Anger and the science of decision-making
I just listened to the NPR Science Friday podcast on "The Science of Decision-Making" with Jennifer S. Lerner from the Harvard Decision Science Laboratory as well as others, discussing the way that behavioral- and neuro-economics are changing the orthodox views of rationality in the marketplace. Lerner mentioned a paper, "Portrait of The Angry Decision Maker: How
Appraisal Tendencies Shape Anger's
Influence on Cognition" that I had to go and look up -- and I'm glad I did. It's a fascinating look at the role of irrationality on decision-making, and a damning rebuttal of the idea of rationality in the marketplace.
This paper reviews the impact of anger on judgment and decision making. Section I proposes that anger merits special attention in the study of judgment and decision mak- ing because the effects of anger often diverge from those of other negative emotions. Section II presents an Appraisal-Tendency Framework for predicting and organizing such effects. Section III reviews empirical evidence for the uniqueness of anger's rela- tions to judgment and decision making. Section IV connects the Appraisal-Tendency Framework to associated mechanisms and theories. Drawing on the evidence, Section V presents the question of whether anger should be considered a positive emotion. It also proposes the hypothesis that anger will be experienced as relatively unpleasant and unrewarding when reflecting back on the source of one's anger but experienced as rela- tively pleasant and rewarding when looking forward. Section VI synthesizes the evi- dence into a new portrait of the angry decision maker.Portrait of The Angry Decision Maker: How Appraisal Tendencies Shape Anger's Influence on Cognition (HTML)
Previously:
- Applying behavioral economics to climate change - Boing Boing
- Endocrinal economics: hormones versus the market - Boing Boing
- More money-related posts at Credit.com - Boing Boing
- Chart showing policies that led to the econopocalypse - Boing Boing
- Free Range Kids author says: Raise kids without fear! - Boing Boing
- Tip to encourage dinner party guests to dispose of olive pits ...
- Neuroeconomics: sub-prime mortgages exploit a bug in our brains ...
- The Ellsberg Paradox - Boing Boing
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YOW! just read New Yawker article on overconfidence, and the quotes from Jimmy Cayne are so filled with vitriol that it made me sick to have ever worked, tho indirectly, for such an obvious EDP. Then i thought, well, they are all like that, so WTF? Next to The Evil Overlord of the Island, Jimmy C is just a gambler (and a small change, too). My career, my choice.
Rationality isn't a bad model. No one claimed that it was perfect, just that it beat all of the other alternatives, and for a while that was completely true. If you want to look at epic folly, just examine some of the other market models that have been tried, especially central planning and collectivization. Yikes!
Rationality was a good model, but it is kind of like Newtonian physics. It works pretty well a lot of the time, except when you hit extremes and then it fails epically. That said, we are starting to push towards a new era. Behavioral economics in particular is really starting to spread its wings. It is starting to pick out the blind spots in rationality and maybe suggest alternative methods of dealing with them. You are even seeing the creation of new political philosophy in response to the growing understanding of human behavior. "Paternal libertarianism" for instance grows pretty much out of a direct response to the advances in behavioral economics and the realization that some times humans are kind of dumb, but not always.
Personally, I think we are living in a pretty fascinating time. Seeing old orders get kicked over, while perhaps mildly unnerving from a security point of view, is great fun to be a spectator of.
This is an open source text a professor used in a cognitive analysis class. I still think often of the principles. When the truth started to come out about Chaney appointing himself as Chief Analyst of the CIA raw material, I understood all too well where lack of detachment and self-doubt/critical thinking had lead. Not too different from what went on in the market I suspect.
https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/books-and-monographs/psychology-of-intelligence-analysis/index.html
"Paternal libertarianism" for instance grows pretty much out of a direct response to the advances in behavioral economics and the realization that some times humans are kind of dumb, but not always.
Unfortunately, 'paternal libertarianism' is the product of one of those times.
The purpose of rationality is to exploit irrationality. What's the problem?
Also, from my experience, people are, collectively, considerably more irrational than they are as individuals. Best seen in mob psychology, religion and politics.
"Paternal libertarianism" - You know, there is another perfectly good name for that.
"And for a while that was completely true." No, I don't think so. The Earth was flat once, that was also completely true, for a while.
Before you consign the rational maximizer model to the dustbin, don't forget that it's not supposed to predict the behavior of individuals. It's a simplifying assumption used to explain the behavior of groups of people in mass.
Re market rationality: There's strong evidence that the reason Adam Smith's "invisible hand" is invisible is that it isn't there.
The assumption of market rationality always had the assumption "in the presence of perfect information" -- which is never the case. Yes, averaging a large enough body of people yields an average which damps out the net impact of individual stupidities (or brilliancies), but that doesn't protect you from situations such as those we've seen recently, where information was willfully ignored or swept under the carpet. It wasn't rational for the market to have swung as high as it did, and the reaction over the past year was equally irrational.
In the long term -- decades -- the market may be rational. On a shorter term? Not a chance.
This doesn't mean it's a bad thing. It does mean that if you get into it without understanding the fact that in the shorter term it's essentially a gambling game run by the pros, for the pros.
it's essentially a gambling game run by the pros, for the pros.
I would have called them cons.
The source of the problem with so-called rationalist explanations is that they assume too narrow an understanding of rationality. As March and Olson argued, rationality may have both procedural (what is appropriate given circumstances) and substantive (how to optimize an outcome) forms.
If I believe that there is a significant difference between kind and quantity (i.e., there are some behaviors that are not "rational" in any amount), then I cannot help but conclude that scarcity is a limited framework for understanding human motivation.
I was under the impression that rational expectations was just a general theory for estimating what a person might do in a given situation, and the specifics could be ferreted out later when more information was available. And that we, in general, try to make the most value of what we have, saying nothing with regard to us being any good at it.
No, it isn't. It's a narrowly-focused presentation of research on the effects of anger on decision-making, cognitive appraisal, and risk assessment, all in support of the authors' prior proposed framework for evaluating the effects of emotions on decision-making. It's basically using the authors' earlier work on emotions in general to consider anger in particular.
It does not posit that all risk assessments scenarios are equal, it does not move beyond the consideration of anger specifically, and it does not mention "the marketplace" at all. The only "damnation" that's occurring is within your assumption that the research supports something you already believe.
There are many works that directly consider the role of rationality and emotion in economic decision-making (e.g.: "Heart Strings and Purse Strings," by the same authors [PDF]; Hirshleifer & Shumway's "Good day sunshine: Stock returns and the weather" [PDF]; or even Krugman's post-9/11 NYT piece, "Fear Itself"). This isn't one of them.
You can't just slap a conclusion onto a paper because you think it fits your worldview. That's a misappropriation of research. If you want to offer something to support the idea of an irrational market, pick a paper that actually addresses the irrationality of the marketplace.