Economic psychology

“Theory is an antidote to introspection,” says Hal Varian, a New York Times columnist and professor of business, economics, and information management at the University of California at Berkeley, who co-wrote the book Information Rules.

Reflecting on personal experience has its place, but many of us make the same errors repeatedly before a detectible pattern emerges. Some of us never come to a full awareness of how we relate to other people, though our behavior can be clearly interpreted by observers. A useful predictor could spare considerable embarrassment and short-cut a lot of navel-gazing.

One aspect of economic theory, as Varian points out, is the application of cost-benefit analysis. An obvious predictor when making financial decisions, weighing costs and benefits is indicated in other contexts, as well. Our underlying rationale for forming alliances and then deciding to end them is not only relevant to business operations but to all types of personal interaction.

We typically rely on intuition to guide our relationship choices, or so we believe. Instinct also plays an undeniable part. Surprisingly, some of those instincts may involve economic theory, subconsciously applied. Sound distasteful? In spite of our blindness to it, we’re continually weighing the cost of maintaining each of our relationships and deciding whether its benefit to us makes it worthwhile.

Costs and benefits are dangerously difficult to describe when speaking of personal associations. We tend to downplay the awareness of how our connections to others alter our social status, earnings, self-esteem, and standing in religious and business communities. In fact, though we may not know it, we predict and then modify our assessment of the value of relationships all the time.

Artemio Ramirez, Jr., professor of communication at the Ohio State University, and Michael Sunnafrank, a member of the faculty at the University of Minnesota Duluth, studied the power of first impressions and concluded that snap judgments made in the first 10 minutes after people met were strong predictors of whether friendship developed. Their observations supported Predicted Outcome Value Theory, which was first published by Sunnafrank in 1986. Accordingly, we anticipate the potential for any new relationship and also weigh the costs. If our predictions prove accurate, then we continue to invest in the relationship.

Over time, our perspective of the value of any relationship in which we have a stake can change. One way of extricating ourselves when things go downhill is to escalate the costs, hoping the other person will walk away.

The glimmer of insight provided by economic theory might ensure neither party walks away mystified.

3 Replies to “Economic psychology”

  1. It also seems to me that issues of power, ego and passive-aggressiveness can play hopscotch with the first impressions theory because the person with the negative take on things will have more power about what happens—about what kind of relationship there will be between the two people and whether or not there will be a relationship at all.

    At that point, the balance of power is off kilter, no longer even, and the virtue of character can really count. Or to put it another way, it takes two to make a deal, but only one to put the kibosh on it. Sure, the very resilient and very charming among us might be able to bring Mr. or Mz. Kibosh around, but if not done right and with the lightest touch of a very good snake oil charmer, the refrain to the song “What Part of No Don’t You Understand,” will be ringing in everyone’s ears. Good salesmanship has its minefields, too.

    On the other hand, and this is where character also counts, I’ve seen people strut their negative first impressions thing to throw an interested person off track, even when Mr. or Mz. Strut is secretly interested. We’ve heard it called coy, a tease, and other phrases too unsavory for polite conversation, but it’s all the same thing: Pretending not to care. While that might at first seem counterproductive to their secret goal (of having some kind of relationship), it’s right on the mark with their public agenda (of seeming not to want one).

    These types of people experience some kind of power (which they deposit into their power-trip savings account for later withdrawal) by reducing their “intended” to feeling rejected, stupid, out of sync or blind. Later the rejected party of the first (impressions) is surprised to speechlessness, and, too often, acquiescence, when the party of the second (chances) saunters by to scoop them up, after all. Be afraid, be very afraid. It takes no special first impressions insight to spot a fraud or a manipulator for they will reveal themselves ultimately, if not initially.

    But what if you are someone who is genuinely, authentically and unequivocally not interested in having a relationship with someone, any kind of relationship, for whatever reason. That’s easy: Just don’t have one. Don’t pretend to have one. And for heaven’s sake, don’t say, “I’ll call you.” Gracious behavior does, and should, have its limits.

  2. Dan,
    [I’m adding this bracketed information as an afterthought. I know you were referring to me, Dan, because your comment and T.T.’s were in the moderation queue and not visible to each other until now.]
    T.T.’s thoughtful rebuttal displays an aspect of her personality I love to elicit, incisiveness. As for transparency, I was delighted by Varian’s assertion that “theory is an antidote to introspection.” Fundamentally, this topic covers every tricky interaction that could possibly be unsettling me at the moment, making it very economical, wouldn’t you say?

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