Nuggets and Aphorisms

Food for thought. These first appeared in Amit Varma's blog, India Uncut

Friday, March 24, 2006

The world happens in real time

We tend to think people are driven by purposeful choices. We think big things drive big behaviors: if people don’t go to school, we think they don’t like school. Instead, most behaviors are driven by the moment. They aren’t purposeful, thought-out choices. That’s an illusion we have about others. Policymakers think that if they get the abstractions right, that will drive behavior in the desired direction. But the world happens in real time. We can talk abstractions of risk and return, but when the person is physically checking off the box on that investment form, all the things going on at that moment will disproportionately influence the decision they make. That’s the temptation element—in real time, the moment can be very tempting. The main thing is to define what is in your mind at the moment of choice. Suppose a company wants to sell more soap. Traditional economists would advise things like making a soap that people like more, or charging less for a bar of soap. A behavioral economist might suggest convincing supermarkets to display your soap at eye level—people will see your brand first and grab it.
Sendhil Mullainathan, an economist, quoted in "The Marketplace of Perceptions," a superb essay on behavioral economics by Craig Lambert.

(Link via email from Rohit Gupta.)
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