Economics is built upon preferences. It’s the science of choosing. What determines preferences? Well, theoretically, the economically classical, rational being — or homo economicus — looks at its choices, and acts in order to maximize “expected utility,” (or, roughly, lifetime happiness). Because people are impatient and want stuff now, this happiness is weighted in order to discount the future choice in comparison to the present. It’s all very logical.
Unfortunately, that’s not exactly how people work.
If I were to offer some group of people a choice between $20 in one month or $22 in one month and a day, many would likely choose the second option. However, when the next month came around, if I were allow them to reconsider the offer, which would then grant them $20 that same day or $22 the day after, many would likely switch their preference. This is called hyperbolic discounting: when people do not exhibit consistent time preferences.
Importantly, ceteris peribus, in the classic behavior models that do not consider hyperbolic discounting, the degree of difference in weight between intertemporal choices does not change with regard to when the choice is being considered.
As comprehensively chronicled, we exhibit “irrational,” hyperbolic behavior all the time. We say, “I’ll do it tomorrow,” then, when tomorrow comes, we’ll do it the next day, and so on. Our preferences of whether to do something change with the time period. Then, when we look back, we regret not doing whatever it was on the original day as planned. Happiness and expected happiness diverge. Regret does not exist in the homo economicus world. .
Hyperbolic discounting is just one way in which people do not follow the classical rules of utility maximization. Economists have extensively documented non-classical behavior such as ambiguity aversion, prospect theory, and the endowment effect. Though explanations within the existing framework have been proposed for all of these, none have been completely satisfactory. It is my guess that this results from the economics profession putting happiness on a disproportionate pedestal. I suspect that it might be necessary for it to expand this framework beyond the assumption that “utility” is the end-all-be-all of human behavior.
The same thinking that informs economics on the primacy of happiness informs our wider country. America is a country that fetishizes happiness. “Life, Liberty, and the Pursuit of Happiness” is part of the fabric of this country at the basest level and is practically the national slogan. This is why Inside Out is so refreshing, especially for children. In it, the girl who’s emotions are depicted, Riley, grows from a young child who knows only joy, to a more complicated individual with a more nuanced relationship with her emotions. In other words, she grows from homo economicus to a real person. The film advocates for a more well-rounded, holistic human experience. Sadness is recognized as having an important place in our lives.
How can we value sadness in economics? As discussed, choice is the framework of economics, and it’s hard to imagine someone choosing to be sad unless it simultaneously makes them happy, like when watching a weepy movie. And how can economics accommodate an even broader set of values with even more nebulous concepts that inform people’s behavior, such as fulfillment? This suggests a more expansive conception of economics than the current paradigm, a need to go beyond even the behavioral revolution. I’m not sure where that might lead us, but in order for the dismal science to remain relevant, it needs to live up to its nickname.
Coming Soon to a Screen Near You: In my next post, I’m planning to look at the influence of video game aesthetics in Hollywood. Where have they succeeded and failed?