Robert Frank on Under the Influence

Robert Frank on Under the Influence

By Robert H. Frank

Psychologists have long understood that social environments profoundly shape our behavior, sometimes for the better, often for the worse. But social influence is a two-way street—our environments are themselves products of our behavior. Under the Influence explains how to unlock the latent power of social context. It reveals how our environments encourage smoking, bullying, tax cheating, sexual predation, problem drinking, and wasteful energy use. We are building bigger houses, driving heavier cars, and engaging in a host of other activities that threaten the planet—mainly because that’s what friends and neighbors do.

According to your book, psychologists have long known that we influence one another much more strongly than most people realize. But you also note that governments have virtually ignored the policy implications of that insight. What are those implications and why have we ignored them?

RF: What’s less widely noted by psychologists is that social influence is a two-way street: our environments are themselves a collective consequence of our own choices. But because the environmental impact of each individual choice is so small, we tend to ignore that second causal pathway. The upshot has been failure to seize a host of valuable opportunities.

Most parents, for example, hope their children won’t grow up to become smokers, bullies, tax cheats, sexual predators, or problem drinkers—hopes that are far more likely to be realized in social environments in which these behaviors are uncommon. It therefore behooves us to ask whether practical policy interventions exist that could foster such environments. Curiously, however, this question has received almost no attention from policy analysts.

When regulators have embraced policies whose effect was to foster more benign social environments, they have almost always offered other rationales for doing so. For example, we defend high cigarette taxes and tough smoking prohibitions as needed to protect innocent bystanders from harm caused by secondhand smoke, while failing to acknowledge that the far greater harm caused when someone becomes a smoker is to make others more likely to smoke.

This asymmetry may stem in part from the belief that individuals should accept responsibility for their own behavior, that they should decide for themselves which peer behaviors to mimic and which to avoid. But we needn’t abandon that laudable belief to acknowledge that by far the most powerful rationale for many of the regulations we have adopted has been to create more benign social environments. The largest benefit of smoking regulation, for example, has been to create a social environment in which people are less likely to take up smoking in the first place. Because social influence is so pervasive, unexploited opportunities to reap similar gains in other domains are there for the taking.

What are some of the most costly ways we influence each other?

RF: Social environments shape individual behavior in two specific ways that have been more costly than all others. They have encouraged wasteful overall consumer spending patterns and have spawned energy use patterns that have greatly exacerbated the climate crisis.

Re the first point, growing income inequality has changed the contexts that shape spending decisions in ways that have made it more expensive for middle-income families to achieve basic goals. Top earners have been building bigger houses simply because they have so much more money. Those houses shift the frame of reference that defines what the near-wealthy consider necessary or desirable, so they, too, build bigger, and so on, all the way down the income ladder. Without invoking this process, which I call expenditure cascades, there’s no way to explain why the median new house in the U.S. is now 50 percent larger than in 1980. Because better schools are almost always in more expensive neighborhoods, median earners cannot send their children to schools of even average quality unless they purchase the median-priced house in their area. Expenditure cascades have also pushed the inflation-adjusted cost of a U.S. wedding to more than $36,000, up from $11,000 in 1980. And here, too, the effect has been merely to raise the bar that defines adequate. Similar mutually offsetting consumption escalation has spawned more than $2 trillion of avoidable waste annually in the US alone. No matter how intensively families bid for houses in better school districts, half of all children will attend bottom-half schools.

Social influence has also exacerbated the climate crisis. Seventeen of the hottest years ever recorded have occurred during the last 18 years. Storms, floods, droughts, and wildfires are happening with unprecedented intensity and frequency. Climate scientists agree that these changes are in large part a result of our increased emissions of heat-trapping gases.

Behavioral contagion has greatly increased these emissions. We buy heavier cars because others do so, which makes driving a relatively light car more dangerous. Yet when all buy heavier cars, everyone’s risk of injury and death goes up, not down. Understanding how contagion amplifies such spending patterns helps identify simple policies that would redirect trillions of dollars annually in support of carbon-free energy sources, all without demanding painful sacrifices from anyone. The best policies for reducing economic inequality would also generate the revenue necessary to refurbish our crumbling infrastructure and pay for the massive investments needed to create a carbon-free economy.

American supporters of the Green New Deal have proposed an expansive legislative agenda that attacks climate change and economic inequality simultaneously. Their critics, including many from the left, object that tackling both problems at once will simply make failure in both domains more likely. But a deeper understanding of the power of behavioral contagion suggests that this critique is misguided. The best policies for attacking inequality and for promoting a carbon-free economy, it turns out, are deeply synergistic.

You claim that a better understanding of behavioral contagion helps identify simple policies that could redirect money toward carbon-free energy sources without demanding painful sacrifices from anyone. So why haven’t we elected for politicians who would enact these policies?

RF: My claim is that most prosperous voters resist higher taxes because they suffer from what I call the mother of all cognitive illusions. I use this phrase to describe the belief that higher top tax rates would require painful sacrifices by top earners. Although that belief sounds reasonable, it is demonstrably false. As the wealthy themselves would be quick to concede, they already have far more than anyone might reasonably be said to need. But what many seem not to understand is that higher taxes would also not compromise their ability to buy the special extras they want. Because those extras are invariably in short supply, getting them requires outbidding others who also want them. What the rich have failed to recognize is that their ability to do that depends only on their relative disposable income, which is completely unaffected by higher taxes.

The normal cognitive strategy for thinking about how higher taxes would affect you would be to recall how you felt in the wake of past tax hikes. But that strategy doesn’t work in the current environment because, with trivial exceptions, top tax rates have been falling steadily since WW II. Since higher taxes mean lower disposable incomes, plan B for predicting the effect of higher taxes is to remember how you felt in the wake of earlier declines in disposable income. But unlike the effect of higher taxes, almost every income decline that people have actually experienced was one in which their own income fell while the incomes of peers remained unchanged—as happens, for example, when someone experiences a business reverse, home fire, health crisis, or a divorce. In the wake of such events, it really is harder to bid successfully for what you want. But things are totally different when the rich all pay higher taxes. The same full-floor apartments with commanding 360° views end up in the same hands as before.

Because the public investment shortfalls caused by the error just described have resulted in losses on such a grand scale, it seems hardly an overstatement to call it the mother of all cognitive illusions. The good news is that because the logic that underlies this illusion is so simple, any normal middle-schooler can easily grasp it. And once it becomes more widely understood, it will inevitably become easier to raise the revenue necessary to rebuild our crumbling infrastructure and transform our energy sector.

You say in your book that public investment is essentially free. Can you elaborate?

RF: My claim that societies can enjoy the fruits of additional public investment without having to demand painful sacrifices from anyone is likely to strike many as wildly implausible. Yet it follows logically from a simple premise that no serious behavioral scientist would question—that beyond some point (one that has long since been passed in the West), across-the-board increases in most forms of private consumption do little more than raise the bar that defines what people consider adequate. This premise is perhaps the least controversial finding from many decades of careful research on the determinants of human well-being.

The plausibility of my claim can be tested with the following simple thought experiment. Imagine two independent worlds, in one of which the wealthy are taxed more heavily than in the other. In the high-tax world, the wealthiest drivers buy Porsche 911 Turbos for $150,000 rather than $333,000 Ferrari F12 Berlinettas, the vehicle of choice of wealthy drivers in the low-tax world. But because the lowly Porsche includes every design feature that materially affects handling and performance, the absolute differences between these cars are minuscule. In both cases, drivers would take the same pride in owning the best car in their respective local environments. Available evidence suggests that even if all other features of the two worlds were exactly the same, it would be difficult to detect any happiness differences between wealthy drivers in these environments.

But of course other features would not be the same. Even if governments in both worlds were highly wasteful, for example, at least some of the extra revenue in the high-tax world would go for road maintenance. So the real question is this: Who is happier, someone who drives a Ferrari on roads riddled with foot-deep potholes, or someone who drives a Porsche on well-maintained roads? Few drivers would find this a difficult question to answer.

cars

How can behavioral contagion be harnessed for positive change?

RF: Conventional economic theory says that people buy vehicles that are too heavy because they don’t take into account the costs that such vehicles impose on other drivers and pedestrians. Similarly, conventional accounts hold that marrying couples ask their friends to attend destination weddings because they don’t take into account the greenhouse gases resulting from air travel to distant locations. But this reasoning explains only a small proportion of the observed variation in spending behavior. Far more is explained by the observation that we do such things because that’s what the people around us do. 

One implication is that policy remedies suggested by conventional economic theory—such as carbon taxes as an incentive to limit greenhouse gas emissions—are vastly more powerful than generally believed. The direct effect of a tax on an activity, for example, is to reduce the incentive to engage in that activity, but that’s just the first step in an extended process. Thus, as a carbon tax induces some to reduce activities that result in greenhouse gas emissions, the social environment shifts, causing others to reduce their emissions still further, causing still further reductions, and so on. Cumulatively, these indirect effects are often many times larger than the direct effects.

Taxing an activity that contributes to a harmful social environment also shows greater respect for individual freedom than an outright prohibition. Those for whom the activity relatively unimportant will curtail it substantially, rather than pay the tax. But taxation allows those for whom curtailing the activity would be most difficult to pay the tax and continue to engage in it.

An additional advantage of taxation is that every additional dollar raised from a tax on a harmful activity enables a one-dollar reduction in taxes on useful activities, such as the payroll tax, which discourages firms from hiring additional workers.

Robert H. Frank is the H. J. Louis Professor of Management and Professor of Economics at Cornell University’s Johnson Graduate School of Management. He has been an Economic View columnist for the New York Times for more than a decade. His many books include The Winner-Take-All SocietyThe Economic Naturalist, and Success and Luck (Princeton). He lives in Ithaca, New York. Twitter @econnaturalist