Tyler Cowan (Interview)

Q: The whole idea that economics has a lot to teach us about our personal lives is not one that would occur to a lot of people.

Cowan, Tyler (Interview)

Q: The whole idea that economics has a lot to teach us about our personal lives is not one that would occur to a lot of people. Why did you write this book, Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist (Penguin Canada)?

A: It's really something that came out of my life, and I thought here was a chance to put them all together - whether it's how to walk through an art museum or how to find better food or how to get along with your wife - and put them out there in terms of a unified vision, that economics is about choice, it's not just about money, and that people all have what I call the inner economist. At some level they get these ideas, but they just haven't articulated it.

Q: What can you learn in economics that would help you with your marriage?

A: I think an important lesson in economics is that a lot of what people do, it's a kind of signalling. They're trying to show they're tough or they're trying to show they have an education. You put on a tie when you go to work to show you're serious or that you have discipline. I think men and women have very different senses of signalling and they need to understand those differences. I think men need to know why they need to signal on a pretty regular basis, that the fact that they said, "Will you marry me?" and they say, "I love you," once a day, it's not nearly enough. You need to show that you care, essentially. And this will always be costly, and often the most effective signals are precisely the things that are the most useless. So, like, buying a diamond ring is an effective signal because a diamond ring isn't useful.

Q: And that's why a vacuum cleaner for her birthday doesn't work, then.

A: Exactly. Too useful.

Q: What can your inner economist tell you about how to order in a restaurant?

A: It starts by asking are you in a fine-dining restaurant or are you in an ethnic restaurant? If you're in a fine-dining restaurant, your best approach is just ask the waiter, "What should I order?" and make it clear you're serious, and probably order what the waiter tells you to.

Q: Why do you need an economist to tell you that?

A: Because the waiter will certify what's a good dish in one set of restaurants, but not in another. If the waiter gives you a vague response like, "Well, people like different things, it depends," it's a sign you're not in a fine-dining establishment. If you're eating ethnic food, usually the thing to do, especially in the United States - the U.S. and Canada are a little different here - but the U.S. generally doesn't have really high quality raw ingredients outside of very expensive restaurants, so if you get a dish where there's like a plain Mexican steak on a plate, it won't be good. You need to get dishes that are a complex combination of sauces and stews and soups and a lot of different things mixed together by the chef. Those tend to be much better. It's a better way to order in an ethnic restaurant. If you go to a Szechuan restaurant as a non-Chinese and you ask them, "What should I get?" you're better off getting the opposite, because they tend to think you can't handle what to them are the best dishes. Look around. Are there regulars? A restaurant that's hard to find is generally better than a restaurant that's easy to find.

Q: You study the problem of when to walk out of a movie. I know some people who never walk out of movies and some people who regularly walk out five or 10 minutes in.

A: Most people should walk out a lot more than they do. We're programmed to stick with commitments and this is a good thing - commitment to children, to spouses, to boyfriends, girlfriends, to careers are very important - but this general programming carries over into a lot of areas where it's not really needed. And I think a movie should be given a certain amount of time, but if it's bad, just go, even if it's occasionally a good movie you're walking out on. If you hear from a few people, "You missed something great," just go back.

Q: Same goes for books, I suppose.

A: Absolutely. I think I estimated for every 10 books I start, I finish one. And I'm not unhappy. A book is something for your purpose and, if you don't like it, put it down.

Q: You talk quite a bit about meetings in your book, and your findings are that a lot more is being done than is obvious much of the time.

A: I think a lot of meetings are held so people can feel they're in control, or that they're part of the decision, even if they're not, or I might say, especially if they're not. Meetings let people figure out what the status relationships are. So I think it's possible to have a lot fewer meetings or have them be shorter, but for that to work the person in charge needs to produce some other means of letting people feel they're in control or [able to] socialize.

You know, I don't think one can just abolish the meeting, but there are a lot of things in the workplace - like greater use of wikis would be one example, online technologies - and if you're going to use them, the key is not to ask, do they substitute for the informational purpose of meetings - for the most part they do - but to ask, do they substitute for the emotional functions of meetings. But maybe instead of a meeting, if people just went to a company picnic, [as long as] they feel that same sense of control or belonging, it'll work. If they don't, it won't. They'll end up resenting the boss or sabotaging the project or not working hard enough. So view meetings almost as a kind of theatre and ask what's the substitute for the theatre and not what's the substitute for the information.

Q: You make a fairly strong case that there is an economic basis to our musical tastes.

A: People want music that's going to be good for them socially, so if you grow up, say, in Michigan, and you're a young male and you smoke pot, odds are you're listening to heavy metal and that you play guitar. It's not that the genetic structure of your brain required this. If you're a 19-year-old Jewish girl who's going to Brown University, almost certainly you like indie rock, and it's because it's good for you socially. So it's another example where we have this programming. Musical taste is very predictable. It depends where you were born, who you grew up with, what song you fell in love to, but it doesn't have to stay that way forever.

Q: So is there an economic basis to the choice?

A: The basis is that you want to be popular in your peer group.

Q: But how does that explain the diversity within peer groups?

A: Let's go back to Michigan. If it's your goal to break free of the small town you came from and go to a big school and be upwardly mobile, probably you're going to leave heavy metal behind. If it's your goal to work at the local gas station and smoke pot and practise guitar, you more likely won't leave heavy metal behind. And you don't sit down and say to yourself cynically, how am I going to like heavy metal/get rid of heavy metal? It's as if psychologically you're conditioned to talk yourself into liking the music that will be good for you socially, for what's ultimately an economic reason, finding a job, finding a mate, finding a peer group. It's why people almost always buy music that is new. If you look at top sellers in music it's not Beethoven, it's not Bach, it's not even the Beatles, it's what's out now that's new. You can't be hip liking that old music, even if it was really good.

Q: So why [do] so many people need new novelists and whatever's on the bestseller lists now when there are so many other great novels written 10, 100 years ago?

A: We're, again, programmed to this newness for this economic reason, which is social ties, talking about it with other people, trying to signal we're hip or ahead of the game, and we want to carve out our own space and the old has already been colonized, whether it's a book, a movie, music.

Q: I don't think it would be fair to characterize your book as a self-help book, but there is a lot of practical advice in it, including how to determine whether or not you're being lied to by someone.

A: We're all lied to an extraordinarily high number of times in the course of an average day, and I think it's quite difficult to figure out when you're being lied to. I think what we need to do is realize how much we are seen as liars, and it is a fact that we'll be seen that way, and that's the right way to think about one's daily life.

Q: So we have to accept that lying's part of life and just account for a certain level of dishonesty in our dealings?

A: That's right, and the general framework is that economics can help you solve a lot of problems, but part of the economic way of doing it is being able to recognize, "Here's a problem you really can't solve much better than you do now." And sometimes part of the reason is just, "Look, realize that sometimes you're being lied to or screwed over and take that into account." But there is no solution - and economics shows this - because the people who are lying can mimic any behaviour of the people who are honest.

Q: So how do you get better treatment from your doctor?

A: I think in general you can't pay your doctor or dentist a bonus for better treatment, because the bonus is short-term. I think the best thing to do is to praise your dentist or doctor, elevate their self-image and, if you can, give them a present for a holiday or some other major occasion, but make it clear the present is not contingent on their behaviour or performance, and in the longer run that's likely to boost their morale a bit and get you somewhat better than average treatment.

Q: You're very big on just being nice to people as an economic strategy.

A: I think the return to being nice is enormous, and it's surprising not more people do it.

Q: If there's a payoff why don't we do it?

A: I think it gets back to this general theme that we have programming that maybe made sense in the Stone Age when there was a lot of warfare and fighting, but this is modern society and that programming is, to some large extent, obsolete. And it's not that we can get rid of it completely, but you can wake up in the morning and say, "Look, I have this programming. Actually, some of it's bad for me. I'm going to be a bit nicer," and just do it. It's some of the best economic advice that can be given. And people will respond by being a lot nicer to you, they'll help you out, they'll sense you're not trying to control them.

Q: How does self-delusion come into this? You also advocate that some level of self-delusion is necessary to get through life.

A: I think most people take an overly rosy view of themselves. If everyone went around feeling they were average, they wouldn't try as hard, they wouldn't care as much, and a lot of the evidence is that people who feel just average tend to be depressed. If you really had a truly rational scientist with a new idea, he'd say something like, "My goodness, all the other people - the smart people I know - they hold the old idea, and who am I to disagree with them? My new idea is probably wrong." And in fact, most new ideas are wrong, or they're not useful, or they're just not relevant. But because you have a lot of people who think they can win a Nobel Prize, or they're smarter than others, they rail against the establishment, they put forward their new idea. And that again stems from some degree of self-delusion.

Q: In addition to being nice to people, you can give a lot of other incentives that aren't financially based that seem to encourage people to do what you want them to do. That money is overrated in terms of getting people to do what you want to do is counterintuitive coming from an economist.

A: Yeah. Well, I think there's a lot of evidence for it. Money works really well when the influence of money is supported by other values in a workplace or in a home. So if status in the workplace is behaving in a certain way - like earning a lot of money running a hedge fund - and the dollar incentive points in the same direction, then I think the dollar incentive is really potent. But a lot of times when you start paying people for things they felt they should have done anyway, that maybe they feel are wrong or they feel should be allocated on some other basis, when status incentives and money incentives point in different directions, then I think it's problematic.

Q: Give me an example.

A: The example I give in the book is trying to get my stepdaughter to do the dishes more often. The normal model of the family is children contribute something, but once you start paying them to do the dishes they treat it like a marketplace. It's like, "Yeah, I can do the dishes, get the money, or not do the dishes, not get the money. Eh, it's not worth it." The sense of obligation goes away. It's just like a set of contracts, you're not a parent anymore, you're ceding authority. The daughter may even feel you're trying to control her by buying her to do this or that. "What will they buy me for next? To get better grades, to choose the right boyfriend, to take the right job, to have the right major?" It's counterproductive.

Q: Does that translate to the workplace?

A: Even in the workplace, you don't give people a bonus for every single task. There might be a year-end bonus, there might be promotions. That seems to work better than buying and selling everything because when you're always buying and selling people's time they start resenting the control. Even the best of employees don't always deliver, and the negative messages hurt a lot more than the positive ones help. If you evaluate them quarterly or yearly, you tell them they did really well. Whereas if you evaluated them every day and you're telling them every sixth day, "Yeah, you messed up," they get pretty upset.

Q: So what kind of incentives work better than money?

A: It depends on the job, but I think the key thing is to get money and other values working together. At some level there's always a monetary incentive - better people get promoted - but the key to make the money incentives work is to have them be applied very periodically and not to have an active spot market in who brewed the coffee that morning. And the bad people, rather than telling them all the time they're wrong, you have to fire them. You don't say to the bad people, "We'll keep you on for half the wage."

Q: In terms of non-monetary incentives for better performance, what kind of things are employers generally overlooking?

A: Just a lot of praise, and it goes back to the economic return to being nice. Employers can be pretty rough, or they feel they have to be rough because a lot of people try to shirk on them. Just realizing how important the non-monetary incentive is, and that when bonuses do come, they're framed through a lens of, like, what does that bonus mean and is it recognizing what the person sees as valuable in himself, then the bonus I think is a much better incentive when it's linked to status.

Q: So status is, in the end, more important than money?

A: I think so. You know, at some point you can only spend so much or enjoy so much, but people with money don't seem to stop chasing it, and I think a lot of that's the status. Nobel Prize winners, they care about their status relative to other Nobel Prize winners. I don't think that kind of game - if you want to call it that - ever lets up.

Q: How can the 14-year-old girl and the employee make the same economic choices and incentives work for themselves?

A: If you're a 14-year-old girl it's a little harder - obviously you have fewer levers at your command - but I think one thing that can be tried is just pointing out to your parents when they're doing things that are counterproductive, and pointing out in a nice way rather than just rebelling and screaming, which is a common teenage response tactic. Once the teenager starts screaming the parent repaints it as an issue of, like, morality - should children respect their elders more - who's really in charge of the family, and they get into a frame of mind that's not problem solving but reasserting authority, and that's a bad place for parents and children to be in a discussion. So, for a 14-year-old - or, for that matter, an employee - just try to point out a better solution and keep the dialogue away from who's in charge, who's in the right here, and there's some chance they'll get a better outcome.

But obviously, the CEO can do more to change the workplace than a single worker can. Maybe the worker cannot control when a meeting is called, but if he simply understands, "Look, there was some reason for this meeting, however imperfect," I think he'd feel less frustrated and be more productive. Meetings used to really bug me and now they don't, and I think what has changed is just my own understanding. If we know there's some reason for our suffering, it's a lot less painful.

Q: Do you think that economists use their learning on a day-to-day basis in mundane decisions?

A: I don't think they do. If one really understands economics, the real lessons are pretty palatable. "Be nice, be a little more self-critical, don't try to control other people so much, realize that not everything's money." It's common sense advice.

Maclean's August 13, 2007