COMPREHENSION 2013 BROADER PERSPECTIVES The Money Issue

COMPREHENSION
CONTENT
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Choice Is a Messy Business
Comprehension Answers available at www.broaderperspectives.com.sg & www.twitter.com/ThinkTankMags
QUESTIONS ATTACHED
Homo
economicus,
not his fallible
counterpart,
is the oddity.
Adapted from The Economists The Debt of Pleasure
COMPREHENSION 2013 BROADER PERSPECTIVES The Money Issue
SOVEREIGN in tastes, steely-eyed and point-on in perception of risk, and relentless in
maximisation of happiness. This was Daniel McFaddens memorable summation, in 2006, of
the idea of Everyman held by economists. That this description is unlike any real person was Mr
McFaddens point. The Nobel prizewinning economist at the University of California, Berkeley,
wryly termed homo economicus (economic human) a rare species. In his latest paper* he
outlines a new science of pleasure, in which he argues that economics should draw much more
heavily on felds such as psychology, neuroscience and anthropology. He wants economists to
accept that evidence from other disciplines does not just explain those bits of behaviour that do
not ft the standard models. Rather, what economists consider anomalous is the norm. Homo
economicus, not his fallible counterpart, is the oddity.
The lack of realistic congruence begins with how the people in economic models have fxed
preferences, which are taken as given. Yet a large body of research from cognitive psychology
shows that preferences are in fact rather fuid. People value mundane things much more highly
when they think of them as somehow their own: they insist on a much higher price for a coffee
cup they think of as theirs, for instance, than for an identical one that isnt. This endowment
effect means that people hold on to shares well past the point where it makes sense to sell them.
Cognitive scientists have also found that people dislike losing something much more than they
like gaining the same amount. Such loss aversion can explain why people often pick insurance
policies with lower deductible charges even when they are more expensive. At the moment of an
accident a deductible feels like a loss, whereas all those premium payments are part of the status
quo.
Another area where orthodox economics fnds itself at sea is the role of memory and experience
in determining choices. Recollection of a painful or pleasurable experience is dominated by how
people felt at the peak and the end of the episode. In a 1996 experiment Donald Redelmeier
and Daniel Kahneman, two psychologists, showed that deliberately adding a burst of pain at the
end of a colonoscopy that was of lower intensity than the peak made patients think back on the
experience more favourably. Unlike homo economicus, real people are strongly infuenced by
such things as the order in which they see options and what happened right before they made
a choice. Incorporating these fndings into models of consumer behaviour should improve their
power to predict everything from which loans people choose to which colleges they apply for.
Orthodox economics has always incorporated the element of trust in their models in predicting the
way markets and economies function. However, trust turns out to be not just a function of history
and interactions, as dismal scientists tend to think, but also a product of brain chemistry. Pumping
Choice Is a Messy Business
A Nobel prizewinner argues for an overhaul of the theory of consumer choice
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Adapted from The Economists The Debt to Pleasure,
for the purposes of the A level General Paper
COMPREHENSION 2013 BROADER PERSPECTIVES The Money Issue
people with oxytocin, the so-called love hormone, has been found to make them much more
generous in games where they have to decide how much of their money to entrust to another
person who has no real incentive to return any of it. Sovereign, indeed.
Much of this may be alien to modern-day economists, but it is in line with the conception that other
disciplines have of human decision-making. Psychologists have long known that peoples choices
and preferences are infuenced by others. Biologists have a much clearer understanding of charity
and kindness, whether to kin or strangers, than economists, who typically emphasise the dogged
pursuit of self-interest. This way of thinking would also have been recognisable to their intellectual
forefathers. Adam Smith - the father of modern economics and the theory of The Invisible Hand
- wrote extensively about the central role of altruism and regard for others as motivators of human
behaviour. The idea of loss aversion would have made sense to Jeremy Bentham, the founder
of utilitarianism: he spoke of increased pleasure and reduced pain as two distinct sources of
happiness.
Modern-day economists would do well to take into consideration the observations and fndings of
other disciplines. Mr McFadden believes that economists need to do things differently if they are
truly to understand how people make decisions. Manipulating brain activity is one way of delving
into where economic choices really come from. Analysing the information people get through
social networks would help them understand the role of infuence and identity in decision-making.
Such tools have implications for policy. Plenty of poor people in America are wary of programmes
like the Earned Income Tax Credit (EITC) because the idea of getting a handout from the
government reinforces a sense of helplessness. Dignity is not something mainstream economics
has much truck with. But creating a sense of dignity turns out to be a powerful way of affecting
decisions. One study by Crystal Hall, Jiaying Zhao and Eldar Shafr, a trio of psychologists, found
that getting poor people in a soup kitchen to recall a time when they felt successful and proud
made them almost twice as likely to accept leafets that told them how to get an EITC refund than
members of another group who were merely asked about the last meal they had eaten.
Taking the path Mr McFadden urges might also lead economists to reassess some articles of
faith. Economists tend to think that more choice is good. Yet people with many options sometimes
fail to make any choice at all: think of workers who prefer their employers to put them by default
into pension plans at preset contribution rates. Explicitly modelling the process of making a choice
might prompt economists to take a more ambiguous view of an abundance of choices. It might
also make them more skeptical of revealed preference, the idea that a persons valuation of
different options can be deduced from his actions. This is undoubtedly messier than standard
economics. So is real life.
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Adapted from The Economists The Debt to Pleasure,
for the purposes of the A level General Paper
CHOICE IS A MESSY BUSINESS 2013 BROADER PERSPECTIVES The Money Issue
Comprehension Questions
1 Sovereign in tastes, steely-eyed and point-on in perception of risk, and relentless in
maximisation of happiness. (lines 1-2)
Explain what Daniel McFadden is saying by bringing out the meaning of the italicised words. [2]
2 Why is homo economicus (economic human), a rare species? (lines 5-6)
Use your own words as far as possible. [2]
3 Why are the words their own (line 15) in inverted commas? [1]

4 How does the role of memory and experience affect choices? (lines 24-25) [1]
CHOICE IS A MESSY BUSINESS 2013 BROADER PERSPECTIVES The Money Issue
5 Why is the power to predict everything about consumer behaviour desirable? (line 33) [2]
6 Explain the authors use of the statement Sovereign, indeed. (line 41)[2]
7 What are the similarities between the understandings of modern scientists and Adam Smith?
(lines 43-50) Use your own words as far as possible [2]

8 Why would the idea of loss aversion have made sense to Jeremy Bentham? [1]
9 Why would modern-day economists do well to take into consideration the observations and
fndings of other disciplines? (lines 53-54) Use your own words as far as possible. [2]
CHOICE IS A MESSY BUSINESS 2013 BROADER PERSPECTIVES The Money Issue
10 How does a sense of dignity affect decision-making? (lines 62-63) [1]
11 What do the articles of faith in line 70 refer to? [1]
12 Summarise the differences between expected model human behaviour under orthodox
economics and that which takes place in real life. [8]
13. In this article, the author presents an overview of new realisations about how people make
choices. How applicable do you fnd his observations to yourself and your own society? [10]
CHOICE IS A MESSY BUSINESS 2013 BROADER PERSPECTIVES The Money Issue
Comprehension Answers
1 Sovereign in tastes, steely-eyed and point-on in perception of risk, and relentless in
maximisation of happiness. (lines 1-2)
Explain what Daniel McFadden is saying by bringing out the meaning of the italicised words. [2]
He is saying that the description of the Everyman held by economists is one in which the person is
totally in control of what he desires (1/2), highly determined (1/2), perfectly accurate in his assessment
of uncertainty (1/2) and absolutely tenacious (1/2) in his pursuit of the greatest amount of happiness
possible.
2 Why is homo economicus (economic human), a rare species? (lines 5-6)
Use your own words as far as possible. [2]
Line Lifted Paraphrased
8-11 He wants economists to accept that
evidence from other disciplines (1/2)
does not just explain those bits of
behaviour that do not ft the standard
models (1/2). Rather, what economists
consider anomalous (1/2) is the norm
(1/2).
There is a cornucopia of proofs from other
felds of studies (1/2) demonstrating that
the theory put forward by economists
that human beings are sorely economic
is not true (1/2), and what economists have
been thinking is deviant (1/2) is actually the
more common case (1/2).
3 Why are the words their own (line 15) in inverted commas? [1]
They are in inverted commas because people may not actually/necessarily own the item in question
and this highlights how the feelings/sense of possession and attachment are just/primarily perceptions.

4 How does the role of memory and experience affect choices? (lines 24-25) [1]
How people remember their frst or prior experiences directly impacts the range of choices and fnal
decisions they arrive at in similar circumstances.
5 Why is the power to predict everything about consumer behaviour desirable? (line 33) [2]
Having the ability to foresee (1/2) how people behave will beneft companies as they will then be able
to understand and capitalise (1) (inferred) on the consumption patterns of consumers in every area
(1/2) of choice they encounter .
Or
Any other sensible answer.
6 Explain the authors use of the statement Sovereign, indeed. (line 41)[2]
The author was being sarcastic in his evaluation of human beings abilities to be in charge of our choices,
and is actually making a statement/giving emphasis to how we do not act independently in reality (1) as
we are unaware of how our brain chemistry exerts a huge unseen effect on our choices. (1)
CHOICE IS A MESSY BUSINESS 2013 BROADER PERSPECTIVES The Money Issue
7 What are the similarities between the understanding of modern scientists and Adam Smith?
(lines 43-50) Use your own words as far as possible [2]

Line Lifted Paraphrased
43-46 Psychologists have long known that
peoples choices and preferences are
infuenced (1/2) by others. Biologists
have a much clearer understanding of
charity and kindness, whether to kin or
strangers (1/2), than economists,
In line with psychologists and biologists
understanding that what humans decide
on and their inclinations are very much
swayed (1/2) by other people as well as
humans capacities for acts of goodness to
both relatives and unknown people (1/2),
Adam Smith also wrote a lot on the pivotal
(1/2) role of charity and care for others as
the impetus (1/2) for human behaviour.
48-50 Adam Smith - the father of modern
economics and the theory of The Invisible
Hand - wrote extensively about the
central (1/2) role of altruism and regard
for others as motivators (1/2) of human
behaviour.
8 Why would the idea of loss aversion have made sense to Jeremy Bentham? [1]
It would have made sense to him because he understood the different kinds of happiness that
increased pleasure and reduced pain would bring, and loss aversion is about people favouring the
latter over the former.
9 Why would modern-day economists do well to take into consideration the observations and
fndings of other disciplines? (lines 53-54) Use your own words as far as possible. [2]
Line Lifted Paraphrased
54-55 economists need to do things
differently (1/2) if they are truly to
understand how people make decisions
(1/2).
Modern economists should take into
consideration the observations and fndings
of other disciplines because they have to
do things using new methods (1/2) if they
are genuinely to have a grasp on how
humans choose (1/2).
58-59 Such tools have implications (1/2) for
policy (1/2).
Furthermore, it is important that they do so
because a through consideration of how
human beings choose will have possible
profound political impact (1/2) on
legislation of rights (1/2).
10 How does a sense of dignity affect decision-making? (lines 62-63) [1]
If people are reminded of previous empowering associations, they will be more encouraged and hence
receptive to new ideas and possibilities, even to charitable acts.
CHOICE IS A MESSY BUSINESS 2013 BROADER PERSPECTIVES The Money Issue
11 What do the articles of faith in line 70 refer to? [1]
They refer to the beliefs/theories that economists believe to be true refections of pattern of human
behaviour.
12 Summarise the differences between expected model human behaviour under orthodox
economics and that which takes place in real life. [8]
Using material from paragraph 1-4, write your summary in no more than 120 words, not counting the
opening words which are given below. Use your own words as far as possible.
While orthodox economics claims that people are
Line Lifted Paraphrased
1-2 From para 1:
Sovereign in tastes, steely-eyed
and point-on in perception of risk,
and relentless in maximisation of
happiness.
From para 1:
In charge of their choices, determined,
accurate in their judgment of dangers,
and tenacious in their pursuit of as much
satisfaction as possible,
12-15 From para 2:
the people in economic models have
fxed preferences, which are taken as
given.
Yet a large body of research from cognitive
psychology shows that preferences are in
fact rather fuid.
People value mundane things much
more highly when they think of them as
somehow their own:
From para 2:
in real life peoples desires are less rigid
than usually assumed according to
research. They much prefer banal things
that they perceive belong to them.
19-20 Cognitive scientists have also found that
people dislike losing something much
more than they like gaining the same
amount.
and they abhor giving up something far
more than they enjoy benefting from the
same amount.
24-26 From para 3:
memory and experience in determining
choices.
From para 3:
Also, while orthodox economics does not
include a role for recollection and past
encounters, in reality these things and the
sequence in which people view choices
30-32 Unlike homo economicus, real people are
strongly infuenced by such things as the
order in which they see options and what
happened right before they made a choice.
have a great impact on how they decide.
CHOICE IS A MESSY BUSINESS 2013 BROADER PERSPECTIVES The Money Issue
35-38 From para 4:
Orthodox economics has always the
element of trust in their models in
predicting the way markets and
economies function.
However, trust turns out to be not just a
function of history and interactions, but
also a product of brain chemistry.
From para 4:
Whereas orthodox economics has only
included the concept of believing in
other people in their theories forecasting
behaviours of buying and selling, in real life,
in addition to faith in others, brain chemistry
also plays a role in determining human
behaviour.
Award full marks for 16-18 key phrases.
13. In this article, the author presents an overview of new realisations about how people make
choices. How applicable do you fnd his observations to yourself and your own society? [10]
This passage is about a new understanding of what governs human choice and behaviour through
incorporating other felds of disciplines besides mere economic assumptions about human beings.
It challenges our conventional understanding of human nature and the sovereignty of people as
autonomous economic agents, by revealing a myriad of ways in which we can be infuenced by
external factors. Candidates will fnd ample material to voice their views and opinions concerning
matters of choice and human behaviour.
Key arguments/threads of thoughts that students can consider are:
Are human beings entirely driven by self-interests and therefore explainable through an economic
model where human consumeristic behaviour is solely accounted for by self-interests alone?

Or is it more realistic to review our conventional and ingrained understanding of human motivations
with a view to revising our economic theories and models?
How does your society view the relationship between human nature and choice?
How feasible are the new ideas discussed in the article and what are the chances of your society
buying into them in the long run?
How much does social/historical memory impact our choices as individuals and as a society?
How does our Singapore context of an Asian country with a western outlook impact the choices
Singaporeans make?