Behavioural Economics is a rapidly expanding field and everyday new research is being developed in academia, tested and implemented by practitioners in financial organisation, development agencies, government ‘nudge’ units and more. This interview is part of a series interviewing prominent people in the field. And in today's interview the answers are provided by George Loewenstein.
George is the Herbert A. Simon University Professor of Economics and Psychology in the Social and Decision Sciences Department at Carnegie Mellon University. He is also a director of the Center for Behavioral Decision Research. He is a leader in the fields of behavioral economics and neuroeconomics (both of which he helped to found). He is one of the most cited academics in economics, psychology, medicine and law. His biggest contribution to behavioural economics can be argued to be the hot-cold empathy gap. However, you might also know him for the pain of paying, visceral emotions and many other key concepts within behavioural economics. Take it away George!
Who or what got you into Behavioural Economics?
I was always interested in psychology, due to my family background, but (in part to escape that very background) I never took a psychology course during my undergraduate studies; instead, I majored in economics and electronics. A few years after graduating, I decided I wanted to go to graduate school, and, though I probably would have chosen psychology as the field, having taken no courses on the topic I had no prospect of getting into a psychology PhD program. So, I applied to economics programs, got into Yale, and when I visited, asked whether I could study a combination of economics and psychology. At Yale, though I didn’t formally take psychology classes, I did go to seminars in the psychology department, and one member of my committee, Robert Abelson, was in the psychology department. Abelson introduced me to the work of Kahneman and Tversky. A key moment in my graduate education was when I read the work of Richard Thaler, and then met him when he visited, after I persuaded economics faculty to invite him to give a seminar. When I graduated, I did a postdoc with Albert Hirschman, who himself did interdisciplinary work, at the Institute for Advanced Study in Princeton.
What is the accomplishment you are proudest of as a Behavioural economist?
I think I played a role in bringing emotions back into economic theory and research. I’m also proud of having published, in 1987, what may have been the first paper in what has become a burgeoning line of inquiry focusing on belief-based utility.
If you weren’t a behavioural economist, what would you be doing?
I just barely avoided becoming an electrical engineer. I had signed on to do a 9-month stint as the electronics person at an underground station in Antarctica, which came with the implicit promise of subsequent admission to the electronics engineering PhD program at Stanford. I got fired from the job not long before I was scheduled to ship out; a psychiatrist who interviewed me concluded, almost certainly correctly, that I would not have fared well thrown together with 5 other people in an underground station for 9 months. I also just narrowly avoided becoming a brand manager. When I went on the economics job market I got pretty much zero interviews because I was such a weird bird, and behavioral economics wasn’t a thing at the time. I interviewed for a position as a brand manager at a food company and was offered the position, which seemed to be my only option. Fortunately, I then got a fly-out, then a job offer, from the University of Chicago Graduate School of Business.
How do you apply behavioural economics/science in your personal life?
Although many of the ideas that I research and write papers about come from my personal life (e.g., my research on tightwads and spendthrifts, and my new research on ‘fragile self-esteem’ http://dx.doi.org/10.2139/ssrn.3412006), I haven’t been very successful in applying behavioral economics, including my own research to my personal life. For example, I got the idea of hot-cold empathy gaps (when you are in one emotional or drive state it is almost impossible to imagine how you would feel or behave in a different state) in part from travel to different time zones. I noticed that when I would get an invitation to give a talk in Europe when I was currently jetlagged in Europe, I would turn the invitation down because I was in touch with the misery of jetlag. However, when I was well rested at home, I would be much more likely to accept the same invitation. I wish I could say that understanding this pattern has changed my behavior, but in this area and many others, I find that understanding an influence on one’s behavior does not go very far toward helping one to overcome it.
With all your experience, what skills would you say are needed to be a behavioural economist? Are there any recommendations you would make?
To me the key to success as a behavioral economist is to pick collaborators who have skills that complement one’s own. It certainly is important to develop skills in oneself; but it is impossible to be good at everything. But, picking good collaborators is a skill that every behavioral economist needs to have a successful, enjoyable career. I have had the good fortune to work with an astoundingly wonderful range of students and colleagues.
How do you think behavioural economics will develop (in the next 10 years)?
Some of my close behavioral economics colleagues have said that for them success would be for behavioral economics to not exist as a field, because all of economics would become behavioral. I don’t buy into this vision. My own view is that we behavioral economists have barely begun to scratch the surface of important psychological insights that need to be brought into economics. For example, standard economics views consumption as the main determinant of utility, which, except for those living at the margin of subsistence, is very far from reality; clearly, motivations such as ego – feeling good about oneself – are far more important than what, or how much, one consumes. Much of my own current work is focused on the role of beliefs, and attention to those beliefs, as determinants of emotions – utility. I’m working on these topics because I believe they are going to end up being central to – and, my hope is, will revolutionize – economics.
Which other academic would you love to read an interview by?
Thanks to the internet, I can read interviews by most of the living academics whose work I admire. Although it is unlikely to happen, the academic I would most likely to read an interview by is Adam Smith. I’d like to ask him to, finally, explain the relationship between his two major works – the Wealth of Nations and the Theory of Moral Sentiments – which has mystified so many generations of economists. Along these lines, I did very much enjoy Dennis Rasmussen’s masterful book “The Infidel and the Professor,” about the relationship between Adam Smith and David Hume. If it proves impossible to resurrect Smith, then maybe I would ask Rasmussen to play Smith in such an interview.
Thank you so much for these amazing answers George! I'm glad you've left electronics behind, although I always appreciate an interdisciplinary background! Moreover, I'm afraid that I will have to disappoint you just as much as I did Ralph Hertwig - I am, so far, unable to contact the dead. I also am doubtful as whether they'd want to be disturbed to do an interview.
As I said before, this interview is part of a larger series which can also be found here on the blog. Make sure you don't miss any of those, nor any of the upcoming interviews! Keep your eye on Money on the Mind!