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Prof wins for work to model irrational behavior
14 Jun 2000

by Diane Ainsworth, Public Affairs

His office on the fifth floor of Evans Hall is littered with red, green, purple and yellow Nerf balls, glittering magic wands, Slinkys, Koosh balls and other toys. His computer belches and growls randomly while the scrolling wallpaper reminds the bearded prof that he should "get a life."

Seven-foot-tall bookcases are stuffed with Calvin and Hobbes cartoon books and a collection of Gary Larson's Far Side comic strips. Photos of existentialist author Franz Kafka hang on the outside of his office door. A strip of black-and-white stills of the outrageous film star Divine and rock singer Janice Joplin decorate the sides of steel cabinets covering every nook and cranny of his cramped quarters.


About Matthew Rabin

Alma Maters:
University of Wisconsin, B.A., economics and math, 1984
Massachusetts Institute of Technology, Ph.D., economics, 1989

Mentors:
Economist George Akerlof, Berkeley; Psychologist Danny Kahneman, Princeton University; Economist Richard Thaler, University of Chicago.

Most Respected Colleagues:
Psychologist/economist Colin Camerer, California Institute of Technology; Economist/psychologist George Loewenstein, Carnegie Mellon University.

Residence:
San Francisco

Favorite Hangouts:
Morning Due Café, S.F.; Jumpin' Java, S.F.

Where he does his thinking:
20 percent: in the office
60 percent: in cafes
10 percent: at home
10 percent: on BART

Hobbies:
Hiking, hyphenation

Favorite Music:
Meatloaf, The Beatles, show tunes


 

The last line on his resume reads: "Favorite Bob Dylan song: My Back Pages."

For all of his amusing quirks, 36-year-old Matthew Rabin, Berkeley professor of economics, has been dubbed a genius and recognized for his outstanding contributions in the field of economic behavior. The economist, one of 25 recipients of this year's John D. and Catherine T. MacArthur Foundation Genius Awards, will receive a $500,000 cash award over the next five years that he'll be able to spend any way he pleases.

He has "no idea" what he will do with the prize. "I tell everyone I'm going to buy 15 SUVs," is his tongue-in-cheek answer. When he found out about the award, with a surprise phone call from the MacArthur Foundation, he said he "just went back to work" and didn't give it another thought.

Rabin, an easterner from Silver Spring, Md., has a special knack for converting the latest research in psychology into mathematical formulas to help economists sharpen their models of economic behavior. Adding to that a healthy dose of common sense assumptions, Rabin says his formulas are gradually gaining acceptance among economists who want to model everything from credit card debt and addictive behaviors to investment patterns, impulse shopping and preferences in health care coverage.

"Economists have historically assumed that people are 100 percent rational in their choices," he says, "and it's not shocking that they aren't. But you don't find the intuitive assumptions in economic models, so I identify the things that are wrong or missing in their models of economic activity."

Rabin uses a simple example to illustrate one of the many consumer habits that is left out of most economic profiles of buyer preferences: people's strong desire for immediate gratification.

"If you ask someone if they'd rather have $10 now or $15 a week from now, a lot of the respondents would say they wanted $10 now. If you then ask them if they'd rather have $10 50 weeks from now or $15 51 weeks from now, everyone will say they'd rather have the $15 51 weeks from now," he says. "People have self-control problems and they will cave in to immediate gratification. But you don't find that psychological factor in the economic models of our buying habits."

A preference for immediate gratification leads people to under-indulge in activities that involve immediate costs and delayed rewards -- like putting off an unpleasant task -- but to over-indulge in activities with immediate rewards and delayed costs, like overeating, Rabin and regular co-author Ted O'Donoghue of Cornell University, write in one of their many published papers. "Those of us working in this area hope that 10 years from now the 100 percent rational exponential models in economics will be replaced with an alternative approach, often called 'hyperbolic discounting,' to account for that human variable."

His ground-breaking work to refine computational models may help economists more accurately predict how much people save, how much they eat or overeat, what they consider fair play, and whether they finish tasks punctually or drag their feet.

Yet after years of building all of these mathematical constructs to reflect the human foibles everyone exhibits in making choices, Rabin confesses he's just as guilty as the next guy of caving in to the same weaknesses.

"I'm well-known for procrastinating, I have very little self-control, and my research hasn't helped me overcome these tendencies," he jokes. "And my advice to young scholars entering this field would be to read Calvin and Hobbes. They'll find a lot of insight into the field."

Links:

Press Release: UC Berkeley economist Matthew Rabin wins MacArthur "genius" fellowship for work on human behavior

MacArthur Foundation web site

Matthew Rabin bio page


Matthew Rabin's home page

Institute of Business and Economic Research conversation with Matthew Rabin

Dept of Economics Working Paper Publication site

 

 

 


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