24 May 2009

The week in comments

Whether influenced by Mary Roach and the infamous "pig video" or Yves Behar and Forrest North's easy banter, there was a definite cheeky lilt to the comments this week. Here's a quick look at the fun:

On Dan Ariely's talk: Are we in control of our own decisions?:
So where's that slightly uglier version of myself ; D ? -- Evelyn via facebook

On Mary Roach's talk: 10 things you didn't know about orgasm:
.. and that's why we have swine flu. Good God Man, put on some gloves! -- Brenda via facebook

Disclaimer: That pig video does not represent the view of all Danes. ;-) -- Klaus

Mary Roach makes pig insemination fun -- rutila via Twitter

On Carolyn Porco's talk: Could a Saturn moon harbor life?:
So? IS THERE OIL THERE?! ;) -- Tom via facebook

On Yves Behar's talk on supercharged motorcycle design:
They should make these with baseball cards in the spokes. -- Mayo via facebook

But how about ending things on a sweeter note?

On the exclusive content provided to facebook fans after reaching 100,000 members:
Thank you for daily inspiration and my Master's thesis topic. Thank you for helping me blow minds, challenge preconceptions and change the world. I'm not ready yet, but someday I'd like to present my research at TED, I would consider it a lifetime accomplishment. -- Spencer via facebook

Posted by Shanna Carpenter | Permalink

Permalink | Comments () | TrackBack (0)

19 May 2009

Dan Ariely: 2008 was a good year for behavioral economics

Dan Ariely's second TEDTalk premieres today -- and so does the second, revised and expanded edition of his book Predictably Irrational. It's full of new material, incuding Ariely's thoughts on the irrationality of the economic collapse that happened since the book debuted in February 2008. Below, Ariely muses on the way the world has changed between then and now:

Before the financial crisis of 2008, it was rather difficult to convince people that we all might have irrational tendencies.

For example, after I gave a presentation at a conference, a fellow I’ll call Mr. Logic (a composite of many people I have debated with over the years) buttonholed me. “I enjoy hearing about all the different kinds of small-scale irrationalities that you demonstrate in your experiments,” he told me, handing me his card. “They’re quite interesting -- great stories for cocktail parties.” He paused. “But you don’t understand how things work in the real world. Clearly, when it comes to making important decisions, all of these irrationalities disappear, because when it truly matters, people think carefully about their options before they act. And certainly when it comes to the stock market, where the decisions are critically important, all these irrationalities go away and rationality prevails.”

Given these kinds of responses, I was often left scratching my head, wondering why so many smart people are convinced that irrationality disappears when it comes to important decisions about money. Why do they assume that institutions, competition, and market mechanisms can inoculate us against mistakes? If competition was sufficient to overcome irrationality, wouldn’t that eliminate brawls in sporting competitions, or the irrational self-destructive behaviors of professional athletes? What is it about circumstances involving money and competition that might make people more rational? Do the defenders of rationality believe that we have different brain mechanisms for making small versus large decisions and yet another for dealing with the stock market? Or do they simply have a bone-deep belief that the invisible hand and the wisdom of the markets guarantee optimal behavior under all conditions?

As a social scientist, I’m not sure which model describing human behavior in markets -- rational economics, behavioral economics, or something else -- is best, and I wish we could set up a series of experiments to figure this out. Unfortunately, since it is basically impossible to do any real experiments with the stock market, I’ve been left befuddled by the deep conviction in the rationality of the market. And I’ve wondered if we really want to build our financial institutions, our legal system, and our policies on such a foundation.

As I was asking myself these questions, something very big happened. Soon after Predictably Irrational was published, in early 2008, the financial world blew to smithereens, like something in a science fiction movie. Alan Greenspan, the formerly much-worshipped chairman of the Federal Reserve, told Congress in October 2008 that he was “shocked” (shocked!) that the markets did not work as anticipated, or automatically self-correct as they were supposed to. He said he made a mistake in assuming that the self-interest of organizations, specifically banks and others, was such that they were capable of protecting their own shareholders. For my part, I was shocked that Greenspan, one of the tireless advocates of deregulation and a true believer in letting market forces have their way, would publicly admit that his assumptions about the rationality of markets were wrong. A few months before this confession, I could never have imagined that Greenspan would utter such a statement. Aside from feeling vindicated, I also felt that Greenspan’s confession was an important step forward. After all, they say that the first step toward recovery is admitting you have a problem.

Still, the terrible loss of homes and jobs has been a very high price to pay for learning that we might not be as rational as Greenspan and other traditional economists had thought. What we’ve learned is that relying on standard economic theory alone as a guiding principle for building markets and institutions might, in fact, be dangerous. It has become tragically clear that the mistakes we all make are not at all random, but part and parcel of the human condition. Worse, our mistakes of judgment can aggregate in the market, sparking a scenario in which, much like an earthquake, no one has any idea what is happening. All of a sudden, it looked as if some people were beginning to understand that the study of small-scale mistakes was not just a source for amusing dinner-table anecdotes. I felt both exonerated and relieved.

While this is a very depressing time for the economy as a whole, and for all of us individually, the turnabout on Greenspan’s part has created new opportunities for behavioral economics, and for those willing to learn and alter the way they think and behave. From crisis comes opportunity, and perhaps this tragedy will cause us to finally accommodate new ideas, and -- I hope -- begin to rebuild.

Posted by Emily McManus | Permalink

Permalink | Comments () | TrackBack (0)

19 May 2009

Are we in control of our own decisions? Dan Ariely on TED.com

Speaking at the 2008 EG conference, behavioral economist Dan Ariely, the author of Predictably Irrational, uses classic visual illusions and his own counterintuitive (and sometimes shocking) research findings to show how we're not as rational as we think when we make decisions. (Recorded at EG'08, December 2008, in Monterey, California. Duration: 17:26.)

Watch Dan Ariely's talk from EG'08 on TED.com, where you can download this TEDTalk, rate it, comment on it and find other talks and performances from our archive of 400+ TEDTalks.

Get TED delivered:
Subscribe to the TEDTalks video podcast via RSS >>
Subscribe to the iTunes video podcast
Subscribe to the iTunes audio podcast
Get updates via Twitter >>
Join our Facebook fan page >>

Subscribe to the TED Blog >>

Posted by TED Staff | Permalink

Permalink | Comments () | TrackBack (0)

17 March 2009

Why we think it's OK to cheat and steal (sometimes): Dan Ariely on TED.com

Behavioral economist Dan Ariely studies the bugs in our moral code: the hidden reasons we think it's OK to cheat or steal (sometimes). Clever studies help make his point that we're predictably irrational -- and can be influenced in ways we can't grasp. (Recorded at TED2009, February 2009, in Long Beach, California. Duration: 16:23.)

Watch Dan Ariely's talk from TED2009 on TED.com, where you can download this TEDTalk, rate it, comment on it and find other talks and performances from our archive of 400+ TEDTalks -- including more unconventional explanations.

On the TED Blog: Read Dan Ariely's take on the Bernie Madoff scandal >>

Get TED delivered:
Subscribe to the TEDTalks video podcast via RSS >>
Subscribe to the iTunes video podcast
Subscribe to the iTunes audio podcast
Get updates via Twitter >>
Join our Facebook fan page >>

Subscribe to the TED Blog >>

Posted by TED Staff | Permalink

Permalink | Comments () | TrackBack (0)

13 March 2009

Dan Ariely offers 3 irrational lessons from the Bernie Madoff scandal

Dan Ariely, the author of Predictably Irrational, presented a jaw-dropping talk on cheating and dishonesty at TED2009. We're posting Ariely's TEDTalk next Tuesday, and we asked him for his thoughts on the Bernie Madoff scandal unfolding now in New York:

The first chapter of the Bernie Madoff fiasco has come to a close, with Madoff pleading guilty to 11 charges of fraud yesterday.

Madoff's massive Ponzi scheme was horrific on many levels. But while we watch the next phase of the scandal, it's important to ask: What lessons are we going to learn from this? I can see three lessons that relate to my work studying human irrationality -- and in particular, some non-useful lessons we might learn.

One lesson that individuals and foundations are likely to take from the Madoff scandal is that in addition to diversifying their portfolio across several investments (stock, bonds, equity, cash), they also need to diversify their investments among several advisors. While the idea of diversifying among advisors has some merit -- and it could reduce the exposure risk of another Madoff scandal -- it will also make the task of managing portfolios much more difficult and much less efficient. Imagine that you have $1,000,000, split among four advisors. You will need a whole new level of coordination among them so they can have the right amount of cash, bonds, stocks etc., across all of your assets.

And I think that people will begin to over-diversify across investors. Why? Because when we have one large and salient instance in our minds, it can be so powerful that we overemphasize it. This same effect is very apparent in what we call "the identifiable victim effect," and it is the reason that we overemphasize the risks of a shark attack, and underestimate the risks of riding a bike without a helmet. In general, what we find when there's one single vivid event is that people overweight it -- we focus on it too much. So that's the first lesson: We're going to learn from the Madoff scandal, but we are going to overdo it.

Read the full essay from Dan Ariely -- including two more non-useful lessons -- after the jump >>

And watch for Dan Ariely's TEDTalk next Tuesday, March 17.

Dan Ariely will be speaking in New York City on Monday, March 16, on the floor of the New York Stock Exchange. Details here >>

Photo: TED / Asa Mathat

Posted by Emily McManus | Permalink

Permalink | Comments () | TrackBack (0)

07 February 2009

Twitter Snapshot: Dan Ariely on testing our intuition

Behavioral economist Dan Ariely gave a thought-provoking presentation on human irrationality and intuition in this morning's first session at TED2009. Here are some attendees' reactions via Twitter:

Dan Ariely became intersted in behavioral science while in hospital & thinking abt what hurts more: rip off bandage fast or slow -- brainpicker

Dan Ariely: "A lot of people cheat a little bit regardless of incentive or risk." -- heartnsoul

"Signing an honor code reduced cheating significantly." -- heartnsoul

Dan Ariely shares a lesson from behavioral economics "We have many intuitions in life, and many of those intuitions are wrong." -- brainpicker

Behavioral economist Dan Ariely at #ted gives great talk on cheating/intuition. "Unless we test our intuitions we won't do better" -- HelenWalters

Ariely is killer awesome. He shows the nuances for predictability instead of painting a b&w picture of economics and stats. -- missrogue

Our intuition says that TED really liked Dan. Is Twitter snapshot a viable test?

Posted by TED Staff | Permalink

Permalink | Comments () | TrackBack (0)