Lizard Brains, Tulip Mania Help Explain Economic Meltdown: TV
The recent economic meltdown might be traced, in part, to a section of the brain humans share with lizards.
So says “Mind Over Money,” a PBS special airing tonight at 8 p.m. New York time. While most shows about economics have all the excitement of a morphine drip, this one is captivating.
According to the show, the lizard part of our brain triggers “some of the deepest and most primal human needs,” including the acquisition of food, sex and -- yes -- money.
Brian Knutson, a professor at Stanford University, explains that money “activates these circuits and does so very powerfully,” which could explain frenzied economic activity such as speculative bubbles. So, perhaps our inner reptile is to blame for our current economic woes.
The show pits rationalists who believe humans almost always act in their own best interest against behaviorists, who believe emotions can profoundly affect economic behavior, often in a negative way.
The rationalist viewpoint is championed at the University of Chicago, which has produced a record number of Nobel Prize winners in economics. The show includes interviews with Chicago professors John Cochrane and Gary Becker, who argue that people almost always operate in their own self-interest. This, rationalists say, keeps markets stable and efficient, thus avoiding the need for regulation.
Behaviorists such as Yale professor Robert Shiller aren’t buying it. (During the housing boom, Shiller warned it was an “irrational mania.”) They believe the destabilizing effects of emotion must be offset by regulation. In other words, let’s put the lizard on a leash.
The show includes several experiments that suggest the behaviorists may be onto something. In one, participants are asked to bid on a $20 bill. It ends up going for $28.
Why would the bidders engage in behavior clearly contrary to their own self-interest? Apparently the frenzied desire to win drives up the price.
“People have played this game for quite high stakes” says University of Chicago professor Richard Thaler.
Another experiment found that people who had just seen a sad movie were willing to pay four times more for a water bottle than a group that hadn’t seen the film. Jennifer Lerner, a Harvard social psychologist, says the sad people didn’t realize the movie had affected them, indicating economic behavior may be driven by factors we are unaware of.
Becker and Cochrane counter that people act differently in labs than in the real world. Yet the real world offers stunning examples of emotions taking over.
Consider the tulip panic of the 1630s, when the value of a single bulb could match that of a house. Almost half the money in the Dutch economy may have been tied up in the tulip trade. In February 1637 the tulip market collapsed, triggering a nationwide panic and economic crash that took decades to recover from.
So much for rational behavior.
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(Dave Shiflett is a critic for Bloomberg News. The opinions expressed are his own.)
To contact the writer of this story: Dave Shiflett at firstname.lastname@example.org.