Dan Ariely, writer of
Predictably Irrational, behavioral economist, in discussion with
Tim Harford, editor of the Financial Times, writer of
"the undercover economist". Read the full discussion (including video responses
here.
Dan Ariely on the case of high CEO salaries:
"First, it turns out that incentives are a bit more interesting and complex than standard economics would have us believe--sometimes we can pay more and get worse performance. Second, it appears that our intuitions and logic are sometimes inaccurate in their ability to predicting human behavior. What does this say about relying on standard economics and pure logic as a tool to guide the type of incentive mechanisms we create? It tells us that when we try to understand these mechanisms, and in particular when we make recommendations for how these mechanisms should be designed (which is something economists do often), we should take all the input we can into account, including our irrational characteristics. Standard economics and logic can help us create systems that are useful for perfectly rational people, but behavioral economics will help us design a better world for the rest of us."
Tim Harford on the results of behavioral economic experiments:
"While laboratory experiments are great for creating controlled conditions, they also create artificial conditions. There are several examples of important clashes between what happens in the laboratory and what happens outside. We know, for example, that procurement managers systematically screw up when bidding in a laboratory auction, but they do much better job in the (apparently identical) real life auctions situations they face everyday.
The economist John List has tried to replicate some famous "predictably irrational" results from the laboratory; the results tend to evaporate in more realistic settings...Dan, how can we be confident that these experimental results hold up in real life? And what further work would you like to see, to make us more confident in them?"
