Video Transcript: Allow Me to Introduce You to Yourself | David Lang | TEDxUCDavis
Good afternoon everyone. There you go. Thank you very much. I'm David Lang. Now, please allow me to introduce you to yourself. As an economist, I'm actually in the perfect position to do so. And at some point, the slide will move, right? There you go. You know, one of my favorite professors once said, "It is our choices that show what we truly are far more than our abilities."
Professor Dumbledore
This is a professor you might know as well. He's quite well known. Um, he was deeply beloved by his students. Unfortunately, he met his end. He was actually killed by one of his colleagues, believe it or not. I give you Professor Dumbledore. Now, what Professor Dumbledore and I would argue is we are really nothing more than a collection of the choices that we make. And we make choices every single day from the mundane like how am I going to spend this afternoon to the more life-defining like how am I going to spend my life? I for one have chosen to spend this afternoon here with you giving this talk. And I choose to spend my life on a combination of being an economics professor, spending as much time with my wife and children as I possibly can, and then at the poker table every moment other than those. So who is it that actually is studying human behavior and choices?
Who is it
Well, psychologists of course study this. They would claim that human behavior and choices is a result or governed by our individual's psyche. Sociologists also study this and they would claim that our interactions with others and our place in the social structure is really what is determining our human behavior and
choices. But of course, I'm here today to tell you that in addition to that, it's really economists who are really doing some of the work on this as well. Now, what would economists have to say about human behavior and choices? Well, we would say that our behavior and choices, there you go, is largely predictable given some very basic parameters and concepts. This is probably worth pointing out that economists are generally considered the more egotistical of the social sciences to think that we can actually do this. Economists would state that an individual's objective is simply to maximize their utility subject to some set of constraints. Having said that, not everyone is making exactly the same choices. But what does this mean? Our goal, it means that individuals are going to choose to make themselves as happy as they possibly can given the constraints that are in front of them. Okay. So why are things so different than across people? Right? We don't see that people are making the same choices.
Rationality
The key assumption of economics that allows us to even start this conversation is one of rationality. We assume that individual people are rational. I know some
of you are thinking, well, not my boyfriend, not my girlfriend, not my mom, right? But when it comes down to it, that comes that's because we as economists have a very different definition of rationality than is usually used among non economists. Economists will state that people doing what is in their best interests given the information before them. That's what we mean by rationality. In other words, if we witness someone actually making a choice, engaging in some behavior, we assume that that is the result of some internal cost/benefit analysis that's taking place. Now that doesn't mean that you are actually consciously sitting down and making these calculations but rather that you are acting as if you are. This assumption of rationality is really what allows us to move forward. Without that we just assume people are just random actors doing random sort of things. Okay.
Constraints
So as I mentioned the people are going to do what is in their best interests and try to maximize their happiness given their constraints. So what are these constraints? I'm going to give you three of them today. The first one is that we are constrained by our money or resources. This is to suggest that there's only so much money in our bank account at any given point in time and therefore we meet need to make choices about how we're going to spend that money. We're also of course constrained by our time. There's only 24 hours in the day. Once you use it, it's gone. And so time is another way in which we are constrained. The third item is one that's not as often discussed in the economic literature, but we're also constrained by our intellect. We only have so much mental capacity at any given point in time. We can acquire more, but today you only have so much. If after my presentation you catch me in the lobby and you're so inspired by my talk that you're going to ask me, David, what is the meaning of life? I just don't know that answer today. Give me a couple days and I'll get back to you. Okay. Nonetheless, even with the same amount of time and money and even with the same amount of intellect and even if we assume that everyone is acting rationally, we still see different choices. And my claim here today is that many of those choices are the result of three very specific what I'm calling behavioral defining parameters. The first of those is time preferences. The second will be risk aversion and the third is altruism and I'll take you through those one at a time. Time preferences. So we often are put into situations where the choices we make are involving costs and benefits that play out over time where we don't just get instant costs and benefits but there's some time that passes. So, for example, should I take some money and save it for my future? Or should I take that same amount of money and go on a very expensive vacation? Should I get a job immediately after a bachelor's degree? Or should I instead go to graduate school and kind of look out for my future self perhaps a little more than my present self?
Risk Aversion
Second, we have risk aversion. Many of the decisions we make involve some degree of risk or uncertainty. Right? Risk aversion is about how much we're willing to tolerate this risk or uncertainty when we're making our choices. For example, when I'm celebrating the end of my TED talk experience today and I go home, should I spend that at the rest of my day skydiving or should I take that time and sit on the couch and watch television? Should I take extra money that I have and invest it in a biotech startup company? Or should I take that same amount of money and put it into treasury bonds? The most likely answer to those questions for me is that I'm not going to be skydiving. You'll find me on the couch watching TV. And that as soon as I have spare money, I'm not investing in either of those things. It'll probably at the poker table, right? As it turns out, risk aversion for me is a very complicated topic because while I am incredibly risk avoiding when it comes to my personal safety, I am risk-seeking when it comes to my money.
Altruism
Altruism is the third parameter that I wanted to discuss. Many of the choices we make involve trade-offs between things that benefit ourselves, however we define ourselves, could be just you or your family or household, but benefits to ourselves versus benefits to others. For example, should I take a spare $100 that I have and go buy another pair of shoes? Or should I take that $100 and instead give it to charity? Should I take the education that I acquired and became becoming a PhD economist? Should I take that skill set and go become a venture capitalist or should I become a professor at a public university of higher learning? These are factors that relate to how much we're willing to trade off benefits to ourselves and benefits to others.
Scale
So imagine if you would that we have some set of scales here, right? Ranging from 0 to 100, 0 to 10 where in the blue scale we have some measure of patience or your preferences regarding time. The green being your feelings regarding risk aversion from the very risk averse to the risk loving on the other side of the scale. And finally, altruism from zero up to 10 as well. Take a second and try to place yourself kind of on these different scales. Get a feel for where you might reside. Is there a link between these? So for example, are we more likely to see someone who is a 10 in terms of their patience to also be a 10 in terms of their feelings about risk or about altruism? Or is it in completely the
behavioral economics where these folks are in the process of trying to unravel that sort of thing. What is certainly true, however, is that these things taken together certainly influence a lot of the more significant decisions that we might have to make in any given lifetime. Choices like what kind of college major should I choose or what kind of job should I seek or who should I be married to? What should I be looking for in a partner? Or how many children should I have? These are all factors that involve trade-offs between now and later. Various degrees of risk, benefits to self, benefits to others. In conclusion, why should we care, right?
Why Care
Why are you sitting here listening to me? Other than the fact that, you know, the drums are really cool and we've got other stuff coming after me, right? Why should we care about this? Well, economists certainly care about this. We as economists care about this because we're in the business of trying to put together strong theories and models that have really good predictive power. We're trying to explain human behavior. We want to do a good job of doing that. The best way to do that is to know about these parameters. Notice how that feeds back into the ego of the economist. You should care about these parameters for yourself. By knowing these these pieces of information about yourself, you are able to make more efficient, more timely decisions. You're able to kind of ignore or avoid activities that go against the parameters as they relate to you. You can match better when it comes to jobs, when it comes to partners, when it comes to how you're going to spend your weekend if you know a little bit something about yourself. We also want to know this information about others. And by others, I mean you want to know it about those that you're particularly close to, your family, your friends, to help them make better decisions in their own lives. That's certainly great. Of course, you have to be pretty altruistic to care in that direction. However, we also want to know this information about people that we have less intimate relationships with potential employers, for example, knowing that a potential employer might be willing to wait a while to hire someone when you're interviewing with them, even though you might be very impatient and need the job right now, is certainly going to benefit you during the bargaining process. Okay, microeconomics and economics in general is best in my opinion when it helps us understand ourselves and why we make the decisions that we make. I really hope you take the time to try to know yourself almost as well as economists think that they already know you. All right. Thank you.