Akerlof on Procrastination

 

Akerlof's 'Procrastination & Obedience' paper was, he says, prompted by an occasion when he was working in India and had promised to send a colleague in the US some clothes he had left behind. Akerlof knew that getting anything done in India would take an inordinate amount of time and thus kept putting off the task till he bumped into a man who was returning to America and was prepared to take the clothes with him. In the US, it would only take five or ten minutes to mail a parcel of clothes and, what's more, you could be sure the parcel would actually be delivered. The high and uncertain cost of mailing things to a foreign country in India caused both Indians and Americans to put off chores which brought them into contact with a Byzantine bureaucracy. Procrastination is about high cost relative to benefit. It is rational because it is regret minimizing. You'd feel a fool if you spent a day or two running around filling in forms to send a parcel of clothes if, at the end of the day, the parcel is never delivered. 

Akerlof writes-

In this lecture I shall focus on situations involving repeated decisions with time in-consistent behavior.

All decisions have this feature because we live in a world of Knightian Uncertainty.  

Although each choice may be close to maximizing and therefore result in only small losses, the cumulative effect of a series of repeated errors may be quite large.

Or it may not. In any case, 'many a mickle makes a muckle'. Small numbers add up to large numbers as time goes by.  

Thus, in my examples, decision makers are quite close to the intelligent, well-informed individuals usually assumed in economic analysis, but cumulatively they make seriously wrong decisions that do not occur in standard textbook economics.

It is rational to procrastinate where cost is uncertain. Indeed, Uncertainty reduces economic activity as well as interactions of a purely personal kind.  

This lecture discusses and illustrates several "pathological" modes of individual and group behavior: procrastination in decision making,

which isn't pathological. It is regret minimizing because of uncertainty.  

undue obedience to authority,

a habit of obedience has survival value. We are a self-domesticated species.  

membership of seemingly normal individuals in deviant cult groups,

like Christianity? Yet such membership has had survival value. In any case, it heps pass the time.  

and escalation of commitment to courses of action that are clearly unwise.

with hindsight after a state of the world, which was not conceived of previously, has prevailed. If I had known Beyonce would become a global superstar, I wouldn't have snubbed him when he was still known as Bakul Joshi and wanted to attend my lecture-demonstrations of twerking at the London School of Economics. Admittedly, I was drinking quite heavily at the time and my memory is unreliable.  

In each case, individuals choose a series of current actions

unless they aren't 'choosing' at all. Choice is cognitively costly.  

without fully appreciating how those actions will affect future perceptions and behavior.

Sadly, nobody knows how present actions will affect them in the future.  The best you can do is make a guess or do what smart people have done or are doing. 

The standard assumption of rational, forward-looking, utility maximizing is violated.

Because of Knightian Uncertainty (i.e. we don't know all possible future states of the world or what their probability is) Utility maximization has to yield to something like Regret Minimization.  

The nonindependence of errors in decision making

arises because of multiple realizability and the fact that, for coevolved processes, we only have access to correlation, not causation.  

in the series of decisions can be explained with the concept from cognitive psychology of undue salience or vividness.

Or laziness 

For example, present benefits and costs may have undue salience relative to future costs and benefits.

Present benefits and costs are less uncertain than those in the future. Akerlof behaved differently in India- a poor country where public services where unreliable- than he would have back in America where things were much more predictable.  

Procrastination occurs when present costs are unduly salient in comparison with future costs, leading individuals to postpone tasks until tomorrow without foreseeing that when tomorrow comes, the required action will be delayed yet again.

No. We can foresee that. But we can also foresee that all sorts of unforeseen things may occur albeit this is less true of highly developed countries with very dependable enterprises.  

Irrational obedience to authority or escalation of commitment occurs when the salience of an action today depends upon its deviation from previous actions.

i.e. if something irrational is 'salient', then irrationality occurs.  

When individuals have some disutility for disobedience and a leader chooses the step sizes appropriately, individuals can be induced to escalate their actions to extraordinary levels;

We may pretend this is the case but history tells us that any evil shit people did while 'following orders' was also done by similar people when there were no fucking orders.  

the social psychologist Stanley Milgram (1975) led subjects to administer high levels of electrical shock to others in fictitious learning experiments.

Those same subjects had grown up reading comic-books in which 'joy-buzzers' were advertised.  

The subjects were induced into actions that were contrary to their true moral values.

I suppose pedagogues need to pretend that young people have truly lovely moral values. The truth, sadly, is that they are little devils. 

In the latter half of the lecture I will give examples to illustrate how sequences of errors, each error small at the time of the decision, cumulate into serious mistakes; these decisions also illustrate how laboratory conditions of isolation, carefully engineered in the Milgram experiment and necessary for the type of behavior he induced, in fact commonly occur in nonexperimental situations.

The reason kids stop punching each other is because they become aware of the possibility of revenge,  draconian punishment, or ostracism. 

Thus the sequences of errors that are the subject of this lecture are not rare and unusual, only obtainable in the laboratory of the social psychologist, but instead are common causes of social and economic pathology.

Pathology is about reduced survival value. Sadly, both procrastination- e.g. putting off murdering your boss- and obedience- e.g. doing your fucking job- have survival value. 

Although an analysis of behavioral pathology might initially appear to be out-side the appropriate scope of economics, I shall argue that, in important instances, such pathology affects the performance of individuals and institutions in the economic and social domain.

Incentive matter. One could say that bad mechanism design is 'pathological'. But, chances are, bad mechanisms get weeded out as good mechanisms have a competitive advantage.  

Examples include the poverty  of the elderly due to inadequate savings for retirement,

caused by inadequate earnings before retirement.  

addiction to alcohol and drugs,

which is still better than topping yourself.  

criminal and gang activity,

you join a gang to get protection from other gangs. Crime does pay- for some.  

and the impact of corporate "culture" on firm performance.

A culture of doing stupid shit can tank the company.  

Economic theories of crime, savings, and organizations are deficient and yield misleading conclusions when such behavior is ignored.

No. What is deficient is provision of negative incentives- i.e. penalties. If you keep killing bad actors or inefficient cunts, the proportion of such people in the economy falls.  

The behavioral pathologies that I will describe also have consequences for policies toward, for example, savings, sub-stance abuse, and management.

A National Insurance scheme represents compulsory saving. Negative real interest rates discourage saving. Substance abuse declines if addicts are beaten or killed.  

Individuals whose behavior reveals the various pathologies I shall model are not maximizing their "true" utility.

They aren't doing what Akerlof thinks they should be doing. The only reason I am not a bigger super-star than Beyonce is that people don't know that 'true utility' can only be derived by watching my booty-shake.  

The principle of revealed preference cannot therefore be used to assert that the options that are chosen must be preferred to the options that are not chosen.

Very true. The fact that girls reveal a preference to run the fuck away from me doesn't meant they don't prefer to use me as a sex-object.  

Individuals may be made better off if their options are limited and their choices constrained.

Some young gang-bangers may be better off if they are put in prison between the ages of 15 and 45.  

Forced pension plans may be superior to voluntary savings schemes;

Both may be mismanaged.  

outright prohibitions on alcohol or drugs may be preferable to taxes on their use reflecting their nuisance costs

The cost of enforcing Prohibition may be too high.  

to others; and an important function of management may be to set schedules and deadlines and not simply to establish "appropriate" price-theoretic incentive schemes to motivate employees.

Akerlof doesn't understand that not meeting deadlines leads to getting fired. That's price theoretic. The wage is the price of labour. Still, it must be said, shooting slackers works even better than firing them.  

I. Salience and Decisions

A central principle of modern cognitive psychology is that individuals attach too much weight to salient or vivid events

i.e. information conveyed in that manner. But that costs money.  

and too little weight to nonsalient events.

This can change quite rapidly. 

Richard Nisbett and Lee Ross (1980) de-scribe the following thought experiment, that they consider the "touchstone" of cog-nitive psychology, just as the shifting of a supply or a demand curve is the central thought experiment of economics.

'Let us suppose that you wish to buy a new car and have decided that on grounds of economy and longevity you want to purchase one of those stalwart, middle-class Swedish cars-either a Volvo or a Saab. As a prudent and sensible buyer, you go to Consumer Reports, which informs you that the consensus of their experts is that the Volvo is mechanically superior, and the consensus of the readership is that the Volvo has the better repair record. Armed with this information, you decide to go and strike a bargain with the Volvo dealer before the week is out. In the interim, however, you go to a cocktail party where you an-nounce your intention to an acquain-tance. He reacts with disbelief and alarm; "A Volvo! You've got to be kidding. My brother-in-law had a Volvo. First, that fancy fuel injection computer thing went out. 250 bucks. Next he started having trouble with the rear end. Had to replace it. Then the transmission and the clutch. Fi-nally sold it in three years for junk."

[quoted in Nisbett and Ross, p. 15; from Nisbett, et al., 1976, p. 129]

You understand that this guy you met may be reporting a highly untypical outcome. Still, you change your behaviour for 'regret minimizing' reasons. Having ignored a warning and then having got stuck with a 'lemon' will make you feel worse about yourself than just having been unlucky.  

The status of this additional information is only to increase the Consumer Reports sample by one. Mean repair records are likely to remain almost unchanged. Yet Nisbett and Ross argue that most prospective car buyers would not view the new information so complacently.

Why? It is because, in an uncertain world, regret minimization is second nature.  

An experiment by Eugene Borgida and Nisbett (1977) confirms the intuition that salient information exerts undue influence on decisions. Freshmen at the University of Michigan with a declared psychology major were chosen as subjects. Students were asked to express preferences concerning psychology electives. Before making this decision, a control group was given only mean psychology course evaluations; others were, in addition, exposed to a panel discussion by advanced psychology majors selected so that their course evaluations corresponded to the mean.

One group got less information than the other. No surprise that the more favoured group performed better.  

As in the Volvo thought experiment, vivid information played a greater role than pallid information; compared to the control group, those exposed to the panel chose a higher fraction of courses rated above average.

The more costly type of information presentation proved superior. Big surprise. 

I. Procrastination

may be pathological. You may be suffering a mental illness. Consult a Doctor.  Alternatively, you may simply be a lazy sack of shit. 

Procrastination provides the simplest example of a situation in which there are repeated errors of judgment due to unwarranted salience of some costs and benefits relative to others.

There is uncertainty regarding those costs and benefits. Something like the maximum uncertainty principle applies. Do nothing today because you may be hit by a bus tomorrow.  

In this case each error of judgment causes a small loss, but these errors cumulatively result in large losses over time and ultimately cause considerable regret on the part of the decision maker.

If you put off completing the work you have been assigned, you ma

Let me illustrate with a personal story and then show how such behavior can be modeled. Some years back, when I was living in India for a year, a good friend of mine, Joseph Stiglitz, visited me; because of unexpected limitations on carry-on luggage at the time of his departure, he left with me a box of clothes to be sent to him in the United States.

This was in the late Sixties. Akerlof would need to firstly get the parcel properly packed- i.e. sewn into white canvas with red lacquer seals on the seams. The seals were required to be 'forgery proof'. Then, there was the matter of the Customs Declaration form which, for old clothes, would not have been much of a problem. Still, the fact is the package could take six months to arrive by sea-mail- if it arrived. The sensible thing to do was hang on to the clothes till some colleague or friend was flying back to the States. The clothes would get to their owner faster. 

Both because of the slowness of transactions in India and my own ineptitude in such matters, I estimated that sending this parcel would take a full day's work.

It would have been better to get an Indian colleague to send the parcel because foreigners sending parcels were under more scrutiny. The colleague could send a peon. But the Indian would tell Akerlof that sea-mail was slow and uncertain. Just wait till one of your USAID people turns up for a conference. He will be happy to do a favour for two distinguished colleagues.  

Each morning for over eight months I woke up and decided that the next morning would be the day to send the Stiglitz box. This occurred until a few months before my de-parture when I decided to include it in the large shipment of another friend who was returning to the United States at the same time as myself.

There are economies of scope and scale in such transactions. Come to think of it, the correct solution would have been to send the clothes by diplomatic bag. The US mission in India had great respect for economists. Galbraith had been a very successful Ambassador. Guys like Akerlof or Stiglitz might hold senior positions in the Administration within a few years.  

The preceding story can be represented mathematically in the following way.

It can't be represented mathematically because the probability of a successful outcome (e.g. the parcel reaching Stiglitz within a month) was unknown. Nor was the probability of bumping into a guy at an Embassy party who's be leaving for home in a couple of days and who had space in his suitcase for a parcel of clothes. 

Moreover, Akerlof was doing his own work conscientiously. He wasn't really a 'procrastinator' putting off mission critical tasks. 

The box was left with me on day 0. At the end of the year, at date T, the box could be costlessly transported.

More importantly, it would be transported with high certainty of success. What was unknown was when the parcel would reach Stiglitz if sent by sea-mail.  

The cost of sending the box on any day prior to T was estimated at c, the value of a day's work.

This is silly. Akerlof was a foreigner. An Indian colleague would have been happy to take on the task though, as I said, he would have advised Akerlof to ask at the Embassy if they could send the parcel by bag. After all, Indian Professors sent abroad by the Indian Government often availed of this facility to save money on postage.  

I estimated Joe's valuation of the use of the contents of the box (which was the same as my value of his use of the contents) at a rate of x dollars per day. I saw no reason to attach any discount rate to his use of the box. However, each day when I awoke, the activities I would perform if I did not mail off the Stiglitz box seemed important and pressing, whereas those I would undertake several days hence remained vague and seemed less vivid. I thus overvalued the cost of sending the box on the current day relative to any future day by a factor of 8. This caused me to procrastinate.

It is obvious to me that Akerlof was operating under conditions of 'brain fog' or 'culture shock'. When you live in America and need to send a parcel, you just pop into the post office. You don't go to see your Senator or Congressman. But, if you are an American Professor in Delhi in 1968, you get stuff sent home by diplomatic bag- which always goes by air, not sea. 

Akerlof had come into possession of Stiglitz's clothes by chance. Chance might offer him a way to get them to Stiglitz with high certainty. After all, in Delhi, there were always plenty of Americans coming and going. There were also plenty of young Indian students going to the US on scholarship. They would be delighted to do a favour for a pair of rising young Professors. 

On each day t, until date T-c/x, I made the dynamically inconsistent decision that I would not send the box on that day, but would instead send it the very next day.

This is not dynamically inconsistent. It is like 'Kafka's toxin'. Akerlof had the wrong econ theory- viz one which neglected Knightian Uncertainty. So, he found a work-around- viz. affirming that tomorrow he would be a different man from the one he is today. But we all do this all the time.  

Ultimately, I decided to simply wait and send it costlessly at my departure.

No. If he bumped into a guy who was heading home, he'd have asked him to take the clothes. It may be that Akerlof didn't want to take favours from the Embassy. Back then, academics wanted to keep CIA types at arms length. 

Consider my decision process. On each day t, I awoke and

forgot that the American Embassy was at his disposal. Economists like him were important. Don't just get your parcels sent by diplomatic bag. Insist on getting Bourbon whiskey on a regular basis.  

made a plan to send the box on date t*. I chose t* to minimize V, the costs net of the benefits of sending the box.

Had there been any 'benefit' in sending the box, Stiglitz would have reminded him to drop off the parcel with the Embassy.  

My procrastination was costly.

It really wasn't. Stiglitz wasn't upset with him. It was obvious that sending stuff by sea-mail from a Turd World shithole country was sub-optimal.  

Procrastination with Deadlines.

Genuine procrastination. The other thing is 'preference falsification' or simply hypocrisy. Tomorrow I will give up smoking. But tomorrow never comes.  

The preceding model of procrastination has the special feature that if the task is not done in a timely fashion, it does not need to be done at all.

Because there was never any genuine need to do it.  

It is like the referee's report that the editor angrily sends to another reviewer after too long a lapse. However, many tasks have deadlines. For our students, the cost of procrastination involves "pulling an all-nighter" to get the term paper (conference paper) done on time.

The paper may be better in consequence. What we are dealing with is uncertainty.  Who can say why a particular paper they wrote was great while others were trash? 

A.   Stalin's Takeover

My first example concerns Stalin's ascension to power in Russia. The history of the Bolshevik party and the history of Synanon are strikingly similar.

No. Synanon was a cult. Communism was a political ideology which, in Russia, seized power and held it for seven decades.  

(I take the Bolshevik history from Isaac Deutscher, 1949). Initially, there were the early days of reformist zeal, of meeting secretly in lofts, ware-houses, and other strange places.

The Bolsheviks were revolutionaries, not reformists. Stalin had robbed banks and escaped countless times from Siberia. As an ethnic Georgian, he was able to give the Bolsheviks the appearance of having transcended Greater Russian Chauvinism. Stalin's theory of nationalities and his willingness to grant relative autonomy to Language 'added value'. By contrast, Trotsky appeared the 'Napoleon' of the movement who would want a war of conquest against more advanced economies to the West of Russia. Bukharin was associated with the NEP which was bound to collapse in a second 'scissors crisis'. Collectivization was inevitable otherwise the regime would be vulnerable to a peasant insurrection spearheaded by Cossacks. Famine and the liquidation of the kulaks killed off the spirit of Pugachev and rendered the rural masses docile.  

But, in addition, and most importantly, there was commitment to the organization. To the Bolsheviks, this commitment was of paramount importance. Indeed, it was over the constitutional issue as to whether party members should merely be contributors (either financial or political) or should, in addition, submit to party discipline that split the Russian socialist workers' movement into two parts-the Mensheviks and the Bolsheviks.

Nonsense! The Bolsheviks wanted a small, professional, party. The Menshiviks wanted a big 'mass contact' party similar to the Narodniks. But the industrial proletariat already had 'division of labour and specialization'. Its leaders were bound to be professionals- either Labour organizers/lawyers or else Communist cadres- whereas the peasants were likely to select their own leaders and cooperate selectively on specific issues. But this was also their weakness. The Red Army, thanks to its control of the railways and the munition factories, could hit one region after another while the peasants were on the defensive. Moreover, the village was a house divided against itself. Targeting priests, kulaks and grain merchants appealed to the poorer folk and the riff raff. 

This loyalty to party discipline, useful in the revolution, ultimately enabled Stalin to take over the party and pervert its ideals.

Sadly, the opposite was the case. He took the land from the peasants and forcibly extracted surpluses from the primary sector which he used to import capital goods. The proletariat really had gained the type of power previously possessed by the landed aristocracy. The Criminal Justice system took account of 'class origin'. If you were a poor proletarian by birth, you could be rehabilitated. If you were upper class, you got short shrift.  

It underlay the acquiescence of his tough comrade revolutionaries in the scrapping of the original principles of Bolshevism: open intraparty debate and dedication to the cause of the workers and peasants.

The other great thing about Stalin was that he was against Jews, Homosexuals, and 'modernist' artists.  

In the 1920's and 1930's, as Stalin collectivized the peasants and tyrannized over dissidents, these old comrades stood by, perhaps not quite agreeing, but not actively disagreeing either, much like Milgram's passively obedient, passively resistant subjects.

Stalin had spent a lot of time escaping prison or Siberian exile. He made sure his penal system kicked ass. Why did he gain supreme power in 1929? The answer is that if he was toppled, Trotsky would return. But this raised the spectre of a second war with neighbours to the West- a war the Soviets were bound to lose. 

The reason a Mafia boss, or Dictator, stays in power is because of the uncertainty as to what happens if he is toppled. Better the devil you know.  

Even Trotsky in exile did not unambiguously oppose Stalin until the purges had begun as a series of decisions were made that increasingly brutalized the peasantry and cut off political debate.

Russia and China had always faced the threat of a peasant rebellion. Stalin and Mao ended that threat by fucking over the peasantry so badly they remained supine forever thereafter. Stalin began industrialization in 1928. Where were resources for it supposed to come from? The answer was obvious. The primary sector had to be squeezed like a lemon. Under the first five year plan, some five million tons of agricultural produce was exported till output collapsed because of famine. But even as the Holodomor was raging, about a million tons were exported. After 1933, there was no possibility of a peasant uprising. 

Incidentally, in Eurasia, 'political debate' is a fucking nuisance. It only occurs when a regime is on the point of collapse. 

The exception to the lack of dissent proves the rule. Nadia Alliluyeva was

a nobody. She married a notorious philanderer at the age of 18. Her health was poor. She shot herself at the age of 31. Nobody cared.  

the daughter of one of the founding Bolsheviks and thus an heiress by birth to the ideals of the party.

Her dad was a pal of Stalin. But he wasn't important.  

She was also Stalin's wife. When Stalin collectivized the peasantry, moving perhaps 80 million from their farms in six months' time, she voiced her disapproval at a party-he replied savagely. That night she  committed suicide.

This is nonsense. Neither she nor other members of her family gave a damn about the peasants. She killed herself because her health was poor and her hubby was having affairs.  

This behaviour contrasts with the party leadership who,

knew that if the peasants took power, their own throats would be slit. Kulaks don't like atheists. 

like Milgram's subjects, had been participating in the decisions that were being taken.

The big decision was to get rid of Trotsky because he looked like he might become the Napoleon of the Russian Revolution. After that, there needed to be an autocrat. Autocracies can be run no other way. It isn't the case that Putin is constantly consulting with peasants and proletarians. Nor is Chairman Xi.  

At each juncture, they were confronted by the decision whether to break ranks with the increasing brutalization of the peasants

which they fucking loved! They knew that the Cossacks would take their time with them before chopping them into kebabs.  

and the choking off of dissent, or to remain loyal to the party.

i.e. continue to get paid and have access to a nice dacha.  

By acquiescing

cooperating.  

step by step to the crescendo of Stalin's actions, they were committing themselves to altered standards of behavior.

Hilarious! These guys had waded through a sea of blood to ensconce themselves in the Kremlin. Ivan the fucking Terrible was a pussycat compared to the average Bolshevik Commissar.  

In contrast, Nadia Alliluyeva, who had withdrawn from the decision-making process

she was sacked from the Party in 1921 because she was stupid and useless. As her hubby's star rose, so did that of her family. But, some were killed during one of Stalin's purges.  

to be wife and mother,

and spokesperson of disabled lesbian peasants who were being brutalized and subjected to body shaming by evil Capitalist bastids. 

could feel proper revulsion at the deviation of the party's actions from its prior ideals.

Very true. When Lenin said, in August 1918,  "Hang (hang without fail, so the people see) no fewer than one hundred known kulaks, rich men, bloodsuckers" what he actually meant was 'give cuddles and kisses to peasants. They are so nice.' Also, the Tzar and his family weren't shot. They died of pure joy because of all the cuddles and kisses they were receiving. 

Standard economic analysis is based

on identifying opportunity cost and trying to minimize it.  

upon the Benthamite view that individuals have fixed utilities which do not change.

That is an assumption. But it is known that some goods & services change preferences as they are consumed.  

Stigler-Becker and Becker-Murphy have gone so far as to posit that these utilities do change, but that individuals are forward looking and thus foresee the changes that will occur.

Indeed. That's why you hand over your car-keys to the bar-keep and book a taxi home.  

A more modern view of behavior, based on twentieth-century anthropology, psychology, and sociology is that individuals have utilities that do change

people change. What is useful to you today may be useless to you tomorrow.  

and, in addition, they fail fully to foresee those changes or even recognize that they have occurred.

Knightian Uncertainty is a bitch. We don't have a Momus window into our own hearts. We come from the unknowable and go to the unknowable and such knowledge as we have is a delusion or a dream.  

This lecture has modeled such behavior in sequences of decisions, given examples from everyday life, indicated the situations in which such behavior is likely to occur, and, in some instances, suggested possible remedies.

Sadly, there are no such 'sequences' because there are no well defined sets or graphs of functions.  

The theory of procrastination and obedience has applications to savings, crime, substance abuse, politics, and bureaucratic organizations.

But it cashes out as mere mechanism design. But that assumes a 'Revelation principle' and so the same problem with 'revealed preference' returns. One may as well admit that 'preferences' or 'utility' or 'capability' or 'regret' are all epistemic 'intensions' which don't have well defined extensions. For some particular purpose, a good enough approximation may be useful. But the thing will be arbitrary. What matters is whether it pays for itself.