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Prof
wins for work to model irrational behavior
14
Jun 2000
by
Diane Ainsworth, Public Affairs
His office
on the fifth floor of Evans Hall is littered with red, green,
purple and yellow Nerf balls, glittering magic wands, Slinkys,
Koosh balls and other toys. His computer belches and growls
randomly while the scrolling wallpaper reminds the bearded prof
that he should "get a life."
Seven-foot-tall
bookcases are stuffed with Calvin and Hobbes cartoon books and
a collection of Gary Larson's Far Side comic strips. Photos
of existentialist author Franz Kafka hang on the outside of
his office door. A strip of black-and-white stills of the outrageous
film star Divine and rock singer Janice Joplin decorate the
sides of steel cabinets covering every nook and cranny of his
cramped quarters.
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About Matthew Rabin 
Alma Maters:
University of Wisconsin,
B.A., economics and math, 1984
Massachusetts Institute of Technology, Ph.D., economics,
1989
Mentors:
Economist George Akerlof,
Berkeley; Psychologist Danny Kahneman, Princeton University;
Economist Richard Thaler, University of Chicago.
Most Respected Colleagues:
Psychologist/economist
Colin Camerer, California Institute of Technology; Economist/psychologist
George Loewenstein, Carnegie Mellon University.
Residence:
San Francisco
Favorite Hangouts:
Morning Due Café,
S.F.; Jumpin' Java, S.F.
Where he does his thinking:
20 percent: in the office
60 percent: in cafes
10 percent: at home
10 percent: on BART
Hobbies:
Hiking, hyphenation
Favorite Music:
Meatloaf, The Beatles,
show tunes
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The last
line on his resume reads: "Favorite Bob Dylan song: My
Back Pages."
For all of
his amusing quirks, 36-year-old Matthew Rabin, Berkeley professor
of economics, has been dubbed a genius and recognized for his
outstanding contributions in the field of economic behavior.
The economist, one of 25 recipients of this year's John D. and
Catherine T. MacArthur Foundation Genius Awards, will receive
a $500,000 cash award over the next five years that he'll be
able to spend any way he pleases.
He has "no
idea" what he will do with the prize. "I tell everyone
I'm going to buy 15 SUVs," is his tongue-in-cheek answer.
When he found out about the award, with a surprise phone call
from the MacArthur Foundation, he said he "just went back
to work" and didn't give it another thought.
Rabin, an
easterner from Silver Spring, Md., has a special knack for converting
the latest research in psychology into mathematical formulas
to help economists sharpen their models of economic behavior.
Adding to that a healthy dose of common sense assumptions, Rabin
says his formulas are gradually gaining acceptance among economists
who want to model everything from credit card debt and addictive
behaviors to investment patterns, impulse shopping and preferences
in health care coverage.
"Economists
have historically assumed that people are 100 percent rational
in their choices," he says, "and it's not shocking
that they aren't. But you don't find the intuitive assumptions
in economic models, so I identify the things that are wrong
or missing in their models of economic activity."
Rabin uses
a simple example to illustrate one of the many consumer habits
that is left out of most economic profiles of buyer preferences:
people's strong desire for immediate gratification.
"If
you ask someone if they'd rather have $10 now or $15 a week
from now, a lot of the respondents would say they wanted $10
now. If you then ask them if they'd rather have $10 50 weeks
from now or $15 51 weeks from now, everyone will say they'd
rather have the $15 51 weeks from now," he says. "People
have self-control problems and they will cave in to immediate
gratification. But you don't find that psychological factor
in the economic models of our buying habits."
A preference
for immediate gratification leads people to under-indulge in
activities that involve immediate costs and delayed rewards
-- like putting off an unpleasant task -- but to over-indulge
in activities with immediate rewards and delayed costs, like
overeating, Rabin and regular co-author Ted O'Donoghue of Cornell
University, write in one of their many published papers. "Those
of us working in this area hope that 10 years from now the 100
percent rational exponential models in economics will be replaced
with an alternative approach, often called 'hyperbolic discounting,'
to account for that human variable."
His ground-breaking
work to refine computational models may help economists more
accurately predict how much people save, how much they eat or
overeat, what they consider fair play, and whether they finish
tasks punctually or drag their feet.
Yet after
years of building all of these mathematical constructs to reflect
the human foibles everyone exhibits in making choices, Rabin
confesses he's just as guilty as the next guy of caving in to
the same weaknesses.
"I'm
well-known for procrastinating, I have very little self-control,
and my research hasn't helped me overcome these tendencies,"
he jokes. "And my advice to young scholars entering this
field would be to read Calvin and Hobbes. They'll find a lot
of insight into the field."
Links:
Press
Release: UC Berkeley economist Matthew Rabin wins MacArthur
"genius" fellowship for work on human behavior
MacArthur
Foundation web site
Matthew
Rabin bio page
Matthew Rabin's home page
Institute
of Business and Economic Research conversation with Matthew
Rabin
Dept
of Economics Working Paper Publication site
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