Economists Do It With Models

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A Test Of Bounded Rationality, Alarm Clock Edition…

June 14th, 2013 · 4 Comments
Behavioral Econ · Buyer Beware

One of the key differences between traditional and behavioral economics is that, while the assumptions of traditional economics stipulate that people always have the cognitive and psychological faculties to make the choices that are in their long-term best interests, behavioral economics focuses on identifying the situations in which these assumptions don’t hold. For example, traditional economists would likely be in favor of the following product:

(HT: Freakonomics)

The logic seems simple enough- if you want less of something to happen, charge more for it. (This is just another way of saying that, except in very particular circumstances, demand curves slope downwards.) Behavioral economists, on the other hand, would likely be suspicious of one’s morning ability to make rational choices. In their view, bounded rationality or bounded cognition could make this alarm counterproductive, since people would likely be too groggy to properly evaluate the price of snoozing (and thus exhibit little change in snooze behavior) but would be out more money than before. (It is sometimes said that behavioral economists use the term “bounded rationality” as a nice way of saying that people are stupid, and, I don’t know about you, but I’m pretty damn stupid in the morning.)

This example also, randomly enough, illustrates the importance of the counterfactual, or relevant comparison scenario. Compared to an alarm clock with a regular snooze button, this one seems to have some potential advantages. But why is this the comparison group? Why not compare this alarm to one where there is no snooze button? (Yes, I get that the snooze button is the status quo, but it doesn’t mean that there aren’t better alternative options out there.) Maybe people would be more likely to get up on time if they didn’t trust themselves to snooze for a short time without the aid of the clock. (Yes, I realize that you could just set the alarm again for 10 minutes later- or 9 minutes…why is a snooze always 9 minutes? Was this defined somewhere that I don’t know about? Anyway, I’m pretty sure that by the time you go to all the trouble of resetting the alarm you would be awake enough to realize that you need to get out of bed and not snooze anyway.) Personally, I think that this guy should be the comparison group:

The logic is essentially analogous to what I outlined above- the alarm clock runs away when it goes off, so by the time you find the snooze button you are likely either awake enough to realize that you shouldn’t be snoozing or awake enough to not want to snooze in the first place. In fact, I could envision a superior alarm clock that is a combination of these two items- the clock would run away so that you are coherent enough to make an intelligent decision regarding whether or not to pay to hit the snooze button. Boom- business idea right there, folks.

Update: Of course I would be outdone two days after I post about economist-friendly alarm clocks. Behold a money-shredding alarm clock:

Just think of the implications for the money supply. (Furthermore, I love that there are comments about the legality of the product on the video’s YouTube page.) I am hereby naming this product the anti-Bernanke clock.

Tags: Behavioral Econ · Buyer Beware

4 responses so far ↓

  • 1 BZ // Jun 14, 2013 at 3:33 pm

    Bah!
    1. I have the Clocky (shown above)
    2. I also have an Alarm clock with a propeller that flies away when it goes off, requiring you to find where it landed and carefully reinsert it into the top of the clock to get a snooze.
    3. I also have an Alarm clock that comes with a light gun. When the clock goes off in the morning, you have to hit a tiny target on the clock with the gun to get it to snooze.
    4. I also downloaded software for my PC that plays an Anthrax song, REALLY LOUD, in the morning. It has no snooze button, you’re only choice is to hunt down the process in Windows Process Explorer and kill it from there.

    None of it works. Humans can game any system.

    My next project: Move the PC to the other end of my house and hook up remote speakers in my bedroom. This will force me to go 100 feet or so to make it stop.

  • 2 econgirl // Jun 14, 2013 at 4:46 pm

    To where can I send my condolences to your (current or future) significant other? 🙂

  • 3 Blue Aurora // Jun 15, 2013 at 4:37 am

    Speaking of individual decision-makers, Jodi Beggs…

    Have you ever covered the Ellsberg Paradox on either this blog or in your professional research, or no?

  • 4 Hafeez // Apr 29, 2015 at 9:28 am

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