Orwell and Behavioural Economics

Although my detector for gendered language and stereotypical gender roles burst into flames due to overload while reading Orwell’s classic “1984,” I finally finished the book this week (I have started Animal Farm now, which is far better already). One of the concepts in Orwell’s dystopia is “doublethink”. It means something like holding two contrary beliefs at the same time and genuinely believing in both of them. It seems contradictory, but this paradox is the essence of the word. Doublethink is believing in A=B and A=C and holding that they are both true, and being oblivious to the contradiction. Orwell explains this in the book over what feels like 30 pages, alternatively check out this link from the urban dictionary.

So, what does this have to do with economics? As I was reading about doublethink I was thinking about how this relates to Kahneman’s Two System Approach. Daniel Kahneman, who wrote the book “Thinking fast, and slow” (2012) and won the Nobel Prize in Economics in 2002, summarizes many years of psychological (and economic) research by describing two systems that operate in our mind (let it be noted that “Dual Process Theory” was a thing even before Kahneman). System 1 is our go-to person, we rely on it for our day to day decisions, it operates automatically, makes quick decisions, and in doing so heavily relies on heuristics (rules of thumb). When someone asks us how we’re doing, we don’t actually “think” before we answer, instead System 1 provides us with a quick reply. System 2, on the other hand, does the hard, analytic work. It’s active when we are trying to calculate 376*19 (2+2, on the other hand, would be a task for System 1) or when we reason about things.
This behavioral approach is comparatively new to economics - a discipline that hasn’t been updated since 1790 - but it can somewhat explain doublethink.

Standard economic theory thinks of humans as rational beings, we know that A=B and A=C can’t be true, it assumes we reason about all our decisions and come to the logical conclusion. Under this theory, something like doublethink could not exist, simply because it would be illogical to hold two contradictory beliefs. However, although maybe not as pronounced as in “1984”, some examples come to mind. My roommate explained to us why he wants us to transfer him the money into his bank account instead of giving him cash; because cash would feel like it’s already spent. Rational human being–wise this doesn’t make any sense, whether I give him the £7 in cash or make a Paypal transfer shouldn’t matter, because the amount of money is the same either way. On the other hand, I understand what he means, I’d much rather have my money in my bank account, the little cash I do hold I don’t really count when I whine about how little money I have (noting here that I am German, so I always carry a little cash with me, it’s a German thing). In this case, we doublethink; while being completely aware that 7=7 regardless whether it’s cash or a transfer, we feel like the cash somehow “doesn’t count” as much.

Admittedly, this is not as extreme as the examples in “1984”, but I am sure many of us can think about others (or maybe ourselves) holding contrary beliefs and not truly recognizing the paradox. If you can think of some, start a discussion in the comment section! 

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