Posts Tagged ‘belonging’
“We cannot reason ourselves out of our basic irrationality. All we can do is to learn the art of being irrational in a reasonable way.”*…
Classical economists posit that investment decisions are driven by rationality — a clear-eyed evaluation of risks and rewards… but then, meme stocks.
Kwabena Donkor, an assistant professor of marketing at Stanford Graduate School of Business has just unveiled some new research that suggests that identity distorts our financial choices, leading us to overvalue investments that reinforce our sense of self…
People don’t just invest with their wallets — they invest with their identity,” says Donkor, a faculty fellow at the Stanford Institute for Economic Policy Research.
In a novel field study involving soccer fans, Donkor and several colleagues uncover evidence of how identity can skew economic thinking. The researchers ran a series of experiments focused on fans who placed nearly 40,000 bets on English Premier League matches during the 2021-22 season. Participants — nearly 800 from Kenya and 1,600 from the United Kingdom — were given a budget and asked to place bets on upcoming matches. They received winnings based on the outcomes of randomly selected games.
Most of the participants were longtime supporters of a particular team. (Manchester United was their top favorite.) They were more optimistic about their favorite teams, betting 20% more on them. They rated their teams as having a 10% to 18% higher chance of victory than other teams, even when presented with forecasts from professional oddsmakers suggesting otherwise. These results persisted even after accounting for factors such as personal beliefs and appetite for risk.
The study also finds that participants placed a lower value on gains not aligned with their identity — what the researchers referred to as an “identity tax.” Fans effectively devalued these neutral bets by 17% to 27%. For poorly performing teams, this “tax” could soar as high as 47%, reflecting a strong emotional impulse to support their favorite team even when the odds were against it
The research, detailed in a paper cowritten with Lorenz Goette of the National University of Singapore, Maximilian Müller of the Toulouse School of Economics, Eugen Dimant of the University of Pennsylvania, and Michael Kurschilgen of UniDistance Suisse, shows that identity-driven preferences explain much of the gap in bettors’ behavior. Simulations showed that distorted beliefs due to identity account for as much as 44% of the difference in fans’ betting behavior. The remainder stemmed from preferences rooted in identity itself — people were willing to sacrifice potential gains to support options that aligned with who they are…
… The study’s findings have far-reaching implications for understanding economic behavior, particularly in areas like consumer finance, brand loyalty, and even political decision-making…
… the research hints at how consumers view different products. Items that align with a person’s identity are likely to be seen as complements rather than substitutes. For example, Donkor says a consumer who identifies strongly with sustainability might view eco-friendly products as essential enhancements to their lifestyle, even if they’re similar to comparable, less expensive goods.
Ultimately, these findings could improve our thinking about the biases that influence our financial lives. As the researchers point out, acknowledging the role of identity in decision-making is one key to designing better policies, creating more effective financial products, and ultimately improving individual welfare. “If we ignore identity,” Donkor concludes, “we miss the bigger picture in decision-making.”…
Understanding the choices that we, and those around us, make: “What Soccer Fans Can Teach Us About Making Irrational Decisions,” from @SIEPR.
* Aldous Huxley
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As we ponder the price (and as a reminder that there are other kinds of irrational decisions and that sometimes returns do matter to investors), we might recall that it was on this date in 2008 that Bernard “Bernie” Madoff was arrested and charged with defrauding investment clients of as much as $65 billion. A pioneer in electronic trading and chairman of the Nasdaq stock exchange in the early 1990s, he had turned to money management. By 2008, Madoff was running a huge and growing fund that promised its investors high and stable returns… the problem: it was a Ponzi scheme, the largest known Ponzi scheme in history.
“The tribalizing power of the new electronic media, the way in which they return to us to the unified fields of the old oral cultures, to tribal cohesion and pre-individualist patterns of thought, is little understood”*…
Nokia was dominant in mobile phone sales from 1998 to around 2010. Nokia’s slogan:
Connecting people.It was amazing to connect with people in the late 90s/early 2000s. I don’t think we were lonely exactly. But maybe meeting people was somewhere between an opportunity, something novel, and, yes, a need – suddenly it was possible to find the right person, or the right community.
So, the zeitgeist of the early 2000s.
I ran across a previous zeitgeist in an article about Choose Your Own Adventure books. They appeared and became massively popular at the same time as text adventure computer games, but neither inspired the invention of the other. How?
The real answer may lie far deeper in the cultural subconscious… in the zeitgeist of the 1980s.
1980s: you.
2000s: connection.
2020s: ?
Zeitgeists don’t lead and zeitgeists don’t follow.
I think when we spot some kind of macro trend in establishment consumer ads, it’s never going to be about presenting people with something entirely new. To resonate, it has to be familiar – the trajectory that the consumer is already on – but it also has to scratch an itch. The brand wants to be a helpful fellow traveller, if you like.
I wonder what the zeitgeist of the 2020s will be, or is already maybe. What deep human need will be simultaneously a comfort and an aspiration? There should be hints of it in popular culture already. (If I knew how to put my finger on it, I’d be an ad planner.)
If I had to guess then it would be something about belonging.
There was a hint of this in Reddit’s 5 second Super Bowl commercial which went hard on one their communities, r/WallStreetBets, ganging up to bring down hedge funds. Then we’ve got a couple of generations now who grew up with the idea of fandoms, and of course conspiracy theories like QAnon too. If you squint, you can kind of see this in the way Tesla operates: it’s a consumer brand but it’s also a passionate, combative cause.
Belonging to a tribe is about identity and strength, it’s solace and empowerment all at once. And also knowledge, certainty, and trust in an era of complexity, disinfo, and hidden agendas.
Given that backdrop, it’s maybe unsurprising that the trend in software is towards Discord servers and other virtual private neighbourhoods. But how else will this appear? And is it just the beginnings of something else, something bigger?
“1980s (you), 2000s (connection). What’s the 2020s zeitgeist?” From Matt Webb (@genmon)
* Marshall McLuhan
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As we double down on diversity, we might send well-connected birthday greetings to Joseph Carl Robnett Licklider; he was born on this date in 1015. Better known as “J.C,R.” or “Lick,” he was a prominent figure in the development of computing and computer science. He was especially impactful Considered the “Johnny Appleseed” of computing, he planted many of the seeds of computing in the digital age– escpecially via his idea of a universal computer network to easily transfer and retrieve information which his successors developed into the internet.
Robert Taylor, founder of Xerox PARC‘s Computer Science Laboratory and Digital Equipment Corporation‘s Systems Research Center, noted that “most of the significant advances in computer technology—including the work that my group did at Xerox PARC—were simply extrapolations of Lick’s vision. They were not really new visions of their own. So he was really the father of it all.”
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