I suppose I am a fairly lazy employee, at least in a typical sense, since I do much of my work at home with the television on in the background. At night, this process generally entails reruns of The Big Bang Theory, since by this point I’ve watched the episodes enough that I don’t feel the need to give them my full attention. During the day, on the other hand, I usually have the television tuned to some sort of news channel. Today was no different, especially since I needed something to keep me at least partially entertained while grading exams, except that I found myself getting incredibly distracted by Obama’s presentation of the Presidential Medal of Freedom.
I won’t lie- I think it was either Oprah or Loretta Lynn that first got my attention (if you don’t love Oprah then I am convinced you are dead inside), but after a minute or so I noticed that behavioral economist Dan Kahneman was also on the list…so I started watching and then was late to class because I still had tests to grade. Sigh.
Apparently this award isn’t entirely unheard of for economists- a quick scan of the recipient list turns up Gary Becker, Milton Friedman, John Kenneth Galbraith (twice!), Alan Greenspan, and Friedrich von Hayek, but it’s still pretty neat- especially given that the award was instituted by John F. Kennedy, whose assassination took place 50 years ago almost to the day. (November 22, 1963, in case you are curious.) It was also pretty exciting (I am told I have a strange definition of exciting) to hear the phrase “prospect theory” on national television. Anyway, the 16 recipients in this bunch are a diverse and interesting group, and you can read a bit about each of them here.
From this, I can conclude that President Obama has at least a passing knowledge of prospect theory…which means it’s only a small logical jump to realizing that status-quo bias is a thing. Therefore, I am hoping that there was a conversation between Kahneman and Obama during lunch or cocktail hour or whatever that went like this:
Kahneman: So, Mr. President, I have a fun empirical result that I want to share with you.
Obama: Oh really? Do tell.
Kahneman: A test of status quo bias in a field setting was performed by Hartman, Doane, and Woo using a survey of California electric power consumers. The consumers were asked about their preferences regarding service reliability and rates. They were told that their answers would help determine company policy in the future. The respondents fell into two groups, one with much more reliable service than the other. Each group was asked to state a preference among six combinations of service reliabilities and rates, with one of the combinations designated as the status quo. The results demonstrated a pronounced status quo bias. In the high reliability group, 60.2 percent selected their status quo as their first choice, while only 5.7 percent expressed a preference for the low reliability option currently being experienced by the other group, though it came with a 30 percent reduction in rates. The low reliability group, however, quite liked their status quo, 58.3 percent of them ranking it first. Only 5.8 percent of this group selected the high reliability option at a proposed 30 percent increase in rates.
Obama: Is that from the paper that Richard Thaler keeps trying to slip under my door every time he’s over here nowadays?
Kahneman: It’s probably the same paper, yes, since we are both authors on it.
Obama: Ok- so what exactly is your point?
Kahnmen: Well…do you think we have any reason to believe that this result would change much if I were to replace “electric power” with “health insurance?”
Obama: Probably not, since status-quo bias doesn’t seem to be context-spec…ohhhhh, I see what you did there. Did Clinton put you up to this?
Kahneman: No sir…here’s my card with my contact information on it, and please feel free to hit me up when you are pondering policy choices that may be affected by behavioral biases and you can’t get ahold of Thaler. Also, here’s a copy of my book, in case you have a lot of free time coming up.
Obama: Thanks. *mutters something about the book making a good doorstop if nothing else* Seriously, did Bill put you up to this? At this rate, I am pondering honoring Kennedy’s legacy by instituting a Presidential Medal of Pain in the Ass and giving it to the two of you.
Kahneman: I approve, but only if you retroactively give one to Greenspan as well for that whole deregulation thing, sir.
Obama: That’s not the worst idea I’ve ever herd.
Kahneman: You’re welcome.