Language, Substance, and Money are intermediaries which crumble under weight of inspection
Money Illusion
Abstract. The term “money illusion” refers to a tendency to think in terms of nominal rather than real monetary values. Money illusion has significant impl
Illusions of Understanding from Outsourcing Thinking to LLMs
Some illusions of understanding are an inevitable part of the research process, while others can be avoided or overcome by careful critical thinking and observation. We are facing an increased risk of avoidable illusions as more research activities are delegated to large language models (LMM). LLMs can be useful but they cannot think, and their use can undermine our thinking and understanding. Thinking for ourselves is hard and error prone but worthwhile - and there are no shortcuts to understanding.
The Effects of Prior Spending on Future Spending Decisions: The Role of Acquisition Liabilities and Payments
Research in mental accounting shows that prior spending influences a consumer's decision to make a new spending decision (Heath and Soll 1996, Soman 2001). In particular, greater spending in a particular category reduces the likelihood of further spending in that category. In the present research, we decompose “spending” into two distinct episodes—the acquisition liability episode during which a purchase is made accompanied by a commitment to pay (e.g., using a credit card) and the payment episode during which the consumer's wealth actually gets depleted (e.g., paying the credit card bill). Using a controlled laboratory experiment and real world data from a group of consumers, we replicate earlier findings that prior spending influences a pending spending decision, but also show that the location of both the acquisition liability episode and the payment episode play a role. Our results contribute to an understanding of the dynamic mental accounting of acquisition liability and actual outflows.
Monopoly money: The effect of payment coupling and form on spending behavior.
The misunderstood limits of folk science: an illusion of explanatory depth
People feel they understand complex phenomena with far greater precision, coherence, and depth than they really do; they are subject to an illusion—an illusion of explanatory depth. The illusion is f...
Pain of Paying? — A Metaphor Gone Literal: Evidence from Neural and Behavioral Science
How do individuals consider the price of a good when making purchase decisions? Standard economic theories assume an analytical process: Individuals consider th
Misarticulation: Why We Sometimes Feel Our Words Don’t Match Our Thoughts
People do not always say what they mean. In everyday conversations, people regularly sense that they have not fully communicated what they had in mind—a subject
Cheating in the Lab Predicts Fraud in the Field: An Experiment in Public Transportation
We conduct an artefactual field experiment using a diversified sample of passengers of public transportation to study attitudes toward dishonesty. We find that the diversity of behavior in terms of (dis)honesty in laboratory tasks and in the field correlate. Moreover, individuals who have just been fined in the field behave more honestly in the lab than the other fare dodgers, except when context is introduced. Overall, we show that simple tests of dishonesty in the lab can predict moral firmness in life, although fraudsters who care about social image cheat less when behavior can be verified ex post by the experimenter. Data and the online appendix are available at https://doi.org/10.1287/mnsc.2016.2616 . This paper was accepted by Uri Gneezy, behavioral economics.
When Nature Calls: The Enshittification of Science and Its Enablers
Proof-of-work papers, policy laundering, and the collapse of self-correction
The Red and the Black: Mental Accounting of Savings and Debt
In the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone. The reality of consumer hedonics is different. When people make purchases, they often experience an immediate pain of paying, which can undermine the pleasure derived from consumption. The ticking of the taxi meter, for example, reduces one's pleasure from the ride. We propose a “double-entry” mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics. A central assumption of the model, which we call prospective accounting, is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption (but not after) is buffered by thoughts of the benefits that the payments will finance. Another important concept is coupling, which refers to the degree to which consumption calls to mind thoughts of payment, and vice versa. Some financing methods, such as credit cards, tend to weaken coupling, whereas others, such as cash payment, produce tight coupling. Our model makes a variety of predictions that are at variance with economic formulations. Contrary to the standard prediction that people will finance purchases to minimize the present value of payments, our model predicts strong debt aversion—that they should prefer to prepay for consumption or to get paid for work after it is performed. Such pay-before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future. Likewise, when paying beforehand, the pain of paying is mitigated by thoughts of future consumption benefits. Contrary to the economic prediction that consumers should prefer to pay, at the margin, for what they consume, our model predicts that consumers will find it less painful to pay for, and hence will prefer, flat-rate pricing schemes such as unlimited Internet access at a fixed monthly price, even if it involves paying more for the same usage. Other predictions concern spending patterns with cash, charge, or credit cards, and preferences for the earmarking of purchases. We test these predictions in a series of surveys and in a conjoint-like analysis that pitted our double-entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments. Our model provides a better fit of the data for 60% of the subjects; the discounting formulation provides a better fit for only 29% of the subjects (even when allowing for positive and negative discount rates). The pain of paying, we argue, plays an important role in consumer self-regulation, but is hedonically costly. From a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption (so that paying evokes thoughts about the benefits being financed) but consumption is decoupled from payments (so that consumption does not evoke thoughts about payment). From an efficiency perspective, however, it is important for consumers to be aware of what they are paying for consumption. This creates a tension between hedonic efficiency and what we call decision efficiency. Various institutional arrangements, such as financing of public parks through taxes or usage fees, play into this tradeoff. A producer developing a pricing structure for their product or service should be aware of these two conflicting objectives, and should try to devise a structure that reconciles them.
Comprehension Debt - the hidden cost of AI generated code.
Comprehension debt is the hidden cost to human intelligence and memory resulting from excessive reliance on AI and automation. For engineers, it applies most to agentic engineering.
The marketplace of rationalizations
Recent work in economics has rediscovered the importance of belief-based utility for understanding human behaviour. Belief ‘choice’ is subject to an important constraint, however: people can only bring themselves to believe things for which they can find rationalizations. When preferences for similar beliefs are widespread, this constraint generates rationalization markets, social structures in which agents compete to produce rationalizations in exchange for money and social rewards. I explore the nature of such markets, I draw on political media to illustrate their characteristics and behaviour, and I highlight their implications for understanding motivated cognition and misinformation.
Quotes
I have a theory, which has not let me down so far, that there is an inverse relationship between imagination and money. Because the more money and technology that is available to [create] a work, the less imagination there will be in it.
Quotes
I have a theory, which has not let me down so far, that there is an inverse relationship between imagination and money. Because the more money and technology that is available to [create] a work, the less imagination there will be in it.
The Triadic Mind: How Language Reveals the Limits of Human Cognition
Languages are the most complex symbolic systems humans have ever created. Yet children acquire them effortlessly, without formal…
