More proof that sex sells

At the Tutor2u economics blog, we’ve written incessantly about two of our most favourite authors: Tim Harford and Dan Ariely. Now Amazon’s new OMNIVORACIOUS books blog has made my dream come true and pitted the two pop economists against each other in a lively debate. Who will triumph? Logic or irrationality?

Dan drew first blood (confusing that Amazon put Tim’s entry first, look at the dates) and his first blow was against Tim’s competition theory example about the rationality of high CEO salaries. However, already he makes the mistake of claiming that Tim said such an incentive system was desirable, which he did not. Tim quite rightly picked up on this and never quite forgave him for it during the rebuttal.

Dan then puts forward his own proposal that performance-related pay is both a motivator and a stressor, in that there is a Laffer Curve-like hump where there is an optimal pay structure, beyond which employees actually become less efficient due to the stress involved in envisaging the risks they’re taking with their own (potential) money. This sounds fair, and seems like a further extension of the law of diminishing marginal utility of money. Indeed, it’s backed up by his evidence from the lab.

However, the conclusion he then draws from this is contested: that “standard” economics is insufficient in predicting human behaviour. From what I see, he makes the schoolboy error of assuming that economics is only ever about money and financial incentives. Freakonomics 101 (Israeli day-care centers, Chapter 1) teaches us that incentives come in at least three basic flavours: economic, social, and moral, and any good economist will take care in attempting to observe all of them.

Tim then had his chance of a rebuttal, and he immediately zones in on the one thing both of them (probably rationally and with the aim of profit maximisation) decided to discuss in their book: sex. Tim reminds us of Dan’s research which explains that our behaviour changes when we’re sexually stimulated, but his own research is on something else entirely, that teenagers rationally make the decision to substitute one form of sex for another when faced with shifting incentives. He dutifully identifies that the two bits of research have very little to do with one another despite falling under the same umbrella category, and it’s quite likely that both pieces of research are correct.

However, Tim then sneaks in a jibe about the discrepancies between the results from lab experiments and from real life. He argues that laboratories create artificial environments which cause participants to act differently than from how they normally would in real life. This is a common criticism of conclusions drawn from lab experiments, but one that we currently are unable to avoid. It doesn’t disprove Dan’s work in any way, only calls for closer scrutiny.

Personally I’m bloodthirsty for a live chat between Tim and Dan, a truly fiery debate in which sparks fly as the two authors tear strips out of each other. My guess is that the debate ends here with the two authors, but that doesn’t stop you readers from participating. What do you think? When are we rational and when are we irrational?