by Julia Lee
Walking into Professor Uri Gneezy’s office, one immediately notices the floor-to-ceiling shelves with a vast array of books, ranging from the scholarly and serious to the accessible and entertaining. Atop a round table in the center of the room sits a container overflowing with colorful, multi-sided dice – quite appropriate for a firm believer in the value of randomized, controlled experiments to transform the way sectors ranging from health care to education conduct their business. An experimentalist and scientist at heart, Gneezy learned and applied game theory firsthand on the streets of Tel Aviv while growing up in Israel. Discovering that he liked thinking about what motivates people and subsequently understanding the world better, he chose to pursue a career as an economist. Later, the deep desire to really understand what motivates people at the micro-level ultimately led Gneezy to further specialize in the relatively newer and less traditional subfield of economics known as “behavioral economics.”
Today, Gneezy is the Epstein/Atkinson Endowed Chair in Behavioral Economics and Professor of Economics and Strategy at the Rady School of Management. As for behavioral economics, once considered to be a rogue sibling of mainstream economics, it is now a rapidly growing field that is enjoying a meteoric rise in popularity as more and more policymakers and business leaders turn to it for answers to complicated questions. When asked why behavioral economics is becoming so popular these days, Gneezy commiserates that the usual economics courses that everyone is required to take in high school or college are typically dry, boring, and don’t seem all that useful, yet we function in a world governed by economic rules and outcomes. As Gneezy puts it, “We all drive cars but not everyone wants to understand how the engine works.” Enter behavioral economics into this picture. Behavioral economics has the potential to provide answers – analogous to just driving a car – without bogging down the user with too many technical details.
The fall of 2013 has been a busy time for Gneezy, with the October release of his new book, The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life, which he co-authored with John List, a longtime friend and collaborator who teaches at the University of Chicago. Asked why he chose to deviate from the usual statisticsladen style of writing academic publications to author The Why Axis with List, Gneezy acknowledges that few economist friends write material that is widely accessible to laypeople in the general public. In the case of The Why Axis, he and List truly wanted to write a book that would speak to the real world. As professors to MBA students and frequent collaborators with businesspeople, Gneezy and List know that the implications of their work must be shared in a way that is not only practical but also deals with the big questions with which society is currently wrestling. However, as data-driven scientists used to letting the numbers and statistics tell the story, the book also served as a challenge to Gneezy and List when translating their work into a format that is simultaneously enjoyable and straightforward to read without undermining their credibility as researchers.
In its final form, The Why Axis features several socially pertinent subjects, including the topics of discrimination (both racial and otherwise), gender and education gaps, charitable fundraising, and business profitability. With catchy titles such as “What Can Craigslist, Mazes, and a Ball and Bucket Teach Us About Why Women Earn Less Than Men?” or “Why Is Today’s Business Manager an Endangered Species?”, each chapter of the book tackles a specific question that looms large in our communities today. The underlying commonality that ties together Gneezy and List’s research in all of these major issues is the motivation to capture how incentives work at encouraging certain types of human behavior over others. For example: Are women innately less competitive than men? (According to their research, the answer is no.) Or is it a matter of social conditioning that leads to the pay gap between men and women that we still witness today? (According to their research, the answer is yes.) Previously only a matter of opinion and anecdote, Gneezy and List tackle these questions head-on by investigating the motives underlying why people act the way they do.
Perhaps the true genius behind the experimental approach of Gneezy and List is that they put behaviors that are generally taken for granted to the test. Ever gone to restaurants with friends and had to split the bill? Ever felt miffed when the guy next to you ordered a $50 steak and two martinis while you only ate a $20 pasta, but the bill was divided evenly? In The Why Axis, the authors recount an episode of the sitcom Friends, when the group of friends go out for dinner on the town. The individuals that make good livings – Monica, Ross and Chandler – order full-course meals while the less well-to-do folks – Rachel, Phoebe and Joey, settle for side dishes or soups. When the bill comes at the end of the meal and Ross proposes splitting the check, the table atmosphere immediately sours. Even though splitting the bill equally amongst all parties sounds simple in theory, the proper etiquette in these scenarios is not as straightforward as it seems. In some cultures, such as in the United States or Israel, dividing the bill equally is often regarded as socially appropriate, whereas spending inordinate amounts of time to figure out who owes what can come across as being tacky. However, in Germany, it is just as acceptable for all parties to figure out the price of their individual bills down to the last cent. Despite social conventions and taboos, how does splitting the bill really affect individuals’ dining behavior?
To answer this question, Gneezy and List conducted a study to see what would happen when different groups of diners – students who didn’t know each other – were presented with various ways of paying the bill. The participants were divided into three groups and each group was told a different method for how the bill would be paid at the end of the meal. In the first group of six diners, the three men and three women were told that they would each pay separately for whatever they ordered. In the second group, the bill was split evenly. Finally, for the last group, the researchers offered to pay for the entire meal. Looking at the results, the method of bill payment indeed affected the amount that each person ordered. Unsurprisingly, people ordered and ate the most food when the authors offered to pay the entire bill. But in the case of the bill-splitting group, the individuals involved actually ordered more expensive items than they did when each person was only responsible for his or her own meal. It wasn’t that the people in the billsplitting group were “bad” or wanted to take advantage of other people – they were simply responding to the incentives that they faced, where for every extra dollar that they ordered, they would only have to pay one-sixth of the cost. In this simple dining-out situation, the behaviors and outcomes of the participating individuals varied widely depending on the incentives initially presented to them. Throughout The Why Axis, the authors again and again highlight the central concept that “incentives shape outcomes,” no matter if it is amongst friends at a restaurant, in a public school with high drop-out rates, or in a multi-million-dollar corporation. By carefully executing experiments in the field, one can gain insight into the incentives governing human behavior and then enact policies for the better.
The attempt to change the status quo or any ingrained mindset is no small feat. In industries where certain standard operating procedures have long been the norm, trying to introduce field experiments can create pushback against such efforts. However, several companies that Gneezy and List have already worked with, such as Disney, Intuit, and Humana, can attest that companies do benefit from experiments where commonly accepted beliefs or practices are actually put to the test. In order to further shake things up from the ground level, Gneezy believes that new business schools, such as the Rady School of Management, have the potential to do things differently from the start. Business schools are in charge of producing future business leaders, and can be at the forefront of leading a revolution towards embracing experimentation in the business setting. For the authors, The Why Axis is a labor of love to translate the in-depth research they have done over the years into a form that the public can understand, enjoy, and apply in their careers and in their everyday lives. To quote Gneezy, it is a “missionary work” – one that will convert people to think on a regular basis in an empirical way. When asked how the public can get involved with running experiments in the field, Gneezy readily replied that everyone can and should do experiments in their day-to-day lives. As a wine connoisseur, Gneezy suggests a quick and easy experiment: next time you go to a restaurant with a friend, order two glasses of wine off the menu – one cheap, and one expensive. Then have your friend try them both and tell you which one is better. Chances are, this could lead to some interesting dinnertime conversation.
Julia Lee (Rady MBA, 2015) has an industry background in HIV and Hepatitis C drug discovery research. Her interests include cognitive science, social psychology, and behavioral economics.