tag:blogger.com,1999:blog-78961910281531311822024-02-08T03:59:55.013-08:00A Psychologist Looks at the WorldBarry Schwartzhttp://www.blogger.com/profile/15444722309513932798noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7896191028153131182.post-34236131895471984992011-09-27T06:04:00.000-07:002011-09-27T06:04:26.685-07:00Would You Tell Your Kids?<style>
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<div class="MsoNormal" style="line-height: 200%;"> Roger Lowenstein had an interesting article in the NY Times Magazine this past Sunday, concerning the fuzzy line between legitimate information gathering and felonious “insider trading” [http://www.nytimes.com/2011/09/25/magazine/in-the-insider-trading-war-market-beaters-beware.html?_r=1&ref=magazine].<span style="mso-spacerun: yes;"> </span>His point was that what counts as insider trading is not clear, and that this is a <i style="mso-bidi-font-style: normal;">virtue</i>, not a drawback, to the regulations. If regulations were clear and unambiguous, then traders would quickly find a sure path on which to avoid them.<span style="mso-spacerun: yes;"> </span></div><div class="MsoNormal" style="line-height: 200%;"><span style="mso-tab-count: 1;"> </span>The article brought to mind the disclosure several months ago that David L. Sokol, protégé of Warren Buffett, purchased shares in a company shortly before Buffett’s Berkshire Hathaway bought it.<span style="mso-spacerun: yes;"> </span>Buffet’s announced investment caused shares of the company—Lubrizol—to skyrocket, and Sokol stood to make millions.<span style="mso-spacerun: yes;"> </span>What made this case so striking was Buffett’s pristine repution. </div><div class="MsoNormal" style="line-height: 200%; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;"><span style="mso-tab-count: 1;"> </span><span style="font-family: "Times New Roman";">Was Sokol’s purchase of Lubrizol an instance of insider trading?<span style="mso-spacerun: yes;"> </span>And was Buffett complicit in that Sokol had informed him of the position in Lubrizol while the purchase was being contemplated.<span style="mso-spacerun: yes;"> </span>Both men assured us that Sokol did nothing illegal.<span style="mso-spacerun: yes;"> </span>U.S. securities laws require disclosure of “material information,” which has in turn been defined by the Supreme Court as information where there is </span><span style="font-family: "Times New Roman"; line-height: 200%; mso-bidi-font-family: Roman; mso-bidi-font-size: 10.0pt;">“a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman"; line-height: 200%; mso-bidi-font-family: Roman; mso-bidi-font-size: 10.0pt;">having significantly altered the ‘total mix’ of information made available.”<span style="mso-spacerun: yes;"> </span>This definition, as Lowenstein points out, leaves plenty of room for interpretation.<span style="mso-spacerun: yes;"> </span>Moreover, the fact that Sokol did not have final decision authority in making the deal almost certainly mitigates against a ruling of materiality.<span style="mso-spacerun: yes;"> </span>So we were willing to bet that Sokol did nothing “illegal.”</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman"; line-height: 200%; mso-bidi-font-family: Roman; mso-bidi-font-size: 10.0pt;"><span style="mso-tab-count: 1;"> </span>But is what he did unethical?<span style="mso-spacerun: yes;"> </span>Here, too, the situation was far from straightforward.<span style="mso-spacerun: yes;"> </span>He might have advised Buffett to do the deal for the same reason he bought the stock—because he thought that Lubrizol was a good and undervalued company.<span style="mso-spacerun: yes;"> </span>Buffett has made his billions precisely by seeking and then buying good, but undervalued companies.<span style="mso-spacerun: yes;"> </span>I doubt that if you put a bunch of business ethics professors together in a room they would emerge with a consensus about whether Sokol and Buffett did anything unethical.<span style="mso-spacerun: yes;"> </span>Admittedly it seems odd that a man like Buffett, who apparently values his reputation for honesty and integrity more than all his billions, would do anything that had even the <i style="mso-bidi-font-style: normal;">appearance</i> of impropriety.<span style="mso-spacerun: yes;"> </span>But the issues are complicated, and reasonable people can disagree, so perhaps we should the “Wizard of Omaha” deserves the benefit of the doubt.</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman"; line-height: 200%; mso-bidi-font-family: Roman; mso-bidi-font-size: 10.0pt;"><span style="mso-tab-count: 1;"> </span>What this episode reveals, beyond its particulars, is how difficult ethical judgments can be in the complex world of finance.<span style="mso-spacerun: yes;"> </span>Sure, we can make a bunch of “bright-line rules,” but as long as the world the rules apply to is fuzzy, there will always be room for interpretation and disagreement.</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman"; line-height: 200%; mso-bidi-font-family: Roman; mso-bidi-font-size: 10.0pt;"><span style="mso-tab-count: 1;"> </span>So, to cut through this complexity, I want to propose a single, simple ethical rule of thumb—one question people should ask themselves before embarking on a course of action.<span style="mso-spacerun: yes;"> </span>If people asked themselves this question, and took the answer to heart, we wouldn’t need ethics courses, ethics texts, and ethics panels.<span style="mso-spacerun: yes;"> </span>The question is this: “Would you tell your children?”<span style="mso-spacerun: yes;"> </span>If the answer to that question is yes, then go ahead and do it.<span style="mso-spacerun: yes;"> </span>If not, back away.</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman"; line-height: 200%; mso-bidi-font-family: Roman; mso-bidi-font-size: 10.0pt;"><span style="mso-tab-count: 1;"> </span>Other quick and dirty rules of thumb have been proposed over the years, but this one has the others beat.<span style="mso-spacerun: yes;"> </span>“Does it pass the smell test?” is one, but we invented perfume so that almost anything can pass the smell test.<span style="mso-spacerun: yes;"> </span>“Will you be able to look at yourself in the mirror?” is another, but for forty years psychologists have documented the ways in which people can deceive themselves when they look in the ethical mirror.<span style="mso-spacerun: yes;"> </span>“Would you tell your spouse?”<span style="mso-spacerun: yes;"> </span>That’s better, but also flawed.<span style="mso-spacerun: yes;"> </span>Our spouses have already learned about our various moral imperfections.<span style="mso-spacerun: yes;"> </span>They’ve gotten used to us.<span style="mso-spacerun: yes;"> </span>And they’ve learned from experience how ethically ambiguous life can be.<span style="mso-spacerun: yes;"> </span>We’re afraid that our spouses are too likely to give us a pass, or at least, the benefit of the doubt.<span style="mso-spacerun: yes;"> </span>But our kids?<span style="mso-spacerun: yes;"> </span>To kids, the world is a place of moral clarity and moral perfection, and their parents are moral heroes.<span style="mso-spacerun: yes;"> </span>There is no money in the world that can make up for the look of disappointment in a child’s eyes.<span style="mso-spacerun: yes;"> </span>If people just got in the habit of asking themselves this one question, many of the ethical problems we encounter on a daily basis would vanish.</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman"; line-height: 200%; mso-bidi-font-family: Roman; mso-bidi-font-size: 10.0pt;"><span style="mso-tab-count: 1;"> </span></span><span style="font-family: "Times New Roman";">Would a doctor order a procedure she thought unnecessary to earn a fee because she knew it would do no harm?<span style="mso-spacerun: yes;"> </span>Not if she asked herself this question first.</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>Would a banker offer a no-doc, unaffordable loan to eager home buyers, even if the post-teaser rates were fully disclosed and the clients insisted they knew what they were getting into?<span style="mso-spacerun: yes;"> </span>Not if he asked this question first.</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>Would a teacher deliberately teach students items that would be on the standardized test, even when he thought it was bad pedagogy?<span style="mso-spacerun: yes;"> </span>Not if he asked this question first.</span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>And would Sokol and Buffett have done the deal?<span style="mso-spacerun: yes;"> </span>We don’t know the answer to this one, but my guess is that at the very least, they would have thought longer and harder about it before going forward.<span style="mso-spacerun: yes;"> </span>It’s amazing how ethically complex issues get simplified when we imagine having to explain ourselves to our kids.<span style="mso-spacerun: yes;"> </span></span><span style="font-family: "Times New Roman"; line-height: 200%; mso-bidi-font-family: Roman; mso-bidi-font-size: 10.0pt;"></span></div><div class="MsoNormal" style="line-height: 200%;"><span style="font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>We know that not everyone has kids, that some people’s kids are too young, and other people’s kids are too old—already jaded by corrosive experience in the actual world.<span style="mso-spacerun: yes;"> </span>But it shouldn’t be hard to adapt this question to your individual circumstances.<span style="mso-spacerun: yes;"> </span>“Would I tell my sister’s kids?”<span style="mso-spacerun: yes;"> </span>“Will I tell my kids when they get a little older?”<span style="mso-spacerun: yes;"> </span>“Would I have told my kids when they were in sixth grade?”<span style="mso-spacerun: yes;"> </span>I’m convinced that if we adopted this family of questions as our ethical touchstone, we could throw most of the ethics texts, casebooks, and guidelines away.<span style="mso-spacerun: yes;"> </span>We would do the right thing more often, and with less effort.</span></div><div class="MsoNormal" style="line-height: 200%;"><br />
</div>Barry Schwartzhttp://www.blogger.com/profile/15444722309513932798noreply@blogger.com1tag:blogger.com,1999:blog-7896191028153131182.post-33406377789434694852011-09-17T11:50:00.000-07:002011-09-17T11:50:17.225-07:00Rankings<style>
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<div class="MsoNormal"> Each week, the NCAA college football rankings come out, and they attract much interest on the part of college football partisans.<span style="mso-spacerun: yes;"> </span>Since 1936, these rankings have been assembled by the Associated Press, and for many years, they were the only way to judge who was better than whom.<span style="mso-spacerun: yes;"> </span>Then, with the advent of the Bowl Championship Series, the rankings stakes escalated, and a complex computer-assessed algorithm joined the opinions of sportswriters.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>The squabbling about the rankings, whatever their source, is unending.<span style="mso-spacerun: yes;"> </span>No doubt, it’s part of the fun of college football season.<span style="mso-spacerun: yes;"> </span>Different people have different views about what should go into the assessment, and how much weight each factor should get.<span style="mso-spacerun: yes;"> </span>In a sense, however, there is a reasonable empirical test of the accuracy of the rankings.<span style="mso-spacerun: yes;"> </span>When ranked teams play, the higher ranked team should defeat the lower ranked team.<span style="mso-spacerun: yes;"> </span>Rankings are, after all, just predictions about who will win when ranked teams go at it.<span style="mso-spacerun: yes;"> </span>I looked at the results of games played between the number 1 and number 2 ranked teams over the 75 years that ranking has been done.<span style="mso-spacerun: yes;"> </span>Number 1 has played Number 2 41 times, and Number 1 has been victorious in 24 of those games.<span style="mso-spacerun: yes;"> </span>Better than 50%, but not a lot better than 50%.<span style="mso-spacerun: yes;"> </span>So ranking is hard.<span style="mso-spacerun: yes;"> </span>There is error in measurement, and there is error in the weights assigned to different things being measured.<span style="mso-spacerun: yes;"> </span>Almost certainly, when teams ranked closely together are compared, the error in measurement and weighting exceeds the difference in quality between the teams.<span style="mso-spacerun: yes;"> </span>Error could be reduced if, say, we just presented a list of the 20 best teams, in no particular order, without identifying any of them as Number 1.<span style="mso-spacerun: yes;"> </span>But that would be much less fun.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>I don’t really care about college football—a game played by pros disguised as students, overseen by coaches and administrators who are almost completely corrupt.<span style="mso-spacerun: yes;"> </span>What I <i style="mso-bidi-font-style: normal;">do</i> care about—a great deal—is rankings of the quality of colleges, universities, and professional schools.<span style="mso-spacerun: yes;"> </span>If ranking football teams is hard, ranking school quality is impossible.<span style="mso-spacerun: yes;"> </span>Not only are there many more factors to consider, but the criteria are totally ambiguous.<span style="mso-spacerun: yes;"> </span>No one is suggesting that if Williams College is the number 1 liberal arts college, and Swarthmore is number 2, that Williams would “beat” Swarthmore if they played.<span style="mso-spacerun: yes;"> </span>Played what?<span style="mso-spacerun: yes;"> </span>It is, in short, a fool’s errand to rank colleges and universities.<span style="mso-spacerun: yes;"> </span>Rankings convey a false precision that is extremely misleading.<span style="mso-spacerun: yes;"> </span>Yet, the rankings go on, and U.S. News and World Report coins money by publishing them, and high school kids and their parents are driven by the rankings in deciding where to apply and where to go, while the schools themselves strategize to try to move up the ladder (“Don’t admit that spectacular student.<span style="mso-spacerun: yes;"> </span>She’s too good.<span style="mso-spacerun: yes;"> </span>We’re just a safety school.<span style="mso-spacerun: yes;"> </span>She’ll never come, and that will make our ‘yield’ look bad in the U.S. News rankings.”<span style="mso-spacerun: yes;"> </span>“Let’s try to get every alum to give us something—even five dollars.<span style="mso-spacerun: yes;"> </span>That way, our alumni participation will look good in the U.S. News rankings.”)<span style="mso-spacerun: yes;"> </span>I wish I were making this up, but I’m not.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>If college rankings were harmless, however inaccurate, we could let schools have their fun, U.S. News make its money, and just ignore the foolish enterprise.<span style="mso-spacerun: yes;"> </span>But unlike the rankings of college football teams, they aren’t harmless.<span style="mso-spacerun: yes;"> </span>They lead students to ask “what’s the best school?”—the wrong question, rather than “what’s the best school for me?”—the right question.<span style="mso-spacerun: yes;"> </span>Much time, money, and angst are wasted in pursuit of a non-existent objective.<span style="mso-spacerun: yes;"> </span>This nonsense really must stop.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>What would a sensible alternative be?<span style="mso-spacerun: yes;"> </span>Well, one alternative that would reduce the damage is for the rankers to identify the twenty top, next-to-top, and so on, schools in each category, and then present them, unordered.<span style="mso-spacerun: yes;"> </span>This would not eliminate foolishness.<span style="mso-spacerun: yes;"> </span>The schools ranked 21-25 would struggle to game the system so that they made it into the top tier, and the schools ranked 16-20 would game the system to maintain their position against competition.<span style="mso-spacerun: yes;"> </span>But it would certainly reduce the game playing.<span style="mso-spacerun: yes;"> </span>And it would eliminate the false claims to precision that such rankings imply.<span style="mso-spacerun: yes;"> </span>Is there any chance that U.S. News would do this on its own?<span style="mso-spacerun: yes;"> </span>Not a chance.<span style="mso-spacerun: yes;"> </span>Sales would suffer.<span style="mso-spacerun: yes;"> </span>The buzz surrounding the annual ratings issue would die down.<span style="mso-spacerun: yes;"> </span>Then is there any chance that U.S. News could be pressured into adopting this more sensible approach?<span style="mso-spacerun: yes;"> </span>Maybe.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>What if the “elite” in every category banded together and refused to cooperate unless and until U.S. News mends its ways.<span style="mso-spacerun: yes;"> </span>You can’t stop the magazine from producing the rankings, but the rankings might quickly lose credibility if the numbers on which they were based were known to be unreliable.<span style="mso-spacerun: yes;"> </span>Is there any chance that the elite might band together in this way? <span style="mso-spacerun: yes;"> </span>Well, getting them to cooperate won’t be easy, and here’s why.<span style="mso-spacerun: yes;"> </span>There is almost certainly a relation between the rankings of the schools and their quality.<span style="mso-spacerun: yes;"> </span>It’s just that the direction of causality is opposite to what you, and U.S. News imagine.<span style="mso-spacerun: yes;"> </span>What really makes one school better than another is the quality of the students who attend.<span style="mso-spacerun: yes;"> </span>Rank almost any good school number 1, and it will become number 1, because it will attract the best students, who then teach one another.<span style="mso-spacerun: yes;"> </span>In other words, rankings differences <i style="mso-bidi-font-style: normal;">cause</i> quality differences rather than reporting them. It is worth noting that economist John Maynard Keynes made this point years ago, in discussing the picking of stocks.<span style="mso-spacerun: yes;"> </span>What matters, he said, is not what’s the best company.<span style="mso-spacerun: yes;"> </span>What matters is what you think other people will think is the best company.<span style="mso-spacerun: yes;"> </span>That’s what will drive the share price up, and that’s the bandwagon you want to be on.<span style="mso-spacerun: yes;"> </span>In other words, thinking Acme Widgets is the best company is what makes it the best company, at least for investment.<span style="mso-spacerun: yes;"> </span>Similarly, thinking that Swarthmore is the best college is what makes it the best college—because the best students will go there.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span><span style="mso-spacerun: yes;"> </span>But if Williams, Amherst, Swarthmore, Pomona, and Wesleyan band together and stop cooperating, and the rankings as we know them go away, the quality of the students they attract will go down, as high school seniors distribute themselves to other institutions. Similarly, if Yale, Harvard, Princeton, and Stanford stop cooperating.<span style="mso-spacerun: yes;"> </span>And unless the top schools stop cooperating, nothing will change.<span style="mso-spacerun: yes;"> </span>If a school ranked number 12 doesn’t play the game, it will be interpreted as nothing but sour grapes.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>So what can possibly induce the elite to use what leverage they have to get U.S. News to change its practices?<span style="mso-spacerun: yes;"> </span>Why would any institution act against what seem to be its own best interests?<span style="mso-spacerun: yes;"> </span>Why would any school do anything that might reduce the overall quality of its student body? My answer, stimulated more by hope than by experience, is that elite schools might do it just because it’s right.<span style="mso-spacerun: yes;"> </span>It’s right because colleges and universities are our bastions of truth-seeking, and as defenders of truth, they should not participate in anything that seriously distorts truth.<span style="mso-spacerun: yes;"> </span>And it’s right because they are interested in doing whatever they can to help students make wise decisions, and rankings are to a large extent the enemies of wise decisions.<span style="mso-spacerun: yes;"> </span>So what I would love to see is movements by faculty and students on campuses across the land to convince their administrations to say “enough!”<span style="mso-spacerun: yes;"> </span>If administrators can’t be persuaded to do the right thing, perhaps they can be shamed into it.</div><div class="MsoNormal"><br />
</div>Barry Schwartzhttp://www.blogger.com/profile/15444722309513932798noreply@blogger.com1tag:blogger.com,1999:blog-7896191028153131182.post-56022518464187397332011-09-12T05:09:00.000-07:002011-09-12T18:00:51.441-07:00On Why Financial Markets Have Become So Volatile<style>
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<div class="MsoNormal"> Today’s <i style="mso-bidi-font-style: normal;">New York Times</i> has an article reporting that financial markets are much more volatile these days than they have been historically [http://www.nytimes.com/2011/09/12/business/economy/stock-markets-sharp-swings-grow-more-frequent.html?_r=1&hp]. Three percent or greater swings in market indices—both within a trading day and between days—used to be rare, but now are commonplace. The facts are clear, but the cause is not. The article discusses several possibilities, all of them internal to the current world economic situation and/or the velocity with which trading occurs in our computerized age. There may be truth to some or all of the possibilities, but I want to suggest another possible causal factor that has nothing to do with market fundamentals, economic events, or trading practices. I want to implicate the media.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"> I get almost all my news from <i style="mso-bidi-font-style: normal;">NPR</i>, the <i style="mso-bidi-font-style: normal;">Times</i>, or the <i style="mso-bidi-font-style: normal;">PBS Newshour</i>. These sources are all models of probity; they all wear sensible shoes. Nonetheless, what I hear and read virtually every day from these sources are locutions like “financial markets soared (or plummeted) <i style="mso-bidi-font-style: normal;">on</i>, or <i style="mso-bidi-font-style: normal;">after</i>, or <i style="mso-bidi-font-style: normal;">with</i>, reports that Greece is closer to default, or Bank of America’s earnings were below expectations, or high-tech sector sales are down, or [fill in the blanks.] I want you to focus on those three little words—“on,” “ after,” and “with.” None of those words says outright that the financial news event in question <i style="mso-bidi-font-style: normal;">caused</i> the market rise or fall. Financial reporters are much too savvy to make clear causal statements outright. But each of these words implies causality. They imply a connection between the financial event and the market’s behavior. If not, why would you even use those words. You would report on hi-tech sales, and you would report on market behavior, just as you might report on the September 11 anniversary observances and the winner of the women’s singles at the U.S. Open Tennis Championship.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"> It is a part of virtually every introductory psychology course to make the point that “correlation does not imply causation,” and you might think that this somewhat careless financial reporting is merely an example of the commonly-made correlation/causation mistake. Sadly, it’s even worse than that. What we might say here is that “coincidence does not imply correlation.” With a single event in the antecedent category (eg., low earnings for Bank of America) and a single event in the consequent category (market prices), no correlation can meaningfully be computed. One-time events do not “correlate” with anything. At the very least, reporters or analysts would have to put these antecedents into classes or categories, so that they might be able to say something like “past reports of low earnings from financial institutions have been associated with drops in the market.” Obviously, reporters never do that. But even if they did, the placing of isolated events into classes is by no means uncontroversial. Can we really treat a low earnings report in 2011 as equivalent to a low earnings report in 1975? Doesn’t context matter? And what industry from the 1960’s is analogous to the hi-tech industry today?</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"> So, assuming that we can agree that even the most respectable news sources can be sloppy, what does that have to do with increased volatility? Here’s my speculation. When we hear, again and again, that the market dropped <i style="mso-bidi-font-style: normal;">on</i>, <i style="mso-bidi-font-style: normal;">after</i>, or <i style="mso-bidi-font-style: normal;">with</i> some financial event, we “learn” two things—both of which may be false. The first thing we learn is that financial events of that type cause changes in the market. The second thing we learn is that a causal analysis of market behavior is actually possible. Now, when we read about significant financial events, we feel compelled to act on them, because of the implied causal role they play in market behavior. And since everyone hears the same news, you get herds of investors acting on the news and the causal relation that it implies. The financial events themselves may <i style="mso-bidi-font-style: normal;">not</i> be causal (a model of market behavior that remains plausible decades after it was first proposed treats the behavior of stocks as largely random), but news reports of those events <i style="mso-bidi-font-style: normal;">may</i> be causal. </div><div class="MsoNormal"><br />
</div><div class="MsoNormal"> More than three-quarters of a century ago, noted economist John Maynard Keynes famously wrote of “animal spirits” (read “psychology”) and the enormous effect they had on the economy. About this, as much else, Keynes was surely correct. But he did not have much to say about what fed the animals. And I’m proposing that one significant source of animal nourishment is thinly disguised, but completely unjustified, causal implications that have become a part of our daily diet of financial news.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"> What can we do about this? As individuals, I suppose we can vow not to act on “with,” “after,” and “on.” But (a) as individuals we will affect little, and (b) worse yet, if everyone else is acting on them, we may take a financial bath. More likely to be helpful is if we campaign vigorously to stop this carelessness. Every time you see an “after” in a <i style="mso-bidi-font-style: normal;">Times</i> story, write a letter to the editor. Every time you hear an “after” on <i style="mso-bidi-font-style: normal;">NPR</i>, send an email. Maybe, eventually, they’ll get the message. There probably isn’t much we can do to stop Jim Kramer’s hysterical rants about what the financial future holds, but we may be able to stop the very influential feeders or our animal spirits from continuing the feast. They need to help us go on a news diet.</div>Barry Schwartzhttp://www.blogger.com/profile/15444722309513932798noreply@blogger.com2tag:blogger.com,1999:blog-7896191028153131182.post-15561506306379424302011-09-06T05:29:00.000-07:002011-09-06T05:29:14.481-07:00Good Work: What Made Steve Jobs So Special What with Labor Day just behind us, and unemployment at 9%, it seems appropriate to write about work, and especially good work. In a Times op-ed on Sunday, Teresa Amabile and Steven Kramer wrote about what makes work good, and also about how good work makes for happier and more productive workers [http://www.nytimes.com/2011/09/04/opinion/sunday/do-happier-people-work-harder.html?_r=1&partner=rss&emc=rss]. They show that our drive for increased efficiency, and tighter managerial control, is not only misguided, but counterproductive.<br />
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This brings me to Steve Jobs. <style>
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</style>In the aftermath of Steve Jobs’ resignation as CEO of Apple, much has been written about what makes Jobs unique and what has made Apple the most valuable company on earth.<span style="mso-spacerun: yes;"> </span>Jobs is a creative genius, coming up with products that no one could have imagined.<span style="mso-spacerun: yes;"> </span>Jobs is an intuitive genius, knowing what people want before they do. Jobs is a design genius, coming up with products that look and feel as great as they operate. Jobs is a marketing genius, able to get people to want things that they don’t need.<span style="mso-spacerun: yes;"> </span>Jobs is a perfectionist who demands only the best and does not suffer fools. <br />
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</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>I don’t doubt that each of these characterizations is true, but I think they miss what is most essential about Jobs, and what separates people who are outstanding from those who are merely competent throughout society.<span style="mso-spacerun: yes;"> </span>To put it succinctly, for Steve Jobs, <i style="mso-bidi-font-style: normal;">it’s not about the money</i>.<span style="mso-spacerun: yes;"> </span>His aim, in creating the first Apple computers with Steve Wozniak, was to produce devices that were powerful, reliable, and easy to use—devices that would move computing from the office to the living room.<span style="mso-spacerun: yes;"> </span>Get the device right, and the money will take care of itself.<span style="mso-spacerun: yes;"> </span>The same seems to me to be true of the Macintosh, the iPod, the iPhone, and the iPad.<span style="mso-spacerun: yes;"> </span>Get the device right, and the money will take care of itself.<span style="mso-spacerun: yes;"> </span>Indeed, the same was true of Pixar.<span style="mso-spacerun: yes;"> </span>When Jobs owned that animation studio, the aim was to make great movies, no matter what the cost.<span style="mso-spacerun: yes;"> </span>And make great movies they did, and have continued to do, making piles of money along the way.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>Early in Apple’s history, its computers were regarded disdainfully as toys.<span style="mso-spacerun: yes;"> </span>As someone who has used Apple computers from the beginning, let me assure you that they were anything but toys.<span style="mso-spacerun: yes;"> </span>They may have looked like toys, and they may have been easy and fun to use like toys, but they were very powerful indeed, and amazingly reliable.<span style="mso-spacerun: yes;"> </span>The only limit on what they could do was the availability of software.<span style="mso-spacerun: yes;"> </span>And this, for years, was a significant limit, because the folks wearing stodgy gray suits in businesses thought they needed to have stodgy computers to match.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>I don’t mean to suggest that Apple in general, and Jobs in particular, were completely indifferent to bottom lines.<span style="mso-spacerun: yes;"> </span>Apple has shareholders, and shareholders have to be satisfied.<span style="mso-spacerun: yes;"> </span>It’s just that they never seemed to let the business model get in the way of the product model.<span style="mso-spacerun: yes;"> </span>They understood that the aim—the telos—of the organization was to make amazing things, and that financial success would come as a by-product of achieving that aim.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>I don’t think that Jobs and Apple were at all unique in this regard.<span style="mso-spacerun: yes;"> </span>I believe that Bill Gates and Paul Allen had the same aspirations when they began Microsoft.<span style="mso-spacerun: yes;"> </span>I believe that William Hewlett and David Packard had the same aspirations when they began Hewlett Packard.<span style="mso-spacerun: yes;"> </span>I believe that Sergey Brin and Larry Page had the same aspirations when they began Google.<span style="mso-spacerun: yes;"> </span>And I believe Mark Zuckerberg had the same aspirations for Facebook.<span style="mso-spacerun: yes;"> </span>What may distinguish Apple from these other enterprises is that it never seems to have lost sight of the main point.<span style="mso-spacerun: yes;"> </span>Neither, near as I can tell, did Hewlett Packard, at least until the shadow cast by its founders began to fade.<span style="mso-spacerun: yes;"> </span>Microsoft arguably has, a victim, in part, of its extraordinary success but also a victim of a lost vision of what it was founded to do.<span style="mso-spacerun: yes;"> </span>With Google, the jury is still out, though I think it is telling that when Brin and Page set up their IPO, they did it in their own way, to keep the bean counters from gaining control of the company.<span style="mso-spacerun: yes;"> </span>It’s just that when the stakes get high enough, the pressure to deviate from your telos in the service of a business plan gets awfully hard to resist.<span style="mso-spacerun: yes;"> </span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>We deeply respect and admire people who are not “in it for the money.”<span style="mso-spacerun: yes;"> </span>Even when such people accumulate a lot of it.<span style="mso-spacerun: yes;"> </span>And not just in business.<span style="mso-spacerun: yes;"> </span>Part of why Derek Jeter and Mariano Rivera are such heroes to New Yorkers is that they kept their exploits as appropriate fodder for the sports pages rather than the business pages (though the Yankees managed, crassly, to sully Jeter just a little bit this past off season).<span style="mso-spacerun: yes;"> </span>They both want to do what they do as well as it can be done.<span style="mso-spacerun: yes;"> </span>The money will take care of itself.<span style="mso-spacerun: yes;"> </span>That’s why we admire first responders, and dedicated teachers and physicians.<span style="mso-spacerun: yes;"> </span>When we know that people are not doing their jobs for the money, we don’t begrudge them their sometimes outsized rewards.<span style="mso-spacerun: yes;"> </span>Even Goldman Sachs, the evil empire, was, until it went public, committed to serving clients and not (just) to serving itself.<span style="mso-spacerun: yes;"> </span>The bankers at Goldman Sachs are, like Steve Jobs, both smart and creative (the investment instruments they and their fellow investment banks conjured up were nothing if not creative).<span style="mso-spacerun: yes;"> </span>What led the investment banks astray was that they lost sight of their telos.<span style="mso-spacerun: yes;"> </span>And in going astray, they took many of the rest of us down with them.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>And yet, despite our admiration for people who are not in it for the money, we keep thinking and acting as if the way to improve education, healthcare, finance, and pretty much everything else is to get the incentives right.<span style="mso-spacerun: yes;"> </span>We don’t admire people who are in it for the money, and yet we try to fix our social institutions by acting as if we do.<span style="mso-spacerun: yes;"> </span></div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>It isn’t too late to wake up, to celebrate people who want to do the right thing because it’s the right thing, and to make it easier for them to do so.<span style="mso-spacerun: yes;"> </span>A personal hero of mine, Bruce Springsteen, said it best in an interview he gave to Rolling Stone almost 20 years ago:</div><div class="MsoNormal"><br />
</div><div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: .5in; margin-top: 0in;">I understand that it’s the music that keeps me alive…That’s my lifeblood.<span style="mso-spacerun: yes;"> </span>And to give that up for, like, the TV, the cars, the houses—that’s not the American dream.<span style="mso-spacerun: yes;"> </span>That’s the booby prize, in the end.<span style="mso-spacerun: yes;"> </span></div><div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: .5in; margin-top: 0in;"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>If we remember that, and we celebrate Steve Jobs for the right reasons, perhaps we can create a society that makes it easier for others to follow in his wake.</div>Barry Schwartzhttp://www.blogger.com/profile/15444722309513932798noreply@blogger.com0tag:blogger.com,1999:blog-7896191028153131182.post-7847192440141377412011-09-03T07:14:00.000-07:002011-09-03T07:14:28.539-07:00Can We Fix College Sports? <style>
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</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>A new season of college football is upon us, and as we delight in the thrilling plays, the superhuman feats of athleticism, the inspiring pageantry, and the heart-warming school spirit, out of the corner of our eye we’ll be watching for the next recruiting scandal, the next illicit payoff, the next tale of vanishingly small graduation rates, and the next shift of teams to new conferences.<span style="mso-spacerun: yes;"> </span>It happens every year.<span style="mso-spacerun: yes;"> </span>Just when we think we’ve seen the worst, participants in this fall drama surprise us.<span style="mso-spacerun: yes;"> </span>Coaches earn many times what college presidents do, “amateur” athletes auction themselves off to the highest bidder, and universities find ways to keep athletes eligible with silly courses that can’t be failed.<span style="mso-spacerun: yes;"> </span>Every year, the National Collegiate Athletic Association (NCAA), charged with regulating college sports and policing the regulations, promulgates more rules and threatens more draconian penalties for violations.<span style="mso-spacerun: yes;"> </span>Athletes lose eligibility.<span style="mso-spacerun: yes;"> </span>Teams forfeit games. And sometimes—rarely—schools get the “death penalty”—a loss of scholarships, disqualification from future bowl games, and even suspension of the program all together. Yet every year, schools either find ways to skirt the rules, or just violate them.<span style="mso-spacerun: yes;"> </span>And every few years, a new NCAA commissioner, drawn from the ranks of respected academics, promises to get tough and fix things.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>It has reached a point, I think, where most fans have given up.<span style="mso-spacerun: yes;"> </span>Some have just stopped following the sport.<span style="mso-spacerun: yes;"> </span>Some have buried their heads in the sand and avoided coverage of the scandals in the news.<span style="mso-spacerun: yes;"> </span>And some have urged that we abandon the “amateur” charade, and just start paying athletes as the professionals they really are.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>As someone who has spent a long career teaching at an institution in which athletic scandals are not a problem, I am nonetheless deeply shamed by practices that cast doubt on the integrity of all academic institutions.<span style="mso-spacerun: yes;"> </span>Is there really no way to fix the problem?</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>Actually, I think we <i style="mso-bidi-font-style: normal;">can</i> fix it.<span style="mso-spacerun: yes;"> </span>We can exploit an invaluable lesson taught more than half a century ago by Kurt Lewin, one of the founding fathers of social psychology.<span style="mso-spacerun: yes;"> </span>Lewin observed that motivation is often a portrait of people in conflict.<span style="mso-spacerun: yes;"> </span>Some forces push toward action; others push toward inaction.<span style="mso-spacerun: yes;"> </span>Or some forces push toward one action, whereas other forces push toward a different action.<span style="mso-spacerun: yes;"> </span>Lewin further observed that most of the time, when we want someone to do X, we try to make the forces that encourage X stronger.<span style="mso-spacerun: yes;"> </span>To get our kids to study hard, we offer rewards for good grades or threaten punishments for bad ones.<span style="mso-spacerun: yes;"> </span>But, Lewin argued, it may often be easier to identify the forces that are impeding the behavior we want, and weaken them.<span style="mso-spacerun: yes;"> </span>If countervailing forces are weakened sufficiently, little needs to be done to get the behavior we want. </div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>So, in the case of college athletics, the NCAA has laid one carrot and stick on the table after another to get institutions to follow the rules.<span style="mso-spacerun: yes;"> </span>And nothing has worked.<span style="mso-spacerun: yes;"> </span>Let us ask, instead, what are the forces that are interfering with ethical conduct in college athletics, and what can be done to weaken them.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>Well, the 800-pound gorilla is money.<span style="mso-spacerun: yes;"> </span>Leaving aside the revenue from ticket sales, souvenirs, and concessions that the University of Michigan, or Ohio State, or Penn State, or the University of Texas take in whenever they play before 100,000 fans at their home stadiums, there are literally billions of dollars on the table from television.<span style="mso-spacerun: yes;"> </span>And millions more from participating in end-of-the-season bowl games. Is there anything to be done to weaken the financial incentives that are blocking schools from doing the right thing?<span style="mso-spacerun: yes;"> </span>Can we take some of the money away?</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>Some have suggested that revenues from football (and men’s basketball, the other big-money sport) go into the general operating budget of universities and not back to athletic departments. That way, the incentive to break the rules will be weaker.<span style="mso-spacerun: yes;"> </span>But a move like this is just self-deception.<span style="mso-spacerun: yes;"> </span>We all know how fungible budget categories are. If football money goes for, say, scholarships, then what used to be scholarship money will go for football.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>No, a more radical solution is needed.<span style="mso-spacerun: yes;"> </span>What if all the revenue produced by college sports was put into one big pot, and then divided among all colleges and universities pro rata, based on how many students attend.<span style="mso-spacerun: yes;"> </span>Then, Ohio State would be playing to enrich Ohio State, but not <i style="mso-bidi-font-style: normal;">only</i> Ohio State.<span style="mso-spacerun: yes;"> </span>Some of its money would go to Harvard, some to the University of Washington, some to Gallaudet, some to Wesleyan, and some to Swarthmore.<span style="mso-spacerun: yes;"> </span>All schools would welcome the revenue, and could use it in whatever ways most enhanced their academic programs.<span style="mso-spacerun: yes;"> </span>Sure, more money would still be better than less, but there would be much less reason to cheat with the financial rewards for cheating diluted in this way.<span style="mso-spacerun: yes;"> </span>There would also be less money available to provide outsized contracts to coaches.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>We can’t stop TV networks from throwing money at colleges, but we can stop the colleges from catching it.<span style="mso-spacerun: yes;"> </span>And if we do—if we remove the temptation that challenges honesty and integrity, people’s desire to be able to look at themselves in the mirror each morning might take control.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>Come to think of it, this might be a good way to reform financial institutions.<span style="mso-spacerun: yes;"> </span>I have no doubt that the Dodd-Frank regulation of financial institutions will have salutary effects—for a while.<span style="mso-spacerun: yes;"> </span>But if history is any guide, it won’t be long before these institutions find ways around these new regulations.<span style="mso-spacerun: yes;"> </span>The problem, as with college sports, is too much money washing around in the system.<span style="mso-spacerun: yes;"> </span>But we could take some of it away.<span style="mso-spacerun: yes;"> </span>We could impose a healthy tax on short-term financial transactions (the so-called Tobin tax).<span style="mso-spacerun: yes;"> </span>We could tax hedge fund profits as ordinary income rather than as capital gains.<span style="mso-spacerun: yes;"> </span>Indeed, we could tax capital gains as ordinary income.<span style="mso-spacerun: yes;"> </span>If we make the rewards for irresponsible, if not illegal, speculation less plentiful, we may remove the countervailing force that prevents people from doing the right thing.<span style="mso-spacerun: yes;"> </span>And from what I read, the U.S. Treasury, like our colleges and universities, could certainly use the money.</div><div class="MsoNormal"><br />
</div><div class="MsoNormal"><span style="mso-tab-count: 1;"> </span>Instead of continuing to believe, in the face of years and years of disconfirming evidence, that the right combination of rules and incentives is the way to get either our college football teams, or our banks, to do the right thing, we might just try taking a page from Kurt Lewin and instead take away the obstacles that are preventing them from doing the right thing.<span style="mso-spacerun: yes;"> </span>It’s certainly worth a try.</div>Barry Schwartzhttp://www.blogger.com/profile/15444722309513932798noreply@blogger.com0tag:blogger.com,1999:blog-7896191028153131182.post-51965836695035701612011-09-01T05:51:00.000-07:002011-09-01T05:51:13.349-07:00A New Voice in the WildernessAfter a very long string of rejections from the <i>New York Times</i> and other traditional media outlets, I've decided to do it another way. My plan is to write something every few days that comments on something or other going on in the world. My perspective comes from forty years of reading, research, and teaching as a psychologist, much of that spent pondering the relation between psychology and economics. I hope to stimulate readers to think a little differently about the things I cover, and perhaps to start talking to others. My view is that modern America operates with a kind of "received wisdom" that is both untrue and unwise, and we need to start kicking ourselves, and others, to think about what we do differently.<br />
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</style><span style="font-family: Screen; mso-ascii-font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman"; mso-char-type: symbol; mso-hansi-font-family: "Times New Roman"; mso-symbol-font-family: Screen;"><span style="mso-char-type: symbol; mso-symbol-font-family: Screen;"></span></span><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";"></span> <br />
<div class="body"><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";">So let me begin with a pet idea: The United States needs a Council of Psychological Advisors. This new body would parallel and complement the Council of Economic Advisors. <span style="mso-spacerun: yes;"> </span>When economists have the president’s ear, all their whispers concern incentives and self-interest. We need psychologists whispering in his other ear, about the economy, education, healthcare, and more. </span></div><div class="body"><span style="font-size: small;"><span class="leadin"><span style="font-family: "Times New Roman"; line-height: 150%;">On the Economy: Understand the “Irrational.”</span></span></span><span class="leadin"><span style="font-size: 9.0pt; line-height: 150%;"> <a class="msocomanchor" href="http://www.blogger.com/post-create.g?blogID=7896191028153131182#_msocom_1" id="_anchor_1" name="_msoanchor_1"></a></span></span><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";"> Where did our financial institutions go wrong? <span style="mso-spacerun: yes;"> </span>Many accounts focus on greed, fear, and lack of trust. <span style="mso-spacerun: yes;"> </span>And why did things get so out of hand? <span style="mso-spacerun: yes;"> </span>Why was there a housing “bubble”? <span style="mso-spacerun: yes;"> </span>Somehow, “irrational exuberance” (Robert Schiller) or “animal spirits” (John Maynard Keynes) overwhelmed rational calculations of risk and reward. <span style="mso-spacerun: yes;"> </span>And it isn’t just that irrational optimism, or even blindness to market fundamentals, gets the better of our rational faculties. Rather, as George Soros has pointed out, these psychological phenomena can become part of a feedback loop that actually <span class="italic">changes</span> market fundamentals. “Reflexivity,” he calls it. The housing bubble was not the first such phenomenon, nor will it be the last. </span></div><div class="MsoNormal" style="line-height: 150%;"><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";">Economists offer little that helps us understand why such bubbles occur or how they might be prevented. They also have little to tell us about how to prevent a “downward spiral of negative expectations” that makes fear of an economic downturn self-fulfilling. Economists largely make assumptions about the rationality of human decision-making and proceed from there. Witness Alan Greenspan’s admission after he stepped down as chairman of the Fed that he was mistaken in assuming that markets operate rationally and efficiently. The current crisis makes it clear that ignoring the real psychology of greed, fear, trust, and irrational enthusiasm (or pessimism) can be perilous. Economists offer little that helps us understand why such bubbles occur or how they might be prevented. A Council of Psychological Advisors could help.</span></div><div class="body"><span class="italic"><a class="msocomanchor" href="http://www.blogger.com/post-create.g?blogID=7896191028153131182#_msocom_2" id="_anchor_2" name="_msoanchor_2"></a><span style="mso-special-character: comment;"> </span></span><span class="italic"><b><span style="font-style: normal;">On Education</span></b></span><b><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";">: More than Just Carrots and Sticks.</span></b><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";"> <span style="mso-spacerun: yes;"></span>One of President Obama’s top priorities is to improve the quality of American education. This will require recruiting and retaining excellent teachers and finding ways to motivate students. How can this worthy goal be achieved? At the moment, we’re pointing in the direction of school choice and competition to produce better schools, higher pay to produce better teachers, big tests to monitor performance, and financial incentives to motivate students. A bunch of carrots and sticks.<span style="mso-spacerun: yes;"> </span>Will these kinds of measures be enough? Research in psychology suggests not. More important than pay (as long as it is adequate) are working conditions that allow teachers to be flexible, autonomous, and creative in their work with students, and that provide teachers with a sense that they are working in a community that has a common purpose. From this perspective, the regimentation of instruction ushered in by big-test accountability is actually counterproductive. And so is the move, now being tried in pilot projects around the country, to pay students for showing up to class and for getting good grades. A Council of Psychological Advisors could help design environments that encourage students to pursue mastery rather than money and teachers to view their work as a calling.</span></div><div class="body"><span class="italic"><b><span style="font-style: normal;">On Health Care: Understanding Efficacy and Managing Chronic Conditions.</span></b> </span><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";">Everyone should have health insurance. This is necessary, but not sufficient. The cost of health care must come down. Computerized medical records that produce coordination of care will help bring down costs, but it also isn’t sufficient. We need to help patients (and their doctors) understand how to think about the efficacy and the risks involved in various medical procedures, so that fewer unnecessary, but costly procedures are undertaken. There is plentiful evidence that patients make serious mistakes in thinking about risks and efficacy, and that their doctors make the very same mistakes! Moreover, most medical care in a developed country like the U.S. involves management of chronic diseases (hypertension, heart disease, diabetes, asthma). Managing these conditions effectively demands that patients be partners; they need to make lifestyle changes (eg., diet, smoking, and exercise) that are often difficult to adhere to. A Council of Psychological Advisors can help in designing formats for presenting evidence about the efficacy and risks of various treatments that will reduce misunderstanding and thus reduce unnecessary procedures. And it can help develop interventions that will make patients healthcare partners more effectively.</span></div><div class="body"><span class="italic"><b><span style="font-style: normal;">On the Environment: Do It Because It’s Right</span></b></span><span class="leadin"><span style="font-size: 9.0pt; line-height: 150%;"> </span></span><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";">Traditional economic incentives like investment tax credits, energy taxes, and pollution credits might help us reduce our environmental footprint, but focusing exclusively on these neglects the extraordinary opportunity to call on citizens to do the right thing <span class="italic">because</span> it’s the right thing. Indeed, there is even evidence that incentives can undermine people’s desire to do the right thing. In a Swiss study of citizen-willingness to have a nuclear waste dump located in their communities, researchers found that whereas 50% of citizens agreed (reluctantly) when no incentives were involved, only 25% agreed when substantial incentives were involved. Each of us can take responsibility as citizens to contribute in small ways to solving the big environmental problems we face. A Council of Psychological Advisors can help in crafting appeals to citizens to do their duty.</span></div><div class="body"><span style="font-size: small;"><span class="leadin"><span style="font-family: "Times New Roman"; line-height: 150%;">Moving Beyond GDP</span></span></span><span class="leadin"><span style="font-size: 9.0pt; line-height: 150%;">.<span style="mso-spacerun: yes;"> </span></span></span><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";">Finally, let us ask the most fundamental question: what is public policy for? We aim to increase collective welfare, but just what does welfare consist in? For the most part, under the sway of economic thinking, our aim has been to make the country more prosperous—to increase per capita GDP. The appeal of this goal is two-fold. First, we assume that if people are richer, they will be freer to choose as individuals the objects and activities that serve their welfare. We (the state and its technocrats) don’t have to choose for them. So wealth serves as a proxy for everything else. And second, GDP can be measured. But like a drunk looking under a lamp post for his car keys, even though he dropped them someplace else (because “that’s where the light is”), it doesn’t help much to pursue what you can measure if what you’re measuring is the wrong thing. It doesn’t help to get better at achieving goals if you’re achieving the wrong goals. Much research in the psychology of well being suggests that some wealth-enhancing policies improve welfare, but others do not. Indeed, some of what it takes to get more prosperous may be counterproductive when it comes to well being. A Council of Psychological Advisors can help here too, in the design of a system of national “psychological accounts” that does a better job of measuring well being than per capita GDP ever could.</span></div><div class="body"><span style="font-family: "Times New Roman"; mso-bidi-font-family: "Times New Roman";">Many of us held out the hope that the Obama administration would mark a return to respect for knowledge and expertise. Agencies would be run and staffed not by political cronies, or by people who “just know in their gut” what needs to be done, or by ideologues, but by people who actually have respect for evidence. It would be a shame to bring experts on board in existing agencies, only to have them have to rely on personal intuition rather than knowledge in formulating policies and making decisions that could benefit from psychological expertise. I think President Obama did indeed have exactly this inclination, but to a large degree, politics has gotten in the way. But one can still hope. A Council of Psychological Advisors is long overdue. This would be an excellent time to create one.</span></div><div style="mso-element: comment-list;"> <hr align="left" class="msocomoff" size="1" width="33%" /> <div style="mso-element: comment;"> <div class="msocomtxt" id="_com_1"><span style="mso-comment-author: jsommer;"><a href="" name="_msocom_1"></a></span></div></div></div>Barry Schwartzhttp://www.blogger.com/profile/15444722309513932798noreply@blogger.com3