The Person and the Situation

"This is an oldie but a goodie. It’s a book that shows how when we make decisions, we think personality plays a big role. “I’m the kind of person who does this, or I’m the kind of person who does that.” The reality is that the environment in which we make decisions determines a lot of what we do. Mindless Eating is also about that – how the food environment affects us. Nudge is also about that – how we can actually design the environment or external influences to make better decisions. But The Person and the Situation was the first book to articulate how we think we are making decisions, when the reality is that the environment around us has a lot to do with it. My favourite example of this is a recent one, by Dan Goldstein and Eric Johnson. It involves looking at whether people donate their organs after they die or not. It turns out that that decision hinges mostly on whether the form at the DMV is an opt-in form or an opt-out form (i.e. whether you need to tick a box in order to donate your organs, or whether you need to tick a box in order to not donate your organs). When people come out of the DMV and you ask them “why did you donate?” they will have ideas about why they did it. But the reality is that the real reason has very little to do with internal preferences, and a lot to do with whether the form was opt-in or opt-out. I don’t think economics has taken much of behavioural economics into account. In one sense I think that’s OK, in another sense I think it’s terrible. It’s OK for economics as an academic discipline that is interested in creating a simple, parsimonious description of the world. Different disciplines – sociology, anthropology, philosophy, psychology and economics – have different approaches to how they think about human behaviour. Each of them has the right to view human behaviour from their perspective. We don’t say to sociologists that they should stop studying sociology just because it doesn’t describe 100% of the variants of human behaviour. The same can be said about economics. Economics is a discipline that describes human behaviour from a certain perspective – a very rational, basic approach – and this view has some insights and valuable notions. For that reason, economists should continue doing what they are doing. Where economics should take behavioural economics into account is when it comes to implications and applications in the real world. Unlike other disciplines, economics is not just a descriptive study, it’s also a prescriptive study. It tells policymakers, businesses and individuals what to do. That’s the difficult step. Once you take an academic discipline and say “this is not just a description of a part of human motivation, this is how you should actually do things”, it becomes more dangerous. It’s one thing to say I have a model to describe 25% of human behaviour, and another thing to say you should take only that model into account when you establish policies. It becomes much more important that you are comprehensive and 100% correct. “Unlike other disciplines, economics is not just a descriptive study, it’s also a prescriptive study. It tells policymakers, businesses and individuals what to do” I’m happy for the descriptive part of economics to stay as it is. The prescriptive part, when we tell people what to do – that one should be much more broad. In fact, we should stop using just economics and take all kinds of ideas from psychology, sociology, anthropology, philosophy and economics, and test which ones work, which ones don’t work and under what conditions. There is no question that behaviour is the ultimate goal – to try to understand behaviour, and how to change or modify it. I hope we can create a discipline that is much more empirically based and data driven. Maybe we can call it “applied social sciences”. It will draw from all the social sciences equivalently as we approach problems in the real world, and try to find solutions for them."