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