Mobile Gambling Summit | How Impulsive Decisions Change the Meaning of Money

behavioural economics,

gambling & the ‘final five’

A new ‘science’ which seeks to show in what ways and under what

conditions we are irrational.

And it looks to codify these conditions such that we can talk of a

consumer as being systematically or predictably irrational.

Simon Hampton, Lecturer in Psychology, UEA

07432159643

[email protected]

Simon Hampton

Problem solving or behavioural economics?

What is the difference between a solution and a decision?

You have locked yourself out of your

home?

You want to change your job?

You find yourself looking at the personal

ads?

You plan to replace your car?

Simon Hampton



Needs require a solution

Wants require a decision

Simon Hampton



It makes sense to say that we learn solutions

We don’t learn decisions

behavioural

economics

A new ‘science’ which seeks to show in what ways and under what

conditions we are irrational.

And it looks to codify these conditions such that we can talk of a

consumer as being systematically or predictably irrational.

Simon Hampton

Praeger 1983

http://www.stylefeeder.com/klick/kj8ghm22

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Princeton 1993

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Princeton 2003

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Princeton 2003

http://press.princeton.edu/images/k7607.gif

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Princeton 2007

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OUP 2008

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Palgrave Macmillan 2007

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Pearson Higher 2008

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Little Brown 2000

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Harper Perennial 2004

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Little Brown 2005

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Hyperion 2006

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Doubleday 2008

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Harper Collins 2005

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Yale 2008

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William Morrow 2009

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Harper Collins 2009

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Springer-Verlag 2010

http://www.amazon.com/Predictably-Rational-Defenses-Behavior-Economics/dp/3642015859/ref=sr_1_5?ie=UTF8&s=books&qid=1260833800&sr=1-5

Simon Hampton

Running order . . .

The axioms of the standard/classical model

‘Animal Spirits’ & macroeconomics

BE ‘games’ & microeconomics

Jar of Coins: Lost Ticket: Sell the Pound: Shirt’s and Car’s

Varieties of irrationality

Acquisition and transaction utility

Affective forecasting

False consensus & False uniqueness

Flashbulb memory

Intrinsic and extrinsic motivation

Risk aversion; & age; & gain & loss; & moral value, and social virtue; Risk substitution

Self perception

Sunk cost

Paradigm shift?: Precisely wrong vs. vaguely right

Simon Hampton


We know what we want

‘Want’ is determined by subjective utility

Wants are ordered from most to least according to utility

Preferences are transitive (if A > B, & B > C, then A > C)

Note 1: Transitivity is taken to demonstrate 1 – 3

Note 2: The axioms hold for what we do not want: i.e. We know what we do not want etc.

Simon Hampton

The advantages of the standard/classical model

Everything has a value: This is shown by choice

Prediction: Determined, transitive wants allow for it

Equilibrium: If A gives x then it is worth £, but not more

Faults: In showing us what should happen we can see opportunities and risks

Modern economics is the ‘irrational passion for dispassionate rationality’

Simon Hampton


Simon Hampton


Confidence

Fairness

Bad faith

The Money Illusion

Stories

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Confidence This gives (& removes) stability: there is no economy without it

Fairness If the system isn’t fair it will not – and ought not – last

Bad faith We want to pay less than value & know others want to charge more

The Money Illusion Demonstrated by inflation and interest

Stories ‘There is gold in them there hills’

Simon Hampton


Confidence

Fairness

Bad faith

The Money Illusion

Stories

Simon Hampton

‘Animal Spirits’ & housing busts

Confidence - in values and trajectory

Fairness - the right thing to do

Bad faith - safe as . . . .

The Money Illusion - no calculation of real cost

Stories – the millionaire cab driver

Simon Hampton

Running order . . .









Flashbulb memory



Self perception

Sunk cost


Simon Hampton


Jar of Coins

Lost Ticket

Sell the Pound

Shirt’s and Car’s

Simon Hampton


Jar of Coins

An auction with one rule:

The bids are sealed but sequential

What happens?

We typically pay more than the value just because

paying more is bound to win.

Simon Hampton


Lost Ticket

Girl turns up at the concert and has lost her pre-paid

£20 ticket: What does she do?

She goes home

Guy turns up at the concert and find he has lost £20

he was going to spend on a ticket: What does he do?

He buys a ticket

Simon Hampton


Sell the Pound

An auction with two players and two rules:

1.Highest bidder gets the pound

2.Second highest bidder pays what he/she bid

What happens?

First bid is 80-90% of value, 2nd is higher . . . .

Typically almost twice the value is paid.

Simon Hampton


Shirt’s and Car’s

You see a shirt (skirt) you want for £30 but know you

can buy the same for £20 half a mile away.

What do you do?

You know you can seal the deal on a car for £30k but

think you can get the same for £29 950 two miles

away.

What do you do?

You save on the shirt and buy the £30k car.

Simon Hampton









Flashbulb memory



Self perception

Sunk cost


Simon Hampton

Running order . . .









Flashbulb memory



Self perception

Sunk cost


Simon Hampton


AU = ‘consumer surplus’

= benefits – price = n+1 - n

TU = ‘value surplus’

= reference price – asked priced = n+1 – n

Counterintuitive results:

A negative AU can be offset by a positive TU

i.e. I don’t really like beans but will buy BOGOF’s

A positive AU can override a negative TU

i.e. Paying more than the known going rate

Simon Hampton


How & how well do we predict our emotional state as an

outcome of our decisions?

SEM assumes that we decide on the basis that A will make us

‘happier’ than B (or C etc.)

This applies to alternatives and to do or not to do actions.

The key finding is that we routinely overestimate how happy -

or how unhappy another choice or in action - will make us.

This is shown between rather than with samples - i.e. by asking how

Alex thinks she will feel in comparison to how Betty does feel rather

than how either thought they would feel and how they do feel because

cognitive dissonance acts as a confound.

Simon Hampton

Affective forecasting – why?

Focalism – An established finding is that we find it difficult to feel other than how we feel

at any given moment (e.g. it is not easy to visualise happiness when sad – thinking about

it does not make it so). ‘Wants’ are essentially imaginative and we buy the fantasy.

Forward amnesia – We overlook the events that will, can, do take place between the

decision and the consumption and they tend to negate (rather than inflate) the emotional

value of the purchase.

Psychological immunity – We overcome the perceived deficits or problems that we think

the purchase will solve thus rendering it more-or-less redundant.

Simon Hampton

What do you do that you ought not – or at least not

so much or often?

About how many of your global peer group do as

you do?

>50% ranging to most

Simon Hampton

False consensus

The tendency to think that our (perceived to be)

bad/inappropriate/incorrect attitudes and/or

behaviours are more common than they are.

e.g. drinkers think that more people get drunk than

they do and attend to supporting ‘information’

Such thoughts help to legitimise what we know to

be poor economic decisions

Simon Hampton

False uniqueness

The tendency to think that our (perceived to be)

good/appropriate/correct attitudes and/or behaviours are less

common than they are.

e.g. teetotalers think that fewer people are teetotal than there are (or

that more people drink) and they also attend to supporting

‘information’.

<50% ranging to very few

Such thoughts can help to legitimise what don’t see as poor

economic decisions – e.g. paying more for organic food than

demand dictates.

Simon Hampton

Flashbulb memory

We recall vividly (and often falsely) foul and tragic events .

The media repeat them and this appears to make us think that they

are more common

i.e. we don’t properly distinguish between the number of times bad events

occur and the number of times we see/hear of such the events:

How many victims of Jack the Ripper?

Is crime more common than in the ‘50’s?

Simon Hampton

Flashbulb memory

We recall vividly (and often falsely) foul and tragic events .

The media repeat them and this appears to make us think that they

are more common

i.e. we don’t properly distinguish between the number of times bad events

occur and the number of times we see/hear of such the events:

How many victims of Jack the Ripper? 5

Is crime more common than in the ‘50’s? It’s about half

This is the basis of insurance and ‘insurance’ purchases (i.e. contents and deodorant)

Simon Hampton

Is it appropriate to offer the host of a dinner party the

approximate cost of the food and drink you have

consumed?

Is it appropriate to take, say, six bottles of wine?

A £200 bottle of port?

Why?

Simon Hampton


Is it appropriate to offer the host of a dinner party the

approximate cost of the food and drink you have

consumed?

Is it appropriate to take, say, six bottles of wine?

A £200 bottle of port?

Simon Hampton


Rewards make activities means rather than an ends

The means become punishing

The rewards become bribes

Simon Hampton


Who are they for?

Simon Hampton


What are they for?

‘Crash victim saved by boob job’

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What is it for?

Simon Hampton

Risk

Simon Hampton

Risk aversion

‘We suffer more . . . when we fall . . . than ever we enjoy when we rise’ (Smith: 1759: VI.I.7).

Simon Hampton

Risk & age

We become more risk averse as we age

Nothing – nothing to loose

Something – something loose ergo less to gain


Simon Hampton

Risk and gain and loss

£800 guaranteed win or 85% chance of £1000?

(£100 x .85) + (£0 x .15) = likelihood of a £850 gain

£800 guaranteed loss of a 85% chance of losing £1000?

(£100 x .85) + (£0 x .15) = likelihood of a £850 loss


Simon Hampton

Risk and gain and loss

Risk averse when seeking gain i.e. Sure thing beats the bet

Risk prone when avoiding loss i.e. Bet beats a sure thing


Simon Hampton

Risk, moral value, and social virtue

On the assumption that risk may be seen as a product of a decision x paucity of

information x costs (time, money, effort, distress, loss of control) what are the riskiest

decisions that we make?

Which 3 or 4 things non-reversible, ‘life-long’ decisions have you been (implicitly or

explicitly) pressured to make?

University – Home – Partner – Children

Simon Hampton

Risk, moral value, and social virtue

On the assumption that risk may be seen as a product of a decision x paucity of

information x costs (time, money, effort, distress, loss of control) what are the riskiest

decisions that we make?

Which 3 or 4 things non-reversible, ‘life-long’ decisions have you been (implicitly or

explicitly) pressured to make?

University – Home – Partner – Children

Such decisions cannot be calculated as evidenced by our failure to make them at all if we

try to do so

Simon Hampton

Would you be drive at a slower speed if your seat belt did not work?

Would you drive at a faster speed if it worked again?

Simon Hampton

Risk substitution

Each of us is more or less tolerant (or averse) to any given risk.

i.e. my assessment of the likelihood of a car accident is, say, X:Y

But we see that the likelihood is comprised of a number of factors

i.e. Skill, others, weather, fatigue, brake efficiency . . . .

A decrease in one risk (less traffic) makes us recalibrate another (increase our speed).

Simon Hampton

Self-perception

Extroverted?

Shy?

Garrulous?

Unassuming?

Pretentious?

Thick skinned?

Funny?

Self-perception

Extroverted?

Shy?

Garrulous?

Unassuming?

Pretentious?

Thick skinned?

Funny?

“You are what you are perceived to be”

Self-perception

Extroverted?

Shy?

Garrulous?

Unassuming?

Pretentious?

Thick skinned?

Funny?

“You are what you are perceived to be”

“But we perceive ourselves”

Self-perception

Simon Hampton

Self-perception

The “I” and the “Me” – the looking glass self

“I” is the you that has experiences

“Me” is the awareness of the “I”

‘I think that . . .’; ‘I am in pain’

Self-concept; self-consciousness; self-awareness; self-presentation all entail . . .

Being an object to yourself

Simon Hampton

Self-perception

The “I” and the “Me” – the looking glass self

“I” is the you that has experiences

“Me” is the awareness of the “I”

‘I think that . . .’; ‘I am in pain’

Being an object to yourself

Simon Hampton

Sunk cost

If you had bought a non-refundable bus ticket and, whilst waiting for it, a friend offered

you a lift to your intended stop what would you do?

Sunk cost refers to three types of confusion:

If one anticipates value x relative to cost A and x is not forthcoming then additional costs won’t recover

the initial value (I don’t only pay £5 if this is additional to the £10 already spent) – good money after

bad.

If one has incurred a cost no further cost is suffered if a free alterative is accepted (people give away

the gift if such is received when one already has the product)

Consumption of the unwanted give it value – eating what is on your plate doesn’t make it not-wasted.

Simon Hampton

Running order . . .









Flashbulb memory



Self perception

Sunk cost


Simon Hampton

Paradigm shift? Precisely wrong vs. vaguely right

Simon Hampton

Finally . . . .

If we need rationality but it isn’t utility as classically construed what do we replace it with?

Fitness tokens!

Utility is measured by its

proximity to inclusive fitness

(IF) and IF determines value

and risk.

behavioural

economics

simon hampton uea

Simon Hampton

Simon Hampton

Self esteem, positive and negative distinctiveness and choice

Personal and Social Identity

Personal

i.e. the unique individual comprising the term ‘I’ or ‘Me’ as opposed to ‘he’

or ‘she’

Social

i.e. the individual who belongs to ‘Us’ or ‘We’ as opposed to ‘them’ or

‘they’

The key point about social identity is that it is that part of us that is not

unique but socially determined

Simon Hampton


Categorisation, identity & identification

Comparison, self-esteem & distinctiveness

Social mobility, creativity & minority influence

Simon Hampton


Categorisation, identity & identification

We categorise people in order to understand the social environment

We categorise ourselves in order to establish our identity

We find out things about ourselves by knowing what categories we

belong to

Simon Hampton



In order to evaluate our self-concept we compare ourselves with others

and find differences & similarities

Comparison with others can raise self-esteem if the similar others enjoy a

positive social identity - i.e. we can see ourselves positively if we see

ourselves as a member of an approved /prestigious group

Comparison can also raise self-esteem if dissimilar others (out groups)

are derogated or selected because they allow for a favourable

comparison - i.e. we can protect/enhance self-esteem via a negative

comparitor group

Simon Hampton



Positive and negative distinctiveness

PD – We choose to contrast with other groups in ways that reflect

positively on ours - i.e. key distinctions are highlighted with similar but

inferior groups

ND – We choose to compare and with other groups that reflect positively

on ours - i.e. key similarities are highlighted with similar but superior

groups

Simon Hampton




Because comparison is driven by the need for self-esteem we compare

and contrast in selective and inventive ways

We maximise the profile and status of that which forms the basis of our

positive identity

We minimise the profile and status of that which forms the basis of our

negative identity

Simon Hampton



We can see when PD and ND are at play

when an aspect of identity is deployed

to both disambiguate and cohere:

e.g. ‘do different’ - the UEA slogan

Simon Hampton




driven by the need to extract part of

our identity from the groups to which

we belong provides the basis on which

we make decisions which will enhance

our self esteem

Simon Hampton



How do/can we deal with a negative social identity?

Mobility: change your membership;

e.g. from working to middle-class

Change: reposition the group

e.g. feminism

Re-imaging: change comparitor dimensions of the group identity

e.g. render a distinctive dimension virtuous - CAMARA

Simon Hampton



The difficulty for esteem comes when we cannot draw positive or

negative distinctions because the group(s) to which we belong are of

such low status and/or power

For example, what comparison can teenagers draw such that their

esteem is raised?

The solution to the problem of upward mobility is to create a new sort of

social identity wherein rarity is the critical commodity

Simon Hampton

The solution to the problem of upward mobility is to create a new

sort of social identity wherein rarity is the critical commodity

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