The purpose of this lesson is for you to review key concepts from Lesson 5 (Rhetorical Analysis) in EM SC 240N. I strongly encourage you to at least browse through Lesson 5 [1] of EM SC 240N, though that is not required.

Learning Outcomes

By the end of this lesson, you should be able to:

• define rhetoric, ethos, pathos, and logos;
• analyze claims made in speech, writing, and imagery through the lens of the rhetorical triangle;
• define greenwashing;
• identify the greenwashing content of advertising claims;
• identify lies of commission, lies of omission, and character lies;
• define the term homo economicus; and
• analyze principles of Behavioral Economics.

Lesson Roadmap

Questions?

If you have any general course questions, please post them to our HAVE A QUESTION discussion forum located under the Discussions tab in Canvas. I will check that discussion forum regularly to respond as appropriate. While you are there, feel free to post your own responses and comments if you are able to help out a classmate. If you have a question but would like to remain anonymous to the other students, email me through Canvas.

If you have something related to the material that you'd like to share, feel free to post to the Coffee Shop forum, also under the Discussions tab in Canvas.

Please read the following sentences, and think about the message(s) each one is giving you. Imagine that you don't know anything about the person who is making the statements other than what you read. Treat each example separately.

1. I think solar panels are a wonderful technology, don't you?
2. I have been in the energy business for almost 40 years, including 30 in the oil and gas industry. But like you, I'm a cost-conscious homeowner with bills to pay. I've never seen technology as potentially game-changing as solar panels. Those things are going to change the world, and better yet, they will save you money.
3. Did you know that Tesla Energy will install and maintain solar panels on your roof for no extra cost? You don't have to lift a finger, and you will end up paying less for electricity than you do now. You can save money and get inexpensive, clean electricity. And all of it is guaranteed by contract! I had them install panels on my house, and couldn't be happier. They'll do the same for you.
4. You know, every time I see that old coal-fired power plant I think of all of the innocent children living nearby that are probably having asthma attacks because of the pollution. That's why I added solar panels to my roof.

Each of these statements exhibits an attempt to convince you that solar panels are a good idea, but each in a different way. Think about the language devices employed in each of the sentences. What part of your psyche does it attempt to address? Is it logic, emotion, or something else? Are they obvious attempts to gain your agreement, or do they seem reasonable?

Rhetoric

Each of these sentences uses a different rhetorical strategy. Rhetorical strategies are the subject of this lesson, specifically the rhetorical triangle. At the root of all of this is rhetoric, so let's start there. This is just a quick video introduction - no need to take any notes or anything like that.

Rhetoric/rhetorical arguments are designed to convince an audience of whatever the speaker is trying to say, or as Purdue OWL notes, it is "about using language in the most effective way." You most often hear this when referring to a politician, or at least someone acting politically or disingenuously, for example: "That speech was all rhetoric." When you hear or read this phrase, it is meant in a negative way and implies that the speaker was using language to trick the audience into believing the argument they were presenting. As noted in the video above, this negative connotation goes back centuries. But rhetoric has a few connotations, not all of them negative. It can refer to "the art of speaking or writing effectively," and "the study of writing or speaking as a means of communication or persuasion." These two definitions do not necessarily connote deceit. But it can also mean "insincere or grandiloquent language" (Credit: Merriam-Webster [4]).

So, contrary to popular belief, rhetorical arguments are not always "insincere." That said, in this course, we are most concerned about seeing through rhetoric (rhetoric in the negative sense, that is) to evaluate arguments. Please note that rhetorical strategies can also be deployed visually - for example in images, photos, and video - and audibly. Advertisers do this all the time.

Ethos, Pathos, and Logos

Rhetoric is used to persuade people, and there are three general strategies used to do this: ethos, pathos, and logos. Please watch the video as an introduction to these strategies. We will then go into more detail in each in the following lessons.

Figure 4.1: The rhetorical triangle. Nothing too deep, just a mnemonic with an appealingly retro vibe.

Credit: Laura Phelps [8], CC BY-SA 4.0

Two of the previous sources provide concise definitions of ethos:

• Purdue OWL defines ethos as "the ethical appeal...based on the character, credibility, or reliability of the writer" (Credit: Purdue Online Writing Lab [6]).
• Pathosethoslogos [5]notes that ethos is "ethical appeal, means to convince an audience of the author’s credibility or character. An author would use ethos to show to his audience that he is a credible source and is worth listening to."

Purdue provides the following examples of ways that you can establish ethos. I highlighted a few things that are most important to consider:

• Use only credible, reliable sources to build your argument and cite those sources properly.
• Respect the reader by stating the opposing position accurately.
• Establish common ground with your audience. Most of the time, this can be done by acknowledging values and beliefs shared by those on both sides of the argument.
• If appropriate for the assignment, disclose why you are interested in this topic or what personal experiences you have had with the topic.
• Organize your argument in a logical, easy to follow manner. You can use the Toulmin method of logic or a simple pattern such as chronological order, most general to the most detailed example, earliest to the most recent example, etc.
• Proofread the argument. Too many careless grammar mistakes cast doubt on your character as a writer.

Pathosethoslogos provides the following advice:

Ethos can be developed by choosing language that is appropriate for the audience and topic (also means choosing proper level of vocabulary), making yourself sound fair or unbiased, introducing your expertise or pedigree, and by using correct grammar and syntax."

There are many ways to establish ethos (credibility) with your audience. Some of the most common are listed above, but there are others. What it boils down to is that whether you are speaking, writing, or trying to communicate in any way, anything you do to try to convince your audience that you are a credible, reliable source of information, is ethos. Any time that someone is trying to establish credibility, they are using ethos.

Okay, now let's get back to our original examples. Which of these sentences relies the most on ethos, and why do you think so?

1. I think solar panels are a wonderful technology, don't you?
2. I have been in the energy business for almost 40 years, including 30 in the oil and gas industry. But like you, I'm a cost-conscious homeowner with bills to pay. I've never seen technology as potentially game-changing as solar panels. Those things are going to change the world, and better yet they will save you money.
3. Did you know that Tesla Energy will install and maintain solar panels on your roof for no extra cost? You don't have to lift a finger, and you will end up paying less for electricity than you do now. You can save money and get inexpensive, clean electricity. And all of it is guaranteed by contract! I had them install panels on my house, and couldn't be happier. They'll do the same for you.
4. You know, every time I see that old coal-fired power plant I think of all of the innocent children living nearby that are probably having asthma attacks because of the pollution. That's why I added solar panels to my roof.

If you said the second example, then give yourself a pat on the back. The language used in that narrative is a clear attempt to establish the author's credibility, in a few ways.

• First of all, saying that "I have been in the energy business for almost 40 years" is meant to be a strong indication that I know energy. This is an attempt to establish credibility. If the person said that they were an accountant for 40 years or a recent college grad with a History degree, would it have the same impact?
• The assertion that the person worked in the oil and gas industry is a more subtle attempt to establish credibility because the renewable and non-renewable industries are usually competitors. The impact of the statement would probably be different if they said they worked in the solar industry, or if you knew they sold solar PV systems.
• The third attempt at ethos is made when the person tries to establish common ground with the reader by stating they are a cost-conscious homeowner (this strategy is pointed out by the Purdue article).

Remember, any way that a speaker or writer can establish credibility and believability is ethos. There are myriad ways of doing this, including using appropriate language, citing legitimate sources of information, dressing appropriately, speaking/writing with confidence, avoiding grammatical and/or spelling errors, and more. 

So, now that we have ethos figured out, here's a little curveball: Appeals to ethos can change from situation to situation, even if it is the same speaker or writer trying to convey the same message. The video below from our friends at Purdue University does a really good job of explaining this and goes over ethos in general as well.

The narrators sum up ethos nicely by stating that: "In every rhetorical situation, ethos means a quality that makes the speaker believable." This "quality" can and does change all the time. Even if you don't have the credentials that render you credible on the topic, you should do your best to establish credibility by doing things like using reliable sources, proper language, and so forth. You've probably heard the truism that as a speaker or writer you need to "know your audience." Establishing ethos is one of the reasons why. You want your audience to believe you, and ethos can help make that happen. Politicians are particularly (or notoriously, depending on whom you ask) good at doing this. An example of this can be seen below.

Figure 4.2: Barack Obama addresses a crowd in New Hampshire in 2005 (left) and President Obama giving a TV address in the Oval Office in 2010.

Left photo: Fogster [10], CC SA-BY 3.0. Right photo: Public domain (Wikipedia) [11]

Notice the stark difference in physical appearance in the photos of Barack Obama above. What messages is he sending with regards to ethos? The left photo shows the classic "sleeves rolled up" look, which politicians use to speak to "regular folks," usually in public settings like fairs, construction sites (they'll also don a hard hat for this), local restaurants, and so on. The ethos-related messaging is something like: "Hey, I'm just a regular, hard-working guy like you. I understand your problems." But by wearing a dress shirt instead of, say, a polo shirt, an air of authority and professionalism is still presented.

The photo to the right presents a much different attempt at ethos. He is projecting an image of power and authority by wearing a suit and tie, being the only person in the shot, and sitting in a well-appointed office. Even his posture is different than the other photo. Note that both an American flag and flag with the Presidential Seal is in the background. Both project authority, among other things. Do you notice anything else in the background? Do the family pictures convey a message? This is a subtle reminder that he has a family with two young children, and thus is relatable (this is probably also an example of pathos).

One Final Note

It can be easy to view ethos as a way to "trick" audiences into being persuaded by someone. This can certainly happen and often does. This is a common problem with politicians, as they never want to appear not credible. But it is important for you to know that ethos can be legitimately established. Knowing as much as possible about the source of information is an important aspect of determining credibility. For example, if I want to know about drought conditions across the U.S. [12] I refer to the National Oceanic and Atmospheric Administration (NOAA) [13] since I know that monitoring water conditions is one of their focuses and that they are tasked with presenting an unbiased, scientific perspective. In short, I know that they are credible.

If the Administrator of NOAA [14](one had not been confirmed yet [15], as of September 2018) was to give a speech or write an article, (s)he would be remiss if (s)he did not let the audience know her/his position. (S)he has credibility, but still may need to establish ethos. Doing this does not mean that (s)he is trying "trick" anyone, but it does mean that (s)he is trying to strengthen her/his argument, which if you recall is the purpose of rhetoric. Ethos is only established if the audience thinks that you and/or your argument, is credible, and that can be done without being dishonest or "tricky" in any way.

Figure 4.4: Yes, this is a real advertisement! According to the National Institutes of Health [16], in the early 20th century, tobacco companies embarked on a campaign using doctors to promote smoking. These ads appeared in major national magazines. There is a clear use of ethos in these ads.

Image source: Flickr, Lau Ardelean [17], CC BY-NC-SA-2.0

Please watch the commercials below before continuing.

What was your reaction to each of these videos? Was your reaction to each similar in any way? Different? If you have not already, take a moment to think about how each commercial tried to persuade you through its emotional content.

As noted in the video, pathos can be defined as "the emotional quality of the speech or text that makes it persuasive to the audience." Though most often associated with sympathy, sadness or similar "sad" emotions, pathos can utilize the full range of human emotion, including anger, joy (e.g., through laughter or inspiration), frustration, suspicion, curiosity, scorn, repulsion, jealousy, desire, compassion, hope, love, and more.

Please take a few minutes and think about all the ways that the commercials at the top of the page attempt to elicit an emotional response. Do these attempts make the commercials more persuasive? Why or why not?

I consider the pathos in the McDonald's ad to be "fake pathos," which was described in the video from Purdue. From my perspective, the McDonald's ad is a clear attempt at emotional manipulation (though I don't think they want the viewer to think that), and thus compromises the ethos of the company because it calls into question their credibility. Call me a cynic, but I don't think that the goal of making the ad was to spread joy and laughter. As the folks from Purdue mentioned, that is the risk you run if your pathos is not genuine. The Sony commercial is overdramatic, but it's so "over the top" that it's quite clear that it is done in jest and (again, speaking for myself) does not compromise ethos. Regardless of how genuine or fake the pathos is, it is still used to create an emotional response. To a large extent, the impact on ethos is subjective.

Pathos in Writing

Pathos is the most commonly used rhetorical strategy in advertising (both print and video) because it is often relatively easy to do with imagery. See below for an interesting example from the World War II era.

Figure 4.6: This is a poster published by the U.S. government. Who would have thought that driving alone could be equated with supporting fascism? Yikes. The goal was to reduce fuel use in order to have more supply for the war effort. A clear, and from where I'm sitting, effective use of pathos.

Wikimedia: Ride with Hitler [20]

Pathos can also be conveyed in writing. As noted in the video, this often boils down to word choice, in particular, adjective choice. In fact, word choice often provides the reader with insight into the motivations of a writer.

Was pathos used by the author? The only instances of pathos are used to describe what other people are saying - e.g., "slashing jobs," "driving up prices" - the author himself writes dispassionately about the topic. This demonstrates good reporting, using more ethos and logos (see next section) to persuade the audience.

Please note that I am not advocating one opinion over the other on this topic, nor am I saying that either of the authors is telling untruths. I am merely pointing out word choices that convey pathos. Perceptive readers will pick up on such word choices, which may compromise ethos. Pathos can be an effective persuasive technique, but generally only if the reader agrees with the author's arguments. As critical thinkers, you should be skeptical of anyone that uses pathos in such a way that appears to try and persuade you to believe one thing or another, whether or not you agree with the overall point.

Finally, back to the statements at the beginning of this lesson. Which one is most pathos-filled?

1. I think solar panels are a wonderful technology, don't you?
2. I have been in the energy business for almost 40 years, including 30 in the oil and gas industry. But like you, I'm a cost-conscious homeowner with bills to pay. I've never seen technology as potentially game-changing as solar panels. Those things are going to change the world, and better yet they will save you money.
3. Did you know that Tesla Energy will install and maintain solar panels on your roof at no extra cost? You don't have to lift a finger, and you will end up paying less for electricity than you do now. You can save money and get inexpensive, clean electricity. And all of it is guaranteed by contract! I had them install panels on my house, and couldn't be happier. They'll do the same for you.
4. You know, every time I see that old coal-fired power plant I think of all of the innocent children living nearby that are probably having asthma attacks because of the pollution. That's why I added solar panels to my roof.

Of course, the last one is the correct choice. The use of children's suffering and in particular the use of the word "innocent" are both meant to elicit pity, and ultimately sympathy. Even if it is true, the statement is unnecessarily emotive. I could have just kept to the facts and stated that said power plant has been shown to cause asthma problems for children. This is a strong reason to be concerned. It is still an example of pathos but does not lay it on quite as thick.

Logos can be thought of as "the logical quality of a speech or text that makes it persuasive" (Credit: Purdue University Online Writing [26]Lab [27]). Often this is straightforward - when you read, hear or see an argument, ask yourself if it makes logical sense. Is the reasoning sound? Does the author make any unfounded conclusions? Is she confusing cause and effect or coincidence with causality? All of these can contribute to, or subtract from, logos.

It is very important to note that logos is not necessarily how logical (sound) or accurate (true) the argument is. It is the attempt at logic made by the way the argument is structured. Of course, a sound and true argument is more likely to establish logos, but it depends on the perception of the audience. Examples of how to establish logos include:

• making a logical argument (whether it is true or not),
• arranging images in a way that makes sense to the reader,
• having a logical flow (beginning, middle, end, e.g.) to a story or sentence, and
• citing outside sources that the audience trusts (this is more ethos, but can establish logos as well because it can make your argument seem more logical).

In short, anything that appeals to the audience's sense of logic (as opposed to emotion or the author's credibility) is considered logos.

As noted in the reading above, two common ways of doing this are through inductive reasoning and deductive reasoning. Inductive reasoning takes a specific example or examples, then assumes that a generalization can be made based on that example or those examples. In other words, inductive reasoning goes from the specific to the general. The following are examples of inductive reasoning:

• Every time I forget to water my cucumber plants during the hot part of the summer, they shrivel up and die. I guess cucumbers need water to survive.
• All the storms I've seen blow in from the west, so all storms must move from west to east.
• I had a friend from Switzerland who was really nice, so all Swiss people must be nice.
• After the Obama Administration gave a guaranteed loan to the solar company Solyndra, it failed and the taxpayers lost money. Therefore, all loan guarantees should be stopped because they will lose money.

Inductive reasoning can be correct or incorrect (the first example above is correct, and the other three are not, by the way) - it is up to the audience to determine whether or not the logic is valid. But inductive reasoning is an attempt at logos, irrespective of its validity. The persuasive effectiveness of logos depends on a myriad of factors and can change from audience to audience. The same goes for deductive reasoning. Deductive reasoning is the application of a general belief, and applying it to a specific example, i.e., it goes from the general to the specific. Some examples of deductive reasoning are below:

• Every time the gas prices drop significantly, sales of SUVs go up. The price of gas is expected to decrease dramatically this year, so sales of SUVs will increase.
• I've seen hundreds of swans, and they've all been white. Therefore, the next swan I see will be white.

Like inductive reasoning, deductive reasoning can be false (neither of the above statements can be verified, but they can certainly be false), even if they are sound. If I've seen hundreds of swans and they have all been white, then assuming that the next swan I will see will be white is sound reasoning based on my experience, but it may be false because there are other colors of swans out there. Again, it is up to the audience to determine whether or not the logic is sound and/or true, but it is an example of logos either way.

Logos Strategies

As is the case for pathos and ethos, the effectiveness of the rhetorical strategy depends on many factors, and can (in fact, often does) change from audience to audience. With logos, sometimes seemingly sound arguments are neither sound nor true. This is referred to as a logical fallacy. Logical fallacies are encountered all of the time, and you may even use them, accidentally or otherwise. Logical fallacies will undermine your persuasiveness if they are found by the audience, and in turn, impact your ethos as well as your logos. The reading from Purdue linked to previously goes over some of these arguments and provides some examples. There are many possible strategies, sometimes known as "logical appeals," to making a logical argument. Some of them can be seen in the reading below.

Given all of this, which of the examples below are the strongest attempt at logos? Do any of the other sentences exhibit logos?

1. I think solar panels are a wonderful technology, don't you?
2. I have been in the energy business for almost 40 years, including 30 in the oil and gas industry. But like you, I'm a cost-conscious homeowner with bills to pay. I've never seen technology as potentially game-changing as solar panels. Those things are going to change the world, and better yet they will save you money.
3. Did you know that Tesla Energy will install and maintain solar panels on your roof at no extra cost? You don't have to lift a finger, and you will end up paying less for electricity than you do now. There is no better way to save money and get clean electricity for your home. And all of it is guaranteed by contract! I had them install panels on my house, and couldn't be happier. They'll do the same for you.
4. You know, every time I see that old coal-fired power plant I think of all of the innocent children living nearby that are probably having asthma attacks because of the pollution. That's why I added solar panels to my roof.

Greenwashing

Greenwashing can be thought of as:

• "the use of marketing to portray an organization's products, activities or policies as environmentally friendly when they are not."
• Greenwashing Index adds that it can also include "when a company or organization spends more time and money claiming to be “green” through advertising and marketing than actually implementing business practices that minimize environmental impact."  

So, why would a company spend the time and money to convey a green image, and risk being viewed as insincere? As you might have guessed, it's good for business. Investopedia notes that: "The general idea behind greenwashing is to create a benefit by appearing to be a green company, whether that benefit comes in the form of a higher stock price, more customers or favored partnerships with green organizations." 

Being (or at least putting on the appearance of being) "green" or sustainable has become a very good marketing strategy. Think about all of the times you've seen the term "green" or "sustainable" associated with a product or process. It is happening in basically all sectors of the economy - food, energy, transportation, housing, business, cleaning products, events, sports stadiums, and even fashion. Business pursuing sustainability is not a bad thing. If we are going to achieve a sustainable future, the business community will have to be on board, if not leading the way. The problem is when a business is using sustainability more as a marketing ploy than a legitimate attempt at addressing sustainability.

So, how do you know if a company is making a legitimate attempt at addressing sustainability? In short: it's complicated. The folks in the Greenwashing Index offer some good suggestions on how to investigate claims (see the "How Do I Spot It?" section in the reading):

• "If you see a green ad, take a look at the company as a whole. Can you easily find more information about their sustainable business practices on their website? Do they have a comprehensive environmental story? Is there believable information to substantiate the green claims you saw in the ad? If not, buyer beware."
• "Google the company name plus the word 'environment' and see what pops up. This is far from scientific, but if consumers or environmental advocates have a beef with the company’s track record, something’s bound to pop up."
• "'I know it when I see it.'...those are words to live by for the consumer and green marketing claims. If you spot a green ad, how does it strike your gut? Does it ring true and authentic, or is it obviously hype? Smart shoppers abound globally, and your own scrutiny of green marketing claims is one more item to throw into your shopping cart."

The best way to fight greenwashing is to become educated about sustainability and take the time to learn about companies.

Greenwashing is not only used by energy companies. Watch the ad below and see if you can pick up on any rhetorical strategies, and think about whether or not it is greenwashing (hint: think about what you know of the electricity industry from Lesson 1).

Okay, one more example. Once again, keep an eye out for rhetorical strategies.

You probably figured out that this last one is a parody (a pretty funny one, if you ask me). But it actually makes some really good points by bringing light to the touchstones that many advertisers put in their commercials to persuade you. Again, this is not meant to single out the petroleum and plastic industries, as these techniques are used by many companies. But it is the only parody video I know of.

Again, the best way to detect greenwashing is to learn as much as possible about sustainability and to research companies' claims. The best way to reduce the incidence of greenwashing is for consumers to push back against companies that do it. By "voting with your dollars" you hurt profits, which is a good way to get a company's attention.

Why Should We Care?

Hopefully, it's pretty clear what greenwashing is, and how to spot it. But why does it matter? Of course, advertisers are not telling us the whole truth, and are just trying to get us to buy their products. After all, that is literally their job (the part about getting us to buy their stuff is, anyway). The main problem with greenwashing is that it can trick people into doing things that they think is promoting sustainability, but it is actually not, or worse - it is promoting things that are bad for sustainability. 

Most often, the best way to address sustainability is to not buy anything at all. But given that it's nearly impossible to go through life without buying things and that consumer spending constitutes somewhere around 70% of U.S. GDP [35], making wise consumer choices is important. Greenwashing makes this much more difficult.

The Three Types of Lies

Hopefully, by now you see that there are a number of rhetorical strategies available to help convince people of an argument. Though this can be seen as manipulative in many cases, often times it does not involve actual lying. But what is lying, exactly? Merriam Webster's online dictionary [37] provides two relevant definitions of a lie:

lie (intransitive verb)

1. to make an untrue statement with intent to deceive
2. to create a false or misleading impression.

Seems pretty cut-and-dry, but for the purposes of this lesson, it is helpful to know that there are different types of lies. The three most commonly referred to are lies of commission, lies of omission, and lies of influence, aka character lies. The reading below neatly summarizes these and provides some examples.

The three types of lies are as follows, as described in the reading above:

• Lies of commission: "If someone tells you something that is not a fact then we call this a lie of commission. This type of lie is telling someone something that is simply not true."
• Lies of omission: "Another type of lie is one where you leave out an important part of information, hence the name lie of omission. In this lie, someone omits an important detail from a statement. These are nasty lies because they’re harder to spot and take less effort from the person who is lying."
• Character lie, aka lie of influence: "Sometimes people will tell you something completely unrelated to the truth to cover up a lie. This is what we call a character lie or a lie of influence. These lies are meant to make you believe the liar or to make the liar seem like such a great person that they are unlikely to be suspected of lying."

Now that you have a good idea of what each of these three types of lies entails, take a second to think about which type of lie fits which of Webster's definitions above.

Try and think back to the very brief "Economics 101" lesson that was part of the explanation for externalities. If you recall, I noted that most economic decisions are based on weighing the private benefit against private cost in an effort to maximize private benefit (remember the thrift store table?). This effectively summarizes the neoclassical economic model we've been using in the Western World for the past 150+ years, and it has changed very little in that time.  When economics models people's decisions in this manner, the generic person in the model is often referred to as "Economic Man" or "homo economicus," the latter of which is an obvious play on the term homo sapiens. Economic Man was described by Craig Lambert in Harvard Magazine [39] thusly:

Economic Man makes logical, rational, self-interested decisions that weigh costs against benefits and maximize value and profit to himself. Economic Man is an intelligent, analytic, selfish creature who has perfect self-regulation in pursuit of his future goals and is unswayed by bodily states and feelings.

As Lambert says, this is the "standard model...that classical and neoclassical economics have used as a foundation for decades, if not centuries." Most economic models are based on this assumed behavior, but there is at least one major problem with this. Lambert sums up the problem concisely: "But Economic Man has one fatal flaw: he does not exist." 

So what does he mean by this?  

• Well, for starters, the world is littered with irrational behavior. Some are relatively harmless like making an impulse buy of something you don't need (come on, admit it - we've all been there!), but some are more serious, like engaging in potentially life-changing or -threatening behavior such as smoking or risky sexual activity.  
• And of course we don't always act in self-interest, for example donating to charity, making decisions such as water conservation that benefit the "greater good," and so forth.

There are many more examples, as you will read below. But the question is, how do we include this type of irrational behavior into economic models? In a more general sense, it begs the question: "How can we explain such behaviors?" Enter Behavioral Economics. Some of the principles of Behavioral Economics are described below by Alain Samson in The Behavioral Economics Guide 2015 [40]. (I added the emphasis in bold.)

In last year's BE Guide, I described Behavioral Economics (BE) as the study of cognitive, social, and emotional influences on people's observable economic behavior. BE research uses psychological experimentation to develop theories about human decision making and has identified a range of biases. The field is trying to change the way economists think about people’s perceptions of value and expressed preferences. According to BE, people are not always self-interested, cost-benefit-calculating individuals with stable preferences, and many of our choices are not the result of careful deliberation. Instead, our thinking tends to be subject to insufficient knowledge, feedback, and processing capability, which often involves uncertainty and is affected by the context in which we make decisions. We are unconsciously influenced by readily available information in memory, automatically generated feelings, and salient information in the environment, and we also live in the moment, in that we tend to resist change, be poor predictors of future preferences, be subject to distorted memory, and be affected by physiological and emotional states. Finally, we are social animals with social preferences, such as those expressed in trust, altruism, reciprocity, and fairness, and we have a desire for self-consistency and a regard for social norms

It's worth noting that the 2017 Nobel Prize in Economics was awarded to Richard Thaler, who is considered one of the fathers of Behavioral Economics. Here is an article from The Atlantic ("Richard Thaler Wins the Nobel in Economics for Killing Homo Economicus") [41]that explains some of his theories, if you are so inclined. These theories are starting to hit the mainstream!

The Behavioral Economics Guide provides an excellent introduction to this topic, but the following sums it up pretty well: 

• "...if people were simply perfectly rational creatures, life would be wonderful and simple. We would just have to give people the information they need to make good decisions, and they would immediately make the right decisions. People eat too much? Just give them calorie information and all will be well...People text and drive? Just let them know how dangerous it is. Kids drop out of school, doctors don’t wash their hands before checking their patients. Just explain to the kids why they should stay in school and tell the doctors why they should wash their hands. Sadly, life is not that simple and most of the problems we have in modern life are not due to lack of information, which is why our repeated attempts to improve behavior by providing additional information does little (at best) to make things better.
• There are lots of biases, and lots of ways we make mistakes, but two of the blind spots that surprise me most are the continuous belief in the rationality of people and of the markets. This surprises me particularly because even the people who seem to believe that rationality is a good way to describe individuals, societies and markets, feel very differently when you ask them specific questions about the people and institutions they know very well. On one hand, they can state all kinds of high order beliefs about the rationality of people, corporations, and societies, but then they share very different sentiments about their significant other, their mother-in-law (and I am sure that their significant other and mother-in-law also have crazy stories to share about them), and the organizations they work at.

The main thing Ariely is trying to get at here is that people make decisions that are irrational and/or are not good for their own well-being all of the time, and if you ask them they admit it. Yet, modern economic models assume that people always act rationally and in their own self-interest. He provides a lot of examples of this, including texting while driving, overconsumption of alcohol, overindulging in social media, over-eating and more. The point is that there are a lot of damaging behaviors that people engage in despite "knowing better." This is indicative of something being amiss in economic models.

The Greenwashing Connection

You may be wondering how this all fits into this week's lesson. Okay, here goes: As it turns out, though the field of Behavioral Economics is only recently gaining steam in academics, and to a lesser extent public policy, advertisers have known about irrational behavior for decades. Though they did not call it Behavioral Economics, they have been using its principles to sell stuff to people. And if you ask the right person, they will openly acknowledge this.

Lucky for you, the good folks at Freakonomics Radio [43] have interviewed such a person, and some others familiar with this topic in a recent show. In a more general sense, Behavioral Economics provides insight into how people can be influenced to act irrationally, and even against their own interests. The applications go well beyond advertising! I'm looking at you, in particular, politics. If you have time, I strongly suggest listening to or reading the podcast in the box below. It's done in a really engaging way and is full of good information.

In the podcast, Dubner interviews Rory Sutherland, vice chairman in the U.K. of Ogilvy and Maher, a global marketing and advertising firm. Sutherland is an avowed proponent of behavioral economics (BE) and makes it clear that the advertising agency has been using BE principles for decades, though they never had a specific name for it. The following are a few important elements from the podcast. (There is a LOT more good information, by the way!):

• "Sutherland: The problem with economics is that it’s designed for the perfectly rational, perfectly informed person possessed of infinite calculating ability. It isn’t really designed for the human brain as it is currently evolved...The fact is that those conditions exist in the real world somewhere between very rarely and never.
• They go over some examples of how BE has been applied in advertising and other business functions, and include descriptions of the following strategies. Note that for these strategies to work, people must only perceive that they are true:
  • Social norming [46] is basically peer pressure. People tend to want to do things that they perceive that others are doing. Advertisers can use phrases such as "many people like you" or portray "everyday" people in their advertising to help accomplish this.
  • Loss aversion refers to the fact that "we generally experience more pain with loss than we experience pleasure with a commensurate gain. Meaning: we hate to give up what we have even if what we have isn’t all that valuable to us." People don't want to give things up, even if they don't need it.
  • Perception of scarcity refers to making people believe that if they don't act now (or soon) that they may miss out on an opportunity. "For a limited time!" and "Labor Day sale!" "One day only!" are all examples of this.

Hopefully, next time you are looking at advertisements, listening to politicians, or even just listening to others speak, you will pick up on techniques like social norming, loss aversion, positivity, and perception of scarcity.