EDWARD'S LECTURE NOTES:
More notes at http://tanguay.info/learntracker
C O U R S E
A Beginner's Guide to Irrational Behavior
Prof. Dan Ariely, Duke University
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C O U R S E L E C T U R E Conflicts of Interest Notes taken on December 21, 2015 by Edward Tanguay |
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the fundamental issue of cheating is conflicts of interest
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when we are paid or encouraged to do things that are slightly different than the truth, we think and act with a bias
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sports are a good example
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if you support team A and the referee makes a call for team B, then you find his call to be unfair
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this may even make the game more fun
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although we try to minimize it, we have conflicts of interest in every area of life
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accountants
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lawyers
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politicians
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financial advisers and bankers
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how to reduce conflicts of interest
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sunshine policies and disclosure
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conflicts of interest should be disclosed
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so people will know how to discount biased opinion
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experiment
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two people: adviser, advisee
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adviser sees a jar with money from close up
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advisee sees jar from far away
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they have to guess, the closest the adivsee was, the more money they got paid
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added conflict of interest
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adviser got paid more if the advisee overestimated the amount
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adviser recommended the higher number
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added sunshine policy
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I get paid more money if you guess too high
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which force would be higher: exaggeration or discount
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results: adviser exaggerated more, advisee discounted not enough
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advisee generally got more money
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conflict of interest
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change people's views
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causes them to be biased in dishonest ways
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sunshine policies and disclosure don't seem to fix the problem
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Dan's stories about conflict of interest
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example #1: doctor with conflict of interest
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Dan was burned and spent many years in the hospital
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after many years, doctor contacted him because he had new treatment
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has whiskers, black dots, only on left side of face
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his solution was to tattoo little black dots to right side of face
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asked to see pictures of others who had treatment
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what happens when I grow older and my hair is white
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we can laser it out
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Dan became suspicious and said he did not want to do it
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doctor:
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gave him guilt trip
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don't you want to be symmetrical
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do you get some distorted pleasure from looking different
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do women feel sorry for you and give you sympathy sex
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had been his doctor for three years
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turned out he was looking for a third patient for an academic paper
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Dan was seen as an ideal patient
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doctor thought that what was in his best interest was also in Dan's
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when we are so engrossed in what's good for us, we are more comfortable in demanding it from other people
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without seeing the conflicts of interest
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example #2: research with conflict of interest
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Dan was doing experiments at Harvard
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allowed him to use lab from time to time
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ran experiment
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hoped that group A would have high mean, and group B would have low mean
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they basically got those expected results
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but one person in group A who had the lowest possible result you could imagine, and he changed the average mean
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25 years older than all others
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remembered that one person who was old came to the experiment drunk
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people just come from the street
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they took him out, the results looked better
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then they thought, what if the drunk individual had been in the other group
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he wouldn't have been noticed
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and if he would have been noticed, we probably would have kept him in since he would have helped the results look as expected
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now they operate by strict rules
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its ok not to have drunk people in the study, but you can only specific this before the study and not afterwards
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especially after looking at the data
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the same with people who don't understand the instructions
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conflicts of interest operate within a gray zone
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we will naturally make decisions that are good for us financially or good us or our friends in other ways
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the worst part is if we don't notice it ourselves
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it changes our view
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another experiment
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you come to a lab
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we show you art work
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some from Lone Wolf
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some from Blue Moon
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you are told that Lone Wolf is giving you $100 to pay for your participation in this study
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put you in MRI scanner and show you images
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have to say how much you like them
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results
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people like more the art that came from their sponsoring galleries
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you could say that these participants are just being nice to someone who gave them money
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the pleasure centers in the brain as measured by teh MRI reacted more strongly to the pictures by the sponsoring gallery
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the reaction grew in experiments as the gallery gave more money
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this is what is happening in instances of conflict of interest
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we feel indebted to something or somebody, even our own desire for money
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it changes dramatically how we operated and view information
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if you understand conflicts of interest, you will be very disappointed with what we have done since the financial crisis
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1. money
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give someone $5 million dollars a year to view mortgage-backed securities as a better product
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2. steps removed
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very complex loans, hard to evaluate
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3. others agree
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other investors around you was looking past information in the same way
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4. creativity
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the more creative you are, the more you can play with gray zones
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if you think that the cause of this problem are conflicts of interest, then we really haven't done anything useful to the financial industry to counter these forces
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it is similar for the health industry and government because of lobbies