Predictable Irrationality Lecture

Introduction

• Speaker's interest in irrational behavior started from personal experience in a hospital.
• Encountered irrational methods used by nurses during bandage removal in the burn department.

Bandage Removal Dilemma

• Question: Rip off bandages quickly (high intensity, short duration) vs. slowly (low intensity, long duration)?
• Nurses in the burn department preferred the quick removal method.
• Speaker suggested trying a slower method to reduce pain intensity.
• Nurses believed they understood the best method for patient pain minimization.

Experimental Method

• Upon university study, learned about the experimental method to test questions.
• Conducted experiments to simulate pain experiences and gather data on pain perception.

Key Findings on Pain

• Found that pain is encoded more by intensity than duration.
• Longer duration with lower intensity would have been less painful.
• Trend of improvement (starting at face to legs) would have reduced pain.
• Breaks would have helped patients recuperate from pain.

Broader Implications

• Began questioning if irrational decisions are common in other areas.
• Extended exploration to other irrational behaviors such as cheating.

Study on Cheating

• Initial interest sparked by Enron scandal.
• Explored whether cheating was limited to a few individuals or more common.

Cheating Experiment

• Simple math problems test: insufficient time, participants tempted to cheat.
• People claimed to solve more problems when they could shred their answers.
• Most cheated slightly rather than extensively.

Economic Theory vs. Reality

• Economic theory: Cheating is a cost-benefit analysis.
• Study found insensitivity to economic incentives (probability of being caught, punishment severity).

Personal Fudge Factor

• People balance cheating with moral self-perception.
• Greater distance from cash (e.g., tokens) increased cheating.
• Social influences on cheating: In-group behavior increased, out-group behavior decreased.

Implications for Stock Market

• Distance from real money through financial instruments may increase cheating.
• Social environments and distorted realities contribute to market behaviors.

Conclusion

• Behavioral economics highlights flawed human intuitions.
• Importance of testing intuitions in personal, business, and policy contexts.
• Speaker's personal lesson on testing intuitions learned from nurses' resistance to experimentation.

Final Thoughts

• Advocates for systematic experimentation to refine our understanding and improve decision making.