Robert H. Frank: The Mother of All Cognitive Illusions


Monday, October 21, 2019, 12:00pm to 1:30pm


Taubman G-50

Robert H. FrankHenrietta Johnson Louis Professor of Management and Professor of Economics, Cornell University.

Robert H. FrankThis seminar draws from Robert H. Frank's forthcoming book, Under the Influence: Putting Peer Pressure to Work (Princeton University Press, January 2020).

As psychologists have long understood, social environments profoundly shape our behavior, sometimes for the better, but often for the worse. Less widely noted is that social influence is a two-way street: our environments are in large part themselves a product of our own choices. But although that second pathway has important implications for public policy, it has received virtually no serious attention.

Under the Influence, by Robert H. FrankFor example, we have long embraced regulations that limit physical harm to others, as when smoking restrictions are defended as protecting bystanders from secondhand smoke. But we have been slower to endorse parallel steps that discourage harmful social environments, as when regulators fail to note that the far greater harm caused when someone becomes a smoker is to make others more likely to smoke.

One of the most costly ways we influence one another is by reinforcing individual spending decisions that are not only highly wasteful, but also cause serious environmental damage. A simple example: although heavier cars emit higher volumes of CO2, we buy them because driving a relatively light car is more dangerous; yet when all buy heavier cars, everyone’s risk of injury and death goes up, not down. Understanding how behavioral contagion amplifies such spending patterns helps identify simple policies that would redirect trillions of dollars annually in support of carbon-free energy sources, infrastructure refurbishment, and a strengthening of the social safety net, all without demanding painful sacrifices from anyone.

This claim, which may strike many as a preposterous, follows logically from premises that no serious behavioral scientist would challenge. But it also raises an obvious question: why don’t we vote for politicians who would enact these policies?

One possibility is that prosperous voters suffer from what may be called the mother of all cognitive illusions—the demonstrably false belief that higher top tax rates would require painful sacrifices of them. Although few wealthy people alive today have ever experienced a significant increase in tax rates, they know that higher taxes would reduce their disposable incomes in absolute terms. And almost every income decline they have actually experienced was one in which their own income fell while the incomes of peers remained unchanged—as happens, for example, in the wake of business reverses, home fires, health crises, or divorces. Such events really do make it harder to bid successfully for life’s special extras. But because those things are invariably in short supply, getting them requires outbidding income peers who also want them. What prosperous voters fail to recognize is that higher top tax rates have no effect on relative bidding power. So when rates rise, the same full-floor apartments with commanding 360° views end up in the same hands as before.

About the speaker

Robert H. Frank is the Henrietta Johnson Louis Professor of Management and Professor of Economics at Cornell's Johnson Graduate School of Management and a Distinguished Senior Fellow at Demos. For more than a decade, his "Economic View" column appeared monthly in The New York Times.

He received his BS in mathematics from Georgia Tech, and then taught math and science for two years as a Peace Corps Volunteer in rural Nepal. He holds an MA in statistics and a PhD in economics, both from the University of California at Berkeley. His papers have appeared in the American Economic Review, Econometrica, Journal of Political Economy, and other leading professional journals. 

His books have been translated into 23 languages, including Choosing the Right Pond, Passions Within Reason, Microeconomics and Behavior, Principles of Economics (with Ben Bernanke), Luxury Fever, What Price the Moral High Ground?, Falling Behind, The Economic Naturalist, The Darwin Economy, and Success and Luck. The Winner-Take-All Society, co-authored with Philip Cook, received a Critic's Choice Award, was named a Notable Book of the Year by The New York Times, and was included in Business Week's list of the ten best books of 1995.

Frank is a co-recipient of the 2004 Leontief Prize for Advancing the Frontiers of Economic Thought. He was awarded the Johnson School's Stephen Russell Distinguished teaching award in 2004, 2010, and 2012, and its Apple Distinguished Teaching Award in 2005.



See also: Fall 2019