Monday, September 14, 2009

Caring More About Keeping What I Have: Bias Or Preference?

This is going to have to be short because it's the first day of school and I haven't got my lunchbox ready or my shoes shined and I don't know where my classroom is or who my homeroom teacher is going to be.

Fortunately, today's topic is pretty simple. It's often pointed out that people generally don't think the same way about losses and gains. We tend to care more about losing what we have; we tend to think the status quo is somehow standard. We think about income and spending completely differently.

For example, the amount I'd pay to have someone clean my house is totally different from the amount you'd have to pay me to make me think cleaning someone else's house is worth my time. But why? It's not like the amount of housecleaning to be done is set in stone; both choices involve a trade of housecleaning for money. And yet the two feel totally different. In the same way, I wouldn't place a bet of any substantial amount of money, even if I thought the odds of winning were really really good.

Essentially, I care more about keeping what I have than about getting more. Is this a bias? Or a just preference? Sometimes you hear it suggested that there's something vaguely irrational about it. Writing (about other things) in the Times recently, Paul Krugman says,
"Behavioral finance, drawing on the broader movement known as behavioral economics, tries to answer that question by relating the apparent irrationality of investors to known biases in human cognition, like the tendency to care more about small losses than small gains or the tendency to extrapolate too readily from small samples (e.g., assuming that because home prices rose in the past few years, they’ll keep on rising)."
OK, fine, but why is "the tendency to care more about small losses than small gains" a bias, and why is it irrational?

I mean, I see why it's wrong to extrapolate too readily from small samples -- if you do, you'll make an incorrect prediction about what's going to happen and you'll act accordingly and you won't get what you want. But there's nothing analogous about caring more about small losses than small gains.

I care more about small losses than small gains because:

1) Part of the pleasure of enjoying the things I spend money on is the feeling that they are going to continue, and small losses often mean they won't. I like to drink wine, but I would be far unhappier to have to stop because I can't afford it than I would be happy to be able to afford fancier brands. Sure, fancier brands would be nice, but I feel only tiny amounts of frustration at not being able to afford them. Nothing like I would feel at having to downgrade, or give it up. Looking forward to next time is a big deal, and you don't really look forward to stuff you've never had. Or not that often, anyway.

2) Like most people, my financial life involve a range of money committments: a mortgage, ongoing bills, a cellphone contract, internet for my home. Other people have even more complex committments: kids' tuition, say, or insurance for expensive things they own. The impact of a small loss on these is great: I have to figure out some plan, change things around, lose things I've gotten used to (see 1). The impact of a small gain -- especially a one-time gain -- is somewhat significant, but it's not big in the same sort of way.

With respect to 2), I remember once when I was a graduate student, a faculty member told me they couldn't live on 80 percent of their current salaray (which is what they'd get if they did a year sabbatical or something). At the time I thought, Really? But thinking it over it makes sense: when you have any regular income, you structure your life according to it. Small losses are a huge deal.

So my answer is: Caring more about keeping what I have seems a preference, a legitimate one, and not a bias.

Monday, September 7, 2009

A Kinder Gentler Henry James

My whole life I wanted to be the sort of person who enjoyed reading Henry James. James readers, I thought, seemed so cool and interesting: so thoughtful, worldly, sophisticated. They always seemed to have the right kind of glasses and the coolest clothes. Not like me with my crazy passion for the overheated Italo Svevo and my comfortable love for the friendly Trollope and my stupid jacket left over from high school. No, being a James reader would finally make me one of the cool kids.

The thing is, I could barely stand to read Henry James. I tried to read The Europeans. I tried to read The Golden Bowl. I tried to read The Ambassadors about seven times and never got past about page twenty. I think I got through The Turn of the Screw but it wasn't any great epiphany or anything and that's where it ended.

What was it about James and me? I came to think the same thing that made me wistful about James was what made me not like to read the books: he is one cool cool customer. I'd read those descriptions and bits of dialogue in the beginning of the Ambassadors and I'd feel James's implicit commentary on those characters so keenly, I could hardly stand it. James, I felt, doesn't love his characters -- he maybe doesn't even really like them. It's more like he's trying to tell the truth about them. So dispassionate! Svevo and Trollope, on the other hand, love their characters so much it leaps of the page. Trollope can't even produce a villian without telling you, Oh, he's not so bad, really, don't be too judgmental! There's a hilarious character in the Barchester books, Mrs. Proudie, who clearly represents everything Trollope finds ridiculous and pernicious in the world around him, and is also just a real pain. But Trollope makes sure to tell us: Now, remember, she really has some wonderful qualities!

Something about that affection always gave me -- and gives me -- a real life-affirmed feeling. Conversely, the detachment of James always made me feel just depressed.

But here's the weird thing. Since reading on the bus often makes me feel ill, I decided to listen to some audio book recordings. I bought a pair of those Bose Noise Cancelling headphones (and can I just say, these things are a miracle and a wonder and the best thing ever?). I joined "Audible." And the first book I downloaded was James's The Europeans.

And I love it. It's not like reading the book at all. The book seems so perceptive, and funny, and interesting. I feel the cool detachment but it doesn't bother me -- in fact, I kind of like it.

To tell you the truth I find it slightly destabilizing to think that a novel in one form can feel so different from the same novel in a different form. Like a lot of people, I want a novel to be a particular thing, with its particular qualities; I don't want to feel like how I feel about it depends on something so trivial as whether I read it or heard it read. What's next, I'll like a book in one font and not in another? Very disturbing.

What explains the difference? What makes James-on-tape a kinder gentler James? I don't know. Is it that the voice doing the reading is itself a warm friendly voice, and this counteracts the coolness of James? This is possible. The reader in this case is a woman with a Britishy sort of accent and a very engaged reading style. Maybe it would feel warm and friendly no matter what the text was. Or is it that listening is actually a less absorbing activity than reading? This is possible, too. When you're reading a book, the book is like the only thing going on in your mind; it's incredibly absorbing. When you're listening, it's not like that. You see the scenery; you have mental energy left over for observing what's going on around you; sometimes your mind even wanders. At least my mind does. That doesn't really happen to me when I'm reading.

The Aspern Papers is next. Baby steps. Maybe I'll turn into an enjoyer of Henry James. But it won't make me someone who enjoys reading Henry James, and so it probably won't make me one of the cool kids. :(