Have you ever said one thing and done another – Part III

Have you ever agreed with a crowd even though you had a different view? Probably. But has a crowd ever caused you to deny your own senses? No way, right?

There is an assumption in economic models that people are consistent when making choices, it turns out that we’re not. The top three reasons for inconsistent choices are:

Framing: whether the alternatives are presented in a positive or negative way
Emotional state: if we are excited or calm
Social pressure: what others are doing or expecting us to do.

Whereas a rational machine wouldn’t care about these three things, we as humans do. This post is about social pressure.

Conformity

We have a built in desire to conform to our environment. We change our language patterns, clothing and manners depending on which social setting we’re in.

Conformity experiments have been replicated in over 130 experiments in 17 countries showing that even while performing very simple tasks, people will conform 20-40% of the time and ignore their own senses to conform to the people around them.

Like this famous example by Salomon Asch from 1953. Participants would sit in a group with actors who would say that Exhibit I was equal in length with B or C (Not A). In this experiment 32% agreed with the crowd, ignoring their own senses in a very simple task.

There are two main reasons for our tendency to follow the example of others i.e. Herding;

1. Safe – We feel safe in the company of others. If we are wrong, at least we are wrong together. We prefer having the crowd on our side rather than against us.
2. Easy – It’s an information shortcut. Activating the brain to evaluate the options in front of us takes effort. We’d rather not strain our brain so, we look for someone to follow, hoping that that person did her homework.

The danger of course, is recognized in the Bible (Mat 15:14) “if the blind lead the blind, both shall fall into the ditch”.

Since most of us aren’t revolutionary leaders, we find it unnatural to go against the herd. We are very easily affected by what we think the collective opinion is. On our own we may hold one view but when we are in a social context, we might find ourselves adjusting and agreeing with the common view (or with what appears to be the common view) even if its against our original view.

Non-conformity creates dissonance, which is very uncomfortable. For an individual to change the view of a group she needs a stronger resolve than the culture of the group holds. On the other hand, today it is easier than ever to find a new group through social media which holds the same values as you do. Those who find it unbearable to conform can find a new tribe that welcomes them as they are, and rewards them for staying true to their cause.

In the tug-of-war between conformists and non conformists in our social groups and culture, interesting patterns emerge. We get culture, etiquette, norms and unwritten rules. Dan Ariely from Duke University takes a look t how differently we behave in a social setting compared to a market setting. Here are some examples found in his book Predictably Irrational.

Social norms vs Market norms

Imagine a nice Christmas dinner with your in-laws. After this enormous meal you look over to your Mother in Law and say: Mom, for all the love you’ve put into this meal, how much do I owe you?

Do you think she would be pleased if you offered her money or would the situation turn awkward. If you are unsure, you are welcome to try it and let me know what happened.

Chances are that your Christmas will feel a bit awkward. The Christmas dinner is a social transaction governed by unwritten social rules. If you introduce money into a social setting, you are mixing market norms with social norms, and that is not easy to get away with.

In a series of experiments, Dan illustrates how different norms dictate our actions. If money enters the picture, it turns a social situation where price and money have no place, into a market situation with market values.

Experiment 1: We work hard for nothing

In these experiments the participants were given the simple task of moving a circle into a square on a computer screen. They were asked to repeat this task as many times they like for five minutes.

The first group was paid $5 for their effort, the second group was paid between 10¢-50¢ and the last group was asked to perform the task without any mention of monetary compensation. No group knew of the other groups compensation levels.

As expected in a market economy, they who received a higher salary, worked harder. The $5 group dragged 159 circles and the 10¢-50¢ group only dragged 101 circles on average.

Surprisingly, the group who had no mention of monetary compensation dragged 168 circles on average! Some how social norms were more motivating than market norms and the switch seems to happen when money wasn’t mentioned. The tiniest monetary compensation crowded out social norms and market norms prevailed.

The next step in the experiment was to see if social norm was broken by giving and receiving compensation in general or if it was tied to money. So, the same experiments were performed but this time the first group was offered some Godiva chocolates, the second group was offered a small snickers bar and the third group received no compensation at all. The monetary value of the compensation was never mentioned but it is worth noting that the Godiva chocolates had a market value of approximately $5 and the snickers bar of 50¢.

It turns out that gifts keep us in the social exchange world. On average, the Godiva group dragged 169 circles, the Snickers group dragged 162 circles and the non-compensated group dragged 168 circles. The value of the gifts had no distinguishable effect on performance.

In the third version of the same experiment, participants were informed of the market value of the gift they received. Would this affect their performance?

When the participants were informed of the monitory value of the gifts, social norm was crowded out by market norm and the results were approximately the same as with money.

So, if someone wants to help you out of the goodness of their hearts, you can give them a gift in return, but if you tell them the value of that gift or offer them money, chances are that you’ll transform the social transaction into a market transaction which might confuse or even insult the person who was doing you the favor.

Kind of like the Zen master refusing payment form his students while saying “if you were to pay me, you couldn’t afford me”

Experiment 2: Getting something for nothing

There is a social code that when something is free, common courtesy demands that we only take our fair share, or “lagom” as we say in Swedish.

Last Friday I was walking around the shopping mall with my 10 year old daughter. We passed by a store with Lindt chocolate. My daughters face lit up and she ran into the store in disbelief. A whole store filled with her favorite chocolates! She asked the clerk if this was for real. The clerk took out a large tray filled with chocolates and said, “here, have some!”. My daughter just about died.

These chocolates were free. How many do you think we took? How many would you take? Somehow we only walked away with one each. What happened here? Why didn’t we grab as many as we could fit into our pockets and mouths? We went against our desires and followed an unwritten social rule.

Had I paid, I would have taken as many as I felt I could afford and felt no guilt but when they were free, I could hardly take more than one.

In a set of experiments Dan offered passers-by some starburst sweets. In one scenario the sweets were offered at 1¢ and in the other scenario they were giving them away for free. How would you act in the two scenarios?

First lets have a look at the economic law of demand. It can be split into two parts:

– 1st law of demand: if prices fall, more people will be able to afford the product resulting in higher demand
– 2nd law of demand: if prices fall, those who already can afford the product can now afford more of it, resulting in higher demand.

In the experiment, the first law was met while the second law is not as straight forward when we introduce zero price.

At 1¢, 58 people who passed by the stand stopped and bought some sweets. When they were offered for free, 207 people stopped and treated themselves. 1st law of demand is satisfied. At a lower price, more people wanted the product.

The interesting thing though is how many each customer took or bought while visiting the sweets table. As prices fall, each individual should afford more, right? But when prices drop to zero, something funny happens. Market norm is switched to social norm, where laws of market economy don’t seem to apply as much.

When the sweets were offered at 1¢ a piece, customers bought on average 3.5 sweets but when the price dropped to zero, the average dropped to 1.1 per person. In total, the collective demand for starburst sweets dropped when they were offered for free. More people came by to treat themselves but they took fewer sweets in total than when they cost 1¢ a piece.

This and several other experiments confirm that when we are dealing with free stuff, people act according to social rules rather than following self-interest-maximising market rules.

What the experiments don’t tell us is at what point these social norms break down. If I were starving or in the middle of a war and I were offered free chocolates off a tray, would I still just take one or take as many as I could carry? All I know is that what I THINK I would do bares no guarantee for what I ACTUALLY do in the heat of the moment.

Tragedy of the commons

How can knowledge of free stuff and social norms help us in society? Could it help us address  “Tragedy of the commons”? This is when common property is exploited since no single agent has the authority to restrict usage. This can happen in fishing waters, common grazing land for cattle or pollution.

For example, one way to deal with pollution is to set a limit on how much carbon dioxide (CO2) each company may emit and make it possible to trade these rights with other companies. This is called Cap and Trade and has been tested. A firm that has no need to use up all its right to emit CO2 may sell that right to the highest bidder. If a company finds it financially profitable to be the highest bidder, it will gladly buy that right and use it, without any guilt, since it was bought in the open market.

Cap and Trade may be an effective way to distribute CO2 emission rights, but in an economic norm, all CO2 emission rights will be used up by the highest bidders. This means that there is a low probability that CO2 emissions will be lower that the sum of all CO2 emission rights.

If the desired outcome is less CO2 emissions, an alternative solution would be to place CO2 emission in a social context. Let it be free to pollute as long as you report and make it easily observable how much you do so. Standards have been and are currently being developed by the industry to make these emissions visible in a comparable way.

In fact, larger financial institutions are starting to demand information on CO2 emissions from the firms they invest in and are to a certain extent basing their investment decisions on this data. Black-lists are being created for firms that pollute more than what is perceived to be their fair share. What seems to be taking place is that social norms are causing firms to decrease emissions. Kind of like the Lindt chocolate experience. When its free and other people see us, we restrict our consumption to what’s socially acceptable. It will be exciting to see how this large scale experiment pans out.

So, experiments suggest that we are willing to act a certain way if we pay for it but when it comes to free stuff, we act differently. At zero price, we might want to grab all the Lindt chocolates we can but only take a few, to comply with the social norm. But who knows, If I’m hungry and desperate enough, I might just stuff my face with free stuff, regardless of who’s watching.