Uri Gneezy - The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life

THE
WHY
AXIS

THE
WHY
AXIS

HIDDEN MOTIVES AND THE UNDISCOVERED
ECONOMICS OF EVERYDAY LIFE

URI GNEEZY
AND JOHN A. LIST

With a Foreword by STEVEN D. LEVITT
coauthor, Freakonomics and SuperFreakonomics

PublicAffairs

New York

Copyright 2013 by Uri Gneezy and John A. List.

Foreword Copyright 2013 by Steven D. Levitt.

Published in the United States by PublicAffairs, a Member of the Perseus Books Group

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Book Design by Pauline Brown.

Library of Congress Cataloging-in-Publication Data

Gneezy, Uri.

The why axis : hidden motives and the undiscovered economics of everyday life / Uri Gneezy and John A. List ; with a foreword by Steven D. Levitt.

pages cm

Includes bibliographical references and index.

ISBN 978-1-61039-312-6 (e-book) 1. EconomicsPsychological aspects. 2. Motivation (Psychology)Economic aspects. I. List, John A., 1968-II. Title.

HB74.P8G56 2013

330.01'9dc23

2013024592

First Edition

10 9 8 7 6 5 4 3 2 1

For our most important field
experimentsour amazing children:

Annika, Eli, Noah, Greta,
and Mason

Noam, Netta, and Ron

CONTENTS

Sometimes the things that should be completely obvious turn out to be the hardest ones to see.

That was certainly the case for me as a young economist in the late 1990s. It was an exciting time in the economics world. I had the good fortune to be spending my time at Harvard and MIT, two revered institutions that were at the epicenter of the new wave in economics.

Historically, economics had been a discipline dominated by theory. The big advances had mostly come from impossibly smart people writing down complicated mathematical models that generated abstract theorems about how the world worked. With the explosion in computing power and big data sets, however, the economics profession was transformed in the 1980s and 1990s. Empirical researchthe analysis of real-world dataincreasingly became the focus of many economists. It became respectable for a young economist like me, having figured out I was not nearly smart enough to come up with fancy theoretical insights, to spend my time toiling in the data looking for interesting facts.

The big challenge then (and now) was how to figure out whether a relationship between two variables was truly causal, or whether it was merely correlation. Why did it matter? If a relationship was causal, then there was a role for public policy. If a relationship was causal, then you learned something important about how the world worked.

Causality, however, is very hard to prove. The best way to get at causality is through randomized experiments. That is why, for instance, the Food and Drug Administration requires randomized experiments before approving new drugs. The problem was that the sort of laboratory experiments used to test drugs werent all that applicable to the kinds of questions economists like me wanted to answer. Consequently, we spent our energy trying to find accidental experimentsquirky things that happen more or less by chance in the real world that vaguely mimic randomized experiments. For instance, when a hurricane happens to devastate one city and leave another untouched, one might think that it was more or less random which city got hit. Or consider the legalization of abortion with the Supreme Courts Roe v. Wade decision in 1973. The likelihood a fetus got aborted changed dramatically with that decision in some states, but not in others. A comparison of life outcomes for babies born around that time in different states tells us something about the impact of the policy and maybe also about deeper questions, like how being born unwanted affects a persons life.

So that is how I, along with a lot of other economists, spent my days: looking for accidental experiments.

Everything changed for me, though, when I one day met an economist a few years younger than me. He had a very different pedigree than my own. He hadnt attended Harvard or MIT, but rather, had received his undergraduate degree at the University of WisconsinStevens Point and then his Ph.D. from the University of Wyoming. His first job teaching was at the University of Central Floridanot the most prestigious place.

His name was John List. Unlike me and the other big-name economists, he was pioneering something that in retrospect was completely sensible and obvious: running randomized economics experiments in the real world. But for some reason, almost no one else was doing it. Somehow, because of the traditions of the profession and what the economists before us had done, it just never occurred to us that we could run randomized experiments on real people in real economic settings without these people even knowing they were part of an experiment. It was a truck drivers son showing us the way.

Think about prejudice, for example. If a person acts in a biased way toward another, everyone has always assumed such a person is racist, sexist, homophobic, or what have you. But nobody has ever teased apart the underlying motives in behaviors that appear, on the surface, to be based on dislike, distaste, or flat-out hatred of other people in the way that John List and Uri Gneezy have. Their experimentswhich they describe in have shown that the hidden motive behind discrimination is not always hatred, but it is sometimes simply to make more money.

To me, the sign of true genius is the ability to see things that are completely obvious but to which everyone else is blind. And by that measure, John List and Uri Gneezy are definitely geniuses. They are true trailblazers in one of the greatest innovations in economics of the past fifty years. This book is their story of how the experimental approach, in the hands of incredibly thoughtful and creative researchers, can shed light on just about any problem under the sun. The only limit is the imagination of the person designing the experiment.