The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life

by Gneezy, Uri

  After the test drive, Richard offers Jim a cup of coffee and a comfortable seat in his cubicle. Jim says he’s ready to make a deal. After long negotiation, one emerges: Jim will pay $60,925 for the car.

  Now imagine the exact same scenario in the exact same conditions. The only difference this time is that Jim is a black man.

  Here’s the question: How much does Richard ask the black man to pay for the car? More? The same? Less?

  We found that, when shopping for high-end cars, black men were given final offers that were approximately $800 higher than the quotes white men received.

  Is this the same kind of discrimination as we saw in the gay experiment above? Why did the dealers treat the African American customers looking at the expensive cars comparatively poorly? Why were they less likely to offer them a test drive or coffee? To find out, we ran another set of experiments.

  Bob thinks the new Toyota Corolla is a good looking car. The asking price is $16,995. Bob wants to secure a trade-in on his 2007 Pathfinder, which the Kelly Blue Book has listed at $10,000, minus a few dings. He just wants to get rid of the Pathfinder, so he’s ready to give it up for less than he could sell it for by himself.

  As he inspects the shiny wheels, the salesman sidles up to him.

  “Nice car,” says Bob. “Can I take it out for a test drive?”

  “Of course. This is the only one we have left on the lot,” says the salesman. “My name’s Tony.” The salesman warmly extends his hand, which Bob shakes. “I’ll be right back, and you can take her for a spin.”

  When Tony returns with the key and pops open the doors, Bob sinks into the driver’s seat, appreciating the feel of the soft, gray leather and that new-car smell.

  As he pulls out of the dealership parking lot, Tony tries to figure out what kind of customer he has on the line. Bob is a black man who looks to be a little north of forty. He wears jeans and a nondescript blue parka over a red flannel shirt.

  “So, how long have you been looking around for a car?” Tony asks.

  “For a while now,” said Bob. “We’re in need of an upgrade, and I wanted to get a new car this time, not another used one.”

  After the test drive, Bob says he’s ready to make a deal. After a long negotiation, a deal emerges: Bob will pay $400 above the price ($19,295) minus $8,000 for the Pathfinder.

  Now, imagine the exact same scenario in the exact same conditions. The only difference this time is that Bob is a white man.

  Here’s the question: which man gets a better deal?

  In this case, neither—they both get the same deal. We found no difference in price quotes across testers when bargaining over lower-end models like the Toyota. The fact that the price quotes from dealers for low-end cars were the same regardless of the customer’s race suggested that the dealers were exercising economic discrimination in their pursuit of profits. That is, the dealers discriminate when they think that the prospective buyer’s race indicates that he might be less likely to buy the expensive car. They don’t discriminate when they think that the buyers, regardless of race, are just as likely to buy the less expensive car.

  To explain: we conjectured that the dealers may have thought the white men were more likely to buy the pricier cars, so they took the extra time to engage in a little sweet talk, offering them coffee, and so on—as Richard did with Jim. In this case, the dealers simply reacted to the incentives they were facing. They were also willing to negotiate more with the white buyers, believing that the process was going to lead to a deal.

  In other words, if you are a bigot, you will consistently act like a bigot. But if you discriminate only when you think it boosts your profits, you are engaging in economic discrimination. Such discrimination may very well be unethical and unfair, and in the case of the BMW car dealers, you are treating some people poorly based on their race. But it’s still not animus.

  Discrimination and Public Policy

  Remember the Archie Bunker remark to Sammy Davis Jr. we mentioned in the Introduction: “Your bein’ colored, now, I know you had no choice in that. But whatever made you turn Jew?”6

  As we suggested above, our research points to an interesting conclusion: based on everything we have studied, we’ve found that animus most often rears its ugly head when the discriminator believes the person they are judging has a choice in the matter.7 For example, on seeing a person who is obese, some of us attribute that person’s size to a lack of self-control. If we look at a person who is openly gay, some of us attribute that characteristic to choice. But people can’t do much about their race or gender (unless they are transgender, of course).

  These findings are consistent with what psychologists have denoted as attribution theory—that is, we make inferences about other people in an effort to explain causes or events to ourselves. We attribute causes of obesity, homosexuality, criminality, and so on based on these inferences, when in fact we know nothing at all about the individual in question. And the better we know someone else, the less likely we are to attribute stereotypes to them.

  So now let’s revisit the issue on the importance of knowing the underlying motivation for why people discriminate. What difference does this knowledge make? After all, either way, people are behaving in an unfair, discriminatory way.

  Our answer is simple: we cannot begin to craft serious legislation to address discrimination until we understand its sources. The fact that animus, although dangerous, is waning, whereas economic discrimination is rising is important information for the policy maker. And although policy on discrimination continues to change, we know little about the relationship between policy interventions and the two types of discrimination.

  For years, the US government has been codifying and erecting rules that forbid animus-based discrimination. Affirmative Action is arguably the most often-used public policy to fight discrimination. The term Affirmative Action entered public discussion in the United States in the early 1960s; it refers to regulations aimed at reducing bias against and compensating groups that were historically discriminated against on the basis of religion, race, or gender. This genre of policy is not restricted to the United States. For example, post apartheid South Africa adopted a policy of “Broad-Based Black Economic Empowerment,” which introduced the minimum representation of black employees companies had to meet.

  In a sense, Affirmative Action is the opposite of Jim Crow, apartheid, and other terrible policies that historically discriminated against various minorities and kept them from desired jobs. The supporters of Affirmative Action proposed reversing the effect of such harmful policies by increasing the participation of underrepresented groups in desired professions. This reversal certainly made sense in the 1960s and 1970s, when animus against minorities was strong.

  But today we have, as a society, moved on to more subtle forms of discrimination. One of the problems with Affirmative Action, some opponents say, is that although the goal of promoting equality in societies is fine, such policies are no longer necessary given the advances women and minorities have made in the last fifty years.

  An example of the problems associated with Affirmative Action policies has to do with the wrong inferences people may make regarding the success of a targeted minority. Think, for example, of a very intelligent and hard-working African American woman who graduates from a top law school. In the absence of an Affirmative Action policy, people would attribute her success to her strong skill set. But in the presence of Affirmative Action policy, people may attribute her success to government intervention. They would think she graduated due to favoritism, not so much because of her hard work and skill.

  As a reaction to these types of objections, in some states Affirmative Action is no longer legal. For example, Proposition 209 in California now bars preferential treatment of women and minorities in public school admissions, government hiring, and contracting.

  If a graduate admissions team at a university doesn’t admit a talented black woman because, all else being equal, it simply doe
sn’t like her race and gender, then a “reverse discrimination” policy such as Affirmative Action is probably a good solution. But if the reason for not admitting her is based on economic discrimination—for example, if the admission team believes that she can’t succeed—then Affirmative Action is not the right way to help her. The discrimination is based on the university’s “economic like” calculation: they want the best students to graduate, and they believe that she’s less likely to perform. In this case, the solution is to change the cost-benefit analysis these committees follow. For example, if you are the candidate, you should try to signal that you can actually make it in the graduate program by earning good grades in more difficult undergraduate coursework. This is a different prescription than in cases where the discrimination is based on hate.

  Our research suggests the old policy-making tools to combat modern-day discrimination in the labor market, such as hiring quotas and Affirmative Action are antiquated and misguided because they don’t deal with the real problems of discrimination today. Rather, they deal with the wrong type of discrimination, not the one that is prevalent and growing—modern-day economic discrimination.

  Shop ‘til You Drop

  The riddle that we proposed in the previous chapter: “What words can end modern discrimination?” have a simple solution:

  “I am getting three price quotes today.”

  As we learned in the experiment involving handicapped drivers, this works when the person offering the service or product is engaging in economic discrimination. Just for fun, next time you’re shopping in a venue that allows haggling, tell the salesperson “I’m getting three price quotes today.” Using this simple sentence, you might have completely changed the salesperson’s perception about the incentives she faces. Instead of trying to make a huge profit out of selling something to you, she will back up and give you a reasonable price, since she would understand that otherwise the competition could offer you something better.

  Consider the following example. A few years back, while Uri was teaching a negotiation class in Singapore, he needed to buy a new lens for his Nikon camera. He went to a shopping area with lots of camera stores, most of which offered great deals. On entering the first shop, Uri asked the salesman for “a good lens for this Nikon camera.”

  The salesman explained what the options were and explained the details for each, then directed him to a lens he thought was the best. He wanted $790 for it. When Uri walked out, the salesman followed, asking how much Uri was willing to pay.

  Now knowing more about the specific lens he needed, Uri could shop in earnest. Entering several other shops, he learned exactly why he wanted this particular lens. The more he learned about what he wanted, the better offers he received. In the end, he walked into the last shop, asked for “Nikon Nikkor AF-S 55–300mm f/4.5–5.6 ED VR High Power Zoom Lens, DX,” and bought the lens for $328. No negotiation was needed.

  What happened? The first guy wanted to charge $790 because he saw that Uri was clueless. The last salesman understood that Uri knew what he was doing, so he gave him a much lower price. The bad treatment from the first salesman had nothing to do with his disliking Uri: he simply categorized Uri as an uninformed customer and tried to get the most money out of him.

  The moral of this story is simple: If you want to reduce economic discrimination when shopping, make sure that you are armed with enough information about going rates and product information to counter it. When you do, and you signal this to the other side, you dramatically change the salesperson’s incentives to discriminate.

  If we could wave a magic wand over policy makers so that they would put our findings to work, they would focus less on animus, and more on policies that help those subjected to economic discrimination. To do this, they would need to run more field experiments to tease out the various forms of economic discrimination in their markets of interest. Based on this research, they could then do a better job of ensuring that workers have equal access to jobs. They could work to see that consumers have equal access to products. When buyers try to get a home loan, they should be able to signal their credit-worthiness on a level playing field. And law-makers could ensure that as more commerce goes online, prices are fair and transparent for everyone.

  Our friend at the University of Chicago, Richard Thaler, had a good idea how to implement this. In his column in the New York Times called “Show Us the Data. (It’s Ours, After All.),” he wrote, “Companies are accumulating vast amounts of information about your likes and dislikes. But they are doing this not only because you’re interesting. The more they know, the more money they can make.”8 This may still be fine—why shouldn’t they collect information and make money out of it? What isn’t fine is for companies to abuse consumers by using this information. Thaler’s solution is for Congress to pass a law requiring the companies to give you access to these data. Once you get them, you can see what’s working against you, and you can find a product or service that better fits your needs. If the companies have to share your data with you, they will have a much harder time using it against you. Thaler argues that these companies are making our choices so complicated that we cannot be educated consumers without their data.

  Thaler’s solution is a good start. But if you really want to stop such discrimination, you need to not only have access to your data, but also understand how these companies are making use of them.

  Ultimately, a deeper understanding of the workings of discrimination cannot help but make the world a better place. As Gary Becker noted in his 1992 Nobel banquet speech, “Economics surely does not provide a romantic vision of life. But the widespread poverty, misery, and crises in many parts of the world, much of it unnecessary, are strong reminders that understanding economic and social laws can make an enormous contribution to the welfare of people.” We hope that you now have a better understanding of discrimination, and how incentives are critically linked to prejudicial behavior.

  In the next chapter, we’ll explain other ways in which public policy efforts to improve society can be more intelligently applied.

  CHAPTER EIGHT

  How Can We Save Ourselves from Ourselves?

  Using Field Experiments to Inform Life and Death Situations

  It’s a late-September afternoon in 2009, and the students of Fenger High School on Chicago’s South Side are crossing a vacant concrete lot on the way home from school. Some live in the Altgeld Gardens housing project. Others live in a part of Chicago’s rough Roseland neighborhood (a.k.a. “The Ville.”) Some of the students from these two different areas have developed fierce antipathies toward each other, though the groups are more like cliques than gangs.

  As the teenagers cross the lot, a fight breaks out. Kids from the two groups, as well as other student passersby, get caught up in the scrum. Someone pulls out a cell phone and starts recording a video of fifteen to twenty kids going at each other. There are no clear sides, and the altercation seems to be no different than the hormone-induced brawls that occur at high schools all over America. Around a minute into the video, someone discovers a couple of two-by-fours lying in the empty lot. Eugene Riley, sporting a red motorcycle jacket, takes one of the big pieces of wood from a pal and swings it like a baseball bat into the back of sixteen-year-old honor student Derrion Albert’s head.

  “Dannnggg!” someone exclaims. Screaming and shouting, the kids start running—some toward the shouting, others away from it. Derrion tries to get to his feet but he is punched and kicked as someone shouts, “Oh my god, you guys!” Derrion attempts to protect his head.

  The camera pans away from the empty lot and back to the street. A shirtless man in his early thirties faces down a much younger adversary who threatens to hit him with a two-by-four. The older man has arms like tree trunks. The kid does a quick calculation and decides to just throw the wood at the man and run for it. The camera pans back toward the lot. Derrion is still on the ground, defenseless, staring blankly at the camera. His attackers renew their beatings for ten m
ore seconds and then run away. The cameraman and others run up to Derrion. Someone says, “Get up, son.” His friends pick him up and bring him into a community center adjacent to the empty lot. His friends scream his name, desperate for him to respond. Two minutes into the video, you finally hear a siren.1 Derrion died hours later.

  The brutal death of Derrion, replayed thousands of times on YouTube, was one more awful example of the violence that continues to threaten inner-city youth, along with high rates of drug use, unemployment, teenage pregnancy, school dropout, and obesity. For decades now, policy makers have tried nearly everything to address these problems, but even when crime rates drop, it’s never been clear which policies help and which ones are just a waste of money.

  Desperate to try new things, policy makers such as then-Chicago Mayor Richard Daley and Ron Huberman turned to us. “Why don’t we know what works?” Ron asked us. Our answer was simple: we have not experimented enough in this area to understand what works and why.

  There is, however, an antecedent for such large-scale social experiments that Ron had in mind for us to do. Many took place in the 1960s, especially from 1963 to 1968 when President Lyndon Baines Johnson was president. During the LBJ era, social scientists sought answers to questions like “What is the ideal way to provide health insurance?”2 The studies that resulted were incredibly influential, but when federal support for them dried up, researchers were much more likely to turn to their computers and their labs, leaving big social experiments behind. Only recently have academics again teamed up en force with policy makers to test the impact of large-scale policy interventions on behavior.

  It didn’t take long for the three-minute video of Derrion’s murder to reach the public. It aired on news stations in Chicago; the video was embedded in just about every online news story related to the killing. Voyeurism? Sure. But the video helped identify the perpetrators, and prosecutors won convictions in five cases. The defendants were slapped with sentences ranging from seven to thirty years in prison. Even with good behavior, Eugene Riley is likely to spend the majority of his life behind bars. Five convictions are also a major cost to society. In Illinois, the per-person cost of incarceration hovers around $40,000 a year, and it is estimated that the cost of a homicide to society is well over a million dollars in medical costs, investigations, legal fees, and incarcerations.