Who, me?

[apparentparadox]

wooddragon sent me the book "Predictably Irrational" by Dan Ariely. (I think it was a comment on my square dancing)

It's a somewhat scary book, as it really tries to show that people make some pretty strange decisions. There are many implications for economics based on his findings, because most economists believe that people will act rationally.

One of the scary things is how people react to a situation when cash is involved -- or even more important, when cash is not directly involved. He was basically trying to see how honest people were, and whether that honesty was directly related to whether money was involved. Several groups of people were asked to take a simple test, and would be paid based on the number of correct answers. The control group handed in their papers, had them graded and were paid (the average was 3.5 questions answered correctly). Another group graded their own papers, tore them up, and then walked up to the front and told how many answers they had correct. This group lied a bit (their average was 6.2 questions reported correct -- 2.7 more than the control group). The third group also graded their own papers and tore them up. However, instead of given cash directly when they went to the front, they were given a token which they took across the room and exchanged for cash. This group reported an average of 9.4 questions answered correctly!

Assuming that the people chosen for the experiment really were roughly equal in ability, this is an amazing result. When the monetary result is somewhat removed (but still present), people will cheat more than if they are dealing with cash directly. This may explain companies cheating their customers (and vice versa). It may also be more of a reason to return to a cash based society rather than use credit cards so much!