Tuesday, December 13, 2011

Humans are animals, animals do funny things

Brad DeLong's quote of the day is wonderfully illustrative of how weird things happen when you have a situation where things just can't get worse.

"Next, the birds were starved for four hours, and the seeds were replenished only every minute. That tipped the birds into what the scientists called ‘a negative net energy budget’ – gaining two seeds each time they made a choice would not provide enough food to satisfy their hunger, and ultimately to keep them alive and enable them to reproduce. The birds responded by flying to the other dish instead. Facing loss, they started to gamble

It is presented as insight into rogue traders, explaining how once they're underwater and totally F-ed, they'll take more risk to try to get out of trouble, since things just can't get worse.  It also seems like a clear example from nature of a sigmoidal utility curve, like I was spitballing about a few weeks ago.

It all seems to boil down to this: People do funny things when they're up against the wall and out of options, and economics don't pay enough attention to the fact that a large number of people wake up feeling that way every single day.  Both because that's something that should be distressing on a human level, but also because it throws a monkey wrench into most "rational actor" models.

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