Paul Krugman on Learning From Mistakes

Question: Do our rational choices speak to something less tangible?

Paul Krugman: Well in a lot of ways sure.  I mean in a lot of ways the . . . looking at the way people make choices tells us both the extent and the limits of rationality.  And you can learn a lot about how people really think by looking at . . . actually looking at the mistakes they make.  I mean it’s one of the really interesting things – looking at the mistakes people make when choosing a retirement plan; or choosing . . . making healthcare choices, which are very much economic analysis.  And you learn a lot about where . . . how the human psyche works by looking at how people behave in those real world situations.

Question: What do our mistakes say about us?

Paul Krugman: What you learn a lot.  I think it’s terribly . . .  Actually I think it’s important and very relevant for policy debates is the limited ability of people – all of us – to process information.  So for example if you’re given something like a 401k scheme, and people are given . . .  There are two ways you can do this.  One is to have an opt in, and the other is to have an opt out.  And in each case it’s really just a question of checking a box on a form.  That ought to make no difference, right?  This is trivial.  If it’s a good idea, it’s a good idea.  And you should opt in if it isn’t automatic.  You should opt out if you don’t want it.  In fact it turns out to make a huge difference.  People are much more likely to go along with a retirement scheme if it’s opt out, or it takes a much more conscious action to . . . to come out.  Even though the apparent cost of that action is very small, that’s telling you that limited decision making capacity is very, very important to people’s behavior.  And that in turn tells you a lot if, you know . . . if you’re thinking about how . . . should we rely upon individual initiative to receive routine healthcare.  Or should that be something that’s sort of automatically paid for and scheduled in.  You learn a lot from the way people behave on 401k plans that probably you’ll want to not count on people making that decision even if it appears low cost.

Because people will, in fact, skimp on necessary care if it isn’t automatically paid for.  It’s just the thought of . . . that the decision involved in saying, “Oh, it really is time for my . . .” I was about to say . . .  Well my GI examination . . . is probably not a really good idea because people will tend to skimp on it.  And so the idea that we can trust people to make these rational decisions is probably wrong.  In fact you know I was just thinking of the risks of . . .  A medical test I should’ve gotten I forgot because . . . because it wasn’t automatic.

 

Image courtesy of Shutterstock.

 

Krugman talks about what our mistakes say about us.

A dark matter hurricane is crashing into Earth

Giving our solar system a "slap in the face."

Surprising Science
  • A stream of galactic debris is hurtling at us, pulling dark matter along with it
  • It's traveling so quickly it's been described as a hurricane of dark matter
  • Scientists are excited to set their particle detectors at the onslffaught
Keep reading Show less

We are heading for a New Cretaceous, not for a new normal

The climate change we're witnessing is more dramatic than we might think.

Image credit: NASA Goddard Space Flight Center from Greenbelt, MD, USA
Surprising Science

A lazy buzz phrase – 'Is this the new normal?' – has been doing the rounds as extreme climate events have been piling up over the past year. To which the riposte should be: it's worse than that – we're on the road to even more frequent, more extreme events than we saw this year.

Keep reading Show less

New study reveals what time we burn the most calories

Once again, our circadian rhythm points the way.

Photo: Victor Freitas / Unsplash
Surprising Science
  • Seven individuals were locked inside a windowless, internetless room for 37 days.
  • While at rest, they burned 130 more calories at 5 p.m. than at 5 a.m.
  • Morning time again shown not to be the best time to eat.
Keep reading Show less