serious mistakes; these deci- sions also illustrate how laboratory condi- tions of isolation, carefully engineered in the Milgram experiment and necessary for the type of behavior he induced, in fact commonly occur in nonexperimental situations.
Thus the sequences of errors that are the subject of this lecture are not rare and unusual, only obtainable in the laboratory of the social psychologist, but instead are common causes of social and economic pathology. Although an analysis of behavioral pathology might initially appear to be out- side the appropriate scope of economics, I shall argue that, in important instances, such pathology affects the performance of indi- viduals and institutions in the economic and social domain.
Economic theories of crime, savings, and organizations are deficient and yield mis- leading conclusions when such behavior is ignored. The behavioral pathologies that I will describe also have consequences for policies toward, for example, savings, sub- stance abuse, and management.
Individuals whose behavior reveals the various pathologies I shall model are not maximizing their "true" utility. The princi- ple of revealed preference cannot therefore be used to assert that the options that are chosen must be preferred to the options that are not chosen.
Individuals may be made better off if their options are limited and their choices constrained. Forced pen- sion plans may be superior to voluntary savings schemes; outright prohibitions on alcohol or drugs may be preferable to taxes on their use reflecting their nuisance costs to others; and an important function of management may be to set schedules and deadlines and not simply to establish "ap- propriate" price-theoretic incentive schemes to motivate employees.
Salience and Decisions A central principle of modern cognitive psychology is that individuals attach too much weight to salient or vivid events and too little weight to nonsalient events. Richard Nisbett and Lee Ross de- scribe the following thought experiment, that they consider the "touchstone" of cog- nitive psychology, just as the shifting of a supply or a demand curve is the central thought experiment of economics.
Let us suppose that you wish to buy a new car and have decided that on grounds of economy and longevity you want to purchase one of those stal- wart, middle-class Swedish cars- either a Volvo or a Saab. As a prudent and sensible buyer, you go to Con sumer Reports, which informs you that the consensus of their experts is that the Volvo is mechanically superior, and the consensus of the readership is that the Volvo has the better repair record. Armed with this information, you decide to go and strike a bargain with the Volvo dealer before the week is out.
In the interim, however, you go to a cocktail party where you announce your intention to an acquain- tance. He reacts with disbelief and alarm; "A Volvo! My brother-in-law had a Volvo. First, that fancy fuel injection computer thing went out.
Next he started having trouble with the rear end. Had to replace it. Then the transmission and the clutch. Fi- nally sold it in three years for junk. Mean repair records are likely to remain almost unchanged. Yet Nisbett and Ross argue that most prospective car buyers would not view the new information so complacently. An experiment by Eugene Borgida and Nisbett confirms the intuition that salient information exerts undue influence on decisions.
Freshmen at the University of Michigan with a declared psychology major were chosen as subjects. Students were asked to express preferences concerning psychology electives. Before making this de- cision, a control group was given only mean psychology course evaluations; others were, in addition, exposed to a panel discussion by advanced psychology majors selected so that their course evaluations corresponded to the mean.
As in the Volvo thought exper- iment, vivid information played a greater role than pallid information; compared to the control group, those exposed to the panel chose a higher fraction of courses rated above average. To counter the argu- ment that this bias might be due to thought- lessness because of the unimportance of the decision, Borgida and Nisbett note that the bias was greater for those who later entered the major than for those who dropped out. Procrastination Procrastination provides the simplest ex- ample of a situation in which there are repeated errors of judgment due to unwar- ranted salience of some costs and benefits relative to others.
In this case each error of judgment causes a small loss, but these er- rors cumulatively result in large losses over time and ultimately cause considerable re- gret on the part of the decision maker. Let me illustrate with a personal story and then show how such behavior can be modeled. Some years back, when I was liv- ing in India for a year, a good friend of mine, Joseph Stiglitz, visited me; because of unexpected limitations on carry-on luggage at the time of his departure, he left with me a box of clothes to be sent to him in the United States.
Each morning for over eight months I woke up and decided that the next morning would be the day to send the Stiglitz box. This occurred until a few months before my de- parture when I decided to include it in the large shipment of another friend who was returning to the United States at the same time as myself. The preceding story can be represented mathematically in the following way. The box was left with me on day 0. At the end of the year, at date T, the box could be cost- lessly transported.
I saw no reason to attach any discount rate to his use of the box. However, each day when I awoke, the activ- ities I would perform if I did not mail off the Stiglitz box seemed important and pressing, whereas those I would undertake several days hence remained vague and seemed less vivid. I thus overvalued the cost of sending the box on the current day rela- tive to any future day by a factor of 6.
This caused me to procrastinate. Ultimately, I decided to simply wait and send it costlessly at my departure. Consider my decision process. The factor S represents the extra salience of sending the box on that day. I had procrastinated too long. Three key features of the situation resulted in procrastination. First, the time be- tween decisions was short. Second, in each period there was a small, but not a minus- cule, "salience cost" to undertaking the job now rather than later.
Procrastination: Substance Abuse, Savings, and Organizational Failures At first glance, my examples of procrasti- nation may appear to be of no relevance to economics. However, I want to argue that such behavior may be critical in understand- ing the causes of such varied problems as drug abuse, inadequate savings and some types of organizational failure. Substance Abuse It has often been observed that consumers are knowledgeable about their deci- sions, and that their decisions are utility maximizing.
Ethnographies of drug users suggest that drug use is no exception. Gary Becker and Kevin Murphy and George Stigler and Becker have de- veloped the theory of such behavior in their forward-looking models of rational addiction. In these models, use of a good affects the future enjoyment of its consumption, but people correctly foresee these changes in taste.
The application of such models, combined with utilitarian ethics, leads to the conclusion that drug use should be le- galized with a tax reflecting its nuisance to others. This is a poor approximation for low val- ues of 6 because for low values of 6,it does not pay to procrastinate. This increases the total cost of the project by a multiple that is the square root of 6. In this example, a small salience cost of beginning a project results in losses from future actions that are a multiple of the cost.
For example, if T is days and 6 is 2, the salience cost of beginning the project rela- tive to the total nonprocrastinating cost is only. But the total cost of completing the project increases by 41 percent I do not agree with this conclusion, be- cause I do not agree that the model of forward-looking, rational behavior accurately describes the way in which individuals decide on drug or alcohol intake. Most drug abusers, like most chronically overweight in- dividuals, fully intend to cut down their intake, since they recognize that the long- run cost of their addiction exceeds its bene- fits.
They intend to stop-tomorrow. Individuals following the procrastination model are both maximizing and knowledgeable, and yet their decisions are not fully rational. For example, psychologist Roger Brown de- scribes addictions in the following way. Actions like smoking a cigarette, hav- ing a drink, eating a candy bar, and working overtime to "catch up" all lead to immediate and certain gratifi- cation, whereas their bad consequences are remote in time, only prob- abilistic, and still avoidable now.
It is no contest: Certain and immediate re- wards win out over probabilistic and remote costs, even though the rewards are slight and the possible costs lethal. See, for example, Cheryl Carpenter et al.
They apply this knowledge to avoid some of the worst potential consequences of drug use. An interview with Don, an "angel dust" PCP user in the Seattle-Tacoma area reveals the knowledge of the long-term ef- fects of drug use, and also an inability to use the knowledge to quit. Savings The procrastination model may also per- tain to intertemporal savings and consumption decisions. Curiously, economists who build models with utility functions of this sort consider themselves to be modeling the behavior of rational consumers.
Yet early discussion of impatience viewed discounting as irrational behavior. Irving Fisher regarded such impatience as evidence of lack of foresight or lack of will. In this regard, he writes, Generally speaking, the greater the foresight, the less the impatience and vice versa.. This is illustrated by the story of the farmer who would never mind his leaking roof.
When it rained he could not stop the leak, and when it did not rain there was no leak to be stopped! Among such persons, the preference for present gratification is powerful because their anticipation of the future is weak.
A clear moral of the procrastination model is that time-inconsistent behavior is especially apt to occur when there is some fixed cost perhaps not very great to begin- ning a task, the "periods" are short, and the per period cost of delay is low. Many per- sonal financial decisions satisfy these condi- tions. A good example concerns the behav- ior of junior faculty at Harvard. This could be done at any time and took less than an hour.
In , 51 percent of the elderly had no income from financial assets; 78 percent had less than 20 percent of their income from financial assets Michael Hurd, , p. This stark absence of financial asset income is consistent with the hypothe- sis that most households would save very little, except for the purchase of their home and the associated amortization of mortgage principal, in the absence of private pension plans.
Partly because these addi- tions to financial assets are so small, some seemingly paradoxical results have been ob- tained. Phillip Cagan and George Katona , for example, find a positive relation between pension plans and private saving.
Procrastination and Obedience
Akinolabar Undue obedience to authority can be a product of procrastination when disobedience of authority is seen as objectionable. It illustrates that, like Synanon, members are forced to obey or not obey their leaders while taking into consideration the possible consequence of their obedience. In each of these cases, the observed this neutral definition is misleading. Thus, the failure of the diet: The model can be described like this: Previous 12 Time Thieves. What does procrastination tell us about ourselves?
Procrastination and Obedience (Akerlof 1991)
Modern economics assumes that individuals are rational maximizers, who, i n the presence of costly irzjounzutiorz, sometimes make mistakes. Recently, George Akcrlof has challenged this presumption. Recently, this venerable idea has received a refurbishing from a distinguished modern economist, George Akerlof. Anderson, PhD. N o 2 April. I n r Americaii Journal of Economics and Sociology Salience We contend that the basic thesis offered by Akerlof is unsound, and tlie many and drug use may make potential users better off than merely taxing intoxicants; public policy recommendations he proffers cannot be justified on its basis.
AKERLOF PROCRASTINATION OBEDIENCE PDF