perspectivesISSUE 2 WINTER 2013/14 A nef consulting publication

The Value of MoneyChallenging the preconceptions

Money Isn’t EverythingJulian Baggini and Ian Haddenexamine the usefulness, orotherwise, of using money as ameasurement of success.New Values, New MoneyLeander Bindewald and RupertWiddicombe look at the role ofnew kinds of money inrepresenting what we value.We’re Only Human When ItComes to MoneyIan Hadden, with Professor DanAriely, writes about our tendencytowards irrationality in ourdecisions about money.The Art of Public FundingJonathan Schifferes looks at therelationship between money andculture.

INTERVIEW

Daniel FujiwaraWhat value well-being? A new way of valuing human intangiblesbased on well-being is gaining currency,as Daniel Fujiwara explains to RupertWiddicombe.

Perspectivesnef consulting3 Jonathan StreetLondonSE11 5NHT: +44 (0) 207 820 6361E: enquiries@nef-consulting.co.ukwww.nef-consulting.co.uk@nefconsulting

ContactsGraham Randles, Managing Director, nef consulting Tel: 020 7820 6374graham.randles@nef-consulting.co.uk

Mary-Louise Nash, Marketing and Communications Manager,nef consulting (editor of Perspectives)Tel: 020 7820 6352mary-louise.nash@nef-consulting.co.uk

nef consulting is a social enterprisefounded and owned by nef (neweconomics foundation) to help public,private and third sector organisationsput its ideas into action.

We are experts in Social Return OnInvestment (SROI) analysis and usingwell-being measurement in impactassessment. We integrate socialvaluation into the realm of cost-benefitanalysis and economic evaluation.

nef consulting provides analysis,training and strategic advice to public,private and third sector organisations sothey can develop better outcomesmetrics. The impact of our work extendsto helping commissioners andgovernment departments understandvalue-for-money of their spending.

Disclaimer:The views expressed in this publicationare those of the contributors. Reproduction in whole or part withoutwritten prior permission is strictlyprohibited.© 2013 nef consultingAll rights reserved.

ContentsIntroduction from Graham Randles 1Money Isn’t Everything – Julian Baggini and Ian Hadden 2Interview with Daniel Fujiwara:What Value Well-Being? – Rupert Widdicombe 5

New Values, New Money – Leander Bindewald 8We’re Only Human – Ian Hadden with Dan Ariely 11The Art of Public Funding – Jonathan Schifferes 14Summary – Olivier Vardakoulias 17

Contributors(see articles for more information)

Dan ArielyDan Ariely is Professor of Psychology and Behavioral Economics atDuke University in the USA. He is author of Predictably Irrational, TheUpside of Irrationality, and The (Honest) Truth About Dishonesty.Julian BagginiJulian Baggini is a writer and philosophy PhD whose books include TheEgo Trick and The Shrink and the Sage: A Guide to Living, co-writtenwith psychotherapist Antonia Macaro.Leander BindewaldLeander manages the INTERREG IVB funded EU partnershipCommunity Currencies in Action (CCIA) at nef.Daniel FujiwaraDaniel Fujiwara is a consultant in economics and econometric analysisand a researcher at the London School of Economics and PoliticalScience (LSE). He was previously senior economist at the Cabinet Officeand is author of the Treasury Green Book on valuation techniques.Ian HaddenIan works with organisations to help them define and deliver long-termchange and is also a photographer and writer.Jonathan SchifferesJonathan is a Senior Researcher at the RSA’s Action Research Centreand previously worked for nef consulting. Olivier VardakouliasOlivier is an economist at nef consulting working on the refinement andimprovement of measurement methodologies and modelling tools. Rupert WiddicombeRupert’s articles have been published in The Guardian, Sunday Times,The Economist and other UK and international titles.

perspe

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ctives

Welcome to the second issue of perspectives, the magazine from nef consulting

At nef consulting we engage in issues and questions of value on a daily basis. We findthat, in almost every case, the subject of money is not far behind. Does value always haveto be connected with money? Of course not. Many, if not most, of the things we truly valuein life are free. We don’t put a price on our families and personal relationships, on love andfriendship, on our enjoyment of the outside world, or even on relaxing and doing nothing.We regard these things as priceless.

Conversely the term ‘value’ has somehow come to be associated in the public consciousness with ‘cheap’ –in shops and supermarkets and on the television and Internet, we are bombarded with advertising that tellsus that this or that product is good value, best value or two-for-one value. Through these promotions, whichalmost always emphasise we are buying the same for less, we are conditioned into thinking that good valueis the same as cheap. While we may be losing sight of the true meaning of the term ‘value’, surely we have no such problem withour understanding of money? Once again, it is not clear. We may understand money in its transactional senseas a means of exchange but, as explored in the article New Values, New Currencies, money is much morethan the coins and notes in our pockets and purses. It has meaning, and that meaning is linked to our socialvalues.The range of articles in this issue of Perspectives highlights the many nuances of our relationships with theconcepts of money and value. It shines a light on the various contradictions inherent in these relationships. Ismoney one of humankind’s greatest inventions, on a par with the wheel and the steam engine or is it anoutdated concept desperately in need of an upgrade? Or both, as these articles suggest?Another contradiction: given the confusion between the concepts of money and value, why are we so keen toput a value on the social impacts of organisations, as suggested in the article What Value Well-Being? In thisinterview, Professor Daniel Fujiwara talks about the rapidly evolving field of impact measurement thatincludes tools and techniques such as Social Return on Investment analysis. This is really the other side ofthe same coin. When positive social benefits and negative environmental impacts are typically regarded asexternalities in conventional economic thinking, these approaches attempt to reassert the value of well-beingby describing this in commonly understood monetary terms.Our final article sums up the challenges presented by the conundrum of money for value by asking whetherand how we can put values at the forefront of decision-making in a world dominated by financial andquantitative criteria. This question is central to our work at nef consulting and how it is answered will help todetermine how we all make the transition to a new economics. We would love to hear your views and shareour ideas with you so please do drop us a line or give us a call.

Graham RandlesManaging Director, nef consultingTel: 020 7820 6374graham.randles@nef-consulting.co.uk

oney is huge. In fact, you could

easily argue it is on a par with

the wheel in terms of its impact on

humanity. By encouraging widespread

specialisation and trading, its function

as a universal medium of exchange

brought monumental change to our

society: massive industrialisation,

modern medicine, electricity,

television, the six billion (and rising)

mobile phones in the world and much

more. As omas waites’ wonderful

Toaster Project1 shows, even building

an Argos toaster - which at around

£5.00 costs less than an hour’s

minimum wage - would be wildly

impossible without the specialisation

that money allows.

Don’t take that holiday

Money is an amazing tool, but it has itslimits; it is not the same as value and weignore this at our peril. Money is easy tomeasure so we often end up focusingtoo much on things that have amonetary value and not enough onthings that don’t.

For example, the floods and snow lastwinter, according to a survey byBusiness West and South WestChambers of Commerce, costbusinesses in the south west of Englandaround £165 million. As much as wewould all agree that more could be doneto make the transport infrastructuremore resilient, we ought to questionhow quick we are to assess events interms of what they cost the economy.

It seems to happen regularly nowadays.Remember how the extra bank holidaysfor the golden jubilee and the royalwedding were both said to have cost theeconomy dear?

e problem is that anything we do thatmeans we create less money than wecould have done is a cost in this sense.So, every holiday abroad costs localbusiness because someone is spendingmoney over there instead of here. Everymeal cooked at home deprives atakeaway or a restaurant of income.

It is easy to see where this logic leadsyou. Every bank holiday comes at theexpense of the national purse. Everyextra hour you spend with your familyinstead of putting in overtime costs thehousehold money. In short, every

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Money isn’t Money has its uses, but if we use it as the main way of

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By Julian Baggini and Ian Hadden

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everything measuring success we’ll lose sight of where value truly lies

minute spent not generating wealth iscosting someone something.

is is absurd. We need to turn it on itshead, and remind ourselves that everyhour spent merely earning money orgenerating wealth for the nation costs usvaluable time we could be using to fillwith what is truly important in life –even if that is harder to measure.

Measuring the (apparently)unmeasurable

None of this is new. In 1968, shortlyafter declaring his Presidentialcandidacy, Robert Kennedy made aspeech arguing that Gross NationalProduct measures everything except thatwhich makes life worthwhile (see page4). Has anything changed in the nearly

half a century since that speech? Well,yes, although it’s gone unnoticed bymany.

While not everyone agrees that it ispossible to measure the joy of childrenor the strength of marriages, the last fewdecades have been host to a largeamount of research into trying to dojust that. We even have nice new jargonfor it – well-being. As you might expect,there are plenty of competing ways todefine and measure it, and terms such as‘revealed preference’ and ‘subjectivewell-being measures’ are becomingincreasingly common.

Initiatives abound: nef (new economicsfoundation) will help to measure yourwell-being in your personal life2 and atwork3, the UK Government has recently

started to measure the nation’s well-being4

and there are many more. Even thosewho think that accurate measurement isnot possible would surely agree that thisincreased focus on identifying andtracking what makes life worthwhilemarks a step in the right direction.

e practical implications of thisbackroom work are beginning to comethrough. ere are a few examplesoverleaf, but there is a long way to go. Westill too often mistakenly use money as aprimary measurement of success, both asindividuals and as a society. Whenmaking decisions about how to use ourtime or spend our money, we shouldinstead consider what we really value inlife. If we don’t, we’ll lose sight of wherevalue truly lies. p

Julian Baggini Julian Baggini is a writer andphilosophy PhD whose booksinclude The Ego Trick and TheShrink and the Sage: A Guide toLiving, co-written withpsychotherapist Antonia Macaro.

Ian Hadden Ian Hadden works withorganisations, from the financialservices sector to centralgovernment, to help them define anddeliver long-term change. Ian is alsoa photographer and writer. He canbe contacted at ian@rootsix.com

Where’s the joyin GNP (or GDP)?“Even if we act to erase material poverty, there is another greater task, it is toconfront the poverty of satisfaction - purpose and dignity - that afflicts us all.

Too much and for too long, we seemed to have surrendered personal excellenceand community values in the mere accumulation of material things.

Our gross national product… counts air pollution and cigarette advertising, andambulances to clear our highways of carnage. It counts special locks for our doorsand the jails for the people who break them. It counts the destruction of theredwood and the loss of our natural wonder in chaotic sprawl…

Yet the gross national product does not allow for the health of our children, thequality of their education or the joy of their play. It does not include the beauty ofour poetry or the strength of our marriages, the intelligence of our public debate orthe integrity of our public officials. It measures neither our wit nor our courage,neither our wisdom nor our learning…it measures everything in short, except thatwhich makes life worthwhile.”

Robert Kennedy, University of Kansas, 18 March 1968 (abridged from the full speech5)

1 www.thetoasterproject.org/page2.htm2 www.neweconomics.org/projects/entry/five-ways-to-well-being3 www.nef-consulting.co.uk/our-services/strategy-culture-change/well-

being-at-work//4 www.gov.uk/government/publications/national-wellbeing

5 www.youtube.com/watch?v=77IdKFqXbUY6 www.nef-consulting.co.uk7 http://blogs.hbr.org/2013/06/how-money-actually-buys-happiness/

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Away from money, towards value and back againHere are a few examples of the practical implications arising from recent advances in our understanding of the limits ofmoney in measuring what we value.

Government The UK’s recent Social Value Act now formally requires public bodies to take into account non-monetary social and environmental value when they choose suppliers.

Third sector Many charities now go armed to funding bodies with their Social Return on Investment analysis to demonstrate the non-monetary value that they are adding (although this may be stated in monetary terms in order to make their point). Read more on the nef consulting website.6

All sectors Complementary currencies, time banks and a variety of business-to-business currencies have emerged in the last few decades; these have distinct sets of values embedded in them that are not represented by mainstream money.

Individuals Research in the last few decades has shown that, in fact, money can buy you happiness, but maybe not in the way you thought. An article in the Harvard Business Review, How Money Actually Buys Happiness by Elizabeth Dunn and Michael Norton, explains7.

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conomists are fascinated by thechoices we make and their value

to us. Our ‘revealed preferences’ havelong been their data of choice.

All too often no direct market data areavailable. If you are evaluating plans tobuild a railway through countryside howdo you put a value to the impact on thepeople who live there? To get round thelack of data, economists may commission

‘stated preference’ surveys asking peopleto put a value on a particular outcome.How much would you be willing to payto protect an endangered species?However economists and decision-makers have reservations about the valueof much self-reported data.

A new approach to valuation isbecoming increasingly popular withpolicy makers. Since 2011 it has been

included in the Green Book, the UKTreasury’s guide to evaluating publicprojects. It is called well-being valuationand, to find out more, I spoke to one ofthe pioneers of this approach in the UK:Daniel Fujiwara of the London School ofEconomics, formerly senior economiston cost-benefit analysis in the CabinetOffice and the Department for Workand Pensions.

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What valuewell-being?

A new way of valuing human intangibles based on well-being isgaining currency, as valuation expert Daniel Fujiwara explains.

An interview with Daniel Fujiwaraby Rupert Widdicombe

equivalent to £2,000 per person peryear.

Well-being valuation can be used tovalue both benefits, such as reductionsin crime levels, and dis-benefits, such aspollution. e richness of the data andthe huge range of variables trackedmeans it is possible to attachmeaningful values to a wide range ofnon-market outcomes. e method hasbeen used before to value many thingsfrom droughts and political corruption,to air quality and good health.

is approach is useful for decision-making because it allows us tounderstand how much people valueoutcomes associated with differentpolicies and interventions, allowing usto channel resources to areas that createmost value for society.

In general, economists havereservations about ‘stated preferences’,so why do they find self-reported well-being data more convincing?

DF: e ‘stated preferences’ gatheredthrough surveys can be surprising andarbitrary – people find it hard to put avalue on feelings, and on goods and

outcomes that are not traditionallytraded in markets. We tend to find lots ofbiases in stated preference methods. Forexample, some people may intentionallystate a very high value to encouragegovernment to provide the non-marketgood or service or they may reverse orflip their choices all of a sudden.

We don’t get these biases with well-being data, as we don’t ask people thedifficult question of how much theyvalue a non-market outcome. Well-being data are also self-reported, but

there is a good amount of evidence tosuggest that SWB responses provideuseful information about a person'sactual well-being and how life is goingfor them. For example, well-being andlife satisfaction scores correlate withother important factors that we wouldexpect to be important for a person'swell-being such as health, suicide ratesand smiling and frowning. ere is evenevidence from fMRI scans to show thatlife satisfaction correlates well withactivity in areas of the brain associatedwith pleasure and enjoyment.

e great thing about using well-being

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How does well-being valuation usesurvey data to derive values?

DF: Well-being valuation takes data onpeople's subjective well-being (SWB)from large surveys and uses statistical oreconometric techniques to assess howdifferent life events impact on SWB.e British Household Panel Survey(BHPS) is a popular dataset. It surveysover 10,000 people year-on-year askingthem about 500 questions on differentaspects of their lives, includingquestions about well-being andhappiness. And many more UK datasetsnow also include questions on SWB.

In cost-benefit analysis and relatedtechniques such as social return oninvestment (SROI), the value ofsomething is the amount of moneyrequired to produce the equivalentimpact on a person's welfare or well-being.

Data like the BHPS can be used toestimate the impact that a non-marketgood or outcome has on SWB, such asimproved life satisfaction. We can alsouse the BHPS to look at the impact thatextra income has on SWB. Using thesetwo estimates, we can then calculate theequivalent value of the non-marketgood.

For example, if we want to estimate themonetary costs associated with non-market outcomes from the creation of anew train line, we could do this in well-being valuation by looking at theimpacts that train lines have on SWB. Itmay be that people living close to trainlines have one index point lower lifesatisfaction, all else equal. rough thewell-being valuation method we wouldthen seek to find out how much extraincome would also generate anequivalent one index point change inlife satisfaction. If it turned out that£2,000 increases life satisfaction by oneindex point, then we could concludethat the monetary costs associated withthe dis-benefits from train lines is

data in well-being valuation is that wecan assess the impact of outcomes andpolicies on how people experience theirlives, rather than assessing impact basedon what people predict and say they willlike. Very often we find that people statehigh values for non-market goods insurveys but in the experience of theirlives we find that those goods have verylittle actual impact on their well-being.In these instances well-being valuationprovides a more accurate description ofthe value people place on things.

A monetary value is being put onsubjective well-being – is this anappropriate comparison to make?

DF: I get asked this question a lot. eimportant thing to note is that we areultimately interested in understandingthe impact of non-market goods onpeople's welfare or well-being. It just sohappens that we tend to do this usingmoney metrics in economics, but intheory we could measure value in termsof pretty much anything. Money is auseful metric to use because it allows usto compare the value of outcomesdirectly with the costs of the

programme, which are usually set infinancial terms. us we don't really'put a value' on well-being, we aresimply finding the amount of moneythat would produce the equivalentimpact on a person's well-being. It's abit like saying this car is travelling at97kph rather than 60mph - it's thesame thing or phenomenon measuredin different units.

How is well-being valuation beingused today to inform decisions?

DF: Well-being valuation isincreasingly being used as acomplement or even as an alternativeto other valuation methods in the UK.e Green Book suggests the approach‘can play an important role inchallenging decision makers to thinkmore carefully about the full range ofimpacts of their proposed policies’ and‘question the values that they mayotherwise place implicitly on theseimpacts’. ere is also growing interestfrom the OECD [Organisation forEconomic Co-operation andDevelopment].

A practical advantage of well-beingvaluation is that it is a very cost-effective alternative because the datarequired to run the analysis are usuallyalready available in large nationaldatasets. Stated preference surveys canbe a lot more expensive because theyentail running surveys and datacollection before any analysis can takeplace. e approach has been used bygovernment departments including theDepartment for Business Innovationand Skills (the value of adult learning),the Department for Culture Media andSport (the value of participation inculture and sport) and the Departmentfor Communities and LocalGovernment (the value of urbanregeneration). A large number ofcharities are also using the well-beingvaluation method to inform SROI anddecision-making.

Daniel Fujiwara

Daniel Fujiwara is aconsultant in economicsand econometric analysisand a researcher at theLondon School ofEconomics and Political

Science (LSE), where he is finalising hisPhD on policy evaluation methodology.He also holds a number of advisory roles,including Scientific Advisor to the SROINetwork. His research focuses on thenormative foundations of cost-benefitanalysis, policy evaluation methodologyand valuation techniques for non-marketgoods. He has a strong interest in the useof subjective well-being data in policy-making and valuation and has advisednumerous governments and internationalorganisations on policy evaluation. Priorto joining the LSE, Daniel was senioreconomist at the Cabinet Office andworked for 10 years in policy evaluation inthe UK Government, where he wasawarded the John Hoy Memorial Prize inEconomics for his contribution to policyevaluation methodology. He is the authorof the Treasury Green Book guidance onvaluation techniques.

Rupert Widdicombe

Rupert Widdicombe is awriter, editor andcommunicationsconsultant. His articleshave been published inThe Guardian, Sunday

Times, The Economist and other UK andinternational titles. He has worked asscript writer and editor, a communicationsspecialist supporting public sector reform,and a resource for developmentorganisations in Latin American andAfrica. He can be contacted atrupert.widdicombe@btopenworld.com

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Money is not metal; it is trust inscribed”Niall Ferguson

“

Is our money really designed to do what we need it todo? New kinds of money can better represent whatwe truly value and enable new economies, writeLeander Bindewald and Rupert Widdicombe

ost of us want more of it. Fewof us understand what it really

is. One thing is certain though –money does not have to be what it istoday, it is a human invention long duefor an upgrade.

In his book, Frozen Desire: TheMeaning of Money, former FTjournalist James Buchan calls money“incarnate desire”, storing andtransmitting our wishes. Money is, heconcluded, “an outcome of a vastmountain of social arrangements.”

Our everyday money is flawed and hasshortcomings that are becoming evermore obvious. For a start, moneydefines an abstract economic value thatis distinct from our social values. Thisdivision drives us to behaviouralpredicaments and catch-22 choices,sedating our personal longings with evermore consumption, while that sameconsumption commands theexploitation of nature and labour, thetwin shackles of perpetuated misery, onthe other side of the globe.

We see this subliminal schizophreniamost easily when money is crudely usedto sell us things we once considered free– clean water or caring for our children,the vulnerable and elderly.

Monetisation and money-based valueshave expanded “into spheres of lifewhere they don’t belong”, writesphilosopher Michael Sandel in WhatMoney Can’t Buy. “It is time to ask if wewant to live this way.”

Economics textbooks list three

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functions of money – a medium ofexchange, a store of wealth and a unit ofaccount. There is, of course, nomention of human values such asmorality, fairness, equality and justice.

Today, most of the money in the worldis created as interest-bearing debt byprivate banks (see nef’s book Where DoesMoney Come From?8). This means oureconomies are forced to grow to standstill, trying to cover the interest on ourdebt, which in itself is not a temporalexuberance but an economic necessity.

Without debt, there would be nomoney left in the world. At the sametime, rather than wealth trickling downto the many, the perks of this monetaryarrangement flow up the social pyramid,concentrating wealth in the hands ofthose who need it least.

One response to these flaws in ourmoney has been to ‘retrofit’ our existingvaluation systems with measures thatsomehow capture social benefit orhuman well-being. (See the interviewwith Daniel Fujiwara). A second

approach is to take back from the banksthe power to create money and put itwhere most people believe it to be, withour democratically-elected governments.However, there is a third way, an open-source, bottom-up approach – re-engineer money itself.

Complementary currencies have beenspringing up since the early 1980s whenthe first Local Exchange Trading System(LETS) was introduced in BritishColumbia. Today, there are local poundsin Brixton, Bristol and Lewes; 60,000

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New values,new currencies

businesses in Switzerland trade in theirown cooperative currency, the WIRfranc; and over 100 Banco Palmasoperate across Brazil.

In the 1990s, a variant known as ‘timebanking’ emerged. Human values wereexplicitly put into the kernel of thecurrency through stating five coreprinciples:

� Everyone is an asset.

� Some work is beyond a monetaryprice.

� Reciprocity in helping.

� Social networks are necessary.

� A respect for all human beings.

Since then time banking has become aglobal phenomenon, implementedacross the public and third sector,particularly in the UK and the USA.The City of London Time Credits9

scheme is just one recent addition.

Each complementary, community andtransition currency, LETS and time

bank, business-to-business currency andexotic variant, has a distinct set ofembedded values. These values aredisregarded or misrepresented bymainstream money and include theimportance of local production, ofcommunity and identity, of self-determination and equity.

Another key common characteristic isthat these currencies are usedvoluntarily. To succeed they have tooffer a better deal to their users, andencompass their personal values better,than the current ‘one-size-fits-none’money.

Choice is the key and new currenciesallow us to coin our values into newwealth: by choosing a particularcurrency we choose what we want to seerepresented in our socio-economicnetworks.

With time banks we focus on socialvalues based on the equality of eachindividual’s time. The Bristol pound

raises awareness of the local economyand the importance of smallindependent businesses. Currenciesdesigned around renewable energyemphasize the link between our naturalenvironment and our economies (seethe nef report Energising Money10). Theabundance of value in the informationeconomy, where sharing means more,not less, for everybody, again requiresentirely new currencies, some of whichwe can’t even spend – such asreputation(s) collected onTrustcloud.com.

All these fulfil the universal function ofany currency: facilitating collaborations.What kind of collaborations, andbetween whom, is only in our control ifwe have a genuine choice of thecurrency we use. Money is not theneutral agent economists would wish usto think it is. Better currencies wouldharness the power of innovation andchoice to steer our rent-seeking, casinoeconomy in a new direction. p

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nef’s work on community currencies

Leander Bindewald manages the INTERREG IVB funded EU partnership CommunityCurrencies in Action (CCIA) for the Finance and Business team at nef (new economicsfoundation). CCIA aims to establish greater coherence in theory and practice ofcomplementary and community currency solutions in the public and third sector.

For more information go to: www.ccia.eu

Leander holds a master’s degree in Neurobiology (Diplom Biologe) and a Master of Arts(Magister Artium) in Philosophy and Business from the University of Freiburg in Germany. Hecan be contacted at leander.bindewald@neweconomics.org

8 www.neweconomics.org/publications/entry/where-does-money-come-from9 City of London Time Credits can be earned by anyone who contributes their time to the City of London community and can be spent on activities inthe local area. For full details visit www.facebook.com/citytimecredits10 www.neweconomics.org/publications/entry/energising-money

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n the first edition of Perspectives,the article Our Buggy Brains

introduced the idea that our mindplays tricks on us just as our eyes do.ese tricks are known as cognitiveillusions or biases and result in theirrational but predictable behavioursstudied by the newish discipline ofbehavioural economics.

When it comes to money we areirrational, big time. We are in thrall to thepresent at the expense of the future. Wejudge the competence of an investmentmanager on how likeable they are. Webase long-term investment decisions on atrack record of a few years. We cheat –but just a little. ere are plenty moreexamples, often surprising. e panel on

page 13 looks at a few and what theymean, both for us as individuals whospend money and for the organisationsthat are trying to get us to spend it.

The evolutionary psychologistsare coming

All these irrational behaviours seem just,well, irrational. Are we just a bunch of

We’re only humanwhen it comes tomoney

Our brains are hardwired to make economic choices based on our deep past,bringing our distinctlyhuman nature into focus

By Ian Haddenwith Dan Ariely

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donkeys that aren’t very smart withmoney? It depends how you look at it.We are irrational in very specific ways,and these are highly predictable. Why?

As Professor Dan Ariely of DukeUniversity puts it, “One explanation thatseems to fit the data is based on how ourbrains evolved over many millions ofyears. During this time they becamefinely tuned to perform a very specificjob. at job wasn’t to make rationaldecisions. It wasn’t even to make us happyor to give us a sense of satisfaction. It wasto give our genes the best possible chanceof surviving. e decisions we maketoday are heavily influenced by our abilityto propagate our genes in our distantpast; we are navigating the complexeconomic environment we find ourselvesin today using tools that were adapted toa very different job.”

Look at the behaviours on the pageopposite. Why do we value fairness morethan value? Maybe to encouragecooperation within kin groups - key tothe survival of a species with limitedindividual strength but the ability to workhighly effectively as a coherent socialgroup. Why do we hate losses more thanwe like gains? Maybe our ancestorsneeded to avoid falling below theminimum threshold of resourcesnecessary for survival. Similar types ofargument can be constructed for otherirrational behaviours that mightotherwise seem arbitrary.

e evolutionary psychologists call it ‘deeprationality’; the paper Deep Rationality: eEvolutionary Economics of DecisionMaking11 explores the idea further.

Economics needs to go human

A core assumption of classical economicsis what is called ‘rational choice theory’ –that we each take rational decisions thatmaximise the expected benefits to ourself. However, the experimental evidencefrom behavioural economics and theexplanatory insight of deep rationalityturn this assumption on its head. elegacy of our evolutionary past – theunconscious forces that influence ourdecisions – is so powerful that we neednew ways to model our economic nature.

“For economics to be relevant to ouractual experience, it needs to take intoaccount the fact that we are human, toground itself in our distinctly humannature - our limited willpower, our strongaversion to loss, our need for socialbonds. All these, and more, arefundamental to how we behave in theeconomic sphere – they aren’t just minorfootnotes” says Professor Ariely.

What does it all mean?

is way of looking at our economicworld has developed only over the lastfew decades, and no-one has yet created acoherent, unified way of understandingwhat it means in practice. As page 13hints, we know many of the pieces but wehaven’t managed to complete the jigsaw.It’s a work in progress.

So if we don’t have the full picture yet,what can we do? To start with, we cantake practical steps to avoid the morepernicious consequences of thinking thatwe are rational economic agents. Forexample earlier this year the UK’s new

Financial Conduct Authority formallystated that it expects banks and others touse research in irrational decision-makingto sell financial products in ways thatprotect people from buying products thatare not in their best interests12. We can alllearn to take steps to engage our rationalside to protect ourselves from badpersonal financial decisions; Ulyssescontracts13, reward substitutions14 andincreasing the pain of paying15 are someof the practical techniques that can helpload the dice in our favour.

Perhaps more importantly, as weunderstand more about our unique, socialand fallible human nature, we gaininsights into both sides of the equation –us and money. So, as well as suggestingtechniques to help us be more rational inour financial decision making, theseinsights might also help us figure out theways money itself serves us poorly. If wecan redesign our own financial decisionmaking, maybe we can redesign money tobetter suit the needs of our complexhuman society. is ‘work in progress’may be one of the most important for ourcommon future.

Dan Ariely

Dan Ariely is professorof psychology andbehavioral economics atDuke University in theUSA. He is the author ofPredictably Irrational

and The Upside of Irrationality, andmore recently The (Honest) Truthabout Dishonesty.

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11 www.ncbi.nlm.nih.gov/pmc/articles/PMC2914349/12 www.fca.org.uk/news/speeches/human-face-of-regulation13 http://befi.allianzgi.com/en/Topics/Pages/bound-to-plan.aspx14 www.bigthink.com/videos/why-we-do-things-that-arent-in-our-best-interests15 www.ezonomics.com/stories/cash_or_credit_the_choice_influences_the_pain_of_paying16 http://danariely.com/2010/12/15/locksmiths/17 www.ted.com/talks/joachim_de_posada_says_don_t_eat_the_marshmallow_yet.html18 www.ted.com/talks/shlomo_benartzi_saving_more_tomorrow.html?quote=133919 http://danariely.com/tag/cheating/

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We value fairness more than we valuevalue.We are often happy to pay for somethingas long as we can see that a reasonableamount of effort went into it – so it seemsfair even if it isn’t good value. For example,we can be happy to pay for incompetentservice because we at least appreciate theeffort.

How am I irrational with money? Let me count the ways

So what? Goods and service providersneed to ensure their customers see theeffort put into their goods and services aswell as their value. Industries with highfixed costs have a particular challengesince a high proportion of their costs maynot be visible to the customer. This helpsexplain why online media has such a toughtime getting paid – their marginal cost ofdelivery is nearly zero.

Learn more: The locksmith’s tale16 (Dan Ariely, 3-min video)

Learn more: Saving for tomorrow, tomorrow18 (Shlomo Benartzi, 17-min video)

We’re in thrall to the present.Most of us would prefer somethingRIGHT NOW even if waiting even a littlewhile would give us more benefit. It’scalled ‘present bias’. For example, mostfour year olds can’t wait even 15 minutesfor an extra marshmallow when facedwith one but those that do are moresuccessful in later life

So what? We can’t change the fact thatour brains are designed to discount thefuture, but we can use techniques tomitigate the problems this causes. Onetechnique, reward substitution, motivatesus to behave in ways that are good for us inthe long term by creating an immediatereward for that behaviour. Examples rangefrom giving yourself a treat when youexercise (which helps you live longer) tosocial brownie points from the car you drivebeing visibly eco-friendly (which reducesglobal warming). As Dan Ariely says,“Reward substitution can get us to act likewe care about the world when we reallycare about our image.”

We really, really hate losing.Which is worth more to you: (i) £70 or (ii)£100 minus £30? If you said £70 then youmay be a closet behavioural economist.We think of a gain of £70 as much lessvaluable when it is presented to us as acombination of a gain of £100 and a loss of£30, even though the two are (rationally)equivalent. It’s called ‘loss aversion’ and issurprisingly powerful.

So what? One big implication of lossaversion is that we see saving for the futureas a form of loss – a loss of our ability tospend today in favour of an ill-defined far-in-the-future self. So it’s no surprise thatmost people’s pensions are underfunded.What to do? One organisation used the‘Ulysses contract’ technique – they askedemployees to agree up-front to increasetheir pension contributions in the futurewhen they get a pay raise – over three anda half years the average contributionincreased from 3% to 14%.

We cheat – but just a little.We don’t do a rational cost-benefit analysisof cheating, or we would almost certainlycheat more than we do. We cheat just asmuch as we can get away with while stillpersuading ourselves that we arereasonably honest people. It’s not thatthere are a few bad apples, but rather thatall the apples are just a wee bit mouldy.

So what? Two strategies to avoid cheatingfor money are evident. The first is toremind people of their desire to be honestat the point of temptation; so for example,ask for a signature on a tax return beforefilling it in rather than afterwards. Thesecond is to structure workingenvironments to reduce conflicts ofinterest, so that it is easy to both do theright thing and get the best result foroneself.

Learn more: Dan Ariely’s blog on cheating19

Learn more: The Stanford marshmallow experiment17 (Joachim de Posada, 6-min video)

ome of society’s most treasuredassets have a complex relationship

with money. Making art requiresmoney for materials and labour, but themonetary terms that dominate debateabout public and private investment arenot appropriate for understanding art’svalue as a social good.

While, of course, our lives are enhancedby art and culture, artistic work onlyacquires monetary value at the momentof commodification, not at its creation.is undervaluing, or exploitation, ofcreativity is long-standing. e jointstock company that owned the originalGlobe eatre collected ticket revenuefrom performing Shakespeare’s plays.e Bard and his fellow actors receiveda portion of that because they heldstock in the company, not because oftheir work as artists. e market forproducing art fails on two counts; first,artists often don’t receive paymentequivalent to the value they add;secondly, less art is produced thandemanded as monetary value is

concentrated on just a few ‘superstar’artists.

Traditionally, the first problem is solvedthrough ‘making do’. Artists havethrough the centuries found all kinds ofmeans to exchange their products formoney. Rich benefactors, familymembers, patrons, gallery owners andart dealers incentivise the production ofcertain types of art. In addition, artiststake on casual, flexible, insecure paidpart-time work that in turn influencestheir capability and outputs. Othersmay simply accept a life of poverty inorder to pursue what they love doingmost.

A few artistic pursuits may pay well butmany would argue that the closerartistic production comes to a profitablebusiness model, the more it becomes aproduct (a marketed commodity) andthe less it retains its status asmeaningful, challenging and thereforeuseful art. Audiences may be averse torisking the minefield of unknown andpotentially ‘difficult’ artworks but if

artists only ever make what is alreadypopular, there will soon be no originalart made. As the long-term health ofart thrives on innovation, experimentand creative risk, there is a case forintervention to overcome this biastowards the purely commercial, toinspire demand for art and subsidise itsproduction.

e great Romantic poet, playwrightand philosopher Friedrich Schiller calledtheatre a ‘moral institution.’ He wantedthe theatre to serve as the conscience ofa society, as a prompt to moral decision-making, and for it constantly to proposenew and more open-minded ways ofthinking. Since the early nineteenthcentury, emerging nation-statesencouraged and funded the arts on thepremise that engagement with art isgood for society as a whole.Governments have subsidised the artsthrough a variety of means - by directpatronage, through competitive grantsto arts organisations, by supplementingartists’ incomes, and by facilitating and

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The art of publicfunding: the relationship between money and cultureS

The art of publicfunding: the relationship between money and culture

By Jonathan Schifferes with Tony Fisher and Joshua Edelman

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A stultifying century

British history provides examples of what can happen when the arts lose theirautonomy – as in 1737 with the introduction of statutory regulation of thetheatre by the first minister Sir Robert Walpole. Walpole did not intend thetheatres to ‘go dark’. He wanted to silence his critics such as the playwrightHenry Fielding who satirised him on the London stage. The result was acentury of stultifying theatre and a censorship law that was not lifted until1968. When it was finally lifted, the theatre flourished.

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funding the infrastructure that artistsrely on, such as buildings, equipmentand touring networks. is allows moreart to be produced than the marketwould otherwise support. Publicfunding comes with challenges. Art thatseems indecent or causes offence canjeopardise public funding, oftenamounting to a form of censorship. Seethe panel for an example from our ownpast. e issue is not the corruptinginfluence of money as such; money –private and public – will always exertinfluence. e question is what areappropriate criteria for investingmoney? Who should give it out?

Pick your poison

In a market economy where artists, likeeveryone else, need money to live, weshould be asking what kind ofcorrupting influence we find the leastuncomfortable. We may argue thatpublic funding is the best option,precisely because it can respond to thedemocratic concerns and interests of thepeople. e mechanism for fundingshould provide a transparent, publicaccount of criteria, decision-making andimpact. A system of democratic scrutinycan also leverage private funds. It has,for instance, become common practicefor planning authorities in the US andIreland to require developers to allocate1% of the construction cost of newprojects to public art.

At a time when the arts struggle tomake their case for public funding,engaging more deeply in the languageand logic of the monetary system maycompromise rather than protect artisticvalue. All funding comes with stringsattached but in a public system, thequestion of whether oversight islegitimate and enforceable should bedecided on the basis of the publicinterest.

We should recognise the collectivebenefit gained from individual creativeand artistic expression and experience.Artists at their best can show ussomething of who we are, honing ourability to make critical, aesthetic andmoral judgements about the worldaround us. In our increasingly image-

saturated information society these skillsare invaluable. “Starving artists” nourishsociety, building our visual literacy. earts are therefore worthy of support andprotection through society’s collectivemonetary resources allocated throughdemocratic processes.

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Jonathan SchifferesJonathan is a Senior Researcher at the RSA’s Action ResearchCentre. Previously, Jonathan worked for nef consulting wherehis projects involved helping organisations understand theirtheory of change, measure the impact of their activities, andcalculate their social return on investment. Tony Fisher andJoshua Edelman co-authored this article with Jonathan. They

both work at Central School of Speech & Drama where Tony is a SeniorLecturer and Joshua is a Research and Enterprise Fellow.

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This issue has presented a number ofground-breaking thoughts on the“money” and “value” conundrum.Though approaching from differentangles, the articles suggest that therelationship between money andvalue(s) abounds with frictions andcontradictions. It therefore seemsparadoxical that money often remainsequated with value in contemporarypolitical discourse. This is perhapsdue to the fact that money is:

� An accounting metric that is easy tomeasure and communicate.

� Can easily mystify the citizens whouse it.

� A metric perfectly attuned to aproductive system based on autopia (dystopia) of well-beingattainment through endless andinfinite consumption.

Worse still, despite its very partialability - or even inability- to reflectsocietal values and aspirations, moneyremains a central criterion of decision-making. Public decision-makingprocesses are rife with “return oninvestment” ratios and financial costsaving measures, often to the extentthat any non-monetary positive ornegative impacts of public decisionsare simply discarded or relegated toan appendix of economic appraisals.Yet these non-monetary impacts areprecisely those that we, as a society,might cherish and value the most.

The question is whether and how wecan put values at the forefront ofdecision-making in a world dominatedby financial and pseudo-quantitativecriteria inappropriate for analysis ofreal social value that has been createdor destroyed by human activities andinterventions. Possible solutions

range from the creation of parallelorganisational structures (e.g.community currencies) to the tailoringof conventional decision-makingapproaches to encompass valuestraditionally discarded in economicappraisals.

In summaryBy Olivier Vardakoulias

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even poorer decision making.

In short, we see monetary accountingof non-monetary values as a strategictool to build a better society, rather thanan end in itself. It is a way to include,rather than exclude, what matters tosociety beyond money in the equationsof decision-making. We equallyembrace less mainstream decision-making tools, such as multi-criteriadecision-making, that avoid all theethical dilemmas and methodologicaluncertainties linked to monetisation ofnon-monetary goods and values.

We hope that the combination of ourshort-term strategy coupled with along-run roll-out of new approachescould contribute to a more holisticrepresentation and understanding ofeconomic, social and environmentalvalues: one that moves beyond an“economistic” paradigm. We believethis is the only route forward forresponding to those social aspirationsthat are scarcely, if ever, represented bymoney alone.

At nef consulting we consider thatstrategies that aim better to reflectsocietal value and aspirations, and sodrive political and decision-makingchange, are vitally important. Ourapproach has been to broadenconventional decision-making tools toinclude values formerly excluded fromthe equation. However, as the use ofconventional tools such as cost-benefit analysis, or of moreprogressive methods such as SROI,require a comparison between thevalue created and money invested, wehave been putting monetary values onnon-monetary impacts for the pastfive years.

Putting a price tag on well-being orecosystem services is not onlychallenging, it can seem shocking. Itis fair to say that well-being andenvironmental monetary valuation hasoften been criticised, based onarguments such as:

� Putting a “price on the priceless”could lead to the “merchandisation”or “commodification” of our well-being and natural environment.

� Comparing like-for-like well-beingand environmental outcomes withstrict economic ones can fuel anillusion that these are, or could be,substitutable. If we generate £50kof economic gains out of a projectthat fuels the equivalent of £20k ofenvironmental losses and theequivalent of £20k of well-beingforegone, one might get theimpression that the intervention issocially “profitable” without

questioning whether these valuesare commensurable.

� Despite very significant advanceson well-being valuation (seeFujiwara), the results remainuncertain and debatable. Assigninga monetary value to well-being orthe environment can only beindicative as a “proxy” figure,rather than representing the actualvalue.

We recognize, and identify with, thesecriticisms. However, we also considerthat the risks of not doing so faroutweigh the risks of tagging amonetary “price” on non-financialvalues. Indeed, most appraisal andevaluation decision-making tools stillrequire a comparison betweenresources used, expressed in money,and benefits generated – alsoexpressed in money. Such is the caseof cost-benefit analysis and relatedmethods. Within this paradigm, areluctance to put a price tag on well-being or environmental values issynonymous with excluding themfrom the “balance sheet”, leading to

Olivier Vardakoulias Olivier is an economist at nef consulting working on therefinement and improvement of measurement methodologiesand modelling tools, such as CBA and SROI. He has abackground in development economics and environmentaleconomics. Olivier has notably worked on the TEEB (TheEconomics of Ecosystems and Biodiversity) project, on the

economics of international migrations, and has a considerable experience ofdevelopment projects appraisal. He also has a deep knowledge of politicaleconomy, macro-economics and international economics. He can becontacted at olivier.vardakoulias@nef-consulting.co.uk

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Out now

in hardback

and e-bookWheredoesmoneycomefrom?

www.neweconomics.org/wdmcf

nef consultingnef consulting is the transitional consultancy.

Founded and owned by nef (the new economicsfoundation) we enable transition to a neweconomy through an understanding of the past,present and future.We enable public, private and third sectororganisations to:

� Develop an understanding of value formoney that includes social andenvironmental outcomes alongside theeconomic costs and benefits.

� Integrate social, economic andenvironmental measurement into theirculture to support the long termsustainability of their activities andinvestments.

� Prove the value and improve theeffectiveness of what they do.

� Understand and manage theirimpact on their own employeesand on local and globalcommunities.

Contact one of our team on 020 7820 6361 to discuss how wecan help your organisation

www.nef-consulting.co.uk

perspectivesonlinePerspectives and the individual articles are available online at www.nef-consulting.co.uk/perspectives

In addition to this issue, you can view and download the first issue:Brains, Behaviour and Better OrganisationsThis issue explores insights into human behaviour and how they can help organisations make better decisions.The picture that emerges is that people are far from being the rational actors that our economic models say weare. Humans evolved to compete and cooperate socially in complex ways, and to react to circumstancesaccording to ‘fast thinking’ rules of thumb, not logic. We develop habits that no longer make sense but whichwe find hard to break. We take decisions that are in no-one’s interest, least of all our own and, on the whole,we are blind to all this irrationality – at least in ourselves. Behavioural economics examines how thisirrationality affects economic choices.Our Buggy BrainsIan Hadden and Rupert Widdicombe, with Dan ArielyNeuroscience and behavioural economics are shedding light on the ‘bugs’ in our brains that trick us.Organisations need to understand these tricks if they want to make good decisions. Optimism and Power of ChoiceIan Hadden and Rupert Widdicombe with Tali SharotWe are born wearing rose-tinted spectacles. Understanding this can help organisations harness theirworkforce to make better decisions. Organisation – Noun or Verb?Ian Hadden and Rupert Widdicombe with Julian BagginiOrganisations, like people, are messy and fragmented sets of competing factions with no overall controlcentre. They can learn from a trick our brains play on us – creating a sense of unity from a bundle of devolvedprocesses. Unlocking MotivationJonathan Schifferes and Susie SteedUnlocking motivation relies on understanding that organisational culture informs, but is also formed by,personal behaviour. Building the Adaptive OrganisationJonathan Rowson, RSAHighlights practical tools to help organisations tackle adaptive challenges, recognising that only those who are part of the problem can really be part of the solution.

perspectivesISSUE 2 WINTER 2013/14 A nef consulting publication

The Value of MoneyChallenging the preconceptions

Money Isn’t EverythingJulian Baggini and Ian Haddenexamine the usefulness, orotherwise, of using money as ameasurement of success.New Values, New Money

Leander Bindewald and RupertWiddicombe look at the role ofnew kinds of money inrepresenting what we value.We’re Only Human When It

Comes to MoneyIan Hadden, with Professor DanAriely, writes about our tendencytowards irrationality in ourdecisions about money.The Art of Public Funding

Jonathan Schifferes looks at therelationship between money andculture.

INTERVIEW

Professor Daniel FujiwaraWhat value well-being? A new way of valuing human intangiblesbased on well-being is gaining currency,as Daniel Fujiwara explains to RupertWiddicombe.

nef consulting limitednef (new economics foundation)

3 Jonathan StreetLondon SE11 5NH

www.nef-consulting.co.ukTel: 020 7820 6361