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Why Opposing the Bailout Hurts So Good

Mac Greer
October 6, 2008

With so much talk of doom, gloom, and Great Depressions, why do so many Americans oppose the just-passed "bailout" plan? Is the lack of urgency rooted in a lack of understanding or are there other forces at work?

Dan Ariely is a professor of behavioral economics at Duke University and the author of Predictably Irrational: The Hidden Forces That Shape Our Decisions. I recently talked with him about some hidden forces shaping the current financial crisis.

Mac Greer: You have a lot of Americans seeing this as a Wall Street crisis and not so much as a "Main Street" crisis. What do you think it will take for most Americans to reach some sort of a consensus that this crisis really requires immediate action?

Dan Ariely: Well, one thing is we have been telling a lot of people for a long time that whatever they have in the stock market is about long-term strategy and not any short-term things. So the current change in speak, in some sense, doesn't seem to be very effective. We have been telling people for 20 years the money you have in the stock market is about retirement, it is not about anything urgent. Don't look at it. It is all about long-term strategy. It is very hard to convince people that all of a sudden that it is short term. That is one thing.

The second thing is that nothing has changed much in the short term living of people. In some sense, this is smaller than the effect of the increasing gas prices.

Greer: Yeah.

Ariely: What is happening? Basically the thing is we are creatures of habit, if you think about it. The best predictor of what we will do tomorrow is what we did today. That is it. Habits are good and bad. They are good because they help us save energy. We don't have to think about it. We don't have to contemplate every cup of coffee if it is worth it or not. As a consequence, we get into habits.

Now the question is, when will we change habits? I think we change habits only when we have to. Right now, because salaries have not changed and prices in the markets have not really changed, we don't have to change habits, so we don't see anything happening. The moment we will start seeing those, the moment stores will be closed, people we know will start losing their jobs, anything like that will happen, people would revise -- and revise big time.

But the other thing is, I think there is a huge sense of kind of justice. And people have been watching executives on Wall Street making a lot of money for a long time. There is clearly a feeling that they haven't produced anything useful to justify that amount. There's a kind of happiness with the fall of Wall Street.

Greer: A little schadenfreude. I think you're right.

Ariely: So I think it is a very complex, very complex phenomenon. The growth of the economy last year was mostly in the financial s