Knowing and Making

[Tara posting today]

We had a great response to our Cognitive Economics session at the American Economic Association’s conference a few weeks ago.

For those who weren’t there, here’s a quick summary of the four papers presented, and the discussion at the end.

Dan Benjamin, Kristen Cooper, Ori Heffetz, and Miles Kimball presented What Do People Want?

The key question of this paper is: how can we measure happiness? And how do we account for the biases and differences across different groups and demographics?

The authors have built a model that examines the multiple dimensions of wellbeing by asking individuals a huge number of different questions. Any single question about your true wellbeing will be affected by a lot of “noise” - i.e. biases. They reduced this noise by asking individuals multiple questions including tradeoffs and interpersonal comparisons.

By statistical analysis, they found a small number of underlying factors that best predict the different dimensions of wellbeing.

The a…

Alex Rosenberg says here that we are instinctively driven by stories, narrative and theory of mind - a very useful instinct on the small scale - although that instinct can be misleading on the larger scale of history and politics. His book on this claim is also out, though I haven't read it yet.

It seems uncontroversial that the idea of narrative has a powerful hold on how we think. There are thousands of discussions of storytelling as a way for us to bond with other people, and the biases that come from our desire to see a natural story behind events. I don't think many would disagree that stories are compelling to most people, and that we naturally like to see the world through narrative.

I've been exploring how the mind might implement this, and what the consequences might be.

Readers may recall the System 3 theory from earlier posts. This is how I think narratives fit into that, and how the process works in the mind:


People (and other animals) are very good at learning…

For the first time, there will be a session on Cognitive Economics at the American Economic Association’s conference. The conference, in association with the ASSA, is taking place from Friday 4 January to Sunday 6 January and will be a hugely interesting programme over the long weekend.

The Cognitive Economics session will take place on Sunday 6 January 2019 at 8-10am in Atlanta Marriott Marquis, International 10. I hope that any readers who are attending the conference are able to come along!

Let’s give you a quick overview of the session:
Dan Benjamin, University of Southern California; Kristen Cooper, Gordon College; Ori Heffetz, Cornell University and Hebrew University of Jerusalem; Miles Kimball, University of Colorado Boulder will be presenting a paper on What Do People Want? On the use of large-scale surveys to estimate multidimensional indifference maps over "fundamental" goods that include mental states such as emotions, perceptions and beliefs: answering the quest…

“Mysterious psycho-logic”, the “Nudge Unit” and irrational humans - Leigh explores cognitive and behavioural economics and science with Rory Sutherland on BBC Radio 4’s show Thought Cages today and on Friday.

Tune in at 13:45 today to hear Leigh discussing behavioural and cognitive economics on Thought Cage’s next episode: Instinct Before Logic: The Postbox at the O2. During this episode, Rory and Leigh will be exploring why reason is no longer used to persuade us to change our behaviour, showing what the “Nudge Unit” of the UK government is and explaining all about behavioural science. 
Tune in to BBC Radio 4 live at 13:45, or listen to the episode on BBC iPlayer afterwards here.
If you can’t catch today’s episode, make sure you listen out for Leigh and Rory again this Friday at 13:45. Looking in more depth at the traditional shopping experience, this episode - The Sachet in the Pot Noodle - will reveal how behavioural and cognitive science is changing the future of retail.
You can liste…

Hello, today it’s not Leigh posting, but me, Tara, his new colleague! I’ve recently started working for Inon and with Leigh on his cognitive economics work. I’ll be writing content on cognitive economics, spreading the word about cognitive economics to both academic and general audiences and also organising events around cognitive economics. I wanted to take this opportunity to introduce myself and also fill you in on some exciting events on cognitive economics coming up.
All cards on the table - my background is not in economics or psychology. I actually studied English Literature in my undergraduate and postgraduate degrees. However, I’ve always been passionate about spreading new ideas, working in an interdisciplinary fashion and writing. In my professional work for the past few years, I’ve been programming events for two cultural institutions. I started working with Leigh in early September and it’s been a real pleasure learning and writing about this new discipline. 
The first thre…

Spending today and tomorrow attending the Rebuilding Macroeconomics conference at the Treasury.

The programme looks very interesting - highlights include:


Ekaterina Svetlova's opening talk on "Imagining the Future", which I think will be quite relevant to System 3 and an idea I have been working on, prospective expectations: the concept that actors based their decisions not on a Nash equilibrium (rational expectations) or on a simple extrapolation of the past (adaptive expectations), but on the future they are best able to imagine.Sam Johnson on "The cognitive and affective processes that give rise to emergent economic order", which sounds right up my street.David Laibson on "Using model free data to predict future outcomes" - more in this case for the speaker than the topic."Markets as a function of language: microfoundations of narrative economics" by Douglas Holmes - a topic that has been studied both by Robert Shiller and by Tuckett and …

In my last post I outlined the concept of System 3, what it is and why it matters. In short, System 3 is the mental ability to imagine the future and evaluate how happy you will be in it – based on how pleasurable the process of imagining itself is.

A lot of different research strands have come together to result in the identification of System 3 as a distinct mental process. I summarise the key steps here:
The fundamental building block of System 3 is the stimulus-response relationship. It has been known for a long time that people easily learn stimulus-response relationships when they are rewarded for the response. The classic examples come from Pavlov (who rewarded dogs with food and discovered that they would start to get excited when they saw the experimenter’s white coat – as any pet owner will recognise), and Skinner (who trained pigeons to learn that pressing a lever was associated with getting fed). Although these original experiments were done on animals, there is plenty of …

In recent years we’ve become used to thinking about decisions as “system 1” or “system 2”. System 1 choices are automatic decisions, made without thinking, based on an immediate emotional or sensory reaction. System 2 is used to stop and rationally calculate the consequences of our choices, and determine the best cost-benefit tradeoff.

But these two processes don’t capture every decision. Indeed they might only encompass a minority of our daily choices.

Recent work in neuroscience and psychology has discovered another way of making choices: with the imagination. Customers imagine their possible futures: the outcomes they would experience after a choice, and how those outcomes will make them feel. The future that makes them feel happiest will be the one they choose. These choices use different parts of the brain than System 1 and 2. They are called System 3 choices.

Think about how you might buy a car. System 1 would suggest that you see a colour, or shape, or brand of car, immed…

There are few truly universal books on behavioural science: like most of the others, this one has a particular reader in mind. Richard's reader works in advertising, and it must be a rare advertising executive who still hasn't heard of behavioural economics. Richard therefore heads straight into the meat of the book with little beating around the rational-agent bush. A couple of connected anecdotes start us off and we quickly get to the first of 25 chapters, each on a single bias, that make up the body of the text.

The book is very readable, and even if you already know what the fundamental attribution error, the pratfall effect and Veblen goods are, you'll probably still enjoy the stories and quotes that illustrate them. I hadn't heard of some of the experiments and anecdotes that Rich discusses - and he and his colleagues have carried out many of their own original tests - so even as a professional in the field there is much here that's worthwhile.

Structuring …

I’m visiting the American Economics Association conference in Philadelphia this weekend and looking forward to catching up with the latest in theoretical and empirical research. Behavioural economics has received another endorsement this year with Richard Thaler’s receipt of the Nobel Prize. The behavioural field still has only a small minority of the conference’s papers, but many more than a few years ago. It finally feels like an accepted part of the broader field.
Echoes of a new discipline have started to emerge. Miles Kimball published a detailed NBER working paper in 2015 that defined cognitive economics as “the economics of what is in people’s minds”. Before that, a book and conference in 2004 discussed the topic, and a few others (including Marco Novarese and myself, here and here) have discussed it in the meantime. It seems that the term has been invented more than once in parallel - the term is after all a natural counterpart to "behavioural" economics.
The field i…

[An essay written for the Internet Review, a one-off maybe-to-become-annual publication documenting (and celebrating?) Internet trends]

Every human has two minds: one like an amoeba and one like a squirrel. The amoeba mind is reactive, emotional, intuitive. It decides immediately, without planning or consideration. It is Freud’s “id”, or the System One of behavioral economics: the amoeba is your unconscious. Your squirrel mind plans, trades off immediate pleasures for future gain, is capable of abstract reasoning and cooperation – the superego.

Being an amoeba is often more fun – maybe even more authentic – but the squirrel makes things happen in the long run.

Society also has amoeba and squirrel modes. The amoeba is the local interaction: follow your senses and do what’s in your direct interest, consequences be damned. Squirrel mode requires bigger institutions, and trust: in other people’s knowledge, a shared logical picture of the world, forgoing today’s profit for society’s long-…

I recently gave a talk at TEDxCoventGardenWomen about an economic agent-based modelling system I have built (readers of Thomas Schelling may see some influence). In the talk I use this system to analyse ideas around privilege, prejudice and systemic inequality - and to test some policies that might help to solve the persistent gender and racial pay gaps that we still see in most societies.

The video is below - your thoughts would be very welcome.

The much-delayed final episode in a short series of posts - part 1 and part 2 here.

Lassie died one night.

As Thomas Schelling* pointed out in a thought-provoking 1982 essay, millions of people watched it happen on television one Sunday evening, and cried. Yet they all knew Lassie was not real – and that the dog who played her was probably in perfect health. Why did they experience the same emotions, the same sense of loss that they would expect to feel if their own dog had died, or even their own grandfather? Why should fictional outcomes and situations provide us with (positive or negative) utility? (And if they do, why can we not simply conjure up unlimited happiness by indulging in films or books that we enjoy and hiding from the world?)

The two hypotheses laid out in the previous posts can provide an explanation not only for this, but for a number of other psychological phenomena:


H1: That potential decision outcomes are automatically evaluated by an associative network representi…

I had this piece drafted before the murder of Jo Cox last week. But I don’t think it changes anything I was going to say. It simply makes it more urgent to say it.
May I introduce you to my two lovely young nieces? Natasha is four months old and Rosalind four years. They live in rural Devon, and they’re just starting to discover the world and decide how to feel about it. I want to think a little about what it might feel like to be in their world.
The campaign for Britain to remain in the EU has been full of facts and utilitarian arguments. Economic projections, dispelling of myths about regulations, estimates of the economic and tax contributions made by European workers in Britain. All the kinds of things that may convince you if your inclination is to weigh up the numbers and evaluate the facts.
But there are plenty of people who don’t want to make a decision based on numbers, and I understand that. Numbers can be manipulated. We don’t all have the time or desire to read and check and …