Here’s the second in the series on how fairness is interpreted differently by people around the world.
Joseph Henrich conducted a money-splitting experiment amongst UCLA students. He decided to use $160 for the experiment, which translated to 2.3 days worth of work. The rules – a student was given the money and was supposed to share a part with another undisclosed untraceable student. But if this student rejected the offer, both would walk away with nothing.
The most common split offered by students to another was 50/50, which the receiving partner always accepted. The participants said, “If I offered less than half, my partner wouldn’t accept the offer.” When asked if the recipients would accept an 80/20 offer – all of the partners scoffed, “that would be unfair”.
Then Henrich took the experiment to one of the most remote places on earth in the Peruvian Amazon – the Machiguenga tribe – that live in small villages, each family being self-sufficient, making its own tools and gathering its own food. Using a sum of 20 Peruvian soles that came to 2.3 days worth of work, Henrich conducted the same money-splitting experiment.
The Machiguenga participants offered incredibly low sums to their partners. Most offered an 85/15 split favoring the person making the offer. And the partners nearly always accepted them. Explained Henrich, “Several individuals made it clear they would accept any money, regardless of how much the proposer (splitter) was getting. They seemed to feel it was just bad luck that they were responders and not proposers.”
Some tribe members did offer 50/50 and when Henrich interviewed them he found out each one of these people had spent considerable time living among modern Westerners and felt that 50/50 split was the fair thing to do.
In the Amazon jungle it’s finders keepers, unlike US, Japan, Indonesia or Israel for that matter. It will be fascinating to conduct this experiment in different parts of India to find out what Indians from different states, castes and cultures deem fair.
Source: Does culture matter in economic behavior? Ultimate game bargaining among the Machiguenga of the Peruvian Amazon – Amercian Economic Review 90 (2000): 973-79.
Friends, I’m speaking at TEDxGateway on Bleep and Behavioural Design.
There are lots of interesting speakers lined up. So come over to NCPA, Mumbai on 8th Dec 2013 to listen and discuss some stimulating ideas and thinking that could change the way you view the world.
All the information is here – www.tedxgateway.com.
Hope to see some of you there,
Anand & Mayur.
Let us tell you why we think so. Our starting assumption is that most of the shopping online in India in the future will be done via plastic card (credit or debit card) rather than cash, because of convenience. We understand that cash on delivery is convenient too, but you still got to have cash to pay, so it’s not as convenient. And paying by card is a lot different than paying by cash.
Paying by card fundamentally changes the way we spend our money. When we buy something with cash, the purchase involves an actual loss – your wallet feels lighter. Credit cards, however, make the transaction more abstract and we don’t really feel the downside of spending money. As George Loewenstein, neuroscientist at Carnegie Mellon says, “The nature of credit cards ensures that your brain is anesthetized against the pain of payment.” Brain imaging experiments suggest that paying with plastic literally inhibits the insula. Insula is the region of the brain associated with negative feelings. It’s the brain area responsible for making sure you don’t get ripped off. So when the insula is inhibited, it makes a person less sensitive to the cost of an item, making him/her more willing to buy.
Spending money by card doesn’t make you feel so bad, so you spend money easily. And buying stuff over an app is even easier with the pressing of the ‘Buy Now’ icon. Not to forget, the Internet is full of deals that make people end up buying things that they don’t even need.
The debate is always on what’s better: to rely on intuition (feeling) or rely on deliberate thinking while making decisions. Fact is in some cases its better to rely on feeling and in some on deliberate thinking and the trick is to know which to choose when. This post is about learning how not to get fooled by a feeling from an experiment conducted by neuroscientist Read Montague, which demonstrates how our dopamine system leads us to lose money in the stock market.
In the simulated experiment, subjects were given $100 at the start. Players were to invest their money for twenty rounds and got to keep their earnings, if any. Interesting twist of the experiment was that Read Montague had people ‘play’ the Dow of 1929, Nasdaq of 1998, Nikkei of 1986 and S&P 500 of 1987 – what had been once real-life bubbles and crashes.
What the scientists observed from brain mapping, were signals emanating from dopamine rich areas of the brain, like ventral caudate, which was encoding the ability to learn from what-if scenarios. For example, the situation in which a player invested 10% of his total money – relatively small bet. Then he saw the market rise dramatically. What happened was his ungrateful dopamine neurons got fixated on the profits he missed. In such a situation, when the market was booming, like before the Nasdaq bubble of 1998, the players kept increasing their investments. Not to invest was to drown in the feeling of regret. The greedy brains were convinced that they’ve solved the stock market, but just when they are most convinced that it isn’t a bubble, the bubble burst. The Dow sank, the Nasdaq imploded and Nikkei collapsed. All of a sudden, those who regretted not investing more and subsequently invested more were now despairing their plummeting net worth. “When the markets head down,” says Montague, “you get the exact opposite effect. People just can’t wait to get out, because the brain doesn’t want the feeling of regret staying in. Investors dump any stock that’s declining. Panic.”
Jonah Lehrer, author of ‘How we decide’, says, “Our dopamine neurons that release the feel-good chemical, weren’t designed to deal with random oscillations of the stock market. The brain is so eager to maximize rewards that it ends up pushing its owner off a cliff. Casinos have learned to exploit this flaw of the human brain. So don’t try to perceive patterns when they don’t exist. The world is more random than you think it is. Don’t fixate on what might have been or obsess over someone else’s profits. But that’s what our emotions can’t understand.”
Now if you don’t get fooled in such circumstances, tell us how.
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Indiscriminate honking is a bad habit and a huge irritant in India, parts of Asia and South America, or even by cab drivers in NY. If you are visiting us from a country where the habit of honking is a problem, share this video on facebook, twitter, linkedin, pinterest and help spread the word.
A big thank you in advance for your support. To get us in touch with a Govt. or NGO representative of your country, write to us at email@example.com
Every share counts. Every little helps.
Anand and Mayur
For most us, the word ‘stocks’ or ‘shares’ is associated with feelings of it being risky, a gamble, incomprehensible, scary, involving the luck factor and so on. Understandably so, betting on the future value of a stock, is no easy task. Even the experts get it wrong a lot of the times. But I would like to drive your attention to a particular behaviour related to stocks, which shows how we make mistakes when selling stocks from our portfolio.
Consider this situation. You need money for an important event in your life and need to sell some stock. Amongst the stocks you own, say, Mata Power according to you is a winner, because if you sell it today you will have achieved a gain of Rs. 3,00,000. You hold an equal investment in Mata Airways, which you consider a loser, is currently worth Rs. 3,00,000 less than you paid for it. The value of both stocks has been stable in recent weeks. Which are you more likely to sell?
What happens is that our minds see the choice like this: I could close the Mata Power account and score a success for my record as an investor. Alternatively, I could close the Mata Airways account and add a failure to my record. Which would I rather do?
Daniel Kahneman, psychologist and nobel laureate in Economics, says if the problem is framed by us, as a choice between giving yourself pleasure and causing yourself pain, you will certainly sell Mata Power and enjoy your investment prowess. He calls this the disposition effect.
He says, investors set up a mental account for each share that they have bought, and want to close every account as a gain. It is only the very savvy expert, who would take a comprehensive view of the portfolio and sell the stock that is least likely to do well in the future, without considering it a winner or loser.
The disposition effect is a costly bias. If you care about your wealth rather than your immediate emotions, you will sell the loser Mata Airways and hang on to the winning Mata Power. But closing a mental account with a gain is a pleasure, but it is a pleasure we pay for.
Companies fall into a similar trap of continuing to fund a project even though the returns are now less favourable, simply because they have already put considerable amount of money. When faced with a choice of investing money in a new project that is considered likely to bring higher returns, it most often leads to favouring the option of continuing to fund the existing project.
Honking is so embedded in Indian driving etiquette that Audi India has confirmed, in media, having designed extra loud, ultradurable horns for vehicles sold in India. Meanwhile people face a rapidly growing problem with many side effects of noise pollution. Some of them being increased hyper-tension, blood pressure, hearing loss, increased risk of heart attacks and disturbed sleep patterns. Reports in Indian cities show that noise levels are way beyond the permissible limits. Truly we are all horny.
Honking like other behaviour, over time, becomes a habit. And habits are essentially automatic behaviour where one does not consciously think about the action, but rather, the decision-making happens automatically. So we thought that it was important to shift the driver from an automatic mode of honking as a habit, to make him deliberate on whether the situation really demanded that he honk. We needed to make the driver conscious of the habit of honking by giving him immediate feedback while the driver was still driving the car, so that the next time the driver honked only when he thought it was necessary, rather than honk indiscriminately.
This approach led us to create a ‘Horn Reduction System’ we’ve called Bleep that has proved to reduce honking amongst each and every one of participants by an average of 61%.
Bleep – A horn reduction system
Bleep is a device with a simple red button fitted in an easily accessible place on the dashboard of a car. The red button has a frown sketched on it and when the driver presses the horn, the red button begins to beep and flash. In order to switch the device off, the driver needs to press the red button.
The 6-month long experiment
Bleep has been tested on manual and automatic geared cars amongst 30 people including men, women and chauffeurs of private vehicles, over 6 months and over 3800 kms. The participants were given either of two cars – manually geared Swift or automatic Honda City, with Bleep fitted, to be driven for 4 days during the working weekdays. Two days with Bleep off and the next two days with Bleep on, so that we could compare the number of honks per kilometer in the control situation (pre-Bleep) with the experimental situation (post-Bleep). Bleep has been tested as triggering off every time the horn is pressed, which is a stricter version in the manually geared Swift car, as well as triggering off every third time the horn is pressed, which is more lenient, in the automatic Honda City. In the first phase of the experiment the drivers were not given any information about the experiment. In the second phase they were simply shown how the system works.
We have found a reduction in honking in each and every one of the participants wherein honks per km reduced between 19% to 96% (on an average by 62.5%) when Bleep was triggered every time the horn was pressed (stricter version). A reduction in honks per km was found between 16% to 91% (on an average by 60.3%) when Bleep was triggered every third time the horn was pressed (lenient version). These numbers prove that the reduction in honking relates to indiscriminate honking that drivers can do without.
The science of Bleep
The science behind the effectiveness of Bleep is that it assists the driver in reducing honking by using a visual-cum-sound reminder. The driver gets instant feedback when the red light with the frown beeps and flashes when he honks, making the driver conscious about his inappropriate behaviour of honking and making him deliberate about when he really required to honk. The driver having to physically switch off the reminder further helps in persuading him to honk lesser. The frown on the device is designed to indicate that honking is socially inappropriate behaviour. A study called ‘Overcoming Intuition’ done by Alter, Oppenheimer, Epley and Eyre has shown that frowning helps the brain reduce the reliance on intuition and activates analytical reasoning. Another research at the Stanford University School of Medicine has shown that peak brain activity (arresting attention) occurred during a short period of silence between musical movements, which is evidence that sounds that have a pause in between make you more alert. That’s why a seatbelt reminder like sound was used in the beep.
Bleep comes with many other unique features like recording, displaying and transmission of vehicle data like number of honks, speed at time of honk, location, time, etc., inside the vehicle or at a remote location and many other customised features. Patent pending.
Waiting in queues can elicit powerful emotions in us. Stress. Boredom. The nagging sensation that one’s life is slipping away. And of course we believe that the other line moves faster. While losing to the line at our left, drives us to despair, winning the race against the one to our right, does little to lift our spirits. We almost always fixate on the line we’re losing to and rarely the one we’re beating.
All of this makes for a lasting impression on your customers’ perception about your brand if you’re a hypermarket or a bank or an airline or any business whose business it is to serve people. So how does one tackle it?
Some years ago, executives at a Houston airport faced a troubling customer-relations issue. Passengers were lodging an inordinate number of complaints about the long waits at baggage claim. In response, the executives increased the number of baggage handlers working that shift. The plan worked: the average wait fell to eight minutes, well within industry benchmarks. But the complaints persisted.
Puzzled, the airport executives undertook a more careful, on-site analysis. They found that it took passengers a minute to walk from their arrival gates to baggage claim and seven more minutes to get their bags. Roughly 88 percent of their time, in other words, was spent standing around waiting for their bags.
So the airport decided on a new approach: instead of reducing wait times, it moved the arrival gates away from the main terminal and routed bags to the outermost carousel. Passengers now had to walk six times longer to get their bags. Complaints dropped to near zero!
Occupied time (walking to baggage claim) feels shorter than unoccupied time (standing at the carousel). “Often the psychology of queuing is more important than the statistics of the wait itself,” says, M.I.T. operations researcher Richard Larson, considered to be the world’s foremost expert on lines.
Our expectations further affect how we feel about lines. Beating expectations buoys our mood. All else being equal, people who wait less than they anticipated, leave happier than those who wait longer than expected. This is why Disney, the universally acknowledged master of applied queuing psychology, overestimates wait times for rides, so that its guests (never customers, always guests) are pleasantly surprised when they ascend ‘Space Mountain’ ahead of schedule.
This is a powerful ploy because our memories of a queuing experience, are strongly influenced by the final moments, according to research conducted by Ziv Carmon, a professor of marketing at the business school Insead and the nobel-winning behavioral economist Daniel Kahneman. When a long wait ends on a happy note, we tend to look back on it positively, even if we were miserable much of the time. Conversely, if negative emotions dominate in the final minutes, our retrospective audit of the process will skew toward cynicism, even if the experience as a whole was relatively painless.
But the biggest influence on our perception of queues has got to be ‘fairness’: what you feel when someone jumps the queue. If you haven’t faced a situation like this yet in India, where jumping the queue is a survival skill, you must be a celebrity. Ranbir Kapoor did it when I was first in line for the application of an international driving license. He assumed it was ok for celebrities to break queues. So he simply smiled, said sorry but guess what, it worked!
Illustration by Mayur Tekchandaney