Dear Analyst #121: Fabricating and skewing Excel survey data about honesty with behavioral economists Dan Ariely and Francesca Gino
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One of the more popular courses you could take at my college to fulfill the finance major requirements was Behavioral Finance. The main "textbook" was Inefficient Markets and we learned about how there are qualitative ways to value a security beyond what the efficient market hypothesis purports. During the financial crisis of 2008, psychology professor and behavioral economist Dan Ariely published Predictably Irrational to much fanfare. The gist of the book is that humans are less rational than what economic theory tells us. With the knowledge that humans are irrational (what a surprise) when it comes to investing and other aspects of life, the capitalist would try to find the edge in a situation to get a profit. That is, until, recent reports have surfaced showing that the results of Dan Ariely's experiments are fabricated (Ariely partially admits to it). This episode looks at how the data was potentially fabricated to skew the final results. Dan Ariely. Source: Wikipedia Background on the controversy surrounding Dan Ariely's fabricated data In short, Ariely's main experiment coming under fire is one he ran with an auto insurance company. The auto insurance company asks customers to provide odometer readings. Ariely claims that if you "nudge" the customer first by having them sign an "honesty declaration" at the top of the form saying they won't lie on the odometer reading, they will provide more accurate (higher) readings. I was a fan of Predictably Irrational. It was an easy read, and Ariely's storytelling in his TED talk from 15 years ago is compelling. I first heard that Ariely's experiments were coming under scrutiny from this Planet Money episode called Did two honesty researchers fabricate their data? The episode walks through how Ariely a thought leader and used his status to get paid behavioral economics consulting gigs and to give talks. Apparently the Israeli Ministry of Finance paid Ariely to look into ways to reduce traffic congestion. In the Planet Money episode, they talk about how other behavioral scientists like Professor Michael Sanders applied Ariely's findings to the Guatemalan government by encouraging businesses to accurately report taxes. Sanders was the one who originally questioned the efficacy of Ariely's findings. Here is part of the abstract from the paper Sanders wrote with his authors: The trial involves short messages and choices presented to taxpayers as part of a CAPTCHA pop-up window immediately before they file a tax return, with the aim of priming honest declarations. [...] Treatments include: honesty declaration; information about public goods; information about penalties for dishonesty, questions allowing a taxpayer to choose which public good they think tax money should be spent on; or questions allowing a taxpayer to state a view on the penalty for not declaring honestly. We find no impact of any of these treatments on the average amount of tax declared. We discuss potential causes for this null effect and implications for 'online nudges' around honesty priming. Professor Michael Sanders If you want to dive deeper into Dan Ariely's story, how he rose to fame, and the events surrounding this controversy,
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