I believe that incentives drives behaviours. That is why big bureacracies are bound to retain mediocre individuals and repel talents. It is why high-paying jobs attract more people even if they are soul-sucking. It is also why high-impact but mediocre-paying jobs like teaching and nursing have people leaving in droves.
But incentives can also be volatile because market signals in the short term may not be a good reflection of fundamentals. That’s why people end up behaving in sub-optimal ways in pursuit of short-term gains. This could involve forging qualifications, attempting to get an increment from attending some third rate data analytics course, etc.
Can we trust incentives alone to govern our societies? Probably not. Because our purpose is greater than just responding to sticks and carrots. So more important to identify what purpose we want to fulfill and allow that to drive us forward. Blind pursuit of incentives bring us nowhere.
A friend who has a workaholic boss became really offended when my friend waxed lyrical about not wanting to work all the time and preferring to have more time with family should his life end abruptly. The boss countered “do you think I really want to work all the time?” This is probably a good question for most workaholics to ask themselves, myself included.
Work has become more than just pure toil and pains of labour. It has become fun, more aligned with passion, with a veil of impact and meaning attached to it, and a lot friendlier (ie. Restful) to the human physique. Perhaps more importantly, our expectations on what we can consume through our wages from labour has risen spectacularly. So work becomes even more central in our lives. And in most cases, we come to see it as so central it is such an integral part of our identities.
So it is strange that we still get offended when it is made explicit that we have allowed work to become so much of us. Maybe because something inside us realise that is true. That in the short term, while we may be enjoying the dopamine hits of problem-solving in work and earning a great income; in the long run, that is not what we are made for. We are made to be more than our worker selves.
And perhaps for some of us, it’s time to discover ‘what else’.
I was looking for George Arkelof and Robert Shiller’s Animal Spirits in the library but it was on loan so I decided to look for something else in the Call Number 330 (which some library-goers might note is the ‘Economics’ section) area. I stumbled on ‘Free Market Madness‘ by Peter Ubel.
Ubel’s book is a pretty simple and short one, I took only one and a half day of on-and-off reading to finish it, one of my fastest timing for a non-fiction. Admittedly, the text and paragraph spacings are pretty wide and the book is thin for a hard-cover one. It is largely about behavioural economics, a topic which I hardly have a hard time understanding so the speed by which I finished the book didn’t really surprise me. Nevertheless, I hardly consider Ubel’s Free Market Madness to be that good a book.
For a start, I understand that Ubel is trying to make a case for government intervention in the economy for markets where consumers are ill-placed to make wise choices and where market imperfections like the inadequacy of useful information and the apparent misalignment of producer’s interests and consumer’s interests are significant. He focuses on the case of junk food causing obesity though he touched on other cases such as insufficient retirement funding and overspending on branded drugs. Unfortunately, while he makes a good case for the fact that humans are not entirely rational (something we all know at least implicitly), based mainly on the study of other behavioural scientists and economists, he didn’t give very outstanding or original proposals on how to get around this problems. Even then, he fails to make a good connection with how the conflict between the short-term-self and long-term-self can be resolved by the governments; the question of what sort of happiness/well-being (long term or short term) the ‘Big Brother’ he is advocating should maximize it left to speculation by the reader.
The little technical issues in the examples he cited in his book is by and large criticized by David Gordon, senior fellow of the Mises Institute. Austrian School economists probably think that no one can be innocently obese; it takes two hands to clap and producers and consumers must agree on the transaction for it to take place. In other words, people are obese through a process of attempting to maximize utility within their own accounting. On the other hand, Ubel thinks that the faculty accounting on the part of the consumers need to be rectified – in other words, internalities need to be addressed. The problem is we cannot exactly agree on which accounting is correct; after all, if one’s belief in the goodness of a product can provide additional positive experience in consuming it, the faculty accounting can have such a self-fulfilling effect. I believe I have the tendency to agree with the ordinary economists that humans would have a fair degree of foresight and self-control and in an event where they lack such discipline and ability, the market punishes them very much in the way evolution eliminates those who lack the fitness.
His proposals are rather unoriginal, citing stuff like fat taxes once mentioned in The Economist, default options, persuasion campaigns (largely moral suasion) and possibly outright ban. He did discuss implications on liberty and such but doesn’t dwell much on it – often it seems to me like he’s saying ‘I just want everything to be good and right, I don’t care how’.
I do agree with Ubel, that humans in our age needs more self-control and the public’s awareness of the ills of the markets, the ills of different products that are so ubiquitous in our world today needs to be improved. This self-improvement in discipline and improvement of public knowledge can come from bottom-up rather than top-down. After all, given the circumstances today, it is likely that the group with better knowledge of the markets, those making wiser market decisions and the ones who have better self-control is going to thrive. Parents will have to recognize that and respond accordingly (not too much to hope for given the limited rationality of humans I hope) when educating their children and developing them. And I must have to say that in markets like healthcare and pharmaceutical products, doctors like Ubel himself will have to take the responsibility of protecting their patients from the ills of the market/industry. The imperfect information is really too serious in this market and Ubel is right to say that doctors are practically making decisions for patients – doctors’ recommendations are almost equals to patients’ choice (doctors can’t possibly give their diagnosis to patients and get them to choose medicine for themselves). The government can only do so much to protect the doctors from manipulation by the industry and thus defend the interests of the patients. Physicians themselves will have to take the big step to be responsible doctors.
On the whole, Free Market Madness gives us good idea of how behavioural economics came into being and how traditional economic analysis of indifference is difficult to apply in today’s complex world. As a result, rationality of human beings becomes undermined today. Beyond that, it makes a good alert on the problems humans might have with markets that makes us poor economic agents – in long run we will get exploited somehow. We will need to exploit back by becoming producers of certain exploitive products ourselves or try to defend ourselves through self-restraint and aggressive self-education. Otherwise, if the book is hoping to inspire any sort of action, it might need to be much more.
The weeks seems to be passing faster as the entries on ERPZ becomes more frequent. The one-entry-per-day rate now is not exactly very sustainable without additional support from guest writers and contributors so I’m once again calling out for interested parties to leave a comment with your emails so I might be able to contact you and get your contribution up.
The linked article mentioned about the ‘paradox of choice’, which is the topic of Barry Schwartz’stalk on TED.com. He explains the disadvantages of being offered too many choices and the problems associated with the implications of having too many choices in the first place on the psyche of the person after making the decision, citing Dan Gilbert’s presentation in the same TED conference.
Barry is another great speaker, mixing humour consistently throughout his talk with a steady flow of cartoons. The point he makes in our escalating expectations is very real and worth pondering over for anyone who wants to exert discipline on their thinking to keep their mind healthy. He claims he wrote the book, The Paradox of Choice to explain to himself why he felt worst when he got a better jeans than he previously did.