Sunday, February 16, 2003

Modeling anger as a consumption good

One of the ways economics is weird is that it takes everyday words like "efficient" "rational" and "happy" and uses them to describe mathematical derivations. Of course, the results are muddled, and hilarity ensues. I also feel that this is why so many people feel such a revulsion to economics (when it's not boring them to tears) -- they have strong emotional ties to words that the cold mathematics of economics ignores.

My old school chum has not only a nifty new site design, but also a thoughtful post on how vindictiveness serves a useful role by acting as a deterrent. This is all very appropriate in light of the potential war in Iraq, but I'm not discussing that on this site, so let's model anger as a consumption good instead.

There was a sociological experiment where a bunch of strangers got to divide up money between them. If everyone played nice, they would all get the same amount of money. If someone played mean, he could get more money at the expense of the other players. In retaliation, other players could take money away from the cheating layer, but this cost them some money too. The way the experiment worked out in real life was that most of the time people played nice, occasionally someone played mean, and when they did the other players would get angry at him. There was usually one player who would get most angry, and after shouting, would start spending money to hurt the mean player, while the other players watched.

I think this was very revealing. Stopping cheaters makes everyone better off, but it also comes at some personal cost to yourself. An emotion like anger makes you not care about the harm you are doing to yourself as you teach that cheater a lesson. In that, through getting angry, you give up something to get something else, you can think of anger as a consumption good, like yogurt or Levi jeans, where you give up stuff (money) to get stuff (the pleasure of being angry). It is anger that makes any ex ante threat ("don't cheat or I will hurt you") plausible, because the cheater knows doing that will hurt you too. Please note: no one is being irrational, they're just consuming "anger" because, it makes them more "happy". (See what I told you about economics translated poorly).

Another key insight -- the other players who had been cheated got all the benefits of the cheater being punished without having to bear any of the costs. Yes, there is a freeriding problem with retribution, because we get to ride on the costly rage of others.

So, the two economic insights you get by modeling anger as a consumption good are 1) anger is expensive/keeping your temper makes you richer; and 2) there is not enough anger so more people cheat than would be optimal because not enough people tell them to stop.


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