The Wiki Man

How to make economists fight like ferrets in a sack

6 January 2018

9:00 AM

6 January 2018

9:00 AM

One of the funniest passages of writing I have read in the past few years appears within the pages of Richard Thaler’s memoir Misbehaving. He describes what happens when the University of Chicago economics faculty moves to a new location. The economists simply have to agree among themselves who will occupy each office in the new building. Now in theory, at any rate, this should be a breeze. You have a group of people who should be among the most rational in the world; their discipline, economics, defines itself as dedicated to the study of the ‘allocation of resources under conditions of scarcity’: here is a problem tailor-made for economists to solve.

It was, as you can imagine, a fiasco. The offices vary slightly in size and in prestige (Americans have a peculiar fetish for corner offices). Almost immediately someone proposes holding an auction. But the idea is rejected, since it was deemed unseemly for elderly Nobel laureates to be allocated smaller offices than younger colleagues with lucrative consulting practices. The whole matter becomes embroiled in political infighting, backbiting, reputational neurosis and obsession with tiny distinctions between the offices. People would even surreptitiously appear at the new building carrying measuring tape. As Thaler later remarks, the whole feud was rather pointless anyway, since every room was perfectly adequate. Moreover, those who ended up with offices on the worse side of the building had the compensation of a view of the Robie House, a fabulous prairie-style building by Frank Lloyd Wright.

One cunning solution to this problem is to create a ballot which allows people to choose their rooms in order. If you draw number one, you get the first choice of room; if you draw last you choose last. But then you should allocate something else, say parking spaces, by allowing people to choose in the reverse order.

Rather like Aesop’s story, The Fox and the Grapes, people who end up very low on the room ballot will choose to attach much greater importance to how good their parking space is, in order to minimise regret. And vice versa. Technically, the two mental states are known as ‘sour grapes’ (when we devalue something we can’t have) and ‘sweet lemons’ (when we decide to put a positive spin on something we have no choice but to do).

When I was at university, I was impressed by the way in which college rooms were allocated. In your first year, everyone was allocated a bog-standard room. At the end of that year a ballot was held, with the person at the top getting first pick of second-year rooms (when you tended to live out of college); in the third year (when most people moved back in) ballot positions were simply reversed. People who had lived miles away in their second year now had the compensation of a fairly palatial room in their third.

The magic of this arrangement was that in my time at university I never came across anybody who was less than happy with the outcome. Everyone simply reshaped their preferences to suit their position on the ballot. People in the middle consoled themselves with the thought that ‘well at least I won’t have a terrible room in either year’; people at the extremes attached more value to their accommodation in the year in which they were ranked high.

Often, the greatest annoyances are those small things such as parking tickets, where there is no alternative story we can spin ourselves to put a positive gloss on events. If it were mandated that parking fines were all paid to charity, say, we would find them much less infuriating.

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