Neuroscientist John Cacioppo explains lifestyle economics.
Question: Is Capitalism an isolating force?
Cacioppo: Capitalism is based on [sort of] rational-choice theory. Rational choice theory is a mathematic formulation that has demonstrable benefits in terms of avoiding simple errors in judgment decision making. It’s undergoing some revision because some of the biases and errors that we make can be understood and improve those formulas. But there are two assumptions underlying rational choice that are assumptions. They are not part of the mathematics, they are assumptions. One is short-term interest and the other is selfish interest, you do what’s good for you. And as society becomes more complex, as scientific inquiry becomes more complex, as daily living becomes more complex, coordinating our efforts together, working so that we can trust one another, specialize I can count on you to do A and I’ll do B and together A and B, or more than the [sum] of the parts, that kind of problem solving would suggest selfish interest is an assumption that may have outlived its usefulness. That it’s not about being pure altruist, it’s about coming up with something where you relate to other people in a fashion where everybody benefits more, where the total is greater than the sum of the parts, and that is just an assumption. If we put that assumption in the rational choice theory, all of a sudden capitalism looks a little bit different. We look for sustainability. We look for things that are good for the community as well as for the company, and you see such efforts. Southwest Airlines is just one airline that was built caring as much about their employees as to customers, and Southwest has been something of a business success story. Some of the Asian companies are similarly constructed around the concern for the community and the employees, not just the stockholders. And that is, again, they want to serve stockholders but they want to serve beyond stockholders, and those are again some of the real success stories. So I think we’re seeing [IB] and it’s not of denial of rational choice theory, it’s really just a questioning of one of the assumptions underlying it, and I think there’s good reason to pursue what might be done with capitalism with that assumption changed.
Question: How do economists react to your work?
Cacioppo: At the University of Chicago, I worked with some economists and one of the things that we looked at are the errors people make in judgment. Thirty-five years ago, economists never assumed, [given] rational choice, that people were rational. They assumed that irrationality was so irrational as to be random. And economics isn’t about predicting an individual behavior, that’s the domain of psychology. Economics is about predicting aggregate behavior. Well, if I have complete irrationality that’s random, that’s just like noise and I average over many such random noise that sums to zero, so you’re left with just rationality. I think with the last 30 years of research and particularly current research in behavioral economics and the neuroeconomics is showing is that the irrationality is systematic. It’s not always random. There are systematic biases that we introduce. One of the biases that people show is if they want an outcome to be true, they overestimate the odds versus if they don’t want the outcome to be true. And so, that’s a bias that once you’ve realized, you can tweak the mathematics just so that it’s a more representative of how human actually think and behave.
Question: How should managers treat their employees?
Cacioppo: Instead of just stuttering, let me just… I think our research on what’s fundamental about human nature has implications for how we live our lives now, businesses conduct research. There is a sense in which bringing these teams together with different expertise gives you the opportunity to attack problems, come up with more creative solutions than not, because the complexity you need those different levels of expertise. But, bringing people together isn’t sufficient. Being, overcoming loneliness isn’t about just connecting with another person, it’s connecting at a deep level that’s reinforcing for both individuals. Businesses, if they understand that principle can understand that bringing experts together isn’t sufficient, it’s bringing experts together and allowing them or promoting their connection, so that it’s beyond what we normally would get. So, just to give you an example on the research domain, I’ve been a member of a research team where we would fly into a vicinity, we meet, meet, meet. Once I flew to Bergen, Norway, which is a long flight. We met in some hotel meeting room for two days and then flew home. I have no idea what Norway looked like. It was one of the most miserable meetings. I was just jetlagged. That’s all that was. And I’m sure we got something for the meeting but not very much. There are other meetings. I run a large interdisciplinary team of wonderful, wonderful colleagues, and research in the book is really representing the work of many different scientific disciplines and expertise. And when we come together to meet, we meet off campus, first of all. And we meet off campus because when we’re on campus, we’re busy, we all have things going on and it’s hard to disconnect our minds from students and our colleagues and other demands. When we go off campus, we also bring family with us and we have meetings only for about six hours a day and we have formal gatherings as a group. We eat together. We break bread together. We go on outings together. We go for walks together in various sub-pairings. And what that allows you to do is rather than saying this is what I know and promoting that, you start to like these people, you start to understand and want to understand more about their perspective. And so, rather than relying just on what we already agree so we can get out of here, you say, well, okay, that’s what we all think, but that’s the common knowledge that we all had. That’s not actually taking advantage of the expertise that’s unique. And really the reason we’re all here is because of the unique knowledge, not the common knowledge. That takes longer and that unique knowledge starts to come out on these walks and it starts to come out on the meetings after you’ve done those walks, because it’s not about coming to a quick solution, it’s about coming to a [plateful]. Well, tell me what you might know and why would you think that? I mean… And I’m not attacking you in that, I’m actually curious. So, all of a sudden, the language differences, the disciplinary differences are easier to bridge. I think that’s in that lesson in science. There’s a lesson for businesses as well, to bring together expertise, and that expertise may be different parts of the product line or it may be labor versus management. Different interest expertise, how does one transcend and really do something that’s better for everybody in the long term because that’s what I think the secret of our species is we’re very good at coming out with those new kind of social [consorts]. If you look at the emperor penguin, they require huddles to get through the winter or I think they get together in this collective, and without that collective, none of them would survive, right? That’s the vehicle for genetic transmission is this group that is bigger than the individual. That’s the only collective unit. Humans have many such collectives and we can create them and re-create them on a moment by moment basis, and so the real talents and capacity comes from how do we configure those so that they’re productive.