Behavioural economics updates
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Do you blow your bonus on a flashy car or spend it on a pay-enhancing MBA? Do you prefer making a fast sale that cuts out a colleague to landing a big client collaboratively? Your preferences are the stuff of two famous behavioural experiments: the marshmallow test and the prisoner’s dilemma.
A third experiment, highlighted in a recent note from broker Liberum, connects the dots. It suggests people are better at co-operating than economists give them credit for. That is useful knowledge for managers.
The research led by Rebecca Koomen then of the Max Planck Institute, Leipzig, is built on the marshmallow test of self-discipline. In the classic experiment, a sweet is placed in front of a child who is told they will receive another if they can resist eating the first for 15 minutes.
Children who waited supposedly did better in life, according to subsequent studies. The claim is that those who resist temptation and plan ahead get bigger rewards.
Koomen challenged pairs of kids to collaborate for cookies. If both children could hold out for 15 minutes, both got a second biscuit. Theoretically, eating the first treat immediately is rational. You could otherwise wait for agonising minutes only for a weak-willed partner to eat their own cookie before the deadline.
In practice, however, half of the pairs co-operated.
There is an obvious read across to the prisoner’s dilemma. In this thought experiment, two criminals in different cells can rat on the other or stay silent. If one informs, they go free and the other serves three years. The pair would serve one year if both stayed silent or two years if they both squealed.
In theory, informing on your accomplice is the optimal strategy. But in experiments with real prisoners — rewarded with cigarettes or coffee, not reduced sentences — one-third helped each other.
Managers can expect employees to collaborate fruitfully. All bosses have to do is create a conducive environment. Most people want to co-operate, even when it is not individually optimal.
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