Wednesday, 10 February 2010

Irrationality and the stolen pencil

I've just read for review an interesting book called Predictably Irrational (you can read my review here). It points out the flaw in the fundamental basis of economics, which assumes that human beings act rationally, and in such a way to maximize their benefit. The reality is very different. The book is full of experiments done to confirm this - showing, for instance, how we can't resist the pull of a discount even when we know it's rigged. But there is one thought experiment that I thought was a very powerful demonstration of the lack of logical consistency in our approach to honesty.

Picture this situation, says the author. Your child asks you to bring a pencil home. Would you have significant pangs of conscience about bringing one home from work? Most people say 'No.' Now imagine you don't have any pencils in the office, but there's a pencil stall selling them in the foyer of the office block. Would you have significant pangs of conscience about taking the money from petty cash and using it to buy a pencil to take home to your child? Most people say 'Yes.'

I'm with most people on this. I wouldn't take the money, but I would take the pencil. Of course, you can easily start to justify this. To buy the pencil you would steal the retail cost, but when you just take a pencil the company only loses the wholesale cost. But that's splitting hairs. The fact is that there's something very different about taking money and taking a low value item in the same circumstances, even though rationally they are the same thing.

Aren't people interesting?

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