Incentives Matter: An Interview with Lionel Page
The behavioral economist, Lionel Page, explains irrational aspects of human social life using common sense and comedy in this written interview.
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Professor Lionel Page is the Director Centre for Unified of Behavioural and Economic Sciences at the University of Queensland. He is the author of the book Optimally Irrational and he maintains an excellent Substack by the same name.
Jimmy Licon: Youâre an economist who works on how and why people behave as they do using tools from economics. How did that happen?
Lionel Page: People tend to think of economics as being about inflation, GDP and things like that, but the discipline is fundamentally about how to make the best decisions possible about the allocation of resources. In that light, every decision (even mundane daily decisions) is of interest to economics. Whenever you make a decision (like going to a party on Saturday night), you decide to forego other options (like working more to prepare for your exam on Monday).
That is how I got interested in studying how people behave. Looking at the world with economic lenses is fascinating because the usual explanations we hear about what people do and why are often social tales detached from the real logic underlying human behaviour. Economics can often help us understand the real reasons behind what people are doing.
JL: What are some of the common mistakes people make in their reasoning that are deemed irrational, but that actually make sense? Give us a couple of examples.
LP: For a while, economists assumed that people are coldly rational and somewhat short-sightedly selfish. Behavioural economics has been very successful in showing this vision is mistaken. People seem, instead, to make a ton of mistakes. For instance, we are not capable of massively complex computations like a computer. So, when you have to consider which pension plan to take or which car to buy, you might not take into account all the information available and make the best decision.
Such errors have been labelled as proof that people are irrational. But another way to look at it is the one I developed in my book Optimally Irrational, and subsequently in my Substack with the same name: people are actually pretty good at making decisions, once we take into account that processing information is not free. In the same way as your computer uses a lot of electricity to make calculations and will generate heat when its CPU is used, our brainâs processing of energy is costly (it uses 20% of our energy intake for only 2% of our body mass). From that perspective, perfection is often too costly to achieve. Using limited information, and therefore making some mistakes, is a reasonable solution. For instance, you should not feel guilty if you choose not to read 20 pages of terms and conditions in legalese when you click âI accept the terms and conditionsâ to simply access a new app.
JL: How does Seinfeld (the hit TV show) provides insights into cooperation and the use of ambiguous and arbitrary signs and signals?
LP: As a show from the 90s, it is amazing how long-lasting the influence of Seinfeld is. I believe this is because it is a very smart show that unpacks strategic layers in mundane social interactions. It makes the hidden games we play in our social life apparent. People watching it can say: yes, thatâs exactly whatâs happening in this usual situation. There is something in Seinfeld that echoes the work in sociology from the highly influential Erving Goffman, who analysed how we behave in society. We play roles depending on the social setting we are involved in (family, friends, work). In each of these settings, we try to maintain specific public faces, cooperating with others to maintain the social representation (e.g., using âtactâ and ignoring when something goes slightly off-script).
Earlier this year, I wrote a post on how Seinfeld gives us a lot of insights into the use of ambiguous communication. One of the most interesting insights we get from recognizing the strategic games we play in everyday social situations is that we often avoid explicit and transparent communication. Instead, we talk in a veiled and indirect way. Steven Pinker describes in his book The Stuff of Thought how we do not say things like âPass me the salt, pleaseâ but instead, âIf you could pass me the salt, that would be greatâ. The second option is, at face value, a strange reflection on a counterfactual situation. Literally, it means, âthe hypothetical situation where you would be able to pass me the salt would be a great situationâ. Why do we speak like that? Because asking more explicitly might sound like an order, and it provides a way for other people to decline without necessarily insulting us (e.g., âSorry, I canât right nowâ).
If speakers use ambiguous statements, it is because it can be useful when negotiating situations with others. But it can also have costs when it is not understood properly by the hearer (the hint was not strong enough). Seinfeld is replete with such examples. In a famous scene, a woman invites George to come up for coffee at the end of a date. She is clearly making a romantic overture to him. Offering coffee allows her to keep plausible deniability. If George declines the invitation, she can pretend only an invitation to drink coffee was declined. If she had made an explicit come-on to invite George to sleep with her, a negative answer from George would make it more awkward to handle. In that scene, George completely misses the point of the invitation and firmly rejects âcoffeeâ because it is too late and he wonât be able to sleep afterwards. The reality of what happened hits him as soon as she leaves the car (visibly disappointed).
JL: In the movie Office Space, the protagonist (Peter Gibbons) suffers from a lack of motivation in the workplace. What does behavioral economics tell us about motivating Peter?
LP: Office Space is, rightfully so, an underground classic. It is one of those movies that were not too successful at the box office but later became a cult movie. One thing it does is capture the harrowing psychological aspects of office work in the corporate world. Humans are social animals, and we thrive in situations where we are part of a shared collective endeavour to achieve something. People give their time voluntarily to their local sports club, church, or political association. Corporate companies try to tap into this but often end up only offering an ersatz of such a motivating environment.
Office Space features iconic scenes of office life that illustrate this fact. Instead of having a collective sense of purpose to work towards a clear goal, Peterâs work seems to be shaped by mind-numbing bureaucratic rules that have taken precedence over achieving something concrete. At the start of the movie, after forgetting to put a âcoversheetâ on a âTPS reportââsomething that sounds of little consequenceâhe is lectured by three different superiors about how important it is to follow the ânew policyâ.
Office Space also captures how management masks its hierarchical and controlling approach into what seems like a superficially friendly way of interacting with employees. Lumbergh, Peterâs maddening boss, never makes a firm order but keep telling him, âIf you could do that, that would be greatâ and expects it to be done right away. It is exactly the use of indirect speech we discussed above. It is maddening because of how obvious it is that the friendly tone is inauthentic, and that Lumbergh is just going around bossing people.
There is another notable scene where Jennifer Aniston, who plays a waitress, is told she has to wear at least 15 badges on her uniform to look cheerful for customers. Her manager then tells her in a blaming tone that while only 15 are required and she is free to do just that, she might want to put on more to âexpress herselfâ and should consider whether she is someone who wants to do the âbare minimumâ. It reflects another excruciating aspect of the corporate world: it often tries to extract more than peopleâs work, requesting their intrinsic motivation and loyalty for their workplace, even though it fails to offer a setting where people find what they do meaningful. The disconnect between the experience of a meaningless job and the fact that management does not just require your practical effort but also your psychological investment can feel very oppressive. You canât even hide in your thoughts.
The film captures these tensions between what the corporate world pretends to beâefficient, friendly, cheerfulâand what it is often is in factâinefficient, hierarchical and constraining. It certainly is a key reason for the movieâs success.
JL: Humans are social and cooperative â they compete both with other groups, and within the groups to which they belong. How do you think tools like ChatGPT will either inhibit or enable people to better cooperate and to better manipulate each other?
LP: I'm not sure it is easy to foresee how AI tools like ChatGPT will inhibit or enable people to better cooperate or manipulate others. A lot of the games we play are mixed-motive gamesâa term coined by game theorist Thomas Schelling. They involve elements of cooperation and conflict. For instance, when you negotiate something, whether it is with a car dealer to get a better price or with your spouse to decide on the next holiday destination, you have an interest in reaching an agreement (cooperation) but have different views about the best agreement possible (conflict). One possibility is that AI tools will simply raise our skills in such games. They might act as our âwingman,â collecting information and providing us with suggestions about how best to navigate these games. In that case, we might not observe necessarily more cooperation or conflict overall, as the AI influence cancels out overall.
Though, if anything, I would suspect it might generate more cooperation because I think we tend not to be cooperative enough in mixed-motive games, in part because our psychology was shaped in ancestral times where there were much fewer opportunities to cooperate with people over very long durations (e.g., years, decades). It may not have prepared us enough for the modern world where we have opportunities to cooperate over many years in settings like networks of friends or workplaces.
JL: Self-deception looks bad: it undercuts our ability to successfully navigate the world (to a degree) by depriving us of (some) knowledge. How do economists and others make sense of our capacity and tendency to self-deceive?
LP: Self-deception is a fascinating phenomenon. Evidence suggests we gather information in a self-serving way to form the view that we are better than we are: stronger, kinder, and smarter. Why would we try not to be well-informed about things? I believe that the best explanation is that self-deception is actually useful to navigate the worldânot the natural world, though. If you deceive yourself into believing you are a great swimmer and jump into a river with a strong current, that wonât do you any good. But our world is social; our world is other people. And it is plausible that the reason we self-deceive is because when we form confident beliefs, it helps us influence others to believe that we are actually better than we are. This idea was put forward by the biologist Robert Trivers in 1976, and economists are now studying this explanation with a lot of interest.
JL: On a related note: overconfidence is widespread and comical. It also looks irrational. Why do so many people indulge in overconfidence? Is it just ego protection or something more?
LP: It is related to the notion of self-deception, which typically generates overconfident beliefs. The predominant explanation in psychology for overconfidence is that it feels good to believe that we are better than we are. It is the âego-protectionâ value you describe. This explanation has a major flaw. Overconfidence must have some costs, as it will lead to mistakes sometimes (like jumping into a river with a current too strong). If the only benefits of overconfidence are in our heads, then why didnât evolution change these beliefs? Evolution doesnât care about us being happy in our headsâonly about us being successful in the real world. This observation leads to the conclusion that overconfidence must have some real-world benefits. Triversâ idea that overconfidence may help you influence the beliefs of other people about you offers a strong solution to this problem.
JL: Doing the right thing is often presented as straightforward by some. Others think doing the right thing is a suckersâ game. Why do we care so much about the âright thingâ?
LP: It really depends on what you mean by âthe right thingâ. It is often used to describe ethical behaviour, and I take that to be the meaning you are implying here. I discuss that at length in Optimally Irrational. The short answer is that doing the right thing is usually the best way to be successful in life. The reason is that there are lots of opportunities to gain from cooperating with other people, and that cooperating with others in a continuous way requires us to respect common rules of good behaviour. As the saying goes, âHonesty is the best policyâ. There are good reasons why we care about doing the right thing and why deviating often comes with psychological strain (e.g., guilt, anxiety).
Obviously, countless people have become rich by violating ethical rules. But society is organized such that such behaviour is risky, and you are usually more likely to be caught and lose out by violating rules of good behaviour than to succeedâat least if you live in a country with a strong rule of law. So doing the âright thingâ is not a suckerâs game, as long as you are willing to stand your ground when others do not do the right thing themselves.
JL: People talk of the marketplace of ideas. What about the marketplace of rationalizations? Can you briefly compare and contrast those marketplaces, and then explain why people would want a marketplace for justifications and rationalizations?
LP: The marketplace of ideas is a great concept. It consists in observing that the public sphere allows for ideas to be proposed, discussed, and selected. Liberal philosophers like John Stuart Mill have argued that with freedom of speech, the possibility to discuss ideas freely in society would allow the best ones to be selected.
After nearly 20 years of social networks, it is fair to say that the reality has not matched the idea of a marketplace of ideas. Not only is there a lot of misinformation online, but political discussions are often more vindictive than rationally argued.
A likely cause is that we do not invest time online to argue neutrally about what the best ideas are. Instead, we are invested in our pre-existing ideas and the political coalition we belong to. We do not think like scientists looking for the truth, but like lawyers looking to win arguments with their opposition. Instead of a marketplace of ideas, we have, in many regards, a marketplace for rationalisations (a term coined by Dan Williams). People look for ideas and arguments that rationalize their pre-existing ideas. The demand for rationalization creates its own supply, with many creators of content dedicated to producing partisan rather than neutral and rigorous content. We often hear complaints about there being too much biased and low-quality information spread online and in traditional media. But, in fact, the low quality of a lot of content is driven by a demand for it from people who consume media content. Coluche, a very famous French comedian, captured the issue in a famous quip about bad products: âif we werenât buying it, they wouldnât be selling itâ.
JL: What is a time you failed, either personally or professionally, and what, if anything, did you learn from it?
LP: As a scientist, I can safely say that I have failed a lot. Those outside science are often not aware of it, but for every paper we publish, we typically have many rejected by journals. I have had my fair share of rejections. Sometimes papers I thought were really good and important were not even sent for review. When you are a young researcher, it is tough. However, I have learned to live with it and not to take it too personally.
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