“French Fries” Our biology and the fault in our utility functions

I step out of my house and ‘beep, beep’, unlock my little red hatchback.

I stop in my tracks. A whiff of comfort hits me in my face. I inhale a heavenly aroma, trying to place the name of the food object, multitasking with turning on my ride’s air-conditioning and answering my coffee partner’s call. My brain refuses to dedicate mental bandwidth[1] to answering this question, and focuses on reversing the car out of the porch and out on the street, partly because I just had late lunch and the stomach has not transmitted the ‘hungry’ signal to the brain. I turn on the radio and quickly finish my call, pacifying my date that I will be only 15 minutes late (in Islamabad that is a mortifying crime because that is 50% of total travel time). Enjoying one of the popular grooves of the season on the radio, I dally my way to the coffee shop. By the time I reach my destination, battling the road rage and the looming migraine (result of clashing temperatures of the air-conditioning and my freshly washed hair), hunger is as far from me as Kashmir from Karachi[2].

Conversation flows and after a bit of catching up, I become aware of the snooty glances of the waiters in the coffee shop. Wary of customers taking more time on their space than their orders, the men dressed in black and white, make all the effort to make eye-contact with me. Thoroughly enjoying my conversation, I feel I have played the furtive glancing game long enough. Reluctant to dedicate my brain cells to making a decision on what I wanted to eat or drink, my behavior had obviously become suspicious. With a weary ‘heart’ (more specifically used up mental bandwidth), I beckon the server to take my order. Scanning the menu at least ten times, I remain undecided because I remain unfocused. One part of my brain focusing on the details of the conversation, the other trying to figure out what I want. My system 2[3] is visibly engaged so it falls upon system 1 to take the fall for both of is.

The 11th scan of the menu leaves me dissatisfied for I see nothing that would ‘feel’ right. Continuing the conversation and still trying to conjure up a name for what I ‘feel’ like having, I re-create the battle of Panipat[4] in my mind. Suddenly, it hits me and a passionately exclaim, “French Fries”.

“Would you be able to make some French fries? It doesn’t say on the menu but I thought I’d ask.”

The server smiles at me painfully, yet replies in a glorious “Yes”.

Twenty minutes later, I order another bowl. Two cups of tea later, I finally finish the conversation and head towards another gathering of friends. More tea and rounds of conversation, as is typical in the Capital of my beloved country. It can be contested, but I do believe this is the conversation capital of the country too. New people join the conversation and more tea is ordered. A few say they feel peck-ish and wouldn’t mind a snack. The idea is rather appealing and I return to scanning the menu again. A friend of mine pipes rather enquiringly, as if asking permission or seeking validation, “Can I order fries?”

“Most certainly you can Madam”

“Then I WILL order fries”

A gleam of mischief spreads over her face. I cannot help ask why.

“I have been thinking about fries since the entire evening, all through the hike and all through the drive to this tea shop.”

This did not seem like an odd statement. My friends and I have openly acknowledged our fantasy-oriented relationship with food. However, when I ask her why she has been thinking of this, her reply lights something up in my mind.

“When I was leaving home, I caught a whiff of someone making fries in my neighborhood and since then I have been craving good, spicy, French fries.”

It all suddenly made sense. System 1 was at work. It was making the senses go awry. When our System 2 was distracted by more cognitively challenging tasks, System 1 had its way and told the brain it wants the ‘unhealthy’ dose of carbs that got programmed into the menu of wants, inspired by a few aromatic experiences earlier in the day.

When I ordered fries on the café earlier that day, I had fallen prey to the “illusion of choice”, comfortable in the idea that I was ordering something I wanted. Refusing to select from the menu offered to me, I had reinforced my ‘want’ by choosing something that was not available on the paper in front of me. Little attention did I pay to the impact that an environmental stimuli had on me, long before I entered the decision framework of an economic decision.

There are numerous instances daily, where our decisions are affected by factors that we are not consciously aware off in the moment. In retrospect we may evaluate the efficacy of our decisions in many different frameworks, however, while making the decision, we are seldom aware of the exhaustive list of ‘influencers’ in our decision making. Does that mean our preferences can be influenced by unpredictable factors? Do the existing models of choice and preferences take into account the possibility of such factors? Is it then justifiable to assume transitivity[5] and consistency of choices according to the utility theory?[6] Do we need a more realistic model of preferences and utility now that we are becoming more aware of the framework in which humans beings make choices and recognize the susceptibility of human preferences?




[1] The term is taken from the book, “Scarcity” by Sendhil Mullianathan and Eldir Shafir. It refers to the capacity of the brain to engage in various cognitive exercises including thinking, feeling and making decisions. The idea is that mental bandwidth is also a scarce resource and so the economic principles of resource allocation apply to this as well. Mental bandwidth is the most valuable resource among resources and therefore must be used with care, keeping in mind that the opportunity costs are higher than in other resources.

[2] Two cities/places in Pakistan that are on opposite sides of the land region longitudinally. Kashmir is in the mountains in the north and Karachi is near the cost in the south.

[3] This idea comes from the book “Thinking Fast and Slow” authored by Daniel Kahneman. System 1 is the intuitive mind which functions on memory and experience. System 2 is the critical thinker that evaluates facts and logic to process information. This is a simplification to explain the different tendencies of human brain to process information. System 1 is active most of the time and allows the System 2 to acquire important information while it manages the other functions for which the brain is required.

[4] A place 60 miles north of Delhi where several iconic battles were fought in the Indian Subcontinent.

[5] Transitivity is one of the assumptions economists make while determining or modelling preferences that deduces facts about choices. So if Tom prefers A over B and B over C, then Tom is rational if he always prefers A over C.

[6] The utility theory is an economic theory that aims to predict or model how an individual would proceed to make decisions related to their economic well-being. The decisions relate to choosing a bundle of goods for consumption.


Can biological/ emotional beings be indifferent in their curves? Rethink Utility theory and Preferences maybe?

It is a humid summer evening in Shenzhen. We are on the bus 43 to Windows of the World (WOTW). It is a theme park where all the wonders of the world have their miniatures on display and helps the innumerable citizens of the middle kingdom an expensive world tour. WOTW is also a metro station, where Ms. Grocery trip lover (GTL) and I will be taking an underground train to OCT loft. A place rife with budding artists in Shenzhen with one of the few Starbucks the city has- a place of refuge from the culture fatigue that can hit an alien any time after the first few months in China.

The 43 from Beijing Da Xue to WOTW left at 5pm. Ms GTL had her lunch at around one pm and her mid- evening snack at around four. A small water bottle kept her distracted till five-thirty pm. I, as usual, am discussing the expanding universe and the role of the Homo Sapien in the macrocosm of the larger order of things. I go on for about a good seven minutes when I realize that Ms GTL has no interest whatsoever in the earth shattering philosophy I have to offer. Despite her highly developed neo-cortex she is not moved by the opportunities of maximizing her utility with my intellectual banter. She has turned absolutely silent, is looking up at the digital ticker announcing the next station. She is fixated on that ticker, registering nothing but still nodding and making incomprehensible approving sounds with her lips sealed.

“Zainab, you are not listening to me!”

“Hmm…Yes. Yes.”

“Zainab!!!” – I raise my voice to get her attention


“You are not listening”- I snort at her with a fake angry face

“Umm, Of course I am Frand. You are talking about some, ummm universe thing. Microcosm of macrocosm of the universe and humans and ummm…”

“You find this conversation boring?”

“Uhh no of course not Deer. I am always listening to these things and I love it. I always do. Don’t I?”

“No. Not always. Not when you are hungry. Are you hungry?”

Head thrown down, a puppy face and an endearing voice- “Yes”

Ms GTL seems to not be consistent in her preferences. When asked whether she prefers food over intellectual conversation, she originally responded, obviously intellectual conversation. A few instances like the trip to WOTW and OCT loft revealed that such a preference is not consistently applied over different frameworks. With enough data points over many such trip, it was found that on an empty stomach, the preferences for intellectual conversation is superseded by thoughts of consuming food.*

*Of course there was statistical significance in reaching this conclusion.

Sounds familiar? Yet, does the utility maximization theory allow for such flipping over of preferences? Does it allow for biological factors like hunger into the utility curve?

The metro train moves at its usual pace. With each new passenger, Ms. GTL’s expressions become more entertaining. A frown, grimace, puke face. I see a plethora of emotions flash across her face as people get off and on the train. The digitalized woman voice finally announces OCT loft and the expression of joy in Ms. GTL’s face betray her excitement. The usual pasta in mushroom sauce and a Margherita Pizza. Sated, we decide to check out the vintage clothes’ shops nearby.

“Isn’t this such a lovely shirt, Frand?”

“Frand, this is RED!”

“Yeah and its great right? You think I should buy this?”

“Deer, it is RED! There is nothing else special about it”

“No. Just look at it. It’s got a great fabric and the color…”- My voice trails off as it suddenly hits me

I have a cognitive bias for the color red.

From the age of one, the color has held a strange lure for me. Anything red draws me towards it uncontrollably. The Homo Sapien simply ignores the Homo Economicus.*

*This conclusion too was reached after sufficient data points were gathered and demonstrated statistical significance.

Do I always buy things because they are red? No.

Am I always attracted to things red in color? No.

Then why do I find the color red has some kind of captivating power over me?

How does the utility maximization theory explain this inconsistency in buying behavior?

Neuroscience and psychology may have an answer.

Every time, I find myself uncontrollably drawn to consumer goods either packaged in red or containing red somewhere, I observed another element in the situation. I am distracted. My pre- frontal cortex( center of all decision making and critical thinking) is not active and my primal instincts take over. This has happened due to a variety of reasons. I have been hungry, sleep deprived, exhausted, multi- tasking (like talking about philosophy to a hungry friend), emotionally disturbed or planning something else that engages the Pre- frontal Cortex.

Do our existing utility functions factor in emotional volatility affecting our preferences?

Maybe it is time to rethink the utility functions, we sometime erroneously believe to be the Ten Commandments of economics as a social science. Maybe it’s time to introduce a more interdisciplinary approach to understanding economic decision making. It is really about understanding human behavior and maximizing human welfare, after all. Isn’t it?

Questioning ‘Rationality’ and the myth of Homo Economicus – The case of Amygdala taking over in market crashes and finding answers in NEURO-ECONOMICS

Sir Robert must have patted himself on the back when he installed Mir Jaffar as the Nawab of Bengal in 1757 after killing Nawab Siraj-ud-daulah in the Battle of Plassey.

“What a jolly good day!” he must have remarked as he got dressed on the morning of 24th June, 1757, for this would be a day of celebration from what would become his most remembered military success.

Of course no one really pays attention to the historical footnote that the success of this battle rested not in the brilliance of military tactics or political acumen but on the treachery of Mir Jaffar to his master Siraj. Clive was confident of this characteristic in Jaffar. He knew Jaffar’s Amygdala will drive him to betray his master and to play into the hands of the East India Company- the undisputed pioneers of corporate globalization in at least the Indian Sub-continent. So did Sir Robert Clive make a name in history based on his impeccable application of the Rational Choice Theory, calculating that since Jaffar preferred ruler ship of Bengal over kin, he would be willing to overthrow his own and side with the British businessmen even if it meant nominal leadership, because Jaffar was Transitive in choosing a ‘bundle of goods’. Or did he rely on the emotional response of a human brain to a given a situation where he has a sense of being wronged?

Either way his calculations were pretty much on point and the Crown as well as the ‘House of Commons’ were rather supportive until 1769, when Haider Ali of Mysore captured the fort of Malbagal, St George and eventually the town of Madras. All the executive decisions by the Court of directors and calculations from the Crown regarding Bengal[1] being the most valuable territory from an economic (read extortionist) point of view, sort of fell flat on their face. When the news reached London in the May of 1769, the market crashed. The East India Company faced its Great Crash that summer when stock price fell from 284 to 122 pounds on the London Stock Exchange. All policy decisions regarding recognition of Sovereigns of Indian subcontinent within the British Empire and maintaining “legitimate trading activities without securing the addition of further political and administrative burden” were rendered meaningless in the light of circumstances that Sir Clive and his peers had somehow missed for effective inclusion in their ‘prediction model’. But the markets had responded in what modern day neuro-economists would classify as the most predictable human response to an uncertain situation.

An example for a more recent event in history might better serve us. Most of my generation has only heard of the Great Crash of 1929 and its comparison to the financial crisis of 2008, the horrific aftershocks of which still impact my generation’s decision making. From making career choices to spending patterns (yes, we’d rather spend our hard-earned savings on taking a vacation because who knows what happens to property and youth won’t last forever). The US economy was doing great back then. There was a surplus of agricultural produce, industries especially steel and iron were doubling their returns, and the favorite of many stock market investors, the P/E ratio, of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms. The likes of famous economists like Irving Fisher (famous for his mathematical modelling in financial analysis) had proclaimed, “Stock prices have reached what looks like a permanently high plateau.” And yet when the slide turned into a crash, there was no stopping it. Over the course of modern history, market crashes have one thing in common, PANIC SELLING.

But wait! Why?

Are we not supposed to be rational beings, who make their financial decisions based on careful calculations and deliberation? Is it not sound intellectual practice to weigh the pros and cons of a decision? Should we not compare the Price-over-Earnings ratio of a stock and its market price and make our buy and sell decisions based on the over-valuation and under valuation of a stock? Should we not always prefer to exploit an arbitrage opportunity? Save that $10 while buying a radio worth $35 at a shop nearby which sells at $25 in the neighborhood 20 minutes away but also when buying a television worth $450 in a shop nearby, which costs $440 in the neighborhood 20 minutes away.

Can this be the reason why financial modelers, mathematicians, economists and analysts at large fail to see the bubbles when they are in the making and fail even more terribly at predicting a crash?

Ever heard of Herd Mentality? (Look what I did there!)

A whole new field of economists and financial analysts has taken birth in the advent of an age of frequent market crashes. They have a one word answer for it. Herd mentality. Ever wondered how a herd thinks? I saw that raised eyebrow. Yeah, you are right. They don’t. Quite appropriate for describing the panic stock markets face in crashes right?

This phenomena got its name based on an analysis of empirical data they have gathered from the many market crashes in history. Have a look at this list.[2] But why on earth does someone need to describe human behavior in the markets as akin to beasts in the wild? Why couldn’t someone just figure out an explanation based on transitively consistent choices? Oh wait, how about utility maximization? Maybe, all these panic sellers were maximizing their utility by selling their stocks at a loss? Why does something massively contradictory to sound financial practices, makes more sense than standard finance and economic theory?

Could it be possible that economists got RATIONALITY wrong?

Could it be that Homo Sapiens are simply just that and not Homo Economicus?

To me even the Herd Mentality explanation did not make sense. It seemed like a partial explanation. Where do we get this herd mentality? Is there a way we can overcome this? Many questions bothered me and I delved into New Economic Thinking, exploring unorthodox ways of thinking about economic and social problems that plague the modern, economically and socially hyper-connected world. From Behavioral Finance to Behavioral Economics, to Experimental Economics (I even designed a risk game which showed that people take risks even when there is no extra reward for it- a contradiction to sound rational financial theory of Market Portfolio). It seemed to make only partial sense. I soon began to realize that Economics (god-forbid) was an incomplete science on its own. It needs an interspersion with discourses from other social sciences that focus on the Homo Sapien. I began to seek answers from sociology, anthropology, psychology and even literature. It still seemed like an incomplete story. Maybe economics needs to drink from a bigger cup. I sought refuge in the hard sciences. Little digging into literature and I ran into the criticism economists already face, The Physics Envy. It seemed rather ‘rational’ to me that more math was not helping anyone. Mathematical models seemed to miss the point altogether. The famous Black-Scholes and Myers model missed it terribly[3]. Their mathematical model, very sophisticated and complex had somehow just not been able to factor in the circumstances that led to the military coup in Thailand that year that proved to be a catalyst to the downfall of Long Term Capital Management (LTCM), the profit making center the three mathematicians had established based on their options pricing model.

I turned to the life sciences. Evolutionary biology and Neuroscience. It seemed like another range on the spectrum of answers was opened up to me. This lens made sense when applied to anything I read about human civilization and behavior, in any domain whatsoever. The ideas that Kahneman popularized about the human cognition, naming them System 1 and System 2,[4] had basis in human physiology. The human brain has physical spaces through which emotions are modulated and critical thinking resides in. Below I endeavor to explain in simple language, my infantile attempts at marrying economics with neuroscience, in order to make more sense of the world around me.

Market crashes made all the more sense to me when I understood that the anterior cingulate cortex (involved in emotion modulation) and the pre- frontal cortex (involved in critical thinking and decision making) is overtaken by the amygdala whenever it senses danger in its surroundings. This function of amygdala is rooted in our biology. In the pre-historic era, the human brain’s neo-cortex was still not fully developed[5] and our ancestors relied on sensory inputs from the brain and body to ensure their survival. The brain was trained to be alert to threats from the environment, mostly larger predatory animals. The brain’s system evolved in such a way that made the body more aware of its surroundings by raising adrenaline and cortisol levels in the system, to be able to respond swiftly to impending gloom. That mentality has stayed with us long after existential threats have ceased to hold power over us. So today, even in our culturally crafted environments that present us with no mortal danger, the amygdala in our brain responds in exactly the same way as if the danger was detrimental to our existence, when markets begin to slide. This may seem like a simplistic explanation because it is. There is more to this analysis than meets the eye, but lack of space and the realization that the human brain’s concentration spans on average at about ten minutes, I rest my case for the day.

However, I am not the only one who took this journey through the sciences. Thinkers in economy, philosophy and psychology have made a clearing in the dense forest and enabled the birth of a new discipline, Neuro-Economics. It is a concoction of psychology, neurology, biology, philosophy, history and economics. It seeks to fill that knowledge gap that economics on its own has been unable to. Still, the story is not complete, but with the addition of this vantage point in the repertoire of lenses available to thinkers of the 21st century, we might get rather close to the while picture.


[1] Revenue and Reform: The Indian Problem in British Politics 1757-1773 by H.V Boven

[2] http://list25.com/25-of-the-worst-stock-market-crashes-in-history/

[3] https://www.theguardian.com/science/2012/feb/12/black-scholes-equation-credit-crunch

[4] http://bigthink.com/errors-we-live-by/kahnemans-mind-clarifying-biases

[5] https://www.amazon.com/000-Year-Explosion-Civilization-Accelerated/dp/0465020429

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