A discussion of the dual self model of consumer behavior in the context of dual self models found outside of economics

1. Meet your elephant:More dual-self behavioral economics concepts Dr. Russell James III Texas Tech University

2. Review At this point, we have a whole host of descriptors for each of our two systems.

3. Examples so far of dual-self models in behavioral economics Short-term/impulsive Doer Passions Affective/Visceral Hot state Long-term/patient Planner Impartial spectator Deliberative Cold state Fudenberg & Levine Shefrin & Thaler Adam Smith Loewenstein Bernheim & Rangel; Loewenstein

4. In fact, we could keep going… “In this paper we provide a new model of consumption-saving decisions… Agents have the ability to invoke Automatic processesthat are susceptible to impulses or temptations, or alternative Control processes which are immune to such temptations.” J. Benhabib (Professor of Economics, NYU) & A. Bisin (Professor of Economics, NYU), 2005, Modeling internal commitment mechanisms and self-control: A neuroeconomics approach to consumption-savings decisions. Games and Economic Behavior, 52, p. 464.

5. And we could make the list longer… Self-control system Automatic system Short-term/impulsive Doer Passions Affective/Visceral Hot state Long-term/patient Planner Impartial spectator Deliberative Cold state Fudenberg & Levine Shefrin & Thaler Adam Smith Loewenstein Bernheim & Rangel; Loewenstein

6. We could even switch to philosophy… “I divided each soul into three: two horses and a charioteer… the right-hand horse… is a lover of honor and modesty and temperance… The other is a crooked lumbering animal … companion to wild boasts and indecency.” -Plato, Phaedrus

7. … or religion “For the sinful nature desires what is contrary to the Spirit, and the Spirit what is contrary to the sinful nature. They are in conflict with each other, so that you do not do what you want.” – Paul’s letter to the Galatians Popular Jewish theologian Dennis Prager writes, “When God declares in Genesis, ‘Let us make man in our image,’ the us may be understood to be God and the animals… There is a place for our animal nature, and there is a place for our divine nature.”

8. Or we could look at biology “A crucial fact is that the human brain is basically a mammalian brain with a larger cortex. This means human behavior will generally be a compromise between… animal emotions and instincts, and… human deliberation and foresight.” C. Camerer (Cal Tech), G. Loewenstein (Carnegie-Mellon), D. Prelic (MIT), 2004, Neuroeconomics: Why economics needs brains. Scandinavian Journal of Economics, 106(3), 555-579.

9. Can we see two systems in the brain? Areas of the prefrontal cortex are associated with rational, higher cognitive thought. The more central limbic system is the immediate reward system (“dopaminergic”).

10. Watching decision-making happen By making decisions in an fMRI machine, we can see which areas of the brain are activated. BOLD signal indicates blood usage in the area.

11. Limbic system reactions Choices between more $ later, less $ sooner. Earliest option: Today Earliest option: 2 Weeks Earliest option: 1 month S. McClure (Princeton), D. Laibson (Harvard), G. Loewenstein (Carnegie Mellon), J. Cohen (Princeton), 2004, Separate neural systems value immediate and delayed monetary rewards. Science, 306, 503-507.

12. Higher cognitive system reactions Choices between more $ later, less $ sooner. Earliest option: Today Earliest option: 2 Weeks Earliest option: 1 month S. McClure (Princeton), D. Laibson (Harvard), G. Loewenstein (Carnegie Mellon), J. Cohen (Princeton), 2004, Separate neural systems value immediate and delayed monetary rewards. Science, 306, 503-507.

13. What about this description from the brain science of addiction & relapse? Does the “go system”/“stop system” model described by Dr. Childress (U. Pennsylvania School of Medicine) correspond to the previous dual-self models? Addiction segment http://www.hbo.com/addiction/thefilm/centerpiece/614_segment_3.html Beginning at title screen “The science of relapse” and run for 3:27. Or DVD HBO “Addiction” Series at 21:04– 24:31

14. We could try using a long list… When given a big bowl of cookies before lunch, what is the natural reaction of your Short-term/ Impulsive/ Doer/ Passions/ Affective/ Visceral/ Hot state/ Core mammalian/ Limbic/ Go/ Automatic system?

15. Let’s use a simple analogy “The image that I came up with … was that I was a rider on the back of an elephant. I’m holding the reins in my hands, and by pulling one way or the other I can tell the elephant to turn, to stop, or to go. I can direct things, but only when the elephant doesn’t have desires of his own. When the elephant really wants to do something, I’m no match for him.” Dr. Jonathan Haidt, (University of Virginia), The Happiness Hypothesis, 2006, p. 4, Basic Books: New York.

16. Some family history My great uncle Benny Henry with Casey in the Kansas City Zoo (1962). When Casey arrived, Benny was instructed to care for him, but not to attempt training him, as African elephants were then considered not safe for training.

17. Some family history Note my long family history of not following instructions…

18. So, let’s have some fun learning about “elephants” and elephant training… Long-term Patient Planner Impartial spectator Deliberative Cold state Short-term Impulsive Doer Passions Affective/Visceral Hot state

19. Slides by: Russell James III, J.D., Ph.D., CFP® Associate Professor Division of Personal Financial Planning Texas Tech University russell.james@ttu.edu Please use these slides! If you think you might use anything here in a classroom, please CLICK HEREto let me know. Thanks! The outline for this behavioral economics series is at http://www.slideshare.net/rnja8c/outline-for-behavioral-economics-course-component