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Why Main Street hates Wall Street

People rallying in front of the NY Stock Exchange on Thursday.

TEXT OF INTERVIEW

KAI RYSSDAL: Maybe you disagree, but I think there's something visceral going on here in this debate about the bailout bill. There've been dire warnings from people who know pretty much all there is to know about the workings of high finance that if we don't do something, bad things are going to happen.

Politicians have been saying the same thing. Worth noting because polticians don't like to deliver bad news. Still, a majority in the House voted against a bailout on Monday, in large part because they were swamped by complaints from their constituents. Those are constituents who, it stands to reason, would be harmed by whatever bad things happen, but who seem to really want to stick it to Wall Street.

Dan Ariely's a behavioral economist at Duke University and an occasional contributor to this program. Dan, good to talk to you.

DAN ARIELY: Thank you. Nice to be here.

RYSSDAL: What is it about the human condition that just wants revenge out of a scenario like this?

ARIELY: Well, there's actually quite a few things, but let me first describe to you a little experiment that we and other people have done. It's called the trust game. Now, imagine that you and I each get $10, and you're the first mover and you decide whether to give your $10 to me or to keep it. If you keep it, we both go home. If you pass it to me, that $10 quadruples. So now I have your $10, it became $40, plus my $10, I have $50. I can split it in two and give you half and I get half and we both go home happy. Or, I can take the whole $50 and go home.

RYSSDAL: And I have nothing.

ARIELY: And you have nothing. Now, here's the kink. What happens after we do this game and I take the $50 and go home, you have a chance to take revenge against me. What if I tell you, "Look, for every dollar you spend, I will lose $2." Would you take revenge against me?

RYSSDAL: Well, yeah, 'cause you're leaving with 50 bucks and I have nothing.

ARIELY: That's right. So when you do this experiment in a PET machine, in a machine that scans people's brains, what we see happening is that the same area of the brain that reacts to rewards -- things like food and sex and heroin, to good things -- also reacts to planning revenge. Which basically means that revenge is actually rewarding.

RYSSDAL: But let me ask you this in the present circumstance with the bailout bill. Arguably, the thing was designed to make everybody's life a little bit better -- whether or not they believed that, I suppose, is a relevant question -- but by calling their congressman and saying, Vote no because we want to punish -- under your theory -- the Wall Street people, don't they sort of hurt themselves?

ARIELY: That's right. But right now what we're doing is we're willing to sacrifice money -- the same way that you were willing to sacrifice $3 or $7 to punish me -- people are willing to suffer to get this (you know, I don't know what's a polite way to call this) . . . . people on Wall Street. . . . But people are willing to lose money to get those people to suffer more. In fact, I've asked people about this. Everybody feels this anger. They have violated, in a very important way, a social contract in the same way that I would have violated the social contract of you giving me your $10 and me walking away with $50.

RYSSDAL: Given our motives for revenge, is there a way that Congress can shape a bill that's going to make it acceptable to people whose constituents really want to punish Wall Street?

ARIELY: Yes. So I think we need to include revenge in the bill. There was discussion about capping CEO salaries, which I think went a small way into revenge. But I think there are two ways to include revenge in the bill. One way is to say every time we are going to nationalize something, we are going to take the stock option of these people in these banks, right? We will make them pay for nationalizing it. That's one approach. The second approach is to build into the system future revenge. So another thing we can do is we can decide that the bill will actually force us to create a new code of punishment for people on Wall Street. And we have an opportunity here, with a meltdown that's so dramatic, that we feel that there is a need to go back and try and reshape the whole system. And that might actually be very, very useful in the long term.

RYSSDAL: Dan Ariely is a professor of behavioral economics at Duke University. His book on these sorts of things is called "Predictably Irrational." Dan, thanks a lot.

ARIELY: My pleasure. Thank you.

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