What is Behavioural Economics?

I have recently been citing a lot of Dan Ariely's work from his book Predictably Irrational, and I thought you might like a little more on this relatively new field of science - Behavioural Economics.

Related posts on Behaviourial Economics and Dan Ariely:

Learning as a chore
Grades: Education's Snake-Oil Currency
Grading Amnesia
The Demise of Social Norms
Grading Goslings

The Demise of Social Norms

I have written about how school has shifted from a social norms focus to a market norms focus in a previous post here, and today I wish to look at whether it is possible for us to return to a learning environment built on social norms.

In his book Predictably Irrational, Dan Ariely writes about the dangers of mixing our social and market exchanges:

So we live in two worlds: one characterized by social exchanges and the other characterized by market exchanges. And we apply different norms to these two kinds of relationships. Moreover, introducing market norms into social exchanges, as we have seen, violates the social norms and hurts the relationships. Once this type of mistake has been committed, recovering a social relationship is difficult. Once you've offered to pay for the delightful Thanksgiving dinner, your mother-in-law will remember the incident for years to come. And if you've ever offered a potential romantic partner the chance to cut to the chase, split the cost of the courting process, and simply go to bed, the odds are that you will have wrecked the romance forever.


My good friends Uri Gneezy ( a professor at the University at San Diego) and Aldo Rustichini (a professor at the University of Minnesota) provided a very clever test of the long-term effects of a switch from social to market norms.


A few years ago, they studied a day care center in Israel to determine whether imposing a fine on parents who arrived late to pick up their children was a useful deterrent. Uri and Aldo concluded that the fine didn't work well, and in fact it had long-term negative effects. Why? Before the fine was introduced, the teachers and parents had a social contract, with social norms about being late. Thus, if parents were late - as they occasionally were - they felt guilty about it - and their guilt compelled them to be more prompt in picking up their kids in the future. (In Israel, guilt seems to be an effective way to get compliance.) But once the fine was imposed, the day care center had inadvertently replaced the social norms with market norms. Now that the parents were paying for their tardiness, they interpreted the situation in terms of market norms. In other words, since they were being fined, they could decide for themselves whether to be late or not, and they frequently chose to be late. Needless to say, this was not what the day care center intended.


But the real story only started here. The most interesting part occurred a few weeks later, when the day care center removed the fine. Now the center was back to the social norm. Would the parents also return to the social norm? Would their guilt return as well?


Not at all.


Once the fine was removed, the behavior of the parents didn't change. They continued to pick up their kids late. In fact, when the fine was removed, there was a slight increase in the number of tardy pickups (after all, both the social norms and the fine had been removed.)


This experiment illustrates an unfortunate fact: when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish. Once the bloom is off the rose -once a social norm is trumped by a market norm - it will rarely return.

When school chose to adopt grading, we inadvertently replaced a social norm with a market norm. Learning became, and remains, a business transaction between teacher and student. No wonder some teachers fear that the removal of grading will precipitate apathy in students (as if there isn't already). No wonder some students, who've been convinced the point of school is to collect high grades, have a hard time motivating themselves to learn in the absence of payment (grades).



Dan Ariely strikes with clarity:

You can't treat your customers like family one moment and then treat them impersonally - or, even worse, as a nuisance or a competitor - a moment later when this becomes more convenient or profitable. This is not how social relationships work. If you want a social relationship, go for it, but remember that you have to maintain it under all circumstances...


Today companies see an advantage in creating a social exchange. After all, in today's market we're the makers of intangibles. Creativity counts more than industrial machines. The partition between work and leisure has likewise blurred...


In a market where employees' loyalty to their employers is often wilting, social norms are one of the best ways to make workers loyal, as well as motivated...


Although some companies have been successful in creating social norms with their workers, the current obsession with short term profits, outsourcing and draconian cost cutting threatens to undermine it all.

Ariely often talks about business in his book, but he smartly connects this all to education:

My feeling so far is that standardized testing and performance-based salaries are likely to push education from social norms to market norms. The United States already spends more money per student than any other Western society. Would it be wise to add more money? The same consideration applies to testing: we are already testing very frequently, and more testing is unlikely to improve the quality of education.

I suspect that one answer lies in the realm of social norms. As we learned in our experiments, cash will take you only so far - social norms are the forces that can make a difference in the long run. Instead of focusing the attention of the teachers, parents, and kids on test scores, salaries and competition, it might be better to instill in all of us a sense of purpose, mission, and pride in education. To do this we certainly can't take the path of market norms.


The Beatles proclaimed some time ago that you "Can't Buy Me Love" and this also applies to the love of learning - you can't buy it; and if you try, you might chase it away.

Teachers are not bad people. I can look anyone in the eye and safely pronounce that I believe teachers have the best of intentions. However, someone once said that the road to hell is paved with good intentions, and because grades can only ever be experienced by a student (of any age) as a reward and punishment, our best intentions are immediately trumped by the students' perceptions.

While it cannot be denied that grading has caused incalculable damage, I believe the damage is not irreversible. This is not to say that it will be easy - simply abolishing grading will not be enough to have students dance their way to learning how to divide fractions or sing their way to understanding comma splices, but it is the necessary first step in repairing the student-teacher relationship.


After abolishing grading five years ago, I radically altered my interactions with students. Every year, I work to replace the traditional, teacher-student market relationship with an authentic relationship that better reflects the ethos of social norms.

Grading Goslings

In his book Predictably Irrational, Dan Ariely writes about the perils of first impressions:

A few decades ago, the naturalist Konrad Lorenz discovered that goslings, upon breaking out of their eggs, become attached to the first moving object they encounter (this is generally their mother). Lorenz knew this because in one experiment he became the first thing they saw, and they followed him loyally from then on through adolescence. With that, Lorenz demonstrated not only that goslings make initial decisions based on what's available in their environment, but that they stick with a decision once it has been made. Lorenz called this natural phenomenon imprinting.


Is the human brain, then, wired like that of a gosling? Do our first impressions and decisions become imprinted? And if so, how does this imprinting play out in our lives? When we encounter a new product, for instance, do we accept the first price that comes before our eyes? And more importantly, does that price (which in academic lingo we call an anchor) have a long-term effect on our willingness to pay for the product from then on?

While it is true that grading is a relatively new invention in human learning, it is pretty safe to say that whether we are the teacher or the student, grading has become an anchor for us, and that anchor brings with it long-term effects on our willingness to even imagine an education system without grading.

As goslings, we hatched from our schooling shells, and the first moving object we saw was our grade point average - and through out our schooling adolescence we've been following loyally.

But it's time we grow up.

While this imprinting may be natural, grading is not. As Dan Ariely puts it, we are being predictably irrational in our loyalty to grading. For too long we have married ourselves to this misguided anchor. Deep down, we may know that reducing real learning to a number or letter is fraudulent, but this gosling-like imprinting has us stubbornly locked to our initial experiences.

We may not be able to go back in time to alter our own learning environments that anchored us towards grading, but we can provide a more authentic environment for our children so that the first moving object they see is real learning.

Learning as a chore

Token economies and other rewards systems are prevalent in schools and families. The belief being that a kind of behavioural bait-and-switch can be used to encourage or reinforce students to achieve anything from reading,  to doing their times tables or cleaning their room.

In his book Predictably Irrational, Behavioral Economist Dan Ariely describes an experiment he conducted with his students. He started by reading a few lines from Walt Witman's Leaves of Grass:

After closing the book, I told the students that I would be conducting three readings from Walt Witman's Leaves of Grass that Friday evening; one short, one medium, and one long. Owing to limited space, I told them, I had decided to hold an auction to determine who could attend. I passed out sheets of paper so that they could bid for a space; but before they did so, I had a question to ask them.

I asked half the students to write down whether, hypothetically, they would be willing to pay me $10 for a 10 minute poetry recitation. I asked the other half to write down whether, hypothetically, they would be willing to listen to me recite poetry for ten minutes if I paid them $10.

This, of course, served as the anchor. Now I asked the students to bid for a spot at my poetry reading. Do you think the initial anchor influenced the ensuing bids?

Before I tell you, consider two things. First, my skills at reading poetry are not of the first order. So asking someone to pay me for 10 minutes of it could be considered a stretch. Second, even though I asked half of the students if they would pay me for the privilege of attending the recitation, they didn't have to bid that way. They could have turned the tables completely and demanded that I pay them.

And now to the results (drum roll, please). Those who answered the hypothetical question about paying me were indeed willing to pay me for the privilege. They offered, on average, to pay me about a dollar for the short poetry reading, about two dollars for the medium poetry reading, and a bit more than three dollars for the medium poetry reading, and a bit more than three dollars for the long poetry reading. (Maybe I could make a living outside academe after all.)

But what about those who were anchored to the though of being paid (rather than paying me)? As you might expect, they demanded payment: on average, they wanted $1.30 to listen the short poetry reading, $2.70 to listen to the medium poetry reading, and $4.80 to endure the long poetry reading.

With simple manipulation, Dan Ariely was able to arbitrarily make an ambiguous experience into a pleasurable or painful one. Without ever hearing Ariely's poetry reading skills (or lack there of), their first impressions were formed based on whether they were asked to pay or be paid.
Dan Ariely concludes:

The die was cast, and the anchor was set. Moreover, once the first decision had been made, other decisions followed in what seemed to be a logical and coherent manner. The students did not know whether listening to me recite poetry was a good or bad experience, but whatever their first decision was, they used it as input for their subsequent decisions and provided a coherent pattern of responses across the three poetry readings.

Reward systems that bribe kids to learn implant a dangerous anchor. What if kids come to see learning as a mere means to an end? What if they see learning as something to only engage in if the conditions are profitable?

To further make his point, Ariely quotes Mark Twain:

Work consists of whatever a body is obliged to do, and play consists of whatever a body is not obliged to do.

What if all of our extrinsic manipulators, whether they be exorbitant rewards or ghastly punishments, are herding kids to anchor learning in as an obligation - something they ideally would never need or want to engage in?

We need to think long and hard on bait-and-switch systems that frame learning as a chore.

We may be doing far greater harm than we could ever imagine.

Grades: Education's Snake-Oil Currency

The idea of abolishing grading from school tends to invoke a kind of fear in teachers and parents. One of the most common fears includes this:

If I don't give a grade, why would students learn or do anything I ask them?

To this fear I have tended to quote Alfie Kohn from his article Degrading to De-Grading:

“If I can’t give a child a better reason for studying than a grade on a report card, I ought to lock my desk and go home and stay there.” So wrote Dorothy De Zouche, a Missouri teacher, in an article published in February . . . of 1945. But teachers who can give a child a better reason for studying don’t need grades. Research substantiates this: when the curriculum is engaging – for example, when it involves hands-on, interactive learning activities -- students who aren’t graded at all perform just as well as those who are graded (Moeller and Reschke, 1993).

While I think Dorothy De Zouche hits the nail on the head, there may be some truth in that not all students will find all concepts interesting, no matter how it is presented. As an experienced teacher, I have found that despite some of my best efforts, there are always some students that just don't buy-in.

So let's look at Degrading through a different perspective. For this, let's use Dan Ariely's book Predictably Irrational:

You are at your mother-in-law's house for Thanksgiving dinner, and what a sumptuous spread she has put on the table for you! The turkey is roasted to a golden brown; the stuffing is homemade and exactly the way you like it. Your kids are delighted: the sweet potatoes are crowned with marshmallows. And your wife is flattered: her favorite recipe for pumpkin pie has been chose for dessert.

The festivities continue into the late afternoon. You loosen your belt and sip a glass of wine. Gazing fondly across the table at your mother-in-law, you rise to your feet and pull out your wallet. "Mom, for all the love you've put into this, how much do I owe you?" you say sincerely. As silence descends on the gathering, you wave a handful of bills. "Do you think three hundred dollars will do it? No wait, I should give you four hundred!"

This is not the picture that Norman Rockwell would have painted. A glass of wine falls over; your mother-in-law stands up red-faced; your sister-in-law shoots you an angry look; and your niece burst into tears. Next year's Thanksgiving celebration, it seems, may be a frozen dinner in front of the television set.

WHAT'S GOING ON here? Why does an offer for direct payment put such a damper on the party? As Margaret Clark, Judson Mills, and Alan Fiske suggested a long time ago, the answer is that we live simultaneously in two different worlds - one where social norms prevail, and the other where market norms make the rules. The social norms include friendly requests that people make of one another. Could you help me move this couch? Could you help me change this tire? Social norms are wrapped up in our social nature and our need for community. They are usually warm and fuzzy. Instant pay-backs are not required: you may help move your neighbor's couch, but this doesn't mean he has to come right over and move yours. It's like opening a door for someone: it provides pleasure for both of you, and reciprocity is not immediately required.

The second world, the one governed by market norms, is very different. There's nothing warm and fuzzy about it. The exchanges are sharp-edged: wages prices, rents, interest and costs-and benefits. Such market relationships are not necessarily evils or mean - in fact, they also include self-reliance, inventiveness, and individualism - but they do imply comparable benefits and prompt payments. When you are in the domain of market norms, you get what you pay for - that's just the way it is.

When we keep social norms and market norms on their separate paths, life hums along pretty well. Take sex, for instance.We may have it free in the social context, where it is, we hope, warm and emotionally nourishing. But there's also market sex, sex that is on demand and that costs money. This seems pretty straightforward. We don't have husbands (or wives) coming home asking for a $50 trick; nor do we ave prostitutes hoping for everlasting love.

The sad reality is that grading has shaped learning into a sharp-edged, costs-and-benefits market environment. As the retailer's of learning, the teacher "offers" learning as a product. The consumers then do a cost/benefit analysis - if students decide to buy-in, they demand prompt payment accepted in the form of grading.

Learning conducted in this context shares far too many similarities with Ariely's example of market sex. Like the prostitute who does tricks for money with no expectations for everlasting love, the student complies while never engaging in a love for learning.

Ariely aptly differentiates between market and social norms. Somewhere along the way, we lost the plot to school. When institutions become so large and impersonal, they become less about fulfilling their founding goals and more about sustaining there very existence (at any cost). Grading allows for the processing of large batches of students, but in doing so, we pay a frightful cost. When market norms drive learning, the teacher-student relationship is bastardized.

But how did we get here? How did the classroom become more about market norms than social norms? While I won't pretend to know the answers to these hefty questions, I would wager a strong bet that grading has played a significant role in our degradation.


Five years ago, I abolished grading and it changed everything. For one school year, my students are liberated from the cold and distant clutches of market norms and we are free to learn in an environment that is built upon social norms.

It is good. You should join us...

Grading Amnesia

I am a strong advocate for abolishing grading from education, and I often receive mail from teachers with legitimate concerns for this anti-grading movement. Some of their concerns go like this, "If I abolish grading from my class, but other teachers continue to grade, what will stop students from prioritizing the graded classes ahead of my gradeless class?"

Let's use an excerpt from Dan Ariely's book Predictably Irrational:

Consider your current consumption of milk and wine. Now imagine that two new taxes will be introduced tomorrow. One will cut the price of wine by 50 percent, and the other will increase the price of milk by 100 percent. What do you think will happen? These price changes will surely affect consumption, and many people will walk around slightly happier and with less calcium. But now imagine this. What if the new taxes are accompanied by induced amnesia for the previous prices of wine and milk? What if the prices change in the same way, but you do not remember what you paid for these two products in the past?


I suspect that the price changes would make a huge impact on demand if people remembered the previous prices and noticed the price increases; but I also suspect that without a memory for past prices, these price changes would have a trivial effect, if any, on demand. If people had no memory of past prices, the consumption of milk and wine would remain essentially the same, as if the prices had not changed. In other words, the sensitivity we show to price changes might in fact be largely a result of our memory for the prices we have paid in the past and our desire for coherence with our past decisions - not at all a reflection of our true preferences or our level of demand.

Students who have come to be motivated by extrinsic manipulators such as gold stars, cash and/or grades should not be accommodated as if this were their own unique learning style - rather this should be seen as a problem to be solved.

Students who may refuse to learn without some kind of artificial inducement are the students who need us to rid our teaching tool boxes of grades the most.

The good news here is that it is my experience that students who are detoxed from grading do eventually forget about them. The absence of grades, over time, induces a kind of grading amnesia that encourages students to no longer see real learning simply as a mundane means to an end.

Just as an alcoholic may suffer from withdrawl, so do parents, students and even teachers suffer from grade-withdrawl, but if you can stay-the-course and fight through these short-term 'shakes', you can create a learning environment that turns real learning into the implicit and explicit essence of school.

In the short-term, some students may see your grade-less class as a lower priority, but in the long run they'll come to see you less as a grade collector and more as an educator.