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Behavioural economics

How I learned to stop worrying and love self-employment

The latest figures that 168,000 people became self-employed in the UK this year, which is a record. This is the story of how I unwillingly became self-employed, and learnt to love it.

Back in 2007, I persuaded my employer, a financial magazine called Euromoney, to send me to Russia to be their first full-time Moscow correspondent. I’d worked for Euromoney for three years or so, hated most of it, but had clung on because it was the first job I got after university, and I was terrified of getting fired and somehow not fitting in with the capitalist economy.

After I’d been in Russia for three months, my editor emailed me to say he was coming out to Moscow. I thought this was rather strange – he didn’t say he was coming out for a story or a conference, just that he was coming out. But I put aside my paranoid concerns, and went to meet him. As soon as I saw him approaching, I knew things looked bad. He looked incredibly sheepish and downcast. We went to a local cafe, and he came out with it: “I’m really sorry Jules, but we’re going to let you go.”

I couldn’t believe it. I was 26. I had turned down another job in London, with Reuters, to move to Moscow; I had moved most of my possessions, learned the language for six months; I had found a flat; I had bid farewell to all my friends. And now they were firing me after three months? “It’s not my decision, Jules, it’s the publisher [Richard Ensor, seen on the left giving one of Euromoney’s endless awards to a Croatian businessman called Darko Marinac, shortly before Darko was arrested for fraud. It was an award for ‘excellence in corporate governance’]. Ensor is worried about the payment protocols, controlling expenses, that sort of thing.” I looked at my editor in shock and growing disgust. “Believe me, I wanted to resign over this”, he said. “But I’ve got two kids and my pension to think about.” Uh-huh.

And so I became a freelancer.

For a couple of weeks, I was in shock. I really didn’t want to return to England with my tail between my legs. But I had no idea if I would be able to stay afloat and make it in this new and strange land. But I discovered, very quickly, that I could. Partly, I was helped by the fact I kicked up the mother of all fusses about how Euromoney had treated me, and got several leading bankers and even the owner of the Daily Mail, Lord Rothermere (he also owns Euromoney) to write to the publisher and complain. They were mugging me, and so I drew as much attention to their assault as possible. Sure enough, they got ashamed, and paid me half a year’s salary to shut up.

But I also discovered that freelance life suited me. There were hardly any other freelancers in Russia covering the business and financial sector, and before long I had a whole string of clients, from all over the world. I made far more money than I used to do with Euromoney, and worked for better-known clients: The Times, The Economist, The Spectator, Foreign Policy.

But the biggest reward was emotional. For three years, I had worked for Euromoney, and been terrified of getting fired. I felt I had to fit in with the office environment, which I hated; and that I had to gain the approval of my superiors, some of whom were OK but some of whom were less so.

Suddenly, I didn’t have one guvnor, but several. This changed the power dynamic utterly. If one boss was being too difficult or demanding, I simply worked with them less. I was in control. I could choose how much I worked, and when. I could choose what time I went into the office, or if I went into the office at all. The freedom and autonomy was delicious.

I loved that first year of freelancing. I would work a bit, do some interviews, play some video games, stay out late with friends (why not? no need for an early start in the morning). I was playing Grand Theft Auto at that time, and it struck me: this is my model of employment. In Grand Theft Auto, you are a self-employed hustler from Eastern Europe, trying to make it in New York. You have a range of different employers you can work for, some of whom you meet, some of whom are just voices at the end of the telephone. You go around the city doing jobs and missions for them, cash magically appears in your bank account, and your credibility rises at the same time (unless you mess a job up).

This aptly described my new life (though I was from the West, trying to make it in Eastern Europe, and sadly with less bazookas involved). I probably worked for over 30 different titles and organisations in my time in Russia. Some paid very well for boring work. Some paid less well, but the jobs boosted my credibility because they were well-respected titles. I never met some of my regular clients – just received jobs by email, and then the money appeared in my account.

As the knowledge economy expands, more and more people will be following the Grand Theft Auto model of employment. They will also organise into hubs or syndicates to protect their interests. They will go co-op on missions when it suits them. They will find ways to make the game more social, for example by hiring out office space together.

You can criticise this model of employment: first of all, not everyone has the particular transferable nomadic skills for that sort of market. And that market isn’t suitable for everything: you can’t build a dam or an airplane using freelance consultants. It works particularly well for people in the media. But that isn’t – nor should it be – the whole of the economy. For one thing, I don’t employ anyone. And just because it turned out OK for me, we shouldn’t forget how tough and demoralising unemployment can be, and should do our best to protect people from that experience. And perhaps the GTA model is rather atomised and lonely: what happened to corporations and corporation man?

But keeping those criticisms in mind, I’ve found that the GTA model is fun. And judging by the latest employment figures, it’s catching on: this year, there are 168,000 new additions to the ranks of the self-employed, which is a record. I’m sure that many of them were, like me, unwillingly shoved into self-employment. But hopefully some of them will learn to love it.

Now, I occasionally receive offers of full-time employment from publications. And I’m sometimes tempted to accept. I worked for one magazine for a year, which was fun, but I still couldn’t help feeling that a lot of the time in the office is just killing time. You know that sort of dead atmosphere in an office, when everyone is just watching the clock? You’ve basically sold your whole day, five days a week, to someone else. I get a lot more done in my own time. And I can go for a walk in the park, play sport, have leisurely meetings that I actually enjoy. Life is better.

You think you’ll miss the office banter. That’s why we like sit-coms like 30 Rock, which portray an idealised version of an office, where everyone helps each other and laughs together, and the CEO is a friendly father-figure. But, like a lot of sit-coms, 30 Rock is selling a version of community that no longer exists: or at least, I haven’t found it (if you have, let me know! I’ll put together a wall of fame of companies people actually enjoy working at.)

I went to work full-time at one title last year, and I couldn’t believe how bad the atmosphere was. There was no banter at all, just desultory descriptions of PR events and conferences, and the occasional row over responsibilities, like caged animals biting each other. I handed in my notice after three days, realising I far preferred working for myself. I know that some offices are much more fun, but we can build our own places of work – where free people come together out of choice and passion to work together. Places like the Hub Westminster, for example.

As The Office put it: ‘All you’ve got in common is that you walk around on the same bit of carpet for eight hours a day’. So why do it? Why not connect with people who really want to be there, who really share your passion?

A Complete Guide To Human Folly (Abridged)

I once considered writing a brief, Christmas-stocking-filler book called A Complete Guide to Human Folly (Abridged). It would have been a sort of ‘little book of stupid’ compendium of the main cognitive biases that humans are prone to, with examples taken from contemporary politics and media. Alas, the complete, unabridged guide to human folly has now been written: it is called Thinking: Fast and Slow, by the Nobel-prize-winning psychologist Daniel Kahneman.

Kahneman is the leading researcher in the 30-year-old field known as ‘behavioural economics’. This field has successfully shown how far humans are from the rational calculators of utility assumed by neo-liberal economics. In the words of another leading behavioural economist, Dan Ariely: “We’re less homo sapiens, and more Homer Simpson.”

The title of Kahneman’s book refers to the two systems which he suggests operate in our minds. System 1, as he calls it, tends to make rapid, emotion and intuition-driven judgements about the world. System 2 makes slower, more conscious, reflective and deliberative decisions. We like to think that System 2 is in charge, and that we’re steering a conscious and rational course through the world. In fact, System 1 calls most of the shots, and despite what Malcolm Gladwell argued in Blink, it consistently gets it wrong.

Thinking: Fast and Slow, which is Kahneman’s first book aimed at a popular audience, brings together the evidence on all the ways System 1 gets it wrong – all the myriad ‘cognitive biases’ which the mind is heir to. I’m still working my way through its 496 pages, but page by page you realise quite how often our intuitions are wrong, and how arrogant and hubristic we are in our assessment of rationality and expertise. It is one of the great works of the Skeptical tradition – up there with Nicholas Nassim Taleb’s Black Swan, Pascal’s Pensees, and Erasmus’ Praise of Folly (which, appropriately enough, was published 500 years ago this year).

Amusingly, the book continually poses you questions to show you how your own mind is just as prone to these mistakes. Even when I consciously tried to avoid the cognitive traps, I still found I fell into them. So even as you laugh at others’ folly, you realise you are just as deluded.

Try this, for example:

A bat and ball cost $1.10.
The bat costs a dollar more than the ball.
How much does the ball cost?

The quick judgement we make (or rather, our System 1 makes) is that the ball costs 10 cents. But it doesn’t – that would mean the bat costs $1.10, so the combined total would be $1.20. In fact, the ball must cost 5 cents, as maybe some of you got.

Or try this:

Linda is 30-years-old. She is outspoken, articulate and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice.

Now rank these potential future careers of Linda’s, in order of likelihood:

Linda is a teacher in an elementary school.
Linda works in a bookstore and takes yoga classes.
Linda is active in the feminist movement.
Linda is a social worker.
Linda is a bank teller.
Linda sells insurance.
Linda is a bank-teller and active in the feminist movement.

Kahneman and his long-term research partner, Amos Tversky, tried this experiment in the 1980s. Kahneman noticed, purely by chance, that 85% of participants rated it more likely that Linda worked as a bank-teller and was active in the feminist movement, than that Linda worked as a bank-teller – even though, of course, the first option is a subset of the second option.

Many of these cognitive biases have serious real world implications. Kahneman and Tversky found, for example, that there was very little correlation between the judgements of interviewers about applicants to universities, and how those applicants actually performed at university. As a consequence of this study, several universities, including the London School of Economics, have abolished interviews as part of their entrance process.

Behavioural economics has particularly stark implications for the world of business and finance. Researchers like Dan Ariely and Terrance Odean have highlighted, for example, how index tracker funds consistently outperform actively-managed funds – even though the fees on actively-managed funds are much higher. This is because of the ‘halo effect’ – we like to think that investment bankers or fund managers have great skill and expertise in picking stocks (this is their job, after all, for which they are extremely well rewarded). But they don’t.We grant them miraculous skills during booms, then their utter incompetence is brutally exposed during the busts (and yet banks still give them huge bonuses).

The same holds true for ‘political risk consultants’ – all those people paid to stare into crystal balls and tell the political future. Philip Tetlock carried out a 20-year study, interviewing 284 political risk consultants about trends in global politics, and asking them to assess if the trend would stay the same, increase, or decrease.

Kahneman writes: “The results were devastating. The experts performed worse than they would have if they had simply assigned equal probabilities to each of the three potential outcomes. In other words, people who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart-throwing monkeys”.

And yet we are experts at hiding our own ignorance from ourselves. Fischoff and Beyth, two students of Kahneman’s, asked participants before president Nixon’s 1972 visit to China to assign probabilities to various potential outcomes of the visit. After the trip, they were asked to recall the probabilities they had assigned. They recalled assigning a much higher probability than they had in fact assigned to the events that actually transpired. We’re all geniuses in hindsight.

This is all very damning for human rationality in general, and for rational technocratic capitalism in particular, which is based on the ‘myth of management expertise’, and which celebrates the genius technocrat or CEO – Alan Greenspan, say, or Jack Welch – who is able to predict the future and bring about successful outcomes through his skill, intuition, scientific accuracy and chutzpah, like the shamans and sooth-sayers of old. In fact, we’re all of us in the dark, and those we herald as rational geniuses are probably just lucky, as is proven when their luck changes (is there any more pathetic figure, now, than Alan Greenspan, to whom we once granted an almost superhuman prescience?)

Of course, the million-dollar-question for behavioural economics (and, indeed, for humanity) is this: does learning about these cognitive biases make us any less likely to commit them? On this crucial point, there is surprisingly little research. So Kahneman instead gives us his intuition, which is…probably not. He says: “I’m still just as likely to make these mistakes, and I wrote this book. So it’s very unlikely to change anyone who reads it.” It’s a refreshingly pessimistic view in a world where other psychologists (like Martin Seligman) are resolutely hyping and marketing their own findings.

If this is true, it’s bad news for Socratic philosophy, which is based on the optimistic belief that we can use our reason to know ourselves, change ourselves, and become wiser and happier through rational self-reflection. Jonah Lehrer, reviewing Kahneman’s book in the New Yorker, decided that Kanheman’s book “has revealed the hollowness of a very ancient aspiration. Knowing thyself is not enough. Not even close.”

Yet I would suggest there is still some room for cautious optimism that Socrates was right that we can know ourselves and change ourselves, to some extent.

My optimism comes from a closely-related field of psychology – cognitive behavioural therapy (CBT). Behavioural economics was actually very influenced by CBT: in fact Aaron Beck, the founder of CBT, helped to create the modern theory of the automatic, unconscious mind that Kahneman and others use, through his experiments into ‘automatic self-talk’ in the 1970s. CBT shares with behavioural economics the idea that our minds are prone to a whole myriad of ‘cognitive biases’: Beck and his cohorts identified certain typical biases that cause emotional disorders, such as catastrophising (‘this is a complete disaster’), black-and-white thinking (‘if I don’t get this job, I’m finished), the fortune teller’s error (‘I’ll never be happier’), and jumping to conclusions (‘he didn’t reply to my email because he hates me’).

CBT has proven that we can, in fact, learn to avoid habitual cognitive biases and thereby overcome the emotional disorders that they cause. We can do this through what Beck calls the ‘Socratic method’ – reflecting on our automatic and habitual judgements of the world, asking if they’re rational or accurate, and if not, challenging them and replacing them with wiser beliefs and opinions. We then have to practice these new ways of thinking and acting until they become habitual and automatic – until they become part of System 1, rather than merely System 2.

In other words, for Socratic philosophy to work and really change us, it has to work with both System 1 and System 2.

Firstly, we use System 2 (the conscious, rational, reflective system) to bring our unconscious beliefs into consciousness, to question them and consider if they make sense. Then we rehearse our wiser and more philosophical ways of seeing things, until they in turn become automatic, habitual, and part of System 1.

Clearly, this is very hard. It takes a lot of effort, energy and humility to accept that our automatic and habitual ways of interpreting the world might be wrong, and to change ourselves. This means we’re only likely to go through the hard process of changing ourselves if our habitual way of seeing things is causing us a great deal of suffering and personal damage. Only then, when it’s really costing us in terms of happiness and love, might we perhaps put in the effort to change ourselves. But in those very rare circumstances, a limited degree of self-knowledge and self-transformation is possible.

I put this to Kahneman when he came to speak in London last week. I asked, didn’t the success of CBT in teaching people to overcome their biases give us some cause for hope that we can change ourselves? He replied: “In the case of CBT, yes, clearly people can be trained and ‘System 1’ can be modified. In fact, we’re continuously learning and adapting. CBT is a way of teaching emotional responses to change. That can be trained. We can be trained to be slightly happier.”

Hardly a ringing endorsement of human rationality. And yet, if you’re suffering from depression or some other emotional disorder, then even this very slight ability to know yourself and change yourself can make a huge, huge difference. It is the difference between a life of utter misery, and a life of moderate happiness.


Here is an interview I did with Dan Ariely, another pioneer in behavioural economics.

And here is an interview I did with social psychologist John Bargh, who has been a key researcher on ‘automaticity’ and a leading critic of the ancient Greek idea that we can become ‘masters of our soul’.

And here is a piece I did for the Wall Street Journal on behavioural economics, which includes interviews with Ariely, Terrance Odean and other leading psychologists and investors.