A few weeks ago I presented my talk, “Of Two Minds”, at a Marketing Seminar for the Yale School of Business. Check it out:
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Debate about Irrationality and the Economic Crisis
I recently chimed in on a healthy debate on the Harvard Business School website about the role that irrationality played in creating our current economic crisis. I’m including my comment here, but you can click below to see the entire debate.
“Two cents from a primary care physician:
I am a physician at the University of Michigan and an expert on how people make decisions, having conducted decision-making research for a decade and a half. Politically speaking, I’m a flaming moderate — I marvel at the wonders of capitalism, but at the same time I’m painfully aware of the limits of free markets.
We human beings are imperfect decision-makers. We have a limited ability to hold complex information in our heads, even when this information is relevant to important decisions we face. We are often harmed by our own worst instincts, prey to limited willpower and susceptible to manipulation by people who know more about the things that influence our own behavior than we do.
Unlike commentor number one, then, I don’t believe that limiting temptation is an insult, nor that it is an unjustified tampering with human nature. Instead, I think the right kind of policies, which reduce the chance we will harm ourselves, are an intelligent response to the scientific recognition that our willpower and our decision-making ability are often quite limited.
And unlike commentor number 11, who says that “the real culprit is not the free market,” I would say — there is no single culprit. This mess is big enough to blame on plenty of things: on a government hooked on promoting homeownership, on a regulatory system that allowed people to take out loans that were beyond their means, and on consumers who often didn’t understand the terms of their own mortgages and who were too often unrealistically optimistic that their home prices or their take-home pay would rise fast enough that their unaffordable houses would become affordable.
The free market works best when all people behave rationally. Policies work best when they acknowledge that human nature is a complicated mix of rational and irrational behaviors, and that the free market needs to be tweaked accordingly.”
Click HERE to go to the original blog. I chimed in at position #35.
Lance is Back: Time to Make EPO Legal?
Lance Armstrong will soon be competing again in bicycle races around the world, meaning that the casual biking fan will once again show interest in the sport. It also means that doping allegations against Armstrong are likely to resume. If Lance wins some big races — at his age and after so long away from the sport — some people will be convinced he has found a way to cheat. If he loses, then who cares about his age and his time away from the sport — his losses will be evidence that he must have cheated in the past and is failing at the sport now only because it’s harder to cheat.
I confess to having mixed feelings about the cheating rampant in sports like bicycling. No system will ever pick up all the cheaters. Part of me, then, thinks we should let people do whatever they want — mainline steroids, experiment with gazelle DNA, whatever — and let the fastest creature win.
But a larger part of me yearns for clean, unadulterated performances. I’d like to see what humans can do when pushed to their natural limits.
When it comes to EPO, however, I am less conflicted. I don’t see the point in banning this drug, when there are natural ways to reap its benefits.
EPO is a hormone secreted naturally by the kidneys, to stimulate the body to produce red blood cells. Red blood cells carry oxygen around our bodies. And oxygen, I have discovered, is a good thing to have in abundance when riding a bicycle up a relentless incline at high altitude.
Our bodies normally produce enough EPO to keep our hemoglobin level (that’s the blood test we doctors rely upon to assess oxygen carrying capacity) at a standard level, a level that varies a bit person to person within a fairly narrow range. A person who takes EPO, however, will experience a rise in their hemoglobin count. A person who takes too much EPO, in fact, will get so many extra red blood cells that their blood will become thick, and they will risk experiencing a stroke.
Athletes who use EPO try to increase their hemoglobin level enough to increase their performance, without experiencing a stroke. This isn’t too hard to do. There’s a good margin of error.
In fact, athletes have found natural ways to increase their hemoglobin supply. The simplest way is to simply train in high altitude. When our bodies are regularly deprived of oxygen, our kidneys squeeze out EPO so we can absorb available oxygen more efficiently. Some athletes, rather than train at a high altitude, sleep in specialized tents that mimic the conditions of high altitude.
Do you see why I’m ambivalent about EPO? We live in a strange world, where it is wrong to boost your hemoglobin supply by taking synthetic EPO, but okay to do so by sleeping in a special tent. We live in a world where you’re banned from sports if you live in Texas and inject EPO, but rewarded if you live in the Himalayas and benefit from your body’s natural EPO production.
I think we should lift the ban on EPO and make rules that set limits on hemoglobin levels. Athletes will be banned from performing if their hemoglobin exceeds some level, put on probation if it is in some gray zone, and allowed to compete if it’s below the accepted cutoff. Professional athletes would monitor their own hemoglobin, take EPO or sleep in a specialized tent if their hemoglobin falls below their target, and drain some blood out of their system if their hemoglobin rises too high. With this system, everyone’s hemoglobin will sit somewhere in the safe zone, whether it gets there naturally or unnaturally, and we wont have to worry about somebody having an advantage over anyone else. Nor will test monitors have to monitor that people have found ways to mask the use of synthetic forms of drugs like EPO.
I’m sure such a system would be more complicated than I’ve laid out here. Heck, this is a blog post, not an academic paper.
But isn’t this idea worth serious consideration?
View original post and comments at Huffington Post
iEconomics?
Check out this clever takeoff of the Mac/PC ads by my friend Dan Ariely, in which he portrays standard economics as a PC and behavioral economics, my specialty, as an iMac.
Wolverine Football and the Presidential Honeymoon
If President-elect Obama wants to know the challenges he can expect to contend with in his first 100 days of office, his “honeymoon period,” he need look no further than the state of Michigan.
I’m not talking about what he can learn from Michigan about unemployment, where we are #1!
I’m not talking about lessons he can learn from Michigan about relations with the Middle East, given the large population in Michigan who originate from that part of the world.
I’m not talking about any of these things. Instead, I’m talkin’ football…Wolverine football, and the pressures that come to those who take on new leadership positions in a world saturated with 24/7 media.
The University of Michigan football team brought in a new leader this year, Rich Rodriguez from West Virginia, with expectations that this innovative coach would turn our good football team back into a great one, one that would regularly compete for national championships.
The parallels between the situations facing Rodriguez and Obama are impressive. Like Rodriguez, Obama will come to his new leadership position amidst expectations that he will return the United States back into the world’s premier super power.
Both Rodriguez and Obama face a flat world. The globalized economy is going to be a huge challenge for Obama, with no single country able to dominate the world’s economy any more. Similarly, the flattening of the college football world is a challenge for Rodriguez, a world in which formally dominant programs like Nebraska and Notre Dame find themselves struggling to keep up with the increasing number of colleges investing huge money in their football programs.
Both Rodriguez and Obama must also contend with a vicious 24/7 news cycle that feeds on controversy and that promotes impatience. ESPN and CNN need material to fill up time. Talk radio stations–covering sports or politics–have lots of time to kill too, and consequently don’t pause for a moment to absorb new information before pronouncing something a success or failure–how could he have chosen so and so as starting QB or as head of the Justice Department!?
Is it possible for a leader to thrive in this environment? And to survive, do they have to experience immediate success?
Recent experience in Michigan suggests that success doesn’t have to be immediate. Rodriguez had a horrible first season at Michigan. Unprecedentedly horrible. The Wolverines lost to their arch rival, Ohio State, for the umpteenth time in a row, broke their record of successive years in a bowl game, and even lost to the University of Toledo. (Toledo!)
The 24/7 media should have chewed Rodriguez up and spit him out by now, based on the way they’ve dealt with other people who don’t garner immediate success. But by and large, they haven’t. And it’s illuminating to think of why they’ve laid off so far, and ponder how that might payoff for Obama when he becomes President.
You see, everyone knew that Rodriguez did not inherit a team ready to fit into his new scheme. He didn’t inherit a quarterback compatible with his offensive system. (Heck, he didn’t inherit a quarterback compatible with any division 1 team’s system.) To make matters worse, he inherited only one returning starter on the entire offense. Defense looked like it would be Michigan’s strength, but how strong can a defense be when it is exhausted by the end of the first quarter, getting no chance to rest because of the ineptitude of its offense?
We Michiganders (yep, that’s what we’re called) knew things would get worse before they got better. So far we have been willing to give Rodriguez a chance to demonstrate what he can do when he has had time to implement his new system, with people he has recruited.
I don’t know how long Rodriguez can continue to struggle before people start calling for his head. Another 3-win season and many Wolverine fans will thirst for blood. But show fans some progress, and they’ll wait at least one more year.
Like Rodriguez, Obama has a few returning players–Gates at defense, and those nine folks over at the Supreme Court–but he’ll be bringing in a new team, ready to make dramatic changes from the Bush Administration. And he will inherit insanely difficult challenges. People know that things are broken now, and won’t be fixed overnight. They even expect things to get worse before they get better. This is all to Obama’s advantage.
Let’s hope the hunger of our 24/7 media, and the insatiable appetite of the blogosphere, doesn’t lead too quickly to calls for Obama’s head when things don’t turn around in 100 days.
So far Rich Rodriguez has survived the rigors of the passionate Wolverine fan base. He has managed people’s expectations, while doing everything in his power to turn things around.
Let’s hope Obama can continue to manage the public’s expectations of what he will accomplish in his first term as president.
Although the challenges Obama faces tower over those facing Rodriguez, Obama does have one thing in his favor: unlike Rodriguez, he doesn’t have to compete again in Ohio for four more years.
View original post and comments at Huffington Post