John Cacioppo, neuroscientist at the University of Chicago, explains lifestyle economics.
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The Isolating Force of Capitalism Capitalism is based on sort of rational-choice theory. Rational choice theory is a mathematic formulation that has demonstrable benefits in terms of avoiding simple errors in judgment decision making. It’s undergoing some revision because some of the biases and errors that we make can be understood and improve those formulas. But there are two assumptions underlying rational choice that are assumptions. They are not part of the mathematics, they are assumptions. One is short-term interest and the other is selfish interest, you do what’s good for you. And as society becomes more complex, as scientific inquiry becomes more complex, as daily living becomes more complex, coordinating our efforts together, working so that we can trust one another, specialize I can count on you to do A and I’ll do B and together A and B, or more than the [sum] of the parts, that kind of problem solving would suggest selfish interest is an assumption that may have outlived its usefulness. That it’s not about being pure altruist, it’s about coming up with something where you relate to other people in a fashion where everybody benefits more, where the total is greater than the sum of the parts, and that is just an assumption. If we put that assumption in the rational choice theory, all of a sudden capitalism looks a little bit different. We look for sustainability. We look for things that are good for the community as well as for the company, and you see such efforts. Southwest Airlines is just one airline that was built caring as much about their employees as to customers, and Southwest has been something of a business success story. Some of the Asian companies are similarly constructed around the concern for the community and the employees, not just the stockholders. And that is, again, they want to serve stockholders but they want to serve beyond stockholders, and those are again some of the real success stories. So I think we’re seeing IB and it’s not of denial of rational choice theory, it’s really just a questioning of one of the assumptions underlying it, and I think there’s good reason to pursue what might be done with capitalism with that assumption changed. At the University of Chicago, I worked with some economists and one of the things that we looked at are the errors people make in judgment. Thirty-five years ago, economists never assumed, given rational choice, that people were rational. They assumed that irrationality was so irrational as to be random. And economics isn’t about predicting an individual behavior, that’s the domain of psychology. Economics is about predicting aggregate behavior. Well, if I have complete irrationality that’s random, that’s just like noise and I average over many such random noise that sums to zero, so you’re left with just rationality. I think with the last 30 years of research and particularly current research in behavioral economics and the neuroeconomics is showing is that the irrationality is systematic. It’s not always random. There are systematic biases that we introduce. One of the biases that people show is if they want an outcome to be true, they overestimate the odds versus if they don’t want the outcome to be true. And so, that’s a bias that once you’ve realized, you can tweak the mathematics just so that it’s a more representative of how human actually think and behave. Instead of just stuttering, let me just. I think our research on what’s fundamental about human nature has implications for how we live our lives now, businesses conduct research. There is a sense in which bringing these teams together with different expertise gives you the opportunity to attack problems, come up with more creative solutions than not, because the complexity you need those different levels of expertise. But, bringing people together isn’t sufficient. Being, overcoming loneliness isn’t about just connecting with another person, it’s connecting at a deep level that’s reinforcing
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