Airing TONIGHT on NOVA at 8pm in most markets: Mind Over Money, a program about economics, the brain, and how emotions affect decision-making. And it's NOT BORING -- this is the fascinating, bizarre side of economics.
Behavioral Economics is a relatively new field studying how cognitive, emotional, and social factors influence economic decision making. What am I talking about? Take this experiment (shown at the beginning of NOVA's new documentary, Mind Over Money):
A group of test subjects are engaged in an auction to buy a $20 bill. The bidding starts at $1 and goes up from there. The auction has two rules: the highest bidder gets the $20 bill (and pays whatever he or she bid for it), but the second-highest bidder also has to pay what he or she last bid -- and gets nothing in return. Rationally, no one should bid over $20 for the bill, and indeed, there's danger in even bidding anything, because you're potentially signing up to be the second-highest bidder, just spending money for nothing. But in tests, people tend to bid the bill to prices over $20. In the test shown in Mind Over Money, two men bid the bill up to $28. So the auction nets $55 (the $28 winning bid and the $27 second-highest bid) for an item that is clearly only worth $20. How can this be? The short answer is, social pressure -- nobody wants to lose, and once you realize that you're in danger of being the second-highest bidder, you "play chicken" with the other bidders, trying to drive them out in order to minimize your losses.
Tonight's NOVA documentary explores this and other facets of behavioral economics, as compared to "rational" economics. There are lots of interesting behavioral economics experiments featured -- it's really bizarre to see what people do when their emotions are being manipulated and money is involved. The documentary briefly explores the history of economics, how asset bubbles work, and features a good bit of back-and-forth between different schools of economists. It's a great show, and very interesting for anyone curious about economics, the brain, the recent housing bubble, and historical bubbles (Tulipmania, anyone?). While this documentary doesn't resolve any debates, it does give us a good look at the different types of thinking that go into economic theory.
Check out the Mind Over Money website for more, or watch the trailer below: