A few years ago we talked about the two modes of pop-microeconomics:
1. People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.
2. People are irrational and they need economists, with their open minds, to show them how to be rational and efficient.
Argument 1 is associated with “why do they do that?” sorts of puzzles. Why do they charge so much for candy at the movie theater, why are airline ticket prices such a mess, why are people drug addicts, etc. The usual answer is that there’s some rational reason for what seems like silly or self-destructive behavior.
Argument 2 is associated with “we can do better” claims such as why we should fire 80% of public-school teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.
The trick is knowing whether you’re gonna get 1 or 2 above. They’re complete opposites!
I thought of this when rereading this post from a few years ago, where we quoted Jason Collins, who wrote regarding the decades-long complacency of the academic psychology and economics establishment regarding the hot-hand fallacy fallacy:
We have a body of research that suggests that even slight cues in the environment can change our actions. Words associated with old people can slow us down. Images of money can make us selfish. And so on. Yet why haven’t these same researchers been asking why a basketball player would not be influenced by their earlier shots – surely a more salient part of the environment than the word “Florida”? The desire to show one bias allowed them to overlook another.
When writing the post with the above quote, I had been thinking specifically of issues with the hot hand.
Stepping back, I see this as part of the larger picture of researcher degrees of freedom in the fields of social psychology and behavioral economics.
You can apply the “two modes of thinking” idea to the hot hand:
Argument 1 goes like this: Believing in the hot hand sounds silly. But lots of successful players and coaches believe in it. Real money is at stake—this is not cheap talk! So it’s our duty to go beneath the surface and understand why, counterintuitively, belief in the hot hand makes sense, even though it might naively seem like a fallacy. Let’s prove that the pointy-headed professors outsmarted themselves and the blue-collar ordinary-Joe basketball coaches were right all along, following the anti-intellectual mode that was so successfully employed by the Alvin H. Baum Professor of Economics at the University of Chicago (for example, an unnamed academic says something stupid, only to be shot down by regular-guy “Chuck Esposito, a genial, quick-witted and thoroughly sports-fixated man who runs the race and sports book at Caesars Palace in Las Vegas.”)
Argument 2 goes the other way: Everybody thinks there’s a hot hand, but we, the savvy social economists and behavioral economists, know that because of evolution our brains make lots of shortcuts. Red Auerbach might think he’s an expert at basketball, but actually some Cornell professors have collected some data and have proved definitively that everything you thought about basketball was wrong.
Argument 1 is the “Econ 101” idea that when people have money on the line, they tend to make smart decisions, and we should be suspicious of academic theories that claim otherwise. Argument 2 is the “scientist as hero” idea that brilliant academics are making major discoveries every day, as reported to you by Ted, NPR, etc.
In the case of the hot hand, the psychology and economics establishment went with Argument 2. I don’t see any prior reason why they’d pick 1 or 2. In this case I think they just made an honest mistake: a team of researchers did a reasonable-seeming analysis and everyone went from there. Following the evidence—that’s a good idea! Indeed, for decades I believed that the hot hand was a fallacy. I believed in it, I talked about it, I used it as an example in class . . . until Josh Miller came to my office and explained to me how so many people, including me, had gotten it wrong.
So my point here is not to criticize economists and psychologists for getting this wrong. The hot hand is subtle, and it’s easy to get this one wrong. What interests me is how they chose—even if the choice was not made consciously—to follow Argument 2 rather than Argument 1 here. You could say the data led them to Argument 2, and that’s fine, but the same apparent strength of data could’ve led them to Argument 1. These are people who promote flat-out ridiculous models of the Argument 1 form such as the claim that “all deaths are to some extent suicides.” Sometimes they have a hard commitment to Argument 1. This time, though, they went with #2, and this time they were the foolish professors who got lost trying to model the real world.
I’m still working my way though the big picture here of trying to understand how Arguments 1 and 2 coexist, and how the psychologists and economists decide which one to go for in any particular example.
Interestingly enough, in the hot-hand example, after the behavioral economists saw their statistical argument overturned, they didn’t flip over to Argument 1 and extol the savvy of practical basketball coaches. Instead they pretty much tried to minimize their error and try to keep as much of Argument 2 as they could, for example arguing that, ok, maybe there is a hot hand but it’s much less than people think. They seem strongly committed to the idea that basketball players can’t be meaningfully influenced by previous shots, even while also being committed to the idea that words associated with old people can slow us down, images of money can make us selfish, and so on. I’m still chewing on this one.