The Economy Inside Your Head : The Indicator from Planet Money Economics looks at how we make decisions in a world of scarce resources. What happens when the scarce resource is our attention?
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The Economy Inside Your Head

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The Economy Inside Your Head

The Economy Inside Your Head

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LEIGH CALDWELL: I looked up an indicator for you...

CARDIFF GARCIA, HOST:

OK.

CALDWELL: ...On the way here, which is...

GARCIA: Always appreciate it when our guests come up with an indicator for us.

CALDWELL: ...That American adults are now spending 11 hours a day consuming media. And media is the ultimate immaterial good. It's something that really plays within your head. You might - it's triggered by something outside, but really, all of the benefit that you get, all the enjoyment you get is inside your own mind.

GARCIA: That was economist Leigh Caldwell. Leigh's been working on developing a branch of economics known as cognitive economics, which he defines as the economics of what happens inside your head.

So for example, think of all the different stimuli that might be competing for your attention in a given moment. Like, let's say you're at home, and the television is on. But also, your kid is asking for help doing homework. But also, you had a plan to get some work done in your quiet den. Or maybe you're feeling sluggish and you want to exercise.

Well, how does your brain end up choosing which of these stimuli will end up getting your attention, your concentration, your mental energy? Leigh wants to develop models to answer questions like this using research not just from economics, but from psychology and neuroscience and other disciplines, and then to better understand how the decision-making process inside our brains has consequences in the real world outside our brains.

I'm Cardiff Garcia, and today on THE INDICATOR from Planet Money, my conversation with Leigh Caldwell about cognitive economics.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: I'm trying to sort of connect cognitive economics to a more traditional definition of economics, which is the study of how people make choices in a world - usually, that means the physical world - of scarce resources.

CALDWELL: Yes.

GARCIA: And it seems like within cognitive economics, a lot of this has to do with attention, which is a really scarce thing.

CALDWELL: Exactly. There are a couple of other resources, like energy and concentration and focus, but attention is really the key thing here. And we, instead of - say in a traditional economic environment you've got a certain amount of money, and you want to optimize it by buying the best combination of products. You have a certain amount of time and attention in your mind, and you want to optimize that by spending it on the things that are most enjoyable to you - the things that give you the most reward.

GARCIA: But, like, isn't part of behavioral economics explaining how, so often, I fall into a trap of not optimizing for those things, right? In other words, that, you know, I'll be led to distraction, or I will run out of energy, or I'll just be, you know, kind of lazy for a little while and watching TV. And so those other things won't be optimizing for anything that I really prize. I have just been led there, either by circumstances, sometimes deliberately, or by, like, the flaws in my own head. You know what I mean?

Like, when we talk about optimization, what do we really mean there?

CALDWELL: So optimization happens at a given moment. The - you don't really - you can't really optimize across your whole life, or even across a whole day, and say, I'm going to plan out every moment of the day to give myself the maximum return. What you do is you optimize right now.

So right now, there may be something on your screen. There may be something in your pocket, may be something in your mind that you can think about. And those small number of alternative stimuli will - one of them will pull your attention more than the others. And so you're doing a very short-term, local optimization.

And if you're lucky, and if you set up your life in the right way, or if you train yourself in the right way, then the things that draw your attention moment-to-moment will be consistent with the things that you would want to spend your time on long-term. But sometimes they're not.

GARCIA: So that seems like another analogy we can draw to, like, the economy in the physical world, which is when we talk about competition, we usually talk about companies competing with each other or entrepreneurs competing with each other to come up with a product.

In our minds, it's different stimuli competing for those scarce resources of attention and energy and concentration. And all that's going on in our heads. We don't - aren't conscious of it, but it ends up directing a lot of where those resources end up going.

CALDWELL: Yeah, yeah. And I think that where the research in cognitive economics may go is in the same way as in the physical economy. We have developed an understanding of when that competition between companies or competition between people has positive effects for the whole economy. And I think we will develop these kind of theories in cognitive economics, as well, to understand what are the conditions we should set for ourselves to make sure that the moment-by-moment competition of stimulus ends up making us happy in the long run.

GARCIA: Sure. There's another concept that I keep thinking about, which is delayed gratification. That seems like that would play some kind of a prominent role in understanding cognitive economics and sort of how we manage short-term versus long-term goals if, by definition, in a given moment, we're focused on a short-term goal.

So how do we align the short term and the long term when the long-term goal doesn't have appealing short-term stimuli? You know what I mean?

CALDWELL: Yeah. Great question because this was actually part of my inspiration for getting into cognitive economics or getting into the psychology behind it was understanding exactly that tradeoff. How are we capable of acting on behalf of our future self when our future self, well, doesn't exist yet? How can the future self control me and tell me, put away some money for my retirement, or, don't eat that doughnut because you'll regret it later?

And the mechanism through which that happens is, essentially, something called mental simulation. So I am able to simulate in my mind now what my future self might feel like. And by doing that, I can gain an image, or I can gain a version of the reward that my future self will experience. So if my future self will be happy, then I will be happy now by being able to imagine the future self.

And this actually maps across to empathy with other people, as well. So if I imagine how you're feeling or I imagine how my family member is feeling and they're happy, then I will be happy, too. So we have a way through this - through mental simulation of both delaying our own gratification but also cooperating with other people in society.

GARCIA: OK. Now that we have some understanding of what cognitive economics is and what it tries to do, what do you think are some of the potential applications to our lives? In other words, what do we - what are you investigating within the realm of cognitive economics that you think could have an impact? Like, what are some examples?

CALDWELL: So like a lot of economics, you have applications that are for the individual and applications that are for companies and businesses. Companies and businesses can use this research for - to form their advertising. If you are one of those companies that wants to influence someone's preferences and influence how they want to spend their time, then designing your marketing, designing the user interface for your products to maximize how you capture people's attention is going to be an important application.

Conversely, as an individual, you might want to fight against that. So by understanding how your attention is shaped and understanding how you can train yourself to focus your attention onto the areas that are most valuable to you and not most valuable to Facebook or HBO, then you may end up better off on your own terms. So there's developing tools for individuals, developing marketing strategies for businesses.

And then even at the public policy and the governmental level, there's been lots of talk in the last decade or so about things like Gross National Happiness, the idea that governments might not just want to optimize the GDP levels in the economy but might actually want to - and legitimately trying to help people to be happier - their populations to be - to have greater well-being. And so I think that will be an important area in the future.

There are valid political questions about, you know, do we want our governments getting involved in those questions? But fundamentally, governments do try to make us happy. They just usually try and do it through economic growth and other kind of material policy levers. So it's inevitable that they're going to try to do it through psychological levers, too.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: This episode of THE INDICATOR was produced by Darius Rafieyan and edited by Paddy Hirsch. Our intern is Willa Rubin. And THE INDICATOR is a production of NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

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