Friday, March 03, 2006

Framing behavioral economics: glory by association

The authors [Daniel Kahneman of Princeton and Amos Tversky of Stanford] argued that the ways in which alternatives are framed—not simply their relative value—heavily influence the decisions people make. ... [their] rigorous equations pierced a core assumption of the standard model [in economics] -— that the actual value of alternatives was all that mattered, not the mode of their presentation (“framing”).

From this overview of behavioral economics by Craig Lambert in Harvard Magazine. Do read it; it's really great. What I say below is just an interesting [to me, at least] observation, and takes nothing away from the article.

So, where were we? Yeah. Framing. It's important. The article goes on to frame behavioral economics itself in an interesting way:

To be fair, the naysayers would have agreed that the rational model only approximates human cognition—“just as Newtonian physics is an approximation to Einstein’s physics,” [David] Laibson [professor of behavioral economics at Harvard] explains. “Although there are differences, when walking along the surface of this planet, you’ll never encounter them. If I want to build a bridge, pass a car, or hit a baseball, Newtonian physics will suffice. But the psychologists said, ‘No, it’s not sufficient, we’re not just playing around at the margins, making small change. There are big behavioral regularities that include things like imperfect self-control and social preferences, as opposed to pure selfishness. ...”

I don't know if this framing technique has a name; I would just call it 'glory by association'.

There is also a second interesting thing going on here. And that is the way David Laibson -- who is quoted in the above paragraph -- tries to explain a common, everyday finding (I mean, is it so hard to convince people that their urges have a significant non-rational, non-selfish and emotional components?) using an uncommon, hard, and essentially impenetrable idea of Einstein's theory of relativity.