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Posts Tagged ‘behavioral economics’

Dan Ariely is a professor of behavioral economics at Duke University and the author of Predictably Irrational: The Hidden Forces That Shape Our Decisions. I recently talked with him about some hidden forces shaping the current financial crisis.

Mac Greer: You have a lot of Americans seeing this as a Wall Street crisis and not so much as a “Main Street” crisis. What do you think it will take for most Americans to reach some sort of a consensus that this crisis really requires immediate action?

Dan Ariely: Well, one thing is we have been telling a lot of people for a long time that whatever they have in the stock market is about long-term strategy and not any short-term things. So the current change in speak, in some sense, doesn’t seem to be very effective. We have been telling people for 20 years the money you have in the stock market is about retirement, it is not about anything urgent. Don’t look at it. It is all about long-term strategy. It is very hard to convince people that all of a sudden that it is short term. That is one thing.

The second thing is that nothing has changed much in the short term living of people. In some sense, this is smaller than the effect of the increasing gas prices.

Greer: Yeah.

Ariely: What is happening? Basically the thing is we are creatures of habit, if you think about it. The best predictor of what we will do tomorrow is what we did today. That is it. Habits are good and bad. They are good because they help us save energy. We don’t have to think about it. We don’t have to contemplate every cup of coffee if it is worth it or not. As a consequence, we get into habits.

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