Tag Archives: rational choice

Research suggests drug addiction influenced by environmental factors

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New research from a psychologist suggests environmental factors play a large role in drug addiction:

Then, after that sample of crack to start the day, each participant would be offered more opportunities during the day to smoke the same dose of crack. But each time the offer was made, the participants could also opt for a different reward that they could collect when they eventually left the hospital. Sometimes the reward was $5 in cash, and sometimes it was a $5 voucher for merchandise at a store.

When the dose of crack was fairly high, the subject would typically choose to keep smoking crack during the day. But when the dose was smaller, he was more likely to pass it up for the $5 in cash or voucher.

“They didn’t fit the caricature of the drug addict who can’t stop once he gets a taste,” Dr. Hart said. “When they were given an alternative to crack, they made rational economic decisions.”…

“If you’re living in a poor neighborhood deprived of options, there’s a certain rationality to keep taking a drug that will give you some temporary pleasure,” Dr. Hart said in an interview, arguing that the caricature of enslaved crack addicts comes from a misinterpretation of the famous rat experiments.

“The key factor is the environment, whether you’re talking about humans or rats,” Dr. Hart said. “The rats that keep pressing the lever for cocaine are the ones who are stressed out because they’ve been raised in solitary conditions and have no other options. But when you enrich their environment, and give them access to sweets and let them play with other rats, they stop pressing the lever.”

But, might it not be easier as a society to blame individuals for drug addiction, a lack of willpower, a lack of good decision making rather than deal with the deeper underlying issues in impoverished neighborhoods? As a sociologist, I look at a story like this and see the power of the social conditions to influence an individual’s behaviors: if society offers few good options, drugs seem like a more rational alternative. This work might also fit with arguments Sudhir Venkatesh has made in the last decade or so about urban gangs: they are often characterized as blood-thirsty killers but they might be responding more rationally to contexts with few legitimate ways to achieve societal goals. In fact, as The Wire also suggested, these gangs might be set up as business-like structures that happen to use illegal means to reach commonly sought-after social goals like economic comfort and respect.

h/t Instapundit

The synchronicity of stock traders

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In recent years, sociologists have produced a number of interesting works regarding the behavior of economic insiders. In a recent study published in the Proceedings of the National Academy of Sciences, the authors argue that stock traders have fairly synchronized behavior:

Sociologist Brian Uzzi of Northwestern University in Evanston, Illinois, and colleagues analyzed all trades taking place in a single firm of 66 employees over 2 years. As is usual in trading firms, the employees specialized in different markets—housing, autos, or health care, for example—so they had no obvious incentive to copy one another’s behavior. Each trader typically bought or sold stocks about 80 times a day, which the researchers allotted to second-long time windows.

A 7-hour working day is roughly 25,000 seconds, so the chance of one employee’s 80 trades randomly synchronizing with any of his colleague’s is small. Yet Uzzi’s group found that up to 60% of all employees were trading in sync at any one second. What’s more, the individual employees tended to make more money during these harmonious bursts…

This is interesting information in itself: there are common patterns to behaviors in which we might typically assume that traders act on their own. But perhaps the more interesting aspect of all of this is why these trader’s actions are so synchronized. Here is what the authors suggest:

They believe the synchronized behavior is simply a general indicator that the market is ripe for safe trading. Although each individual trader has a short-sighted view of his or her specialist market, the traders’ collective monitoring of events in the outside world means that, at some point—indeed, at 1 second—group instinct prompts many of them to buy or sell together. The researchers found that instant messaging among traders spiraled at times of synchronicity, which seems to support this view. Trading out of sync, Uzzi says, would mean the trader misses out on the time when the market information was optimal for a return.

So even with specialized tasks, these traders are then monitoring broader conditions and responding to group behavior. This seems to fit with other sociological research that suggests that economic decisions that often get chalked up to things like rationality or intuition are influenced by social factors.

There is an intriguing implication as well:

Uzzi thinks trading firms could capitalize on the phenomenon by giving their employees more money to trade when they are in sync. But he warns that the traders themselves must never be told about the decision. “It is well-known that once people become self-conscious of their own behavior, their behavior changes,” he says.

So will behaviors (and outcomes) change if this article becomes common knowledge amongst traders?