Priceless: The Myth of Fair Value (and How to Take Advantage of It) (42 page)

 
77
“The first time I talked about it”: Lichtenstein interview, July 28, 2008.

 
78
“I was very young”: Camerer interview, Nov. 28, 2008.

 
78
“would get taken advantage of in the markets”: Ibid.

 
78
Economics and “irrationality”: This capsule history is indebted to the more detailed account in Laibson and Zeckhauser 1998.

 
78
“to discredit the psychologists’ work”: Grether and Plott 1979, reprinted in Lichtenstein and Slovic 2006, 77.

 
79
“We knew Charlie Plott”: Lichtenstein interview, July 29, 2008

 
79
“Plott is pretty good at spotting”: Camerer interview, Nov. 28, 2008.

 
79
“In a very real sense”: Grether and Plott 1979, reprinted in Lichtenstein and Slovic 2006, 85.

 
79
“Unsophisticated Subjects,” other hypotheses: Grether and Plott 1979.

 
80
“amplifier”: Colin Camerer’s word, in Camerer interview, Nov. 28, 2008.

 
80
Admiring letters from cranks: Ibid.

13. Kahneman and Tversky

 
81
Moshe Dayan witnessed drill: Barbara Tversky, interview July 8, 2008.

 
81
Panicked soldier saved by Tversky: Everyone tells a slightly different version of this heroic act. This account is based mainly on Daniel Kahneman’s account in Stanford University News Service 1996.

 
81
“Amos was something special”: Sarah Lichtenstein interview, July 30, 2008.

 
81
“You were happy”: Stanford University News Service, “Amos Tversky, leading decision researcher, dies at 59” (June 5, 1996).

 
81
Tversky biography: Stanford University News Service 1996; Barbara Tversky interview, July 8, 2008.

 
81
“The story is”: Barbara Tversky interview, July 8, 2008.

 
81
“surprised everyone”: Ibid.

 
82
“He didn’t like to learn”: Ibid.

 
82
“Growing up in a country”: Stanford University News Service 1996.

 
82
Psychology department massacre; Amos one of first to get degree: Barbara Tversky interview, July 8, 2008.

 
82
Quiet, unsure about English: Paul Slovic interview, July 1, 2008.

 
82
English language of “enemy”: Barbara Tversky interview, July 8, 2008.

 
82
“a little mechanical”: Ibid.

 
82
“Amos’s writing was perfect”: Ibid.

 
82
“I remember walking home with him”: Ibid.

 
83
“life-changing event”: Kahneman Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.

 
83
“I will never know”: Ibid.

 
84
leadership test with telephone pole: Ibid.

 
84
“The story was always the same”: Ibid.

 
85
“most significant intellectual experience”: Ibid.

 
85
“It was a remarkably honest”: Ibid.

14. Heuristics and Biases

 
86
“People’s intuitions”: Tversky and Kahneman 1971, 106.

 
87
Tossed coin to determine name order: Kahneman Nobel autobiography, nobel prize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.

 
87
“There was a lot of irony”: Kahneman interview, August 30, 2008.

 
87
“In his presence”: Kahneman Nobel autobiography.

 
87
“was the opposite of Danny”: Barbara Tversky interview, July 8, 2008.

 
87
“a pile of money”: Kahneman interview, August 30, 2008.

 
87
“by far the most productive”: Kahneman Nobel autobiography.

 
87
“They were so
verbal
”: Lichtenstein interview, July 29, 2008.

 
88
“Linda is 31 years old”: Tversky and Kahneman 1983, 297.

 
88
“Linda is a bank teller”: Ibid.

 
89
“a series of increasingly desperate manipulations”: Ibid., 299.

 
89
“Argument 1. Linda is more likely”: Ibid.

 
89
“I thought you only asked”: Ibid., 300.

 
90
Words with
r
: Tversky and Kahneman 1974, 1127.

 
90
“the easiest to demonstrate”: Strack and Mussweiler 2003, quoted in Orr and Guthrie 2006, 600.

 
90
“Amos and I didn’t quite agree”: Kahneman interview, August 30, 2008.

 
91
Tversky explanation of anchoring: Quattrone, Lawrence, Finkel, and Andrus 1984.

 
91
Einstein question: Strack and Mussweiler 1997, 442.

 
91
clutching at straws, “conversational hint”: Jacowitz and Kahneman 1995, 1162.

 
92
“I didn’t know about priming”: Kahneman interview, August 30, 2008.

15. The Devil’s Greatest Trick

 
93
“When it comes to our behavior”: Carey 2007.

 
94
“Anchoring effects are . . . caused by the fact”: Transcript of 2008 Edge Master Class,
www.edge.org/documents/archive/edge253.html
.

 
94
“What I tell you three times”: Carroll 2006.

 
95
“There are many, many arbitrary numbers”: Wilson, Houston, et al. 1996, 389.

16. Prospect Theory

 
97
“I would go batty”: Barbara Tversky interview, July 8, 2008.

 
97
“interesting choices”: Kahneman Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.

 
97
Tversky’s idea to put a negative sign on amounts: Kahneman Nobel autobiography.

 
98
“We reasoned that”: Ibid.

 
98
“Our perceptual apparatus”: Kahneman and Tversky 1979, 277.

 
99
“extends to the domain of moral intuitions”: Kahneman Nobel autobiography.

101
Loss aversion in real estate: Ibid.

101
Loss aversion their greatest contribution: Ibid.

102
“The major points of prospect theory”: Lambert 2006.

102
the most cited article ever to appear in
Econometrica
: Laibson and Zeckhauser 1998, 8, which finds 1,703 citations.

102
Merckle suicide: Moulson 2009.

102
“Humans did not evolve to be happy”: Camerer, Loewenstein, and Prelec 2005, 27.

103
“Many of the losses people fear most”: Camerer n.d. (“Three cheers—psychological, theoretical, empirical—for loss-aversion”), 9–10.

17. Rules of Fairness

104
“spend a lot of money honestly”: Kahneman, Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.

104
Russell Sage biography: Sarnoff 1965. The amount of Sage’s fortune was never made public, according to Sarnoff. Estimates range from $63 million to over $100 million.

104
“the improvement of social and living conditions”: Russell Sage Foundation website,
www.russellsage.org/about/history
.

105
“That was the year”: Kahneman interview, August 30, 2008.

105
“rules of fairness”: Kahneman, Knetsch, and Thaler 1986a, 729.

105
“A hardware store has been selling”: Ibid.

106
Football team question: Kahneman, Knetsch, and Thaler 1986b, S287.

106
“A severe shortage of Red Delicious apples”: Kahneman, Knetsch, and Thaler 1986a, 734.

106
“We had a very good time”: Kahneman interview, August 30, 2008.

107
“A company is making a small profit”: Kahneman, Knetsch, and Thaler 1986a, 731.

107
Discontinuing 10 percent bonus: Ibid., 732.

107
“Conventional economic analyses”: Ibid., 735; “the gap between the behavior”: Ibid., 731.

18. Ultimatum Game

109
Plautus dates; earliest complete works of Latin: See E. F. Watling’s introduction to Plautus 1964, 7–8.

109
“
TRACHALIO
: Right, then; listen”: Plautus 1964, 131.

110
“The only share you’re going to get”: Ibid., 133–34.

112
“We were very pleased with the ultimatum game”: Kahneman interview, August 30, 2008.

112
“My brother and I”: Güth e-mail, August 13, 2008.

113 “That would have been overkilling”: Strategic Interaction Group 2002.

113
“the easiest nontrivial”: Güth, Schmittberger, and Schwarze 1982, 370.

113
“Are those students in Cologne stupid?”: Strategic Interaction Group 2002.

113
“being quite crestfallen”: Kahneman Nobel autobiography, nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman=autobio.html.

114
“All our questions on fairness”: Kahneman interview, August 30, 2008.

114
(“If the other player offers you $0.50”): Thaler 1988, 197.

114
average $4.50 offered: Kahneman, Knetsch, and Thaler 1986b, S291. The authors report three subsamples. For simplicity, I’ve averaged the three results (weighted by the number of subjects in each).

114
“It’s the resentment”: Kahneman interview, August 30, 2008.

114
“The thing that’s truly bewildering”: Ibid.

114
“Is the Ultimatum Game the Ultimate Experiment?”: Halevy and Peters 2007.

114
“money alone does not rule the world”: Güth e-mail, August 13, 2008.

115
“Something special had to happen”: Kahneman interview, August 30, 2008.

115
Boulware’s negotiation strategy: See Boulware 1969.

19. The Vanishing Altruist

116
“If you stop construction of that skyscraper”: Finch 2007; Lyons 1993.

116
Influence peddling conviction: Lyons 1993.

117
“resistance to unfairness”: Kahneman, Knetsch, and Thaler 1986b, S288.

118
The definitive dictator game experiment: Hoffman, McCabe, Shachat, and Smith 1994.

119
less to do with altruism than with manners: Camerer and Thaler 1995.

20. Pittsburgh Is Not a Culture

121
“My Israeli game theory professor”: “Mind your decisions” (blog) at mindyourdeci sions.com/blog/2008/01/15/game-theory-tuesdays-the-ultimatum-game-and-hollywood/.

121
Four-city study: Roth, Prasnikar, Okuno-Fujiware, and Zamir 1991.

121
40 percent among Israelis: Robinson 2007, 7.

121
“visibly upset” . . . “I did not earn any money”: Zamir 2000, 5.

121
“Pittsburgh is not a culture”: Camerer interview, Nov. 28, 2008.