Search for content, post, videos

OF MARGINAL INTEREST | Finals Season: A Series of Unfortunate Economic Fallacies

finals

Finals week can bring a lot of things to the surface: the sudden motivation to learn everything, a seasonal caffeine addiction, an awe-inspiring general state of self-loathing. After barely making out alive from seven finals seasons, I have come to realize that finals week also brings out the economically irrational agent hidden in all of us. Here I have listed a few principles of behavioral economics, applied to the disaster that is Cornell finals week (special thanks to Karna Malaviya):

Hyperbolic discounting

Finals season is always a time of personal reflection and contemplation. A question I frequently find myself asking in the days and hours leading up to exams as I panickedly squish months upon months of complex content into my brain is: why am I like this? The answer? Hyperbolic discounting — the human tendency to prefer a smaller payoff sooner (i.e., joy from doing anything other than studying) to a larger payoff in the more distant future (i.e., pacing your studying on a reasonable, responsible timeline). If this brings to mind all the moments you could have been reviewing lecture notes or drawing concept maps were it not for the release of the second season of Stranger Things or that party your roommate’s boyfriend’s second cousin’s lab partner was throwing that you just couldn’t miss, you’re not alone. Whereas we could be happy, well-balanced students with good grades come finals week, several months ago there was no way we could have accurately gauged how much greater the utility of sanity during finals week would be than the utility of one more Netflix episode! Even after seven semesters at Cornell? Nah, hyperbolic discounting is definitely to blame here.

Anchoring

In 1970, Jean-Claude Brouillet came across a collection of black pearls in Polynesia. Though no market existed for them at the time, Brouillet approached wealthy pearl vendor Salvador Assal in order to create one. This first effort was a flop; no black pearls sold. However, Assal was eventually able to pull some strings and place the black pearls in a display window on Fifth Avenue in New York City at an exorbitant price and in large, glossy magazine ads. Once the pearls were treated as precious commodities, demand followed. The black pearl experiment perfectly illustrated the economic phenomenon of anchoring: people rarely make valuations in absolute terms, because how would we know the intrinsic value of any given item? However, if it seems like a good is desirable or comparable to other valuable items, regardless of whether or not it is worth anything, it will be highly valued. Anchoring can help explain the madness surrounding certain library spots come finals week. While the objective benefits accumulated from scoring an Olin first floor window desk or 7th-floor stacks spot are dubious compared to study spots in other buildings that possess similar levels of volume/natural light/table size, the Black Friday-esque hordes of students crowded outside the library before opening and the masses of students running to desks once doors open say otherwise. To some extent, the fanatic desire for one of these popular study spots can be attributed to observing others’ fanatic desire for one of these popular study spots, creating a vicious cycle of excessive competition and library drama.

Decision fatigue

It’s 2 p.m. on the third day of finals. You’re in a line for Libe Cafe extending down Ho Plaza, and you face a seemingly simple decision: a small $2 coffee or a venti caramel coconut milk mochaccino. Treat yo’self, you whisper as you fork over approximately a quarter of your semesterly tuition to the cashier. Indeed, it would seem that with each finals and prelim season comes another Treat Yo’self season. In such times of misery, any economically irrational choice can be justified! The culprit at hand is oftentimes decision fatigue, or the steadily decreasing ability to make rational decisions and trade-offs after a continuous string of such decisions (How much time should I allocate to studying for exam A vs. exam B? What sleep/library balance should I undertake to optimize both finals grades and sanity? Is now the time to give it all up and become a stripper?). Common symptoms of decision fatigue include (1) reduced ability to make trade-offs, (2) decision avoidance, (3) impulse purchasing, and (4) impaired self-regulation. If you have experienced a rapid and alarming uptick in any of these symptoms in the past 24 hours, you should probably honestly get some sleep.

The failure of mental accounting: Free lunch fallacy

As the old adage goes, “If you haven’t learned it by the night before your exam, it ain’t happening.” Well, all that certainly goes straight out the window during finals week. As the temptation to cut into sleep reserves certainly increases as exam panic heightens, it is easy to forget that there is “no such thing as a free lunch”; in other words, each extra hour you stay up to cram that last chemistry lecture into your battle-worn brain has a definitive cost not only in terms of the marginal productivity of your studies, but also in terms of your functionality the day of an exam. If you’ve ever rolled up to an exam after a sleepless, anxiety-ridden night of learning the entire semester only to have your mind move at the speed of a snail on LSD come exam-time, you know the cost of these last-minute efforts. This means that for every exam and every panicked exam cram session there’s some mental accounting to be done: what is the marginal cost of this lost hour of sleep versus this gained hour of studying? What is the expected value of my productivity given this one hour of sleep? What is the weighted expected marginal gain in cumulative GPA from this one 10 PM caffeine jolt on night 3.5 of finals? You might even begin to consider starting studying earlier just to avoid this headache…until you remember that hyperbolic discounting will make fools of us all yet.  

The failure of mental accounting: Sunk cost fallacy

It’s hour 18 of studying for your organic chemistry final, but you’ve only drawn ⅔ of the Lewis diagram the professor forced upon you this semester. You’ve got another exam the day after orgo, but it’s a slightly less strenuous subject and you can study for it later. Besides, you’ve already invested 18 hours into this subject, so you have to push through the last ⅓ of the content to make all this suffering worth it, right? …Right? Maybe not right. Sunk cost fallacy, which can be applied to all sorts of decision-making processes, refers to the human tendency to overvalue something that they have already invested time/money/effort into, even if the actual payoff doesn’t merit continual investment. The more we time/money/effort we spend on this thing, the more time/money/effort we’re inclined to throw at it, for better or for worse. Whether it’s choosing if you should stay in a line that you’ve already waited in for hours or deciding how to budget your study time, the perils of sunk cost fallacy can be high. After your 38th hour immersed in algebraic geometry, we’re bound to be emotionally invested in the victory of getting it all done. But in doing so we oftentimes neglect the opportunity cost of doing so that may have a higher marginal utility, namely: studying for other exams, sleeping properly, writing that other paper, your sanity, etc., etc. So before you down that Five Hour Energy to push through the last 15 slide decks of Quantum Neuroscience, maybe consider: at what cost?

TL;DR, behavioral economics is to blame for all our suffering, and responsible decisions are a sham. Happy studying, kids!

 

Sources:
https://www.investopedia.com/university/behavioral_finance/behavioral5.asp
https://www.investopedia.com/university/behavioral_finance/behavioral10.asp
https://www.investopedia.com/university/behavioral_finance/behavioral9.asp
https://qz.com/1098078/behavioral-economics-the-flaws-that-economics-nobel-prize-winner-richard-thaler-wants-you-to-know-about-yourself/
http://www.crresearch.com/blog/The-Implications-of-Behavioral-Economics-on-Market-Research
https://siderite.blogspot.com/2015/01/predictably-irrational-by-dan-ariely.html

Leave a Reply

Your email address will not be published. Required fields are marked *