Joel Brockner: The Passion Plea

This post originally appears on the blog of Psychology Today

BrocknerIt’s tough to argue with the idea that passion is an admirable aspect of the human condition. Passionate people are engaged in life; they really care about their values and causes and being true to them. However, a big minefield of passion is when people use it to excuse or explain away unseemly behavior. We saw this during the summer of 2017 in how the White House press secretary, Sarah Huckabee Sanders, responded to the infamous expletive-laced attack of Anthony Scaramucci on his then fellow members of the Trump team, Steve Bannon and Reince Priebus. According to The New York Times, (July 27, 2017),  “Ms. Sanders said mildly that Mr. Scaramucci was simply expressing strong feelings, and that his statement made clear that ‘he’s a passionate guy and sometimes he lets that passion get the better of him.’ ” Whereas Ms. Sanders acknowledged that Mr. Scaramucci behaved badly (his passion got the better of him), her meta-message is that it was no big deal, as implied by the words “mildly” and “simply” in the quote above.

The passion plea is by no means limited to the world of politics. Executives who are seen as emotionally rough around the edges by their co-workers often defend their behavior with statements like, “I’m just being passionate,” or “I am not afraid to tell it like it is,” or, “My problem is that I care too much.”

The passion plea distorts reality by glossing over the distinction between what is said and how it is said. Executives who deliver negative feedback in a harsh tone are not just being passionate. Even when the content of the negative feedback is factual, harsh tones convey additional messages – notably a lack of dignity and respect. Almost always, there are ways to send the same strong messages or deliver the same powerful feedback in ways that do not convey a lack of dignity and respect. For instance, Mr. Scaramucci could have said something like, “Let me be as clear as possible: I have strong disagreements with Steve Bannon and Reince Priebus.” It may have been less newsworthy, but it could have gotten the same message across. Arguably, Mr. Scaramucci’s 11-day tenure as White House director of communications would have been longer had he not been so “passionate” and instead used more diplomatic language.

Similarly, executives that I coach rarely disagree when it is made evident that they could have sent the same strong negative feedback in ways that would have been easier for their co-workers to digest. Indeed, this is the essence of constructive criticism, which typically seeks to change the behavior of the person on the receiving end. Rarely are managers accused of coming on “too strong” if they deliver negative feedback in the right ways. For example, instead of saying something about people’s traits or characters (e.g., “You aren’t reliable”) it would be far better to provide feedback with reference to specific behavior (e.g., “You do not turn in your work on time”). People usually are more willing and able to respond to negative feedback about what they do rather than who they are. Adding a problem-solving approach is helpful as well, such as, “Some weeks you can be counted on to do a good job whereas other weeks not nearly as much. Why do you think that is happening, and what can we do together to ensure greater consistency in your performance?” Moreover, the feedback has to be imparted in a reasonable tone of voice, and in a context in which people on the receiving end are willing and able to take it in. For instance, one of my rules in discussing with students why they didn’t do well on an assignment is that we not talk immediately after they received the unwanted news. It is far better to have a cooling-off period in which defensiveness goes down and open-mindedness goes up.

If our goal is to alienate people or draw negative attention to ourselves then we should be strong and hard-driving, even passionate, in what we say as well as crude and inappropriate in how we say it. However, if we want to be a force for meaningful change or a positive role model, it is well within our grasp to be just as strong and hard-driving in what we say while being respectful and dignified in how we say it.

Joel Brockner is the Phillip Hettleman Professor of Business at Columbia Business School.

Why Luck Is the Silent Partner of Success

Princeton University Press is partnering with Knowledge@Wharton, The Wharton School’s online business analysis journal, to bring you regular thought pieces from our authors. Our inaugural post is from economist Robert Frank. The piece appeared initially on the Knowledge@Wharton site. 

Why do the rich underestimate the role of luck in their success? Why does that mindset hurt society? What can be done about it? These are some of the questions that Robert H. Frank, author of Success and Luck: Good Fortune and the Myth of Meritocracy, addresses in this opinion piece. Frank is an economist at Cornell University and an economics columnist for the New York Times. His books, which include Success and Luck and The Winner-Take-All Society, have been translated into 24 languages.

As the essayist E.B. White once wrote, “Luck is not something you can mention in the presence of self-made men.” Some people are of course quick to acknowledge the good fortune they’ve enjoyed along their paths to the top.  But White was surely correct that such people are in the minority. More commonly, successful people overestimate their responsibility for whatever successes they achieve.

Even lottery winners are sometimes blind to luck’s role. In his 2012 book, The Success Equation, Michael Mauboussin describes a man inspired by a succession of dreams to believe he’d win the Spanish National Lottery if he could purchase a ticket number whose last two digits were 48. After an extensive search, he located and bought such a ticket, which indeed turned out to be a winner. When an interviewer later asked why he’d sought out that particular number, he said, “I dreamed of the number 7 for seven straight nights. And 7 times 7 is 48.”

The tendency to overestimate the predictability of events extends well beyond lottery winners. The sociologist Paul Lazarsfeld illustrated this tendency, known as “hindsight bias,” with people’s reactions to a study that investigated how different groups of men adjusted to the rigors of military life. As he described the study to his subjects, its principal finding was that men who had grown up in rural areas adjusted far more successfully than their urban counterparts. Many of Lazarsfeld’s subjects reacted exactly as he had expected. Why, they wondered, was a costly study needed to confirm something so obvious?

The twist was that Lazarsfeld’s description of the study was a fabrication. The study had actually discovered that men who had grown up in urban settings adjusted to military life more successfully. If Lazarsfeld had reported the actual finding to his subjects, of course, they would have found it just as easy to construct a compelling narrative to explain its truth.

“An unfortunate consequence of seeing ourselves as entirely self-made … [is that it] makes us much less likely to support the public investments that made our own successes possible….”

In similar fashion, when successful people reflect on their paths to the top, they tend to view their success as having been all but inevitable. In their attempts to construct narratives to explain it, they search their memory banks for details that are consistent with successful outcomes. And because the overwhelming majority of successful people are in fact extremely talented and hardworking, they’ll find many ready examples of the long hours they logged, the many difficult problems they solved, and the many formidable opponents they vanquished.

But as the psychologist Tom Gilovich has shown, they’re much less likely to remember external events that may have helped them along the way — the teacher who once steered them out of trouble, perhaps, or the early promotion received only because a slightly more qualified colleague had to care for an ailing parent. This asymmetry, Gilovich points out, resembles the one with which people react to headwinds and tailwinds.

When you’re running or bicycling into a strong headwind, for example, you’re keenly aware of the handicap you face. And when your course shifts, putting the wind at your back, you feel a momentary sense of relief. But that feeling fades almost immediately, leaving you completely unmindful of the tailwind’s assistance. Gilovich’s collaborations with the psychologist Shai Davidai demonstrate the pervasiveness of analogous asymmetries in memory. People are far more cognizant of the forces that impede their progress than of those that boost them along.

An unfortunate consequence of seeing ourselves as entirely self-made — rather than as talented, hardworking, and lucky—is that this perception makes us much less likely to support the public investments that made our own successes possible in the first place.

Being born in a good environment is an enormously lucky thing and one of the only lucky things we can actually control. Basically, we get to decide how lucky our children will be. But that requires extensive investment in the future, something we’ve been reluctant to undertake of late. Even as a shrinking group among us has been growing steadily luckier, a growing number of the unluckiest have been falling still further behind.

The good news is that we can easily do better. It turns out that when successful people are prompted to reflect on how chance events affected their paths to the top, they become much more inclined to pay forward for the next generation.

It would be a mistake, however, to think that simply telling successful people that they’ve been lucky will elicit this reaction. On the contrary, it seems to have precisely the opposite effect, making them angry and defensive. It’s as if you’ve told them that they don’t really deserve to be on top, that they aren’t who they think they are.

Consider Elizabeth Warren’s 2012 you-didn’t-build-that speech, in which she reminded successful business owners that they had shipped their goods to market on roads the rest of us paid for, they had hired workers educated at taxpayer expense, and they had been safe in their factories because of police and firefighters the community hired. In return, she then reminded them, the social contract asks them to pay forward for the next group that comes along.

It is difficult to spot anything controversial in these words. Yet shortly after she spoke them, the video of her speech went viral, provoking outraged comments by the millions.

“Don’t remind your successful friends that they’ve enjoyed a bit of luck. Instead, ask them to recall examples of lucky breaks….”

No, simply telling rich people that they’ve been lucky won’t make them more willing to invest in the next generation. Mysteriously, however, an ostensibly equivalent rhetorical move seems to have precisely that effect: If you ask your successful friends whether they can think of any lucky breaks they might have enjoyed, you’ll almost invariably discover that they seem to enjoy trying to recall examples. You’ll see, too, that their eyes light up as they describe each one they remember.

Research has demonstrated that priming people to experience the emotion of gratitude significantly increases their willingness to incur costs to promote the common good. And people who recall instances in which they’ve been lucky reliably experience gratitude, even when there is no specific person to whom they feel grateful.

The economist Yuezhou Huo, for example, asked one group of people to list three external causes for something good that had recently happened to them, a second group to list three personal traits or actions that had contributed to the good thing, and a third group merely to report a good thing that had recently happened. Subjects received a bonus payment for their participation in this study, and  Huo offered them a chance to donate some or all of that payment to a charity when the study ended. Those who had been asked to list external causes — many of whom mentioned luck explicitly — donated 25% more than those who were asked to name personal traits or behaviors. The control group’s donations fell squarely in the middle.

As psychologists have long understood, logically equivalent statements often elicit very different emotional responses. Calling a glass half empty, for example, conveys something quite different from calling it half full. So, too, with our statements about luck. Don’t remind your successful friends that they’ve enjoyed a bit of luck. Instead, ask them to recall examples of lucky breaks they might have enjoyed along the way. Even if their recollections don’t prompt them to adopt a more generous posture toward future generations, you’re bound to hear some interesting stories.

Gary Saul Morson & Morton Schapiro: The Humanomics of Tax Reform

CentsThe Trump administration is now placing tax reform near the top of its legislative agenda. Perhaps they will garner the votes for tax reduction, but reform? Good luck.

It has been three decades since there has been meaningful tax reform in this country. In 1986, tax shelters were eliminated, the number of tax brackets went from 15 to 4, including a reduction of the highest marginal tax rate from 50% to 38.5% and the standard deduction was increased, simplifying tax preparation and resulting in zero tax liability for millions of low-income families. At the same time, a large-scale expansion of the alternative minimum tax affected substantial numbers of the more affluent.

President Reagan insisted that the overall effect be neutral with regard to tax revenues. That demand made it possible to set aside the issue of whether government should be larger or smaller and instead focus on inefficiencies or inequities in how taxes were assessed. Two powerful Democrats, Dick Gephardt in the House and Bill Bradley in the Senate, were co-sponsors.

Economists might evaluate the merits of this monumental piece of legislation in terms of the incentives and disincentives it created, its ultimate impact on labor force participation, capital investment and the like, but there is another metric to be evaluated – was it perceived to be fair? Accounts from that day imply that it was.

The notion of fairness is not generally in the wheelhouse of economics. But the humanities have much to say on that matter.

To begin with, literature teaches that fairness is one of those concepts that seem simple so long as one does not transcend one’s own habitual way of looking at things. As soon as one learns to see issues from other points of view, different conceptions of fairness become visible and simple questions become more complex. Great novels work by immersing the reader in one character’s perspective after another, so we learn to experience how different people – people as reasonable and decent as we ourselves are – might honestly come to see questions of fairness differently.

So, the first thing that literature would suggest is that, apart from the specific provisions of the 1986 tax reform, the fact that it was genuinely bipartisan was part of what made it fair. Bipartisanship meant the reform was not one side forcing its will on the other. Had the same reform been passed by one party, it would not have seemed so fair. Part of fairness is the perception of fairness, which suggests that the process, not just the result, was fair.

Fairness, of course, also pertains to the content of the reforms. What are the obligations of the rich to support needy families? Are there responsibilities of the poor to participate however they can in providing for their own transformation?

In Tolstoy’s novel Anna Karenina, two main characters, Levin and Stiva, go hunting with the young fop, Vasenka, and as they encounter hard-working peasants, they start discussing the justice of economic inequality. Only foolish Vasenka can discuss the question disinterestedly, because it is, believe it or not, entirely new to him: “`Yes, why is it we spend our time riding, drinking, shooting doing nothing, while they are forever at work?’ said Vasenka, obviously for the first time in his life reflecting on the question, and consequently considering it with perfect sincerity.” Can it really be that an educated person has reached adulthood with this question never having occurred to him at all?

And yet, isn’t that the position economists find themselves in when they ignore fairness? When they treat tax reform, or any other issue, entirely in economic terms? Levin recognizes that there is something unfair about his wealth, but also recognizes that there is no obvious solution: it would do the peasants no good if he were to just give away his property. Should he make things more equal by making everyone worse off? On the contrary, his ability to make farmland more productive benefits the peasants, too. So, what, he asks, should be done?

Levin also knows that inequality is not only economic. If one experiences oneself as a lesser person because of social status, as many of the peasants do, that is itself a form of inequality entirely apart from wealth. In our society, we refer to participants in government as “taxpayers.” Does that then mean that to exempt large numbers of people from any taxation entirely demeans them – not least of all, in their own eyes?  There may be no effective economic difference between a very small tax and none at all, but it may make a tremendous psychological difference. Isn’t the failure to take the psychological effect of tax rates seriously as disturbingly innocent as Vasenka’s question about inequality?

Combining a humanistic and an economic approach might not give us specific answers, but it does make questions of fairness, including symbolic effects, part of the question. And in a democracy, where popular acceptance of the rules as legitimate is crucial, that would be a step forward.

Gary Saul Morson is the Lawrence B. Dumas Professor of the Arts and Humanities and professor of Slavic languages and literatures at Northwestern University. His many books include Narrative and Freedom, “Anna Karenina” in Our Time, and The Words of Others: From Quotations to Culture. Morton Schapiro is the president of Northwestern University and a professor of economics. His many books include The Student Aid Game. Morson and Schapiro are also the editors of The Fabulous Future?: America and the World in 2040 and the authors of Cents and Sensibility: What Economics Can Learn from the Humanities.

Richard H. Thaler wins the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 2017

Princeton, NJ, October 9, 2017—Upon today’s announcement that Dr. Richard H. Thaler is the winner of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2017, Princeton University Press extends hearty congratulations to the celebrated economist.

The Royal Swedish Academy of Science recognizes Dr. Thaler “for his contributions to behavioural economics.”

Dr. Thaler is the Charles R. Walgreen Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago’s Booth School of Business where he directs the Center for Decision Research. He is also a Research Associate at the National Bureau of Economic Research where he codirects the Behavioral Economics Project. Dr. Thaler’s research bridges the gap between psychology and economics. He is considered a pioneer in the fields of behavioral economics and finance.

Princeton University Press is deeply gratified to be the publisher of Dr. Thaler’s The Winner’s Curse: Paradoxes and Anomalies of Economic Life (1994) and Advances in Behavioral Finance, Volume II (2005).

According to Joe Jackson, Senior Economics Editor at Princeton University Press, “Dr. Thaler’s is an edifying story of how economics adapts and, over time, can come to embrace new perspectives that at first might seem at odds with the whole tradition, but that stand the test of extensive scrutiny and experimentation and end up broadly changing the field.  Princeton University Press is proud to have played a minor but relatively early part in that story by publishing the paperback of The Winner’s Curse, shortly after it was published in hardcover by the Free Press in 1992, which is still in print today.”

Since 1905, Princeton University Press has remained committed to publishing global thought leaders in the economic sciences and beyond. We are honored to count Dr. Thaler’s work as a cornerstone of this legacy.

Richard Thaler joins a number of esteemed PUP authors who have won the Nobel Prize in Economics, among them Angus Deaton, Jean Tirole, Lars Peter Hansen and Robert J. Shiller, Thomas J. Sargent, Peter A. Diamond, Elinor Ostrom, Edmund Phelps, Robert J. Aumann, George Akerlof, Robert Engle, John Nash, and Alvin Roth.

Scott E. Page on The Diversity Bonus

What if workforce diversity is more than simply the right thing to do in order to make society more integrated and just? What if diversity can also improve the bottom line of businesses and other organizations facing complex challenges in the knowledge economy? It can. And The Diversity Bonus shows how and why. Scott Page, a leading thinker, writer, and speaker whose ideas and advice are sought after by corporations, nonprofits, universities, and governments around the world, makes a clear and compellingly pragmatic case for diversity and inclusion. He presents overwhelming evidence that teams that include different kinds of thinkers outperform homogenous groups on complex tasks, producing what he calls “diversity bonuses.” These bonuses include improved problem solving, increased innovation, and more accurate predictions—all of which lead to better performance and results. Drawing on research in economics, psychology, computer science, and many other fields, The Diversity Bonus also tells the stories of people and organizations that have tapped the power of diversity to solve complex problems. The result changes the way we think about diversity in the workplace—and far beyond it. Read on to learn more about the Diversity Bonus.

What is the Diversity Bonus?
The diversity bonus refers to the increase in performance that results from cognitive diversity.

When team members think differently, when they bring different representations, categories, heuristics, models, and frameworks, their collective performance includes a diversity bonus, an extra amount. That bonus is a quantifiable, measurable value add.

Can you give examples of diversity bonuses?
I’ll give three. When multiple people make predictions, their collective error (the error of their average guess) depends in equal amounts on their average error and on the diversity of their predictions.  If each person made the same prediction, the crowd would be as accurate as the average person. If they make different predictions, the crowd is more accurate than the average person. In one study involving thousands of predictions by professional economists, the crowd was better than the average economist by 21%. That 21% is the diversity bonus.

Creative tasks produce similar bonuses. Psychologists measure the creativity of a person by the number of ideas she can generate. They measure the creativity of a team similarly. A creative team therefore requires creative people. It also requires diversity. If the creative people all have the same ideas, then the whole only equals the parts. If they differ in their ideas, they produce a diversity bonus.

Finally, when solving problems, diverse representations create what Stuart Kauffman called different adjacent possiblesA smart person can be stuck on a problem and another person might present a new adjacent possibility and get that person unstuck. New adjacent possibles create diversity bonus.

Where do you see evidence of biggest diversity bonuses?
The evidence from the academy is overwhelming. It used to be that most papers were written by one or two people. Now teams predominate, as noted in a major report by the National Research Council. Multiple studies based on about 20 million academic papers written by, among others, Brian Uzzi, Ben Jones, Richard Freemen, and Wei Huang, find that working with people from other schools or from different ethnic groups results in substantial diversity bonuses. Lada Adamic and coauthers find similar effects for patents. The deeper dives on both papers and patents shows a correlation between the number of ideas, and combinations of novel ideas. In brief, the evidence from almost every academic paper ever published and every patent ever issued by the United States strongly aligns with diversity bonuses.

I should add that in creative domains, diversity bonuses could be even larger. Just as the academy has now turned to teams, so has Hollywood and the music industry. Not that many people are aware that the modal billboard hit now has multiple songwriters. Pop music has followed the same trend as physics and computer science. The same goes for movie scripts. Most films are now written by teams.

Your core argument rests on cognitive diversity. When most people talk about diversity they mean identity diversity.   Are the two related?
Great question. Yes. The two types of diversity are interwoven. The connection merits a careful unpacking. Identity diversity refers to differences in race, gender, sexual orientation, ethnicity, physical capabilities, and culture. Cognitive diversity refers to differences in information, knowledge bases, representations, categories, heuristics, causal models, and frameworks. In thinking about how identity diversity correlates with and influences cognitive diversity, we must guard against simple one to one causal claims such as their being something called a “woman’s perspective.” Better to recognize that our identities consist of multiple dimensions that collectively influence what we know, how we see, and how we think.  Our whole selves contribute to our cognitive repertoires. We cannot pull out one component of identities and map it to one component of our cognitive repertoires.

While identity matters, it is also not the only contributor to cognitive diversity. Our experiences, formal training, work activities, social networks, and preferences all contribute to how we think. Identity interacts with each of these and how much it contributes in any one instance will vary. I would guess that identity matters more in discussions of health care than in a statistical analysis of the evidence for the Higgs’ Boson.

The contribution in any one context will be up for empirical studies to reveal. That said, I’m a theorist and I would warn against placing too much weight on empirical studies until we better learn how to work in diverse teams. As we learn how to achieve diversity bonuses, we will increase the likelihood and magnitude of those bonuses.

Do diversity bonuses exist for all problems?
No! Diversity bonuses will only exist on complex, high dimensional tasks. On routine tasks like processing claims forms, packing boxes, or chopping down trees, no bonus will exist. The performance of the team equals the sum of the performances of the individuals. Economists call such tasks separable.

Diversity bonuses arise in complex, high dimensional contexts. As work becomes more cognitive—most high value workers solve problems, design, predict, and create—diversity bonuses become more and more important.

How do diversity bonuses challenge current thinking?
Diversity bonuses challenge narrow “meritocratic” thinking. Diversity bonuses mean that the best team will not, as a rule, consist of the best performing individuals. The best team will include diverse thinkers. Hiring, college admissions, and promotion decisions tend to make direct comparisons among individuals rather than think about what a person brings to teams.

How does an organization produce diversity bonuses?
That’s a great question. It used to be that organizations had diversity policies. Now, almost all organizations speak about diversity and inclusion. That’s because diversity bonuses do not come for free. You cannot just toss diverse people in a room together and expect bonuses to fall from the sky. Bonuses happen for a reason. They have an underlying logic. The book lays out that logic to guide you to diversity bonuses. Without that logic, to paraphrase Da Vinci, you are setting sail without a rudder or compass.

The logic suggests the following: you must identify the tasks where diversity bonuses will exist, you must create space and opportunity for people to contribute, you must reduce biases in hiring and recruiting, you must adopt policies and protocols that enable diversity bonuses, and, most important, you must practice.

 

PageScott E. Page is the Leonid Hurwicz Collegiate Professor of Complex Systems, Political Science, and Economics at the University of Michigan and an external faculty member of the Santa Fe Institute. The recipient of a Guggenheim Fellowship and a member of the American Academy of Arts and Sciences, he is the author of The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies and Diversity and Complexity. He has been a featured speaker at Davos as well as at organizations such as Google, Bloomberg, BlackRock, Boeing, and NASA.

Walter Scheidel longlisted for the 2017 Cundill Prize

We are delighted to announce that The Great Leveler by Walter Scheidel has been longlisted for the prestigious Cundill History Prize 2017. Celebrating its 10th anniversary in 2017, the international prize recognizes the best history writing in English. A press conference reception will be held to announce a short list of the three finalists on 26 October 2017 in London. On 16 November, 2017, the three finalists will be invited to the Cundill History Prize Gala in Montreal where the winner will be announced. We offer our heartfelt congratulations to Professor Scheidel and to all of the authors selected for this honor.

Scheidel

Jean Tirole on Economics for the Common Good

When Jean Tirole won the 2014 Nobel Prize in Economics, he suddenly found himself being stopped in the street by complete strangers and asked to comment on issues of the day, no matter how distant from his own areas of research. His transformation from academic economist to public intellectual prompted him to reflect further on the role economists and their discipline play in society. The result is Economics for the Common Good, a passionate manifesto for a world in which economics, far from being a “dismal science,” is a positive force for the common good.

What inspired you to write this book, and what did you learn in the process?

I wanted to show how economics can open a window to the world. I have long taken part in policymaking, conversing with private and public decision-makers, but as yet I had never engaged with the wider public.  After receiving the Nobel Prize I was regularly asked by people I met in the street or as I gave talks to explain to a broader audience the nature of economic research and what it contributes to our well-being. Not as a commentator on each and every topic, but simply to share with the public how scientific knowledge can guide economic policies and help us understand the world we (will) live in. I tried to write a book that is intelligible for any intellectually curious reader even with no or slight knowledge of economics. The book is divided into 17 stand-alone chapters so the reader can pick and choose.

Can you talk a bit about the value of making economic ideas comprehensible to a general audience?

Repeatedly blaming politicians for flawed policies won’t get us very far. Like us all, they respond to the incentives they face, in their case the hope of being (re)elected. Very rarely do they go against majoritarian public opinion. So we, citizens, get the policies we deserve. And as I explain in the book, our understanding of economic phenomena is obfuscated by various cognitive biases; we are dependent on rules of thumb and narratives, and we often believe what we want to believe, see what we want to see. Economics acts as a deciphering key, although it of course has its own shortcomings.

In the book you talk about economics for the common good. What exactly is “the common good?”

Economics for the Common Good is an ambition: to help our institutions serve general interest by studying those situations in which individual motives conflict with the interests of society, in order to suggest policies that align social and private interests. The invisible and the visible hands—the market and the State—are mutually complementary; to function well a market economy needs an efficient State to correct its failures. But sometimes the State does not work for the Common Good; for example, many countries are leaving their children substantial levels of unfunded public debt, unemployment, a degraded educational system, inequality, and a lack of preparation for the digital upheaval that our societies are on the brink of encountering. And the world does little to contain climate change. The book therefore pays particular attention to what is going wrong with governments and how this can be remedied to promote the Common Good.

Why do economists have a reputation as “scaremongers?”

I have already mentioned our cognitive biases. Economics is accessible, but can be counterintuitive if one stops at first impressions. Accordingly, and as I illustrate in the book though housing, labor market, climate and other public policies, the road to economic hell is often paved with good intentions. Public policies—the reflection of the electorate’s beliefs—too often ignore side effects. Contrary to general opinion, these side effects are usually borne by third parties rather than the beneficiaries of the policies. Economists, when pointing to the indirect harm on mostly invisible victims (e.g. those who don’t find a job or decent housing, or the taxpayers), are often accused of lacking empathy for the intended and very visible beneficiaries.

Economists may also be the bearers of bad news; while the classical economics representation of a society of purely self-interested individuals is a mediocre description of reality (the book details how morality is privately and socially constructed), when economists mention the need for incentives they trigger anxiety and resistance; we would all rather live in a world of honest, hardworking and empathic citizens. To my mind, the whole point of economics is to design policies and institutions that work towards reaching this different world, where individuals spontaneously operate for the Common Good.

Economics has come under sharp attack, especially since the 2008 financial crisis. Is it a science?

Economists’ judgment may be impaired by financial conflicts of interest, political friendships, or ambitions to be a publicly recognized intellectual. But we must also be humble and accept that as a science, economics is an inexact one. Like any science, it is built on to-and-fro between theory, which provides a lens to the world and allows us to understand observations and describe their implications, and empirical work, which measures the importance of effects and helps question the theory: lab experiments need fieldwork, econometrics, big data. But our knowledge is imperfect; good data may be unavailable, theories may oversimplify, and behavioral patterns and self-fulfilling phenomena (such as bank runs or bubbles) may complicate the analysis. Overall, an economist will generally feel more comfortable analyzing past events and proposing future policies rather than forecasting. A characteristic that is incidentally shared by doctors and seismologists, who detect environments that are conducive to a heart attack or an earthquake and provide useful recommendations, and at the same time may be hard-pressed to predict the exact timing of the event or even whether the latter will occur at all.

TiroleJean Tirole, the winner of the 2014 Nobel Prize in Economics, has been described as one of the most influential economists of our time. He is chairman of the Toulouse School of Economics and of the Institute for Advanced Study in Toulouse and a visiting professor at the Massachusetts Institute of Technology. His many books include The Theory of Corporate Finance and Financial Crises, Liquidity, and the International Monetary System.

Scheidel, Lo, and Tirole longlisted for FT & McKinsey Business Books of the Year

Scheidel Great Leveler jacketThe longlist for the Financial Times & McKinsey Business Books of the Year Award was announced on August 14th, and we’re thrilled that once again the list of finalists includes several Princeton University Press books:

The Great Leveler by Walter Scheidel, the first book to chart the crucial role of violent shocks in reducing inequality over the full sweep of human history around the world.

Economics for the Common Good by French winner of the Nobel prize in economics, Jean Tirole, a passionate manifesto for a world in which economics, far from being a “dismal science,” is a positive force for the common good.

Adaptive Markets by Andrew Lo, a new, evolutionary explanation of markets and investor behavior.

Economics for the Common Good by Jean TiroleThe shortlist for this highly distinguished prize will be announced on September 19th. The winner of the Business Book of the Year Award will be awarded £30,000, and £10,000 will be awarded to each of the remaining shortlisted books.

Take a look at all the finalists for this honor during the past decade here.

LoA heartfelt congratulations to our authors.

 

 

 

 

Joel Brockner: Can Job Autonomy Be a Double-Edged Sword?

This post was originally published on the Psychology Today blog.

“You can arrive to work whenever convenient.”

“Work from home whenever you wish.”

“You can play music at work at any time.”

These are examples of actual workplace policies from prominent companies such as Aetna, American Express, Dell, Facebook, Google, IBM, and Zappos. They have joined the ranks of many organizations in giving employees greater job autonomy, that is, more freedom to decide when, where, and how to do their work. And why not? Research by organizational psychologists such as Richard Hackman and Greg Oldham and by social psychologists such as Edward Deci and Richard Ryan, has shown that job autonomy can have many positive effects. The accumulated evidence is that employees who experience more autonomy are more motivated, creative, and satisfied with their jobs.

Against this backdrop of the generally favorable effects of job autonomy, recent research has shown that it also may have a dark side: unethical behavior. Jackson Lu, Yoav Vardi, Ely Weitz and I discovered such results in a series of field and laboratory studies soon to be published in the Journal of Experimental Social Psychology. In field studies conducted in Israel, employees from a wide range of industries rated how much autonomy they had and how often they engaged in unethical behavior, such as misrepresenting their work hours or wasting work time on private phone calls. Those who had greater autonomy said that they engaged in more unethical behavior on the job. In laboratory experiments conducted in the United States we found that it may not even be necessary for people to have actual autonomy for them to behave unethically; merely priming them with the idea of autonomy may do the trick. In these studies participants were randomly assigned to conditions differing in how much the concept of autonomy was called to mind. This was done with a widely used sentence-unscrambling task in which people had to rearrange multiple series of words into grammatically correct sentences. For example, those in the high-autonomy condition were given words such as, “have many as you as days wish you vacation may” which could be rearranged to form the sentence, “You may have as many vacation days as you wish.” In contrast, those in the low-autonomy condition were given words such as, “office in work you must the,” which could be rearranged to, “You must work in the office.” After completing the sentence-unscrambling exercise participants did another task in which they were told that the amount of money they earned depended on how well they performed. The activity was structured in a way that enabled us to tell whether participants lied about their performance. Those who were previously primed to experience greater autonomy in the sentence-unscrambling task lied more. Job autonomy gives employees a sense of freedom which usually has positive effects on their productivity and morale but also can lead them to feel that they can do whatever they want, including not adhering to rules of morality.

All behavior is a function of what people want to do (motivation) and what they are capable of doing (ability). Consider the unethical behavior elicited by high levels of autonomy. Having high autonomy may not have made people want to behave unethically. However, it may have enabled the unethical behavior by making it possible for people to engage in it. Indeed, the distinction between people wanting to behave unethically versus having the capability of doing so may help answer two important questions:

(1) What might mitigate the tendency for job autonomy to elicit unethical behavior?

(2) If job autonomy can lead to unethical behavior should companies re-evaluate whether to give job autonomy to its employees? That is, can job autonomy be introduced in a way that maximizes its positive consequences (e.g., greater creativity) without introducing the negative effect of unethical behavior?

With respect to the first question, my hunch is that people who have job autonomy and therefore are able to behave unethically will not do so if they do not want to behave unethically. For example, people who are high on the dimension of moral identity, for whom behaving morally is central to how they define themselves would be less likely to behave unethically even when a high degree of job autonomy enabled or made it possible for them to do so.

With respect to the second question, I am not recommending that companies abandon their efforts to provide employees with job autonomy. Our research suggests, rather, that the consequences of giving employees autonomy may not be summarily favorable. Taking a more balanced view of how employees respond to job autonomy may shed light on how organizations can maximize the positive effects of job autonomy while minimizing the negative consequence of unethical behavior.

Whereas people generally value having autonomy, some people want it more than others. People who want autonomy a lot may be less likely to behave unethically when they experience autonomy. For one thing, they may be concerned that the autonomy they covet may be taken away if they were to take advantage of it by behaving unethically. This reasoning led us to do another study to evaluate when the potential downside of felt autonomy can be minimized while its positive effects can be maintained. Once again, we primed people to experience varying degrees of job autonomy with the word-unscrambling exercise. Half of them then went on to do the task which measured their tendency to lie about their performance, whereas the other half completed an entirely different task, one measuring their creativity. Once again, those who worked on the task in which they could lie about their performance did so more when they were primed to experience greater autonomy. And, as has been found in previous research those who did the creativity task performed better at it when they were primed to experience greater autonomy.

Regardless of whether they did the task that measured unethical behavior or creativity, participants also indicated how much they generally valued having autonomy. Among those who generally valued having autonomy to a greater extent, (1) the positive relationship between experiencing job autonomy and behaving unethically diminished, whereas (2) the positive relationship between experiencing job autonomy and creativity was maintained. In other words, as long as people valued having autonomy, the experience of autonomy had the positive effect of enhancing creativity without introducing the dangerous side effect of unethical behavior. So, when organizations introduce job autonomy policies like those mentioned at the outset, they may gain greater overall benefits when they ensure that their employees value having autonomy. This may be achieved by selecting employees who value having autonomy as well as by creating a corporate culture which emphasizes the importance of it. More generally, a key practical takeaway from our studies is that when unethical behavior is enabled, whether through job autonomy or other factors, it needs to be counterbalanced by conditions that make employees not want to go there.

BrocknerJoel Brockner is the Phillip Hettleman Professor of Business at Columbia Business School. He is the author of The Process Matters: Engaging and Equipping People for Success.

Gary Saul Morson & Morton Schapiro: How the study of economics can benefit from the humanities

CentsEconomists often act as if their methods explain all human behavior. But in Cents and Sensibility, an eminent literary critic and a leading economist make the case that the humanities, especially the study of literature, offer economists ways to make their models more realistic, their predictions more accurate, and their policies more effective and just. Gary Saul Morson and Morton Schapiro argue that economists need a richer appreciation of behavior, ethics, culture, and narrative—all of which the great writers teach better than anyone. Original, provocative, and inspiring, Cents and Sensibility brings economics back to its place in the human conversation. Read on to learn more about how the study of economics is lacking, the misreading of Adam Smith, and how the humanities can help.

You clearly think that economics as traditionally practiced is lacking in fundamental ways. Why?
We believe that economic models could be more realistic, their predictions more accurate, and their policies more effective and just, if economics opened itself up to learning from other fields.

But don’t economists already work on subjects within the typical domain of such disciplines as psychology, sociology, anthropology, and history, among others?
It is true that economists apply their models very widely, but they often expropriate topics rather than sincerely engage with other fields. Too often economists act as if other disciplines have the questions, and economics has the answers. It is one thing to tread on the territory of another discipline; it is quite another to be willing to learn from it. Economists have often been imperialistic, presuming that the subject matter of other disciplines could be put on a “sound basis” if handled by economic models. They rarely ask whether the methods and assumptions of other disciplines might help economics. We need a dialogue, and a dialogue goes both ways.

You say that economics can be improved by interaction with the humanities, and especially the study of literature. In what ways does economics fall short so that an understanding of literature might help?
Economists have an especially hard time in three sorts of situations: when culture plays an important role, since one cannot mathematize culture; when contingency prevails and narrative explanation is required; and when ethical problems irreducible to economic models are important. For instance, whether to have a market in kidneys—one topic we address—is not a question that can be adequately addressed solely in economic terms. Economic thinking has something useful to say in many such cases, but not everything.  Great works of literature have offered the richest portraits of human beings we have. If social scientists understood as much about human beings as the great novelists, they could have produced pictures of human beings as believable as those of Jane Austen, George Eliot, or Leo Tolstoy, but none has even come close. The great novelists, who were often keen thinkers who discussed the complexities of human feeling and behavior, must have known something! They also produced the subtlest descriptions of ethical problems we have.

Isn’t economic imperialism the legacy of Adam Smith, the founder of the discipline?
Not at all. Economists, who seldom read The Wealth of Nations and rarely ask students to do so either, present a version of Adam Smith that is largely fictional. A thinker with an immensely complex sense of human nature, and who insisted that human beings care for others in ways that cannot be reduced to self-interest, is presented as a founder of rational choice theory, which presumes the opposite. What has happened is that a few Smithian ideas have been represented as the whole, and then a model based on them alone has been constructed and been attributed to him. While Adam Smith is often invoked to justify a simplistic view of human behavior guided by rational self-interest, and of economic policies that reject any interference with the free functioning of markets, his work was much more nuanced and sophisticated than that. To truly understand The Wealth of Nations, one must also read his complementary volume, The Theory of Moral Sentiments. Together, they provide the kind of far-reaching, inclusive economics celebrated in this book—an economics that takes other subjects seriously and embraces narrative explanations.

Don’t those two books contradict each other?
The idea that they do, and the question how the same author could have written them both, is often called “the Adam Smith problem.” In fact, the problem arises only when one misreads Smith. We offer a solution to the Adam Smith problem, which also shows how his thought looks forward to the great novelists to come.

You believe that narratives could teach economics a great deal. Is that why you argue that the humanities could be so useful in making economics more relevant?  How exactly does narrative help?
Stories are important, especially those told by the great realist novelists such as Tolstoy, Dostoevsky, Chekhov, and Austen. They help in at least two ways. First, in a world where genuine contingency exists, it is necessary to explain events narratively, and there are no better models for narratives about people in society than those in great novels. Second, novels foster empathy. Other disciplines may recommend empathy, but only novels provide constant practice in it. When you read a great novel, you identify with characters, inhabit their thought processes from within, and so learn experientially what it is to be someone else—a person of a different culture, class, gender, or personality. In a great novel you inhabit many points of view, and experience how each appears to the others. In this way, great novels are a source of wisdom. They appreciate people as being inherently cultural while embracing ethics in all its irreducible complexity.

That doesn’t sound like the way English courses are currently taught or accord with the currently predominant premises of literary theory.
Quite so. We are stressing a particular version of the humanities, what we think of as “the best of the humanities.” In a variety of ways, the humanities have been false to their core mission, which may be why so many students are fleeing them. In addition to the dominant trends of literary theory, we have witnessed a series of “spoof” disciplines, which purport to be humanistic but are actually something else. Sociobiological criticism, digital humanities, and other such trends proceed as if literature were too old fashioned to matter, and one has to somehow restore its importance by linking it—how doesn’t matter much—to whatever is fashionable. They all too often dehumanize the humanities, reducing their value not just to economics but to other fields as well. We celebrate, and recommend economists consider, the humanities at their best.

Are there any particular subjects within economics where engagement with the “best” of the humanities would be especially worthwhile?
There is a wide range of areas covered in the book—from economic development, to the economics of higher education, to the economics of the family—for which we believe a genuine dialogue between the humanities and economics is useful. We offer case studies in each of these areas, with some unanticipated results. We don’t pretend to conclude that dialogue in our book; we instead seek to get it started in a serious way.

Where do you see the dialogue of the two cultures leading?
The point of a real dialogue is that it is open-ended, that you don’t know where it will lead. It is surprising, and that is what makes it both stimulating and creative.

Gary Saul Morson is the Lawrence B. Dumas Professor of the Arts and Humanities and professor of Slavic languages and literatures at Northwestern University. His many books include Narrative and Freedom, “Anna Karenina” in Our Time, and The Words of Others: From Quotations to Culture. Morton Schapiro is the president of Northwestern University and a professor of economics. His many books include The Student Aid Game. Morson and Schapiro are also the editors of The Fabulous Future?: America and the World in 2040.

Rachel Schneider & Jonathan Morduch: Why do people make the financial decisions they make?

Deep within the American Dream lies the belief that hard work and steady saving will ensure a comfortable retirement and a Financialbetter life for one’s children. But in a nation experiencing unprecedented prosperity, even for many families who seem to be doing everything right, this ideal is still out of reach. In The Financial Diaries, Jonathan Morduch and Rachel Schneider draw on the groundbreaking U.S. Financial Diaries, which follow the lives of 235 low- and middle-income families as they navigate through a year. Through the Diaries, Morduch and Schneider challenge popular assumptions about how Americans earn, spend, borrow, and save—and they identify the true causes of distress and inequality for many working Americans. Combining hard facts with personal stories, The Financial Diaries presents an unparalleled inside look at the economic stresses of today’s families and offers powerful, fresh ideas for solving them. The authors talk about the book, what was surprising as they conducted their study, and how their findings affect the conversation on inequality in a new Q&A:

Why did you write this book?
We have both spent our careers thinking about households and consumer finance, and our field has reams and reams of descriptive data about what people do—savings rates, the number of overdrafts, the size of their tax refunds. We have lots of financial information but very little of the existing data helped us understand why—why people make the financial decisions they make, and why they get tripped up. So we decided to spend time with a group of families, get to know them very well, and track every dollar they earned, spent, borrowed, and shared over the course of one year. By collecting new and different kinds of information, we were able to understand a lot of the why, and gained a new view of what’s going on in America.

What did you learn about the financial lives of low- and moderate-income families in your year-long study?
We saw that the financial lives of a surprising number of families looks very different from the standard story that most people expect. The first and most prominent thing we saw is how unsteady, how volatile households’ income and expenses were for many. The average family in our study had more than five months a year when income was 25% above or below their average.

That volatility made it hard to budget and save—and it meant that plans were often derailed. How people were doing had less to do with the income they expected to earn in total during the year and more to do with when that income hit paychecks and how predictable that was. Spending emergencies added a layer of complexity. In other words, week-to-week and month-to-month cash flow problems dominated many families’ financial lives. Their main challenges weren’t resisting temptation to overspend in the present, or planning appropriately for the long term but how to make sure they would have enough cash for the needs they knew were coming soon.

The resulting anxiety, frustration, and a sense of financial insecurity affected families that were technically classified as middle class.

How does this tie into the economic anxiety that fueled Trump’s election?
The families we talked to revealed deep anxieties that are part of a broader backdrop for understanding America today. That anxiety is part of what fueled Trump, but it also fueled Bernie Sanders and, to an extent, Hillary Clinton. A broad set of the population feels rightly that the system just isn’t working for them.

For example, we met Becky and Jeremy, a couple with two kids who live in small town Ohio where Trump did well. Jeremy is a mechanic who fixes trucks on commission. Even though he works full-time, the size of his paychecks vary wildly depending on how many trucks come in each day. This volatility in their household income means that while they’re part of the middle class when you look at their annual income, they dipped below the poverty line six months out of the year.

One day we met with Becky, who was deciding whether or not to make their monthly mortgage payment a couple of weeks early. She had enough money on hand, but she was wavering between paying it now so she could rest easy knowing it was taken care of, or holding onto the money because she didn’t know what was going to happen in the next couple weeks, and was afraid she might need the money for something else even more urgent. She was making decisions like this almost every day, which created not only anxiety but a sense of frustration about always feeling on the edge.

Ultimately, Jeremy decided to switch to a lower-paying job with a bigger commute doing the exact same work – but now he’s paid on salary. They opted for stability over mobility. Becky and Jeremy helped us see how the economic anxiety people feel is not only about having enough money, but about the structure of their economic lives and the risk, volatility, and insecurity that have become commonplace in our economy.

One of the most interesting insights from your book is that while these families are struggling, they’re also working really hard and coming up with creative ways to cope. Can you share an example?
Janice, a casino worker in Mississippi, told us about a system she created with multiple bank accounts. She has one bank account close to her she uses for bill paying. But she also has a credit union account where she has part of her paycheck automatically deposited. This bank is an hour away, has inconvenient hours, and when they sent her an ATM card, she cut it in half. She designed a level of inconvenience for that account on purpose, in order to make it harder to spend that money. She told us she will drive the hour to that faraway bank when she has a “really, really need”—an emergency or cost that is big enough that she’ll overcome the barriers she put up on purpose. One month, she went down there because her grandson needed school supplies, which was a “really, really need” for her. The rest of the time, it’s too far away to touch. And that’s exactly how she designed it.

We found so many other examples like this one, where people are trying to create the right mix of structure and flexibility in their financial lives. There’s a tension between the structure that helps you resist temptation and save, and the flexibility you need when life conspires against you. But we don’t have financial products, services, and ideas that are designed around this need and the actual challenges that families are facing. This is why Janice has all these different banks she uses for different purposes—to get that mix of structure and flexibility that traditional financial services do not provide.

How does this tie into the conversation we’ve been having about inequality over the last decade or so?
Income and wealth inequality are real. But those two inequalities of income and assets are hiding this other really important inequality, which is about stability. What we learned in talking to families is that they’re not thinking about income and wealth inequality on a day-to-day basis—they’re worrying about whether they have enough money today, tomorrow, and next week. The problem is akin to what happens in businesses. They might be profitable on their income statement, but they ran out of cash and couldn’t make payroll next week.

This same scenario is happening with the families we met. We saw situations where someone has enough income or is saving over time, but nonetheless, they can’t make ends meet right now. That instability is the hidden inequality that’s missing from our conversation about wealth and income inequality.

How much of this comes down to personal responsibility? Experts like Suze Orman and Dave Ramsey argue you can live on a shoestring if you’re just disciplined. Doesn’t that apply to these families?
The cornerstone of traditional personal finance advice from people like Orman and Ramsey is budgeting and discipline. But you can’t really do that without predictability and control.

We met one woman who is extremely disciplined about her budget, but the volatility of her income kept tripping her up. She is a tax preparer, which means she earns half her income in the first three months of the year. She has a spreadsheet where she runs all her expenses, down to every taxi she thinks she might need to take. She budgets really explicitly and when she spends a little more on food one week, she goes back and looks at her budget, and changes it for the next few weeks to compensate. Her system requires extreme focus and discipline, but it’s still not enough to make her feel financially secure. Traditional personal finance advice just isn’t workable for most families because it doesn’t start with the actual problems that families face.

What can the financial services industry do to better serve low- and moderate-income families?
The financial services industry has a big job in figuring out how to deal with cash flow volatility at the household level, because most of the products they have generated are based on an underlying belief that households have a regular and predictable income. So their challenge is to develop new products and services—and improve existing ones—that are designed to help people manage their ongoing cash flow needs and get the right money at the right time.

There are a few examples of innovative products that are trying to help households meet the challenges of volatility and instability. Even is a new company that helps people smooth out their income by helping them automatically save spikes, or get a short-term “boost” to cover dips. Digit analyzes earning and spending patterns to find times when someone has a little extra on hand and put it aside, again automatically. Propel is looking to make it much easier and faster for people to get access to food stamps when they need them. There are a number of organizations trying to bring savings groups or lending circles, a way of saving and borrowing with friends and family common everywhere in the developing world, to more people in the United States.

There is lots of scope for innovation to meet the needs of households—the biggest challenge is seeing what those needs are, and how different they are from the standard way of thinking about financial lives and problems.

Jonathan Morduch is professor of public policy and economics at the New York University Wagner Graduate School of Public Service. He is the coauthor of Portfolios of the Poor (Princeton) and other books. Rachel Schneider is senior vice president at the Center for Financial Services Innovation, an organization dedicated to improving the financial health of Americans.

The Financial Diaries

FinancialThe Financial Diaries by Jonathan Morduch and Rachel Schneider details the results of a groundbreaking study they conducted of 235 low- and middle-income families over the course of one year. What they found is that the conventional life-cycle method of approaching finances, wherein a family saves steadily to prepare for eventual retirement, is unrealistic for many. This book combines hard facts with the personal stories of people struggling to make ends meet, even in a time when America is experiencing unprecedented prosperity. You’ll meet a street vendor, a tax preparer, and many more as Schneider and Morduch challenge popular assumptions about how Americans earn, spend, borrow, and save. Read on to learn more about the everyday challenges of a casino dealer from central Mississippi.

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Janice Evans has worked at the Pearl River Resort— a family-friendly destination on the Choctaw reservation in central Mississippi with water slides, a spa, two golf courses, a steakhouse, and a casino—for close to twenty years, since she was in her mid-thirties. She works the night shift, starting at 8am and finishing up at 4am. As a single, African American mother with a high school degree, she makes $8.35 per hour, but in a good week she can double that in tips. Customers can put chips in her “toke box,” and at the end of each shift they are collected and counted; the equivalent amount in dollars is then added to Janice’s next paycheck. She does well during the summer months, but fall is much slower. Her income also rises and falls based on where the local college football team is playing that year—when they play near Pearl River people often come to the casino after a game, and when they don’t the casino does not get that business. Over the course of the year Janice makes just over $26,000, or an average of about $2,200 a month. However, due to the fluctuating income from tips, her actual take home pay each month can vary from around $1,800 to approximately $2,400. That represents a 30% deviation between paychecks. Just before the study began, Janice’s son Marcus was laid off from his maintenance job when his employer lost a contract; as a result, he and his three-year-old daughter moved in with Janice. Since he no longer had an income, he qualified for food stamps, an average of $125/month, but this income was unsteady as well: at one point the local social services agency mistook Janice’s income for Marcus’s and canceled his food stamps. It took two months to get them back. And while he also qualified for unemployment benefits, several months passed before the first check arrived. Altogether, the benefits boosted the household’s net income to $33,000, but with the increased funds came increased inconsistency. Whereas before Janice’s income swung 30%, it now swung 70% from high to low months. Given the nature of Janice’s work in a seasonal, low-skill, tipped job and the unreliability of Marcus’s benefits, you might assume that her family’s income would be among the most erratic of the 235 households studied in the U.S. Financial Diaries. In fact, it’s not—the degree of inconsistency in Janice’s household was on par with most families that the authors got to know throughout the course of their study. Morduch and Schneider’s study of families who struggle with income volatility revealed new insights into how Americans make money, borrow, spend, and save.

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To learn more, pick up a copy of The Financial Diaries by Jonathan Morduch and Rachel Schneider.