Scott Rick

The Role of Emotion in Economic Behavior

This article, prepared for the forthcoming third edition of The Handbook of Emotion, surveys behavioral economic and neuroeconomic research on the influence of expected and immediate emotions on decision making under risk, intertemporal choice, and social preferences.

Intangibility in Intertemporal Choice

Since the advent of the discounted utility (DU) model, economists have thought about intertemporal choice in very specific terms. DU assumes that people make explicit trade-offs between costs and benefits occurring at different points in time. While this explicit trade-off perspective is simple and tractable, and has stimulated productive research, it does not provide a very realistic representation of a wide range of the most important intertemporal trade-offs that people face in daily life. If one considers the most important and commonly discussed examples of intertemporal choices, a striking pattern emerges: in almost all cases, early outcomes tend to be concrete (e.g. purchasing this latte), but later outcomes tend to be much less tangible (e.g. the unknown item that could have been purchased later with the money spent on this latte). We propose that people rely on anticipatory emotions as a proxy for intangible outcomes when trade-offs are implicit. This paper reviews neuroeconomic evidence that has begun to elucidate the role of anticipatory emotions in decisions involving intangible outcomes. Although most progress has been made in the domain of spending and saving, we discuss how the existing neuroeconomic research could be extended to other domains where trade-offs are ill defined.

Winning the Battle But Losing the War: The Psychology of Debt Management

When consumers carry multiple debts, how do they decide which debt to repay first? Normatively, consumers should repay the debt with the highest interest rate most quickly. However, because people tend to break complicated tasks into more manageable parts, and because losses are most distressing when segregated, the authors hypothesize that people will pay off the smallest loan first to reduce the total number of outstanding loans and achieve a sense of tangible progress toward debt repayment. To experimentally examine how consumers manage multiple debts, the authors develop an incentive-compatible debt management game, in which participants are saddled with multiple debts and need to decide how to repay them over time. Consistent with the hypothesis, four experiments reveal evidence of debt account aversion: Participants consistently pay off small debts first, even though the larger debts have higher interest rates. The authors also find that restricting participants’ ability to completely pay off small debts, and focusing their attention on the amount of interest each debt has accumulated, helps them reduce overall debt more quickly.

Fatal (Fiscal) Attraction: Spendthrifts and Tightwads in Marriage

Although much research has found that “birds of a feather flock together,” the authors suggest that opposites tend to attract when it comes to certain spending tendencies; that is, tightwads, who generally spend less than they would ideally like to spend, and spendthrifts, who generally spend more than they would ideally like to spend, tend to marry each other, consistent with the notion that people are attracted to mates who possess characteristics dissimilar to those they deplore in themselves. Despite this complementary attraction, tightwad–spendthrift differences within a marriage predict conflict over finances, which in turn predicts diminished marital well-being. These relationships persist when controlling for important financial outcomes (household-level savings and credit card debt). These findings underscore the importance of studying the relationships among money, consumption, and happiness at an interpersonal level.

Cheating More for Less: Upward Social Comparisons Motivate the Poorly Compensated to Cheat

Intuitively, people should cheat more when cheating is more lucrative, but we find that the effect of performance-based pay-rates on dishonesty depends on how readily people can compare their pay-rate to that of others. In Experiment 1, participants were paid 5 cents or 25 cents per self-reported point in a trivia task, and half were aware that they could have received the alternative pay-rate. Lower pay-rates increased cheating when the prospect of a higher pay-rate was salient. Experiment 2 illustrates that this effect is driven by the ease with which poorly compensated participants can compare their pay to that of others who earn a higher pay-rate. Our results suggest that low pay-rates are, in and of themselves, unlikely to promote dishonesty. Instead, it is the salience of upward social comparisons that encourages the poorly compensated to cheat.

Solving Coordination Failure with All-or-None Group-Level Incentives

Coordinating activity among members is an important problem faced by organizations. When firms, or units within firms, are stuck in bad equilibria, managers may turn to the temporary use of simple incentives - flat punishments or rewards - in an attempt to transition the firm or unit to a more efficient equilibrium. We investigate the use of incentives in the context of the minimum-effort, or weak-link, coordination game. We allow groups to reach the inefficient equilibrium and then implement temporary, flat, all-or-none incentives to encourage coordination on more efficient equilibria. We vary whether the incentives are positive (rewards) or negative (penalties), whether they have substantial or nominal monetary value, and whether they are targeted to a specific outcome (the efficient equilibrium) or untargeted (and apply to more than one outcome). Overall, incentives of all kinds are effective at improving coordination while they are in place, and we find that substantial and targeted incentives are most effective. However, there is little long-term persistent benefit of incentives - once the incentives are removed, groups tend to return to the inefficient outcome.

Commentaries and Rejoinder to "The Dishonesty of Honest People"

In their clever and insightful article, Mazar, Amir, and Ariely (2008) propose that people balance two competing desires when deciding whether to behave dishonestly: the motivation for personal gain and the desire to maintain a positive self-concept. Their studies focus on the latter fac tor, showing that people behave dishonestly when it pays, but only to the extent that they can do so without violating their perception of themselves as honest. The research is innovative and important. It has already had an influence on policies dealing with conflicts of interest in medicine (Association of American Medical Colleges 2007) and, even before its own publication, has spawned significant follow-up research (Vohs and Schooler 2008). In our opinion, the main limitation of Mazar, Amir, and Arielys article is not in the perspective it presents but rather in what it leaves out. Although it is important to understand the psychology of rationalization, the other fac tor that Mazar, Amir, and Ariely recognize but then largely ignore?namely, the motivation to behave dishonestly?is arguably the more important side of the dishonesty equation. The motivation side is especially important, in part because the propensity to rationalize is itself a function of the motivation to do so. Given sufficient motivation, people can persuade themselves of almost anything, including why behavior they normally would consider unethical is morally acceptable. Research on the self-serving fairness bias (for a summary, see Babcock and Loewenstein 1997) shows that people tend to conflate what is fair with what is in their per sonal interest, and the same is no doubt true of peoples judgments of what is ethical. Given a sufficiently powerful motivation to commit an act of fraud, in general, people are more than capable of rationalizing why it does not conflict with their own ethical precepts. Furthermore, after people have taken the first step toward unethical behavior, a large body of research shows that subsequent steps into the abyss of immorality become progressively easier (e.g., Lifton 1986; Milgram 1963). HYPERMOTIVATION

The Benefits of Retail Therapy: Making Purchase Decisions Reduces Residual Sadness

People often shop when feeling sad, but whether and why shopping reduces residual (lingering) sadness remains an open question. Sadness is strongly associated with a sense that situational forces control the outcomes in one’s life, and thus we theorized that the choices inherent in shopping may restore personal control over one’s environment and reduce residual sadness. Three experiments provided support for our hypothesis. Making shopping choices helped to alleviate sadness whether they were hypothetical (Experiment 1) or real (Experiment 2). In addition, all experiments found support for the underlying mechanism of personal control restoration. Notably, the benefits of restored personal control over one’s environment do not generalize to anger (Experiments 2 and 3), because anger is associated with a sense that other people (rather than situational forces) are likely to cause negative outcomes, and these appraisals are not ameliorated by restoring personal control over one’s environment.

A Penny Saved Is a Partner Earned: The Romantic Appeal of Savers

Romantic desire often stimulates conspicuous consumption, but we find that people who chronically save are viewed as more attractive than people who chronically spend. We first demonstrate, in a face-to-face, incentive-compatible study, that people can accurately distinguish between savers and spenders by glancing at them (without communication). Then, in several experiments, we find that savers are viewed as possessing greater general self-control than spenders, and perceived self-control increases savers’ romantic appeal. Potential alternative sources of savers’ appeal (financial viability, reduced materialism) are ruled out. In addition, savers are expected to take better care of themselves, and this expectation favorably biases perceptions of savers’ physical attractiveness. However, because self-control favors prudence over fun, dispositional and situational factors that increase the need for stimulation reduce the allure of savers. Our work elucidates how a fundamental consumption behavior (one’s tendency to spend or save) is perceived and is influential in romantic relationship formation.

The Pain of Paying and Tightwaddism: New Insights and Open Questions

How do people control their spending? From the standard economic perspective, people avoid making a purchase if the opportunity cost of the good under consideration exceeds the benefits of buying the good. However, people appear to rely on emotional distress (a “pain of paying”) as a proxy for opportunity cost. Rick, Cryder, and Loewenstein (2008) found that some people (“tightwads”) chronically experience a high pain of paying and often spend less than they would ideally like to spend. Other people (“spendthrifts”) chronically experience an insufficient amount of pain and often spend more than they would ideally like to spend. This chapter reviews recent research into the pain of paying and tightwaddism, and poses several open questions.