Money and predictable irrationality

Goes back to basics. And you don't get more basic than money. What is it? Does it warp the brain? Does higher pay make us work more? When is working for nothing more effective than work for pay?

Every now and again, we step back and ask very basic questions on this programme, those apparently stupid questions that actually everybody is secretly asking but doesn't like to admit it.

What exactly is money, and does it make us happy? Does it, perhaps, warp our minds? Money, then, everybody's got a view. It means something very different to different people, a store of wealth, a measure of success.

Is it just the shrapnel and paper in your pocket or is wider than that? Can anything be money?

Martin Weale, is director of the National Institute of Economic and Social Research.

Money addles the brain, we know that - the things people do for money. But does it addle economics? Does it make some of the conventional rules of economics like supply and demand out of date?

Dan Ariely, an economist from MIT and now Duke University in North Carolina thinks it does, and has just written a book entitled, Predictably Irrational: the Hidden Forces that Shape Our Decisions.

He has done a string of experiments to show how people actually behave. He finds that they don't behave like the economically rational person that economic theory assumes.

Some people, for example, will do things for no payment that they refuse to do when there's a small payment on offer. Very high bonuses can make for a worse performance.

Dan's discipline is called "behavioural economics" and it's the bright new thing. He calls it all "predictable irrationality".

18 minutes

Last on

Mon 4 May 2009 18:41 GMT

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