Wednesday, December 19, 2012

Does Economics Lead To Lying?

There are a great deal of stereotypes surrounding certain fields of study at the university level.  Liberal arts or English majors are often mocked for their poor job prospects. Engineers are commonly considered to be socially inept. But have you heard that economists may be liars?

Given the recent global financial troubles including recent LIBOR scandals and liquidity crises dating back to 2008 many people won't consider this news novel or shocking.  However, Perez and Spiegelman at the University of Madrid are the first I've heard of to put the idea to a scientific test. Their experiment put students of different majors to a simple test. One participant viewed a screen which randomly showed either a blue or green circle. They then reported the color of the circle to another participant. Regardless of the actual color of the circle the first participant received 15 euros for saying that the circle was green and 14 euros if they reported it as blue.  Irrespective of any other factors the second participant received 10 euros.

The problem facing the first participant is simple. If they are completely honest they receive lesser total payments but maintain their integrity. If they report the circle as green when it is actually blue they lie but receive more monetary compensation.  The second participant's reward is unchanged in either case and thus experimenters assume that altruism will not play a role.

Unsurprisingly most people went with a profit maximizing strategy. Most of the remainder went with an honest strategy with a handful of people choosing a profit minimizing strategy and an always lie strategy. The percentage breakdown of results was approximately 51%, 39%, 8% and 2%.

So what demographic factors were correlated with an increased chance of lying? Surprisingly, more religious (self reported) participants were more likely to lie. More politically conservative participants were more likely to lie than more liberal participants and women were slightly more honest than men. Differences between these groups however were relatively minor.

When researchers divided participants by major very clear patterns began to emerge. In particular economics, business and engineering majors lied nearly twice as much as humanities, law and science majors. While their are easy jokes to be made about the fact that future lawyers were generally more honest than average there are also some interesting questions to be taken from this data.  In particular does the optimization oriented training of economics lead students towards dishonesty when no one is harmed by their deception or do naturally deceptive people gravitate towards economics.

Fortunately, Perez and Spiegelman anticipated this question.  Further analysis of their data indicated that economists and business majors generally become more dishonest while studying their chosen discipline rather than choosing those disciplines because they appeal to dishonest persons. Their data also found connections between the expectations participants had of others tendency to lie and participants tendency to lie.  Economics and Business students consistently rated others as more likely to lie than participants from other majors.  This phenomenon is most likely a result of the tendency of economics to view people as purely rational and self interested.  Thus Homo Economicus  begets artificially high expectations of others lying rate which then begets participant's increased lying rates.

It's not surprising that a discipline as optimization oriented as economics trains students to in fact optimize. An interesting follow up to this study would be to see if economists are more likely to maximize total reward for a group or maximize their own personal reward.  My feeling is that economists would generally work for the greatest good rather than their own self interest.

Wednesday, December 12, 2012

Of Hamburgers and Healthcare

How much does a hamburger cost and what do you get with it? Of course it depends on whether you're buying from McDonald's or a high end restaurant where it is served with fried truffles, but most people would answer somewhere between two and eight dollars. They'd also say that a hamburger comes with a minimum of meat between two pieces of bread. The meat is expected to be cooked and presented to you in or on a reasonable container.

Now how much does an x-ray cost and what do you get for your money?  If you're like me that's a much more difficult question.  Even if you've recently had an x-ray you probably don't know the total amount the radiologist collected since he received payment from both you and your insurer.  You may not even know how much he charged since the charge was very likely reduced due to a contract with that insurance company.  In the end you may have paid twenty dollars, your insurer paid thirty dollars, the radiologist billed a hundred and twenty dollars and really wanted forty dollars.

So what's the difference between hamburgers and x-rays? Obviously most Americans eat a lot more hamburgers in our lives than we experience x-rays.  Not only that but when we order a hamburger the price is clearly presented to us and the transaction is simple and straightforward.  When we get an X-ray on the other hand we generally aren't told how much we owe until well after the procedure is complete.  Even then we work through several intermediaries, such as insurers and collections departments, to pay our bill.  It's no wonder Americans love fast food and abhor visits to the doctor's office.

We have nearly endless resources when it comes to learning about our potential dinner.  Even before we choose a restaurant we have the recommendations and anecdotes of family and friends to guide us.  Dozens of internet review sites inform us of prices, food quality and even staff friendliness. On the way we might hear or see advertisements enticing us to try the latest menu item or indulge in a limited time price reduced favorite. When we arrive a large menu prominently displays prices right next to various selections and while ordering the prices display right in front of us on the register.  Afterwards we're given an itemized receipt which clearly spells out what we've paid for each component of the meal including the government's share.

Compare this avalanche of information to your healthcare provider.  I challenge you, call your provider and ask them the cost of any procedure you'd like. X-ray, blood panel, prostate exam, anything that comes to mind.  For most of you you'll be shocked at just how little information they're able to provide you.

Many Americans spend several minutes each evening trying to figure out how to get the best value for their money out of dinner. Yet the vast majority of us simply go the the healthcare provider we're recommended to or choose randomly.  Given that procedure costs may vary widely between providers it's odd that we think so long regarding one meal while completely ignoring a choice which could net savings worth hundreds if not thousands of fast food dinners.

Ultimately the problem is one of information accessibility.  The fast food industry wants to clearly communicate to you their prices so you can easily compare them to the competition. Undoubtedly,  if Burger King changed all their menu prices to read "a bargain" instead of an exact value they would lose a great deal of market share. However, in the healthcare industry such practices are the norm.  Prices and costs are concealed from the consumer at every turn. Perhaps even more disturbing the customer often doesn't even know what services they'll receive.  I freely admit that if I were to receive an x-ray today I have no idea whether the person to examine the film would be a trained physician or the office receptionist.

Perhaps it is our vary reluctance to pursue options rather than accept the default that has led to this scenario. Maybe if Americans as a whole decided that we were going to shop around for healthcare prices would be clarified and easily accessed.  Maybe if we simplified insurance so that the insured and uninsured alike were billed at the same rate doctor's could actually inform us ahead of time how much medical care would cost.

Until then you may want to lay off the hamburgers. You never know how much you'll have to pay for them later.

Wednesday, December 5, 2012

The Question of Dopamine

Whenever I discuss my research with peers from other academic areas one thing always seems to surprise them; how often I say "Well, we really don't know."  The human brain is an incredibly complex system which is difficult to unravel.  We observe, theorize and test but due to ethical, practical and scientific limitations concrete answers are more a rarity than a norm.

Such is the story of Dopamine.  The average man on the street if asked would declare confidently, "Dopamine? Oh that's the pleasure chemical." Indeed he would have good reason for his confidence. Dopamine has been linked time and again to reward response, addiction, and mood; all pleasure associated concepts.  Classic experiments involving animal lever presses causing Dopamine administration seem to clearly indicate that mammal brains will actively seek Dopamine to the exclusion of other stimuli.  The most powerful and prevalent drugs generally act directly on the Dopaminergic system.  Depressed patients generally exhibit lower Dopamine levels. In the face of all this evidence isn't it clear that Dopamine is closely tied to pleasure in humans?

Well, we really don't know.

It's true that Dopamine release is common during pleasurable experiences.  However, it turns out it's also common during stressful experiences.  So if Dopamine is released at times that most people would consider terrifying rather than pleasurable how can it be the so called pleasure chemical?

It's true that depressed patients often exhibit decreased Dopamine levels.  However, no one attempts to make a case that depressed patients can't experience pleasure or even experience lesser degrees of pleasure than non-depressed individuals.  Rather depressed patients generally find it difficult to make an effort towards anything, even activities they would generally enjoy.

It's true that drug addicts generally seek their chosen drug as if compelled.  However, do they generally seem particularly happy when they achieve their goal of self medicating? My general perception of addicts is they do not achieve pleasure from getting their fix as much as they achieve relief.  While relief is certainly something people seek it is not the same as pleasure.

There is a growing trend in neuroeconomics to view Dopamine not as related to pleasure, but as related to motivation.  A growing body of work supports this idea and very little of the theory conflicts with previous studies.  Studies in rats demonstrated that rats with lowered Dopamine levels would seek easier to achieve rewards over more substantial rewards.  For example they would choose a smaller pile of food that was easy to obtain over a larger pile which require they climb over an obstruction.  Rats with normal Dopamine levels would select the larger, more difficult reward the majority of the time.  Thus we see a correlation between higher Dopamine levels and more willingness to exert effort to obtain reward.

Similarly we find in humans that more extroverted people generally have higher Dopamine levels. Extroverts by definition are more outgoing and willing to engage others.  Does this indicate that they receive more enjoyment from being with others? It's possible. However, it's equally likely that they're simply more willing to put forth more effort than introverts.

So the question of Dopamine for the moment at least is do higher Dopamine levels mean  you enjoy things more or are just more willing to work for the things you enjoy? It's difficult to separate these two concepts experimentally. Naturally, a person who enjoys an activity more would be willing to exert more effort to undertake that activity.  However, a person who is willing to exert more effort innately would still exert more effort to participate in an activity that they enjoyed as much as another individual.  So which is it then, is Dopamine about pleasure or motivation?

Well, we really don't know... yet.