Dan Ariely, behavioral economist and all-around mensch, has a post up about the advantages of “handshake” agreements — contracts that do not have exhaustive thoroughness as their goal.

Even lawyers see the risks of complete contracts. As part of my research, I asked the dean of Duke’s law school, David Levi, if I could take a look at the school’s honor code. Expecting a detailed contract written by lawyers for lawyers, I was shocked to find that the code went something like this: If a student does anything the faculty doesn’t approve of, the student won’t be allowed to take the bar exam. It was, in essence, a handshake agreement!

“Imagine that a student decides to deal drugs and raise chickens in his apartment,” Levi said. “Now suppose that our code of conduct bans many activities but doesn’t address pot or chickens. The student has honored the code. But does Duke really want that student to become a lawyer?”

Complete contracts are inevitably imperfect. So what’s better: a complete contract that mutates goodwill into legal trickery, or an incomplete contract that rests on the understanding we share of appropriate and inappropriate behavior?

Dan’s logic is sound (more on the dean’s in a moment), but the rub lies in his phrase “the understanding we share.” Handshake agreements work to the extent that there are shared norms of behavior. But even assuming the greatest goodwill in the world, there are different styles of handshakes. “Diversity” doesn’t only mean intriguing variations in skin color, appealingly displayed like the bridge of the Enterprise or a Benneton ad. Diversity may mean fundamentally different beliefs about time, personal responsibility, power and authority. These different assumptions, if unaddressed, can cause things to go sideways despite the best efforts of the people involved.

As far as the dean’s point is concerned, I disagree. When one is speaking of a dorm room, either pot or chickens might create insurmountable logistical problems, but neither are ethically problematic. In fact, a person raising either one would of necessity develop a patience, an attention to detail, a sense of humor, and a humility by which many lawyers might be improved.

Dan Ariely* has an intriguing blog post up–is it possible that chimpanzees behave more like economists’ “rational man” than humans do? And if so, what does this fact say about evolution and intelligence? Or, maybe–just maybe, mind you–does it perhaps say something more important about traditional economics, instead?

*Winner of the 2008 Ig Nobel Medicine Prize, along with Rebecca L. Waber, Baba Shiv , and Ziv Carmon, for demonstrating that high-priced fake medicine is more effective than low-priced fake medicine.

The phrase “the wisdom of the markets” sounds like a dark joke these days, but judgments by groups of people are usually more accurate than judgments by a single person. (That is, as long as the group result is the average of a bunch of individual results. The ability of groups to make reasoned decisions together is notoriously bad, as this poster brilliantly illustrates.) The British Psychological Society blog describes a new experiment showing that people can get this effect within their very own, single, solitary mind:

You can boost your quiz performance by unleashing the crowd within, a new study shows. The next time your’re asked to estimate a historical date, for example, try doing the following: make your first estimate; then pause and assume your first guess was off the mark. Consider why, then use this new perspective to make a second estimate. Average your two estimates and, chances are, this newly calculated date will be more accurate than your original answer. The new approach is called “dialectical boot-strapping” and according to Stefan Herzog and Ralph Hertwig, it really works.

…

“Part of the wisdom of the many resides in an individual mind,” the researchers said. “Dialectical bootstrapping is a simple mental tool that fosters accuracy by leveraging people’s capacity to construct conflicting realities.”

I bolded that last clause because this is really at the crux of things. In my Harvard Business School job, I recently reviewed a huge amount of literature on cognitive biases, or the typical ways people tend to make mistakes. There’s a ton of these biases: we overestimate the role we ourselves played in events, for good or ill; we throw good money after bad; we leap to conclusions about other people without taking their circumstances into account; we cannot predict our own emotions accurately. Really, spend enough time reading about all of the ways in which people are predictably irrational and you won’t even want to get out of bed, your chances of making a good decision are so low.

And you can’t really “debias” people like you’d debug a computer program. It’s not a quantitative thing. You can’t simply tell a person, “People typically overestimate how many calories they burn by 20%, so the next time you go to the gym, multiply the number of calories you think you burned by 0.8″ and have that make any difference. The only thing that seems to help people make better decisions is for them to aggressively and imaginatively think through alternate scenarios–in short, to envision how their present construction of events could be wrong. Or could go wrong–even if you are understanding a situation correctly, circumstances can change. If you are thinking to wait out the recession in grad school, say, it would be worthwhile to ask yourself: What if the economy dramatically turned around? Would this still be the right decision?

“What if?” and “How do I know?” — get in the habit of asking yourself these questions. They only make you feel dumb at first.

Dan Ariely–author of Predictably Irrational, professor of psychology, business, economics, and medicine at Duke University, winner of the 2008 Ig Nobel Prize in Medicine, and all-around standup guy–has an good post up about “conceptual consumption,” or the ways ideas and emotions play into our purchasing behavior.

Most of this is familiar to me (behavioral economics is increasingly a passion of mine), but here’s a new one:

One study of how memories influence consumption explored the phenomenon whereby people who have truly enjoyed an experience, such as a special evening out, sometimes prefer not to repeat it. We might expect that they would want to experience the physical consumption of such an evening again; but by forgoing repeat visits, they are preserving their ability to consume the pure memory – the concept – of that evening forever, without the risk of polluting it with a less-special evening.

Have you ever done this? I can’t think of any time that I have–although I did explore similar sentiments once, regarding Boston’s Public Garden.