"Means had become ends in themselves. First principles were stood on their heads. Economic growth and social progress did not serve human beings. On the contrary, the primary function of citizens was to fuel economic growth - a weird reversal of values. The reign of Moloch had begun." - Devan Nair

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"[Sendhil] Mullainathan worked with a bank in South Africa that wanted to make more loans. A neoclassical economist would have offered simple counsel: lower the interest rate, and people will borrow more. Instead, the bank chose to investigate some contextual factors in the process of making its offer. It mailed letters to 70,000 previous borrowers saying, “Congratulations! You’re eligible for a special interest rate on a new loan.” But the interest rate was randomized on the letters: some got a low rate, others a high one. “It was done like a randomized clinical trial of a drug,” Mullainathan explains.

The bank also randomized several aspects of the letter. In one corner there was a photo—varied by gender and race—of a bank employee. Different types of tables, some simple, others complex, showed examples of loans. Some letters offered a chance to win a cell phone in a lottery if the customer came in to inquire about a loan. Some had deadlines. Randomizing these elements allowed Mullainathan to evaluate the effect of psychological factors as op-posed to the things that economists care about—i.e., interest rates—and to quantify their effect on response in basis points.

“What we found stunned me,” he says. “We found that any one of these things had an effect equal to one to five percentage points of interest! A woman’s photo instead of a man’s increased demand among men by as much as dropping the interest rate five five points! These things are not small. And this is very much an economic problem. We are talking about big loans here; customers would end up with monthly loan payments of around 10 percentof their annual income. You’d think that if you really needed th emoney enough to pay this interest rate, you’re not going to be affected by a photo. The photo, cell phone lottery, simple or complicated table, and deadline all had effects on loan applications comparable to interest. Interest rate may not even be the third most important factor. As an economist, even when you think psychology is important, you don’t think it’s this important. And changing interest rates is expensive, but these psychological elements cost nothing...

Citing Republican pollster and communications consultant Frank Luntz, Shleifer noted how the estate tax was renamed the “death tax” (although there is no tax on death) in order to successfully sell its repeal. The relabeling linked the tax to the unpleasant associations of the word “death,” and the campaign asked questions like, “How can you burden people even more atthis most difficult time in their lives?” “Messages, not hard attributes, shape competition,” Shleifer said; he noted that the fear of terrorism is a bigger issue in probable non-target states like Wyoming, Utah, and Nevada than in New York and New Jersey.

Because successful persuasive messages are consistent with prevailing worldviews, one corollary of Shleifer’s analysis is that persuasion is definitely not education, which involves adding new information or correcting previous perceptions. “Don’t tell people, ‘You are stupid, and here is what to think,’” Shleifer said. During presidential debates, he asserted, voters tune out or forget things that are inconsistent with their beliefs. “Educational messages may be doomed,” he added. “They do not resonate.” In economic and political markets, he said, there is no tendency toward a median taste; divergence, not convergence, is the trend. Therefore, the successful persuader will find a niche and pander to it.”...

We have had 30 years of deregulation in the United States, freeing up markets to work their magic. “Is that generally welfare-enhancing, or not?” Wanner asks. “Framing can call that into question. Everyone agrees that there’s informational asymmetry—so we have laws that ensure drugs are tested, and truth-in-advertising laws. Still, there are subtle things about framing choices that are deceptive, though not inaccurate. We have the power of markets, but they are places where naive participants lose money. How do we manage markets so that the framing problem can be acknowledged and controlled? It’s an essential question in a time of rising inequality, when the well-educated are doing better and the poorly educated doing worse.”...

“People care not only about outcomes,but about how outcomes came to be,” says associate professor of public policy Iris Bohnet of the Kennedy School of Government. “That doesn’t strike anyone but an economist—like me—as a surprise.” Game theory, as conceptualized by conventional economics, suggests that players care only about substantive results. With Ramsey professor of political economy Richard Zeckhauser, Bohnet developed a concept of “betrayal aversion,” building on the well-established psychological principle of risk aversion—by and large, humans simply don’t like to take risks...

Bohnet and Zeckhauser have been running two games, now with about a thousand subjects around the world, playing in groups of 30 at a time... “People are less willing to take risks when confronted with another person than when confronted by nature,” Bohnet explains.“Trust is not only about willingness to take risks, but about the willingness to be betrayed.”...

The “nature” game establishes a baseline level of risk aversion, but the game with a human Player B introduces the additional possibility of betrayal. Thus, the gap between percentages on the two games gives a rough index of betrayalaversion. In the United States, Switzerland, and Brazil, the be-trayal aversion differential is 10 to 20 percent. Zeckhauser and Bohnet have also played the games in the Persian Gulf region... In these countries, betrayal aversion is markedly higher, with a differential in the 30 to 40 percent range. “Many in this area say they are willing to trust only if 100 percent of the people are trustworthy,” Bohnet reports.

She had an enlightening experience when teaching negotiation and decision analysis to a group of government ministers from the Persian Gulf region in a Kennedy School executive-education program. “I started the class by asking them to recall a time when they lost trust in someone,”Bohnet recalls. “One minister said, ‘Trust is not an issue for us. We never trust.’ What a beginning! It opened up a very interesting discussion. A minister said, ‘We cannot dare to trust because we may lose face. I would never come to a meeting and put something on the table that other people could decline.’ The meeting-before-the-meeting is absolutely critical in the Gulf, because being let down is terribly humiliating.”"

--- The Marketplace of Perceptions, Craig Lambert