Monthly Archives: December 2010

Mind the Gap – Between the harsh world of economics and the social world that I’d like to live in

Professors Uri Gneezy (from the University of California in San Diego) and Aldo Rustichini (from the University of Minnesota) got the opportunity to establish a series of experiments to explore the transition from social norms to market norms and back again. They wrote their results up in a paper called “A Fine is a Price” in the Jounal of Legal Studies in 2000.

They had been invited in to study a day care centre in Israel to discover whether the introduction of a fine for parents arriving late to pick up little Jonny would act as a useful deterrent. They concluded that the fine wasn’t a very effective deterrent and worse than that it has long-term negative effects. Before the introduction of the fine; there was a social contract in place and hence there were effective social norms about it being unacceptable to keep the carers waiting and in standing out so far from the other crowd of timekeeping parents. In this case (in Israel), the guilt from keeping people waiting, made parents think twice before doing it again. Persistent offenders found the peer pressure from the other Mums (and Fathers) unacceptable. However, after the introduction of the fining system, the nursery inadvertently replaced the social norms and the social contract with market norms and a market contract. Now that the parents were paying for their tardiness, they could now make a judgement as to whether the impact of them having to leave on time outweighed the fines that they knew would be imposed. The number of cases of parents arriving late increased, not decreased, after the introduction of the fine. (Perhaps, they set the value wrong; but I’ve got no information on that.)

However, the story then took an interesting turn for the worse. Recognising the error of their ways, the nursery then decided to remove the fine. They figured that they would then be back to the social contract. Right ? – Wrong ! Once the fine was removed, the behaviour of the parents did not reverse. In fact, when the fine was removed there was a further slight increase in the number of late pick-ups by parents. After all, both of the social restorative effect and the market force had been removed.

The moral of the story is that once a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to re-establish.

My next post applies this behavioural economics to the implementation of road pricing in the UK and cautions transport policy makers to “mind the gap”.


Will London grind to a halt on the 4th January 2011 ?

On the 4th Jan 2011, London will turn off the Western Extension Zone (WEZ) of the London Congestion Charging Zone. Will London grind to a halt ?

It was mostly a political decision and an electoral campaign pledge but Boris has consulted widely and the result was that the central congestion charging zone should stay, but the western extension zone should go. London joins an elite band of cities who have actually implemented road pricing and then decided to turn it off. In the rest of the country, many cities have struggled to even get on the band wagon: Manchester, Edinburgh and Cambridge all had negative referenda and voted against road pricing (or, in Manchester’s case, against a £1.6bn investment in the transport infrastructure of the City). However, London is now prepared to jump off the band wagon, or at least within one foot anyway. So what happens when you jump off the wagon ?

On hearing a talk from TfL about the forthcoming changes to the zone, I was reminded of some great behavioural science about a nursery in Israel which decided to fine parents who turned up late to pick up their children. What’s interesting in that case is what happened when they decided to take the fine away.

Professor Dan Ariely describes it really eloquently in his book: “Predictably Irrational”. We live in one of two worlds. One world is characterised by social exchanges, the other is characterised by monetary transactions. Unfortunately, these two worlds cannot co-exist. Imagine that you’ve been invited around to your first Christmas meal with your new girlfriend and her family. Her mum cooks up a sumptuous feast and there is everything there that makes the meal special: sausages in blankets, your favourite stuffing, both turkey and ham interlaced together … You get the idea. But, imagine the sound of the “scratching of the record”, as you get up and stretch and proclaim what an amazing dinner that was. However, instead of offering to wash the dishes, instead you break open your wallet and offer to pay for your share of the meal. This approach just doesn’t sit well within the social world. It jars and it grates and it destroys any social relationships. The world of social exchanges, where people amicably take it in turns, return favours and think of each other; and the world of monetary exchanges where we expect hard-nosed contractual arrangements just cannot co-exist. And, the policy-maker who tries to combines these two worlds in his policies does so at his peril.

Unwittingly, the nursery in Israel broke the social norms by introducing the fining system in the first place, and then when it didn’t work for them, they ended up with the perception of a fine that just happened to be set at zero. Social relationships are not that easy to re-establish. As Professor Ariely puts it “once the bloom is off the rose, or once the social norm is trumped by a market norm, it will rarely return.” The owners of the Israeli nursery found that they then had a double whammy working against them and the parents became even more tardy at picking up their children. After all, there was now no social contract and the economic contract had also been taken away.

So the question is: Will London’s road system grind to a halt on 4th January 2011 ?

John Cleese on Creativity

John Cleese is a comic genius. The video embedded below isn’t comedy gold, but it does contain three nuggets about innovation and creativity and John Cleese is one of the most creative brains that I know:

1) If we want to be innovative, Cleese advises us to create a “tortoise enclosure” i.e. to create boundaries in time and space which help to avoid interuptions and destroy the creative flow.

2) When it comes to creativity, the subconscious brain does the vast majority of the heavy lifting. In just the same way that humour can be laboured, when the so-called comedian tries too hard and uses the conscious brain; so it is true of creativity. When we have a mental block, Cleese advises us to “sleep on it”, because unconsciously stuff just continues to get better, to such a degree that sometimes we can’t even remember what the mental block was the next day.

3) An amazing implication of the unconscious brain taking the strain is that the brain continues to work on the masterpiece even after the conscious brain has moved onto new things (or the deadline has passed).

This has a down-side: Because the unconscious brain keeps working on your masterpiece after you have submitted, then in your head your masterpiece continues to get better and better. Of course, the physical deliverable just says the same, which can lead to you remembering it as great masterpiece (which unfortunately, it might just not have had time to become). You might not want to admit it, but does this ring any bells ?

There is an up-side as well: Ever spent ages on something that you’ve then lost before you had time to deliver it ? How annoying is that ? What seems most gaulling is that you’ve already spent all of that time, but then at some point you need to cut your losses looking for it, and decide to write it again from scratch. But, once you reach that point; do you know what happens ? Not only, do you write your masterpiece much more quickly second time around; but also you benefit from that sub-conscious brain and it comes out better second time around. Not quite sure I’m suggesting loosing your work to make it better; but don’t worry so much if it does go astray.