Procrastination, Obedince, and Public Policy: The Irrelevance of Salience

I Introduction The idea that individuals fail to evaluate accurately the real value of future prospects has a long history.(1) Many scholars have felt that individuals systematically fail to evaluate correctly the present value of future prospects. Recently, this venerable idea has received a refurbishing from a distinguished modern economist, George Akerlof. He argues that economists should pay greater attention to a central principle of modern cognitive psychology, "saliency." This term refers to the purported tendency of individuals to place greater cognitive weight on events which strike them as especially "vivid." But a more "salient" event may not necessarily be more important or significant in the individual's longer view; it is merely more striking, or memorable for reasons essentially unrelated to its "true" significance. We contend that the basic thesis offered by Akerlof is unsound, and the many public policy recommendations he proffers cannot be justified on its basis. Our purpose in the present paper is to examine critically the proposed role of "saliency" in economic affairs. We will argue that this bold attempt to reconstruct modern economics is in reality a disappointing fizzle. The paper is divided into eight sections. Section II outlines the thesis of Akerlof's article and explains his position on the issue of "salience" in human affairs. Section III discusses some general, basic criticisms of Akerlof's idea. Section IV examines a major Akerlof application, his analysis of drug addiction. Section v considers Akerlof on another important application, obedience to authority. Section VI discusses Akerlof's extension of his salience principle to the problem of cults. Section VII addresses the implications of his argument for public policy generally. Finally, Section VIII concludes our argument. II Akerlof on Salience and Procrastination The Akerlof thesis is bold, yet simple in form. It holds that in certain situations involving a long series of small incremental repeated decisions, people are likely, all too often, to place undue emphasis on the importance of present events, and to discount future ones too heavily. "Present benefits and costs may have undue salience relative to future costs and benefits" (Akerlof 1991, 1). Given this "dynamic inconsistency" (4), people will not maximize their" 'true' utility" (2). He argues that this discrepancy between perception and reality may help to explain several seemingly difficult phenomena common in everyday life. For example, "procrastination" may occur when present costs are "unduly salient" in comparison with future costs, "leading individuals to postpone tasks until tomorrow without foreseeing that when tomorrow comes, the required action will be delayed yet again" (1). Similarly, "irrational obedience to authority" may occur when the salience of an action today depends upon its deviation from previous actions. Akerlof believes that his theory of saliency has practical and important implications for public policy. Sometimes people just don't know what is good for them, in their own terms as defined by their personal utility functions: Individuals whose behavior reveals the various pathologies I shall model are not maximizing their 'true' utility. The principles of revealed preference cannot therefore be used to assert that the options that are chosen must be preferred to the options that are not chosen. Individuals may be made better off if their options are limited and their choices constrained (2). He often several examples of such "utility enhancing" coercions. Forced pension plans may be superior to voluntary pension schemes; prohibitions on alcohol and drug use may make potential users better off than merely taxing intoxicants; and a key role of management may really involve the (arbitrary) setting of schedules and deadlines, which presumably help their employees to discover their "true" productivity. …