1
00:00:15,476 --> 00:00:24,236
Speaker 1: Pushkin. As humans, we do a lot of things that

2
00:00:24,276 --> 00:00:27,516
Speaker 1: don't make all that much sense. I sometimes imagine a

3
00:00:27,556 --> 00:00:31,236
Speaker 1: completely rational alien species somewhere out there in the universe

4
00:00:31,396 --> 00:00:34,716
Speaker 1: that's observing us earthlings and is totally shocked by how

5
00:00:34,716 --> 00:00:37,956
Speaker 1: often we act against our own best interests. We eat

6
00:00:37,956 --> 00:00:40,796
Speaker 1: foods that we know aren't good for us. We avoid

7
00:00:40,836 --> 00:00:45,036
Speaker 1: small simple actions like exercising or flossing preventive care that

8
00:00:45,076 --> 00:00:47,396
Speaker 1: we know will pay off in the long run. But

9
00:00:47,476 --> 00:00:50,796
Speaker 1: we also do some truly beautiful things, behaviors that might

10
00:00:50,796 --> 00:00:54,356
Speaker 1: puzzle those rational aliens. We donate blood or even an

11
00:00:54,476 --> 00:00:56,956
Speaker 1: organ to someone in need and at real risk to

12
00:00:56,996 --> 00:01:00,196
Speaker 1: our own health. We're kind to strangers who, in many

13
00:01:00,196 --> 00:01:03,796
Speaker 1: cases will never even see again. I also wonder what

14
00:01:03,836 --> 00:01:06,676
Speaker 1: those aliens would make of the way humans experience happiness.

15
00:01:07,236 --> 00:01:10,556
Speaker 1: How complex and counterintuitive the things that promote our well

16
00:01:10,556 --> 00:01:14,716
Speaker 1: being must look to a totally rational being. Unfortunately, it's

17
00:01:14,756 --> 00:01:16,636
Speaker 1: unlikely I'll ever get a chance to chat with a

18
00:01:16,756 --> 00:01:20,196
Speaker 1: rational extraterrestrial like one of the Vulcans from Star Trek,

19
00:01:20,556 --> 00:01:24,076
Speaker 1: those creatures who embody pure logic and self discipline about

20
00:01:24,076 --> 00:01:27,396
Speaker 1: the anomalies of human behavior. But in this episode, I

21
00:01:27,436 --> 00:01:29,996
Speaker 1: get the chance to do the next best thing. I

22
00:01:30,036 --> 00:01:33,396
Speaker 1: get to chat with a Nobel Prize winning economist, although,

23
00:01:33,516 --> 00:01:35,956
Speaker 1: as you'll hear in this episode, he doesn't exactly fit

24
00:01:35,996 --> 00:01:36,796
Speaker 1: the stereotype.

25
00:01:37,076 --> 00:01:40,436
Speaker 2: Uh, Lessie, what's my name? I'm Richard Taylor. I'm a

26
00:01:40,476 --> 00:01:45,516
Speaker 2: professor of behavioral economics at the University of Chicago's Booth

27
00:01:45,556 --> 00:01:46,476
Speaker 2: School of Business.

28
00:01:46,756 --> 00:01:50,636
Speaker 1: You don't Mike drop the like en Nobel laureate. Did

29
00:01:50,676 --> 00:01:52,396
Speaker 1: you bring it? Did you bring the metal like? Do

30
00:01:52,476 --> 00:01:54,476
Speaker 1: you bring it in your pocket? In case pull it

31
00:01:54,556 --> 00:01:55,156
Speaker 1: up on video?

32
00:01:55,436 --> 00:01:59,236
Speaker 2: It's a little heavy, so I don't.

33
00:01:59,596 --> 00:02:03,116
Speaker 1: Doctor Richard Thaylor started writing his seminal book The Winner's Curse,

34
00:02:03,276 --> 00:02:06,676
Speaker 1: Paradoxes and Anomalies of Economic Life all the way back

35
00:02:06,676 --> 00:02:09,236
Speaker 1: in the nineteen eighties, so you might be surprised to

36
00:02:09,276 --> 00:02:11,396
Speaker 1: hear that I'm featuring it in this series about my

37
00:02:11,436 --> 00:02:14,876
Speaker 1: favorite books of twenty twenty five. But several decades after

38
00:02:14,956 --> 00:02:17,356
Speaker 1: creating the book that transformed the way I think about

39
00:02:17,436 --> 00:02:21,436
Speaker 1: human behavior, Richard is republishing it with new research and

40
00:02:21,476 --> 00:02:25,276
Speaker 1: new reflections on the irrationalities of everyday life, all with

41
00:02:25,356 --> 00:02:26,796
Speaker 1: the help of a new co author.

42
00:02:27,076 --> 00:02:29,876
Speaker 3: My name is Alexeimas. I'm also a professor of behavioral

43
00:02:29,876 --> 00:02:33,116
Speaker 3: economics and behavioral Science at the Booth School of Business.

44
00:02:33,316 --> 00:02:35,916
Speaker 3: I don't have any Nobel laureate stuff to mention, so.

45
00:02:36,436 --> 00:02:38,356
Speaker 1: You'll come back in a couple of years on the podcast,

46
00:02:38,356 --> 00:02:42,076
Speaker 1: and I'm sure things will be there. So we're featuring

47
00:02:42,076 --> 00:02:44,316
Speaker 1: The Winner's Curse as one of my favorite books about

48
00:02:44,316 --> 00:02:47,276
Speaker 1: twenty twenty five. But that feels kind of odd because

49
00:02:47,316 --> 00:02:49,876
Speaker 1: I remember reading The Winner's Curse when I was like

50
00:02:49,996 --> 00:02:51,956
Speaker 1: in graduate school. So it's kind of an odd book

51
00:02:51,996 --> 00:02:53,876
Speaker 1: to have as my favorite book of twenty twenty five

52
00:02:53,916 --> 00:02:56,956
Speaker 1: and one of the books that really taught me important things.

53
00:02:57,236 --> 00:03:00,236
Speaker 1: But maybe i'll have Richard, you set the stage of,

54
00:03:00,276 --> 00:03:02,236
Speaker 1: like the origin story of this book.

55
00:03:02,956 --> 00:03:06,436
Speaker 2: Okay, Yeah, the origin story is when I was about

56
00:03:06,476 --> 00:03:11,476
Speaker 2: Alex's age, about forty years ago. I had just come

57
00:03:11,556 --> 00:03:15,956
Speaker 2: back from spending a year with Danny Konnoman, my mentor.

58
00:03:16,516 --> 00:03:19,116
Speaker 1: Just for context, the late Danny Connoman is also a

59
00:03:19,156 --> 00:03:22,956
Speaker 1: Nobel Prize wunner, but he was a psychologist, a heavyweight

60
00:03:22,956 --> 00:03:25,596
Speaker 1: in my field, who is credited with pioneering the field

61
00:03:25,676 --> 00:03:29,676
Speaker 1: of behavioral economics. Richard, then a young professor at Cornell,

62
00:03:30,116 --> 00:03:32,996
Speaker 1: was building on Connoman's insights as he forged his own.

63
00:03:32,836 --> 00:03:40,596
Speaker 2: Path, and somebody suggested that I write a series of

64
00:03:41,276 --> 00:03:46,196
Speaker 2: columns in a new journal called the Journal of Economic Perspectives.

65
00:03:46,796 --> 00:03:50,796
Speaker 2: The journal was aimed at like the general economist, so

66
00:03:50,876 --> 00:03:55,876
Speaker 2: it would be articles that non specialists could understand. The

67
00:03:55,956 --> 00:03:59,756
Speaker 2: idea was in each issue, I would write about something

68
00:04:00,036 --> 00:04:04,916
Speaker 2: an anomaly. And what is an anomaly? An anomaly is

69
00:04:04,956 --> 00:04:10,796
Speaker 2: something that is unexpected, right, so elephant in real life

70
00:04:10,796 --> 00:04:15,156
Speaker 2: would be an anomaly for an economist. An anomaly is

71
00:04:15,276 --> 00:04:19,956
Speaker 2: something that the theory says won't happen, like if price

72
00:04:20,076 --> 00:04:23,636
Speaker 2: goes up and demand goes up, that would surprise us.

73
00:04:24,076 --> 00:04:28,836
Speaker 2: So I did this for about four years, and when

74
00:04:28,916 --> 00:04:32,556
Speaker 2: I had enough of these that it looked like a book,

75
00:04:33,116 --> 00:04:36,916
Speaker 2: I kind of stapled them together and called it the

76
00:04:36,916 --> 00:04:42,396
Speaker 2: Winner's Curse because it's an intriguing phrase and it was

77
00:04:42,916 --> 00:04:43,996
Speaker 2: one of the anomalies.

78
00:04:44,716 --> 00:04:47,356
Speaker 1: At the time, Alex was in a very different place

79
00:04:47,396 --> 00:04:50,116
Speaker 1: in life, was being born.

80
00:04:50,836 --> 00:04:51,436
Speaker 2: How was it.

81
00:04:51,916 --> 00:04:54,756
Speaker 3: I was in Moldova at the time. I was born

82
00:04:54,756 --> 00:04:57,956
Speaker 3: in Moldova in Eastern Europe. Basically I wasn't around when

83
00:04:57,956 --> 00:05:01,156
Speaker 3: the book was first came out. He was shirking, yeah,

84
00:05:01,156 --> 00:05:04,676
Speaker 3: But then Richard and I met when I was a

85
00:05:04,716 --> 00:05:08,156
Speaker 3: graduate student at San Diego, and our offices ended up

86
00:05:08,156 --> 00:05:10,956
Speaker 3: being adjacent that I was super interested in behavioral economics,

87
00:05:10,996 --> 00:05:13,756
Speaker 3: super shy, kind of didn't want to bug them, but

88
00:05:13,796 --> 00:05:15,596
Speaker 3: eventually I kind of got the courage to be like,

89
00:05:15,636 --> 00:05:16,996
Speaker 3: what do you think about this idea? What do you

90
00:05:16,996 --> 00:05:20,276
Speaker 3: think about that idea? We started chatting. I got my

91
00:05:20,316 --> 00:05:23,276
Speaker 3: first faculty job at Carnegie Mellon, and then at some

92
00:05:23,276 --> 00:05:24,476
Speaker 3: point I joined Booth.

93
00:05:25,156 --> 00:05:29,676
Speaker 2: And then a few years ago the publisher of this

94
00:05:29,836 --> 00:05:32,716
Speaker 2: book said, hey, you know, this book is getting old

95
00:05:32,996 --> 00:05:35,516
Speaker 2: like you, and it's going to go out of print.

96
00:05:36,036 --> 00:05:39,396
Speaker 2: Maybe you want to freshen it up or something. And

97
00:05:39,436 --> 00:05:42,396
Speaker 2: I think they had in mind a new cover, and

98
00:05:42,876 --> 00:05:47,596
Speaker 2: stupidly I thought, oh, well, maybe there's something more ambitious

99
00:05:48,036 --> 00:05:48,516
Speaker 2: we could do.

100
00:05:48,916 --> 00:05:52,036
Speaker 3: Fortunately for me, by the way, maybe stupidly for you.

101
00:05:52,716 --> 00:05:58,156
Speaker 2: Yeah. Well, I got the clever idea to get Alex

102
00:05:58,316 --> 00:06:02,036
Speaker 2: to help. So I had this pile of anomalies. I

103
00:06:02,156 --> 00:06:06,076
Speaker 2: wrote another half dozen of these halfter the book came out,

104
00:06:06,436 --> 00:06:10,476
Speaker 2: and the question was, you know, it's forty years later,

105
00:06:11,276 --> 00:06:12,756
Speaker 2: how does this stuff hold up?

106
00:06:13,236 --> 00:06:15,916
Speaker 3: So that was the concept we got on the phone,

107
00:06:15,916 --> 00:06:19,956
Speaker 3: and it sounded kind of straightforward. And easy, like let's

108
00:06:20,036 --> 00:06:23,436
Speaker 3: knock this thing out in six months, ended up being

109
00:06:23,556 --> 00:06:26,676
Speaker 3: anything but that it took us about four years now

110
00:06:26,756 --> 00:06:30,316
Speaker 3: to actually finish it up. That's largely because two thirds

111
00:06:30,356 --> 00:06:31,756
Speaker 3: of the book is brand new.

112
00:06:31,836 --> 00:06:34,396
Speaker 1: The new version of The Winner's Curse includes the original

113
00:06:34,436 --> 00:06:37,916
Speaker 1: anomalies Richard began exploring in the eighties, but also new

114
00:06:37,956 --> 00:06:41,236
Speaker 1: research examining whether the old ideas hold up today.

115
00:06:41,716 --> 00:06:43,916
Speaker 3: Really how this has held up in terms of the

116
00:06:43,956 --> 00:06:47,876
Speaker 3: empirical robustness of the results. Have these results been replicated?

117
00:06:48,116 --> 00:06:49,796
Speaker 3: Do they show up in the real world like the

118
00:06:49,836 --> 00:06:53,236
Speaker 3: original results were largely you know, with some exceptions in

119
00:06:53,316 --> 00:06:57,676
Speaker 3: lab experiments with college students, relatively small samples in some cases.

120
00:06:58,316 --> 00:07:00,796
Speaker 3: And you know, we've had forty years, there's been hundreds

121
00:07:00,796 --> 00:07:04,316
Speaker 3: of replications. Where are we now? So part of the book,

122
00:07:04,316 --> 00:07:06,636
Speaker 3: and we emphasize this throughout, is we went ahead, Do

123
00:07:06,716 --> 00:07:10,436
Speaker 3: we replicated all of the studies ourselves? Findings are really robust,

124
00:07:10,516 --> 00:07:12,836
Speaker 3: Everything replicates, everything has been replicated.

125
00:07:13,156 --> 00:07:15,796
Speaker 1: The anomalies the book explores are all about the surprising

126
00:07:15,836 --> 00:07:18,956
Speaker 1: ways humans act differently from what's known as the standard

127
00:07:18,996 --> 00:07:22,556
Speaker 1: economic model, the model of rational behavior that both Vulcans

128
00:07:22,636 --> 00:07:24,836
Speaker 1: and economists tend to expect from us.

129
00:07:25,356 --> 00:07:29,876
Speaker 2: The standard economic model is really that people, or as

130
00:07:29,916 --> 00:07:36,076
Speaker 2: economists call them, agents, solve problems by optimizing. So what

131
00:07:36,196 --> 00:07:38,716
Speaker 2: route did you take to get to your office today?

132
00:07:38,956 --> 00:07:42,316
Speaker 2: You took the best route? Why are you doing this podcast?

133
00:07:42,476 --> 00:07:46,236
Speaker 2: Because it's the best possible use of your time? That

134
00:07:46,476 --> 00:07:52,636
Speaker 2: plus markets, that is what distinguishes economics from psychology, say,

135
00:07:53,116 --> 00:07:53,556
Speaker 2: and so this.

136
00:07:53,596 --> 00:07:56,396
Speaker 1: Idea of these agents that are optimized in the best

137
00:07:56,396 --> 00:07:58,956
Speaker 1: way interacting in these markets produced a certain kind of

138
00:07:59,036 --> 00:08:02,196
Speaker 1: view of what people tended to do when making these decisions.

139
00:08:02,516 --> 00:08:05,436
Speaker 1: And that's what's often been called homo economicists give me

140
00:08:05,476 --> 00:08:08,076
Speaker 1: the like homo economicus one oh one, Like, you know

141
00:08:08,116 --> 00:08:09,756
Speaker 1: what do we think this guy's what they're doing.

142
00:08:10,076 --> 00:08:16,516
Speaker 3: Homo economicus is a rational agent who bays principles of rationality,

143
00:08:16,956 --> 00:08:20,756
Speaker 3: So they have rational expectations. They don't have any memory issues,

144
00:08:20,796 --> 00:08:23,716
Speaker 3: they don't have any sorts of biases of what's out

145
00:08:23,756 --> 00:08:26,516
Speaker 3: there in the real world. They're fully rational. They take

146
00:08:26,556 --> 00:08:30,196
Speaker 3: these beliefs as inputs and then they optimize. They make

147
00:08:30,316 --> 00:08:34,276
Speaker 3: the best decision given their correct beliefs about the world.

148
00:08:34,316 --> 00:08:38,556
Speaker 2: We should add that these agents are also selfish jerks,

149
00:08:38,756 --> 00:08:42,356
Speaker 2: so they don't really care about anybody else, possibly members

150
00:08:42,356 --> 00:08:47,276
Speaker 2: of their family, though possibly not. And they also have

151
00:08:47,356 --> 00:08:52,076
Speaker 2: no self control problems, So no need for any weight

152
00:08:52,116 --> 00:08:56,276
Speaker 2: loss drugs in this world. Everybody weighs just the right amount.

153
00:08:56,596 --> 00:09:00,316
Speaker 3: No AA, no alcoholics, nobody gets addicted to drugs unless

154
00:09:00,356 --> 00:09:01,276
Speaker 3: they really want.

155
00:09:01,076 --> 00:09:04,436
Speaker 2: To, and no need to worry about saving for retirement.

156
00:09:04,516 --> 00:09:07,836
Speaker 2: People will do that because otherwise they're going to starve

157
00:09:07,876 --> 00:09:08,516
Speaker 2: when they're old.

158
00:09:09,116 --> 00:09:11,316
Speaker 1: Of course, you're saying all this stuff quite facetiously, because

159
00:09:11,396 --> 00:09:13,276
Speaker 1: real people don't tend to do this. We are in

160
00:09:13,276 --> 00:09:15,396
Speaker 1: a world with AA and weight loss drugs and people

161
00:09:15,396 --> 00:09:17,876
Speaker 1: who haven't saved for retirement. And these are the kinds

162
00:09:17,916 --> 00:09:20,316
Speaker 1: of anomalies that you pointed out in your book, These

163
00:09:20,356 --> 00:09:23,076
Speaker 1: cases where you looked and you said, hey, people are

164
00:09:23,116 --> 00:09:25,596
Speaker 1: supposed to be obeying the standard economic model and they're

165
00:09:25,636 --> 00:09:28,596
Speaker 1: just not. And so what does that mean for human psychology?

166
00:09:29,156 --> 00:09:31,876
Speaker 1: And maybe how can we avoid these anomalies, especially in

167
00:09:31,916 --> 00:09:34,276
Speaker 1: cases where they're kind of hurting us and messing us up.

168
00:09:34,556 --> 00:09:36,076
Speaker 1: And so that's what I want to go through today.

169
00:09:36,156 --> 00:09:38,836
Speaker 1: I want to go through my favorite of your anomalies

170
00:09:38,836 --> 00:09:41,396
Speaker 1: that you cover in the book. Six of these, but

171
00:09:41,436 --> 00:09:44,076
Speaker 1: anomaly number one that I love is the anomaly that

172
00:09:44,156 --> 00:09:47,076
Speaker 1: the book is named for, the so called winner's curse.

173
00:09:47,676 --> 00:09:49,556
Speaker 1: So Alex, tell me what the winner's curse is with

174
00:09:49,596 --> 00:09:52,116
Speaker 1: the famous jar example showing this anomaly.

175
00:09:52,596 --> 00:09:54,876
Speaker 3: Yeah, so imagine you go into a bar with a

176
00:09:54,996 --> 00:09:57,916
Speaker 3: jar of coins. The jar has a certain amount of

177
00:09:57,996 --> 00:10:00,836
Speaker 3: money in it, and then you tell everybody at the bar, look,

178
00:10:00,956 --> 00:10:03,716
Speaker 3: whoever bids the most for this jar gets the jar

179
00:10:03,796 --> 00:10:06,036
Speaker 3: and all the money that's in the jar. What's the

180
00:10:06,076 --> 00:10:10,236
Speaker 3: winner's curse? Pretty simple. The person who wins the jar

181
00:10:10,636 --> 00:10:13,476
Speaker 3: will end up losing money in the sense that their

182
00:10:13,676 --> 00:10:15,476
Speaker 3: bid is going to be higher than the amount of

183
00:10:15,516 --> 00:10:17,636
Speaker 3: money that's in the jar, So they'll get the jar,

184
00:10:17,676 --> 00:10:19,676
Speaker 3: they go home, they take all the money out, they're like,

185
00:10:20,036 --> 00:10:23,396
Speaker 3: oh crap, I pay twenty bucks. This has fifteen dollars

186
00:10:23,476 --> 00:10:26,076
Speaker 3: in it. So that's the winner's curse that by winning

187
00:10:26,236 --> 00:10:30,156
Speaker 3: the auction you're actually losing. The jar example is really

188
00:10:30,476 --> 00:10:32,636
Speaker 3: kind of easy to demonstrate. You could do it in

189
00:10:32,636 --> 00:10:34,516
Speaker 3: a class, Richard, you've done this in a class before.

190
00:10:34,556 --> 00:10:36,396
Speaker 1: I'm sure you do it in classrooms, But do you

191
00:10:36,396 --> 00:10:37,996
Speaker 1: ever do it in a bar? Is this like your

192
00:10:38,036 --> 00:10:38,476
Speaker 1: bar trick?

193
00:10:38,596 --> 00:10:40,156
Speaker 2: It better be a friendly bar.

194
00:10:40,676 --> 00:10:41,796
Speaker 3: I don't want to get beaten up.

195
00:10:42,276 --> 00:10:44,116
Speaker 1: So that's the bar version, you know, the kind of

196
00:10:44,156 --> 00:10:46,796
Speaker 1: toy version that economists talk about. But you've talked about

197
00:10:46,796 --> 00:10:49,196
Speaker 1: lots of examples where we see this in real life.

198
00:10:49,356 --> 00:10:51,196
Speaker 1: A curious example I didn't know until I read your

199
00:10:51,236 --> 00:10:53,996
Speaker 1: book was the case of oil companies, Richard, kind of

200
00:10:53,996 --> 00:10:56,236
Speaker 1: how to oil companies fall prey to this winner's curse.

201
00:10:56,596 --> 00:11:00,836
Speaker 2: Yeah. In fact, the winner's curse was discovered by oil

202
00:11:01,036 --> 00:11:06,156
Speaker 2: engineers at a company that was called Arco. Oil Companies

203
00:11:06,196 --> 00:11:10,116
Speaker 2: were bidding for leases for a certain plot of land

204
00:11:10,596 --> 00:11:13,076
Speaker 2: in the Gulf of Mexico. We're going to still stick

205
00:11:13,116 --> 00:11:16,676
Speaker 2: with the original name, the Gulf of Mexico. And what

206
00:11:16,796 --> 00:11:21,116
Speaker 2: they found was that every time they won one of

207
00:11:21,156 --> 00:11:25,916
Speaker 2: these auctions, there was less oil there than their engineers

208
00:11:25,996 --> 00:11:30,556
Speaker 2: had predicted. And they're saying, what's the story, lousy engineers

209
00:11:31,316 --> 00:11:36,396
Speaker 2: or are we just unlucky? And then they figured out no, actually,

210
00:11:37,076 --> 00:11:42,236
Speaker 2: it's that if there are lots of people bidding, the

211
00:11:42,276 --> 00:11:45,596
Speaker 2: winner is going to be the one whose engineers on

212
00:11:45,876 --> 00:11:49,516
Speaker 2: this plot had the most optimistic forecasts.

213
00:11:49,836 --> 00:11:51,356
Speaker 1: And then winners Chris Stemps are in the fact that

214
00:11:51,396 --> 00:11:53,916
Speaker 1: we're not tracking the fact that well, hey, if everybody's

215
00:11:54,316 --> 00:11:57,116
Speaker 1: bidding that there's less money in this jar than I think,

216
00:11:57,476 --> 00:11:59,956
Speaker 1: or if all the other oil engineers are bidding less

217
00:11:59,956 --> 00:12:02,516
Speaker 1: than I am for this oil, maybe I'm wrong about

218
00:12:02,516 --> 00:12:05,596
Speaker 1: how much oil or money is really out there. Perspective

219
00:12:05,636 --> 00:12:07,476
Speaker 1: taking failures are ones that we talk about a lot

220
00:12:07,516 --> 00:12:10,716
Speaker 1: on this podcast because many of them really impact our

221
00:12:10,756 --> 00:12:13,116
Speaker 1: happiness in these bad ways. Right, we don't realize that

222
00:12:13,156 --> 00:12:15,316
Speaker 1: other people want to connect with us, or we don't

223
00:12:15,316 --> 00:12:17,756
Speaker 1: realize that other people don't know we're super grateful, or

224
00:12:17,796 --> 00:12:19,516
Speaker 1: don't know that it'd be fine if they asked us

225
00:12:19,516 --> 00:12:21,636
Speaker 1: for help. So there's all these cases in the happiness

226
00:12:21,636 --> 00:12:24,236
Speaker 1: science where perspective taking failures kind of mess up how

227
00:12:24,276 --> 00:12:26,876
Speaker 1: much happiness we could be getting from other people. But

228
00:12:26,956 --> 00:12:28,636
Speaker 1: this is one where it seems to be messing up

229
00:12:28,716 --> 00:12:31,196
Speaker 1: a lot of the value that we get from winning,

230
00:12:31,356 --> 00:12:34,196
Speaker 1: Like quite ironically, yeah, And so how do we overcome

231
00:12:34,276 --> 00:12:36,796
Speaker 1: the winner's curse? How do we take into account what

232
00:12:36,916 --> 00:12:39,356
Speaker 1: other people are bidding in other people's perspectives a little

233
00:12:39,356 --> 00:12:41,156
Speaker 1: bit more to break this well?

234
00:12:41,156 --> 00:12:46,436
Speaker 2: A simple lesson is in the actual bidding circumstances, the

235
00:12:46,436 --> 00:12:49,836
Speaker 2: more bidders there are, the less you should bid. Now

236
00:12:49,916 --> 00:12:55,996
Speaker 2: that is really counterintuitive advice. If Alex is auctioning off

237
00:12:55,996 --> 00:12:58,716
Speaker 2: this jar of coins and there are ten of his

238
00:12:58,876 --> 00:13:02,396
Speaker 2: friends at the bar, and then twenty more people come

239
00:13:02,436 --> 00:13:05,956
Speaker 2: in and we let them bid, all of Alex's friends

240
00:13:05,956 --> 00:13:10,236
Speaker 2: should lower their bids, And that's just hard to get

241
00:13:10,276 --> 00:13:11,076
Speaker 2: your head around.

242
00:13:11,476 --> 00:13:14,476
Speaker 1: Yeah, I feel like my intuition is exactly the opposite.

243
00:13:14,116 --> 00:13:16,916
Speaker 2: Right, it's because you have the intuition, oh, I want

244
00:13:16,956 --> 00:13:21,756
Speaker 2: to win. No, the goal should be to submit a

245
00:13:21,796 --> 00:13:25,836
Speaker 2: bid that if it wins, it will be lower than

246
00:13:25,916 --> 00:13:30,636
Speaker 2: the amount of money. It's very counterintuitive, which is why

247
00:13:30,676 --> 00:13:33,596
Speaker 2: people get it wrong. It's a classic anomaly.

248
00:13:34,596 --> 00:13:38,156
Speaker 1: Okay, so that was my number one. Number two classic irrationality,

249
00:13:38,276 --> 00:13:40,356
Speaker 1: which is one that just makes me feel good about

250
00:13:40,436 --> 00:13:43,476
Speaker 1: the human race, is that people aren't the self interested

251
00:13:43,556 --> 00:13:47,116
Speaker 1: jerks that economists think they are. You mentioned this in

252
00:13:47,156 --> 00:13:50,596
Speaker 1: your description of homo economicists, that homoeconomicists is just out

253
00:13:50,596 --> 00:13:54,156
Speaker 1: for themselves. But explain why standard economic theory sort of

254
00:13:54,156 --> 00:13:54,716
Speaker 1: predicts that.

255
00:13:54,756 --> 00:14:00,316
Speaker 2: In a sense, economists have talked about a world in

256
00:14:00,356 --> 00:14:04,796
Speaker 2: which people don't care at all about anybody else. Paul Samuelson,

257
00:14:04,876 --> 00:14:08,836
Speaker 2: one of the great economists of the twentieth century, wrote

258
00:14:08,836 --> 00:14:12,756
Speaker 2: a paper about what he called the public goods problem.

259
00:14:13,636 --> 00:14:17,516
Speaker 2: A public good is something that if you provide to

260
00:14:17,556 --> 00:14:20,996
Speaker 2: one person, you provide to everybody, like a fireworks display.

261
00:14:21,636 --> 00:14:26,716
Speaker 2: And he said it will be underprovided because no one

262
00:14:26,756 --> 00:14:31,716
Speaker 2: will contribute because they can watch it for free. Now,

263
00:14:32,156 --> 00:14:38,476
Speaker 2: of course, people do contribute to charities and to public

264
00:14:38,596 --> 00:14:43,596
Speaker 2: radio and all kinds of other good causes. If you

265
00:14:43,636 --> 00:14:46,116
Speaker 2: open your eyes and look out the window, you'll notice

266
00:14:46,676 --> 00:14:49,756
Speaker 2: that people aren't always suffrage jerks.

267
00:14:50,116 --> 00:14:52,196
Speaker 1: And this is the kind of thing that experimenters were

268
00:14:52,196 --> 00:14:55,156
Speaker 1: starting to notice around the time of The Winner's Curse, Too.

269
00:14:55,356 --> 00:14:58,116
Speaker 1: Alex tell me about some of the classic violations of

270
00:14:58,356 --> 00:15:01,316
Speaker 1: selfishness that folks talked about early in the literature.

271
00:15:01,956 --> 00:15:05,436
Speaker 3: The real anomaly came when Werner Goot and his colleagues

272
00:15:05,756 --> 00:15:09,516
Speaker 3: ran something called the ultimatum game. It's super simple. Richard

273
00:15:09,516 --> 00:15:12,356
Speaker 3: and I are playing the ultimatum game. I have ten dollars,

274
00:15:12,636 --> 00:15:14,716
Speaker 3: and I decide how to split that with Richard. I

275
00:15:14,716 --> 00:15:17,876
Speaker 3: give him ultimatum. I'm the proposer. Richard is the receiver.

276
00:15:18,276 --> 00:15:20,996
Speaker 3: Richard sees my offer to him. Let's say, I say, look,

277
00:15:21,076 --> 00:15:23,196
Speaker 3: I like money. I'm going to keep nine dollars. I'm

278
00:15:23,196 --> 00:15:25,916
Speaker 3: going to give a buck to Richard, and then Richard says,

279
00:15:26,156 --> 00:15:29,636
Speaker 3: I want the dollar. Everything's fine. I end up with nine,

280
00:15:29,836 --> 00:15:32,436
Speaker 3: Richard ends up with one. But if Richard says no,

281
00:15:32,796 --> 00:15:34,956
Speaker 3: both of us end up with zero. Mm hmm.

282
00:15:35,316 --> 00:15:38,836
Speaker 1: And so if homogonomicus is the proposer, he should give

283
00:15:39,236 --> 00:15:42,076
Speaker 1: you know, one penny, right and keep nine dollars in

284
00:15:42,116 --> 00:15:44,116
Speaker 1: ninety nine cents for himself. And if Richard is a

285
00:15:44,116 --> 00:15:46,476
Speaker 1: homo economicus, Richard'd be like, wow, one penny is better

286
00:15:46,516 --> 00:15:48,796
Speaker 1: than nothing. I should go for that. But if you're

287
00:15:48,796 --> 00:15:52,236
Speaker 1: playing with real humans, if you offer one penny of

288
00:15:52,276 --> 00:15:56,076
Speaker 1: your ten bucks, most real humans are like explot of you.

289
00:15:56,076 --> 00:15:59,316
Speaker 1: You jerk like you know, I'll like take a hit, right.

290
00:15:59,716 --> 00:16:02,276
Speaker 1: And so what did gooth find in the original ultimatum

291
00:16:02,276 --> 00:16:05,716
Speaker 1: game effects? Are people homoeconomicus or do they throw some

292
00:16:05,756 --> 00:16:06,596
Speaker 1: explotives in there?

293
00:16:06,916 --> 00:16:09,556
Speaker 3: That's exactly what he found is basically people are not

294
00:16:09,636 --> 00:16:13,236
Speaker 3: homeo economics. Essentially, under twenty percent of the pipe, those

295
00:16:13,236 --> 00:16:16,556
Speaker 3: offers are rejected. So if I offer something less than

296
00:16:16,596 --> 00:16:19,156
Speaker 3: two dollars, Richard's going to reject my offer. Both of

297
00:16:19,236 --> 00:16:21,516
Speaker 3: us end up with nothing. And so this is a

298
00:16:21,516 --> 00:16:24,636
Speaker 3: real puzzle. So the proposer's decision of how much to give.

299
00:16:25,236 --> 00:16:27,236
Speaker 3: That could be driven by a lot of different things.

300
00:16:27,276 --> 00:16:30,556
Speaker 3: But the real puzzle is the receiver saying I would

301
00:16:30,596 --> 00:16:31,876
Speaker 3: prefer nothing.

302
00:16:31,676 --> 00:16:32,796
Speaker 2: To two dollars.

303
00:16:33,116 --> 00:16:35,356
Speaker 1: So this is in the case these like standard economics

304
00:16:35,356 --> 00:16:38,436
Speaker 1: games where we're really setting up these kind of arbitrary situations.

305
00:16:38,476 --> 00:16:41,196
Speaker 1: You know, I'm giving you ten bucks these really specific rules.

306
00:16:41,396 --> 00:16:43,436
Speaker 1: But folks were also finding that people are nicer than

307
00:16:43,476 --> 00:16:46,236
Speaker 1: you expect when you give them more real world contexts.

308
00:16:46,516 --> 00:16:48,876
Speaker 1: Richard tell me about these famous wallet studies and how

309
00:16:48,916 --> 00:16:50,676
Speaker 1: it showed that people were nicer than we think.

310
00:16:51,196 --> 00:16:55,916
Speaker 2: Yeah, so there's a guy called Alan Colne who was

311
00:16:55,956 --> 00:17:00,356
Speaker 2: a postdoc here for a while, and he undertook this

312
00:17:00,636 --> 00:17:05,476
Speaker 2: unbelievably ambitious project where they would take a little wallet

313
00:17:05,996 --> 00:17:11,076
Speaker 2: that would have some kind of id. Suppose it's Alex's

314
00:17:11,116 --> 00:17:14,556
Speaker 2: wallet and it has something like his email address on

315
00:17:14,676 --> 00:17:21,676
Speaker 2: it and sometimes money and sometimes key, and they would

316
00:17:21,996 --> 00:17:26,076
Speaker 2: turn it in at some place like a hotel, lobby

317
00:17:26,636 --> 00:17:30,756
Speaker 2: or a train station. And they did this thousands of

318
00:17:30,796 --> 00:17:34,916
Speaker 2: wallets all around the world. And the question is what

319
00:17:35,036 --> 00:17:40,236
Speaker 2: do people do. Are they more or less likely to

320
00:17:40,316 --> 00:17:43,556
Speaker 2: try and find the owner of the wallet if it

321
00:17:43,636 --> 00:17:47,276
Speaker 2: has money in it? And if people are self as jerks,

322
00:17:47,596 --> 00:17:51,316
Speaker 2: the more money that's there, the less likely they are

323
00:17:51,356 --> 00:17:52,156
Speaker 2: to turn it in.

324
00:17:52,396 --> 00:17:54,036
Speaker 1: Or at least to turn it in with the money

325
00:17:54,076 --> 00:17:54,876
Speaker 1: at least to turn.

326
00:17:54,716 --> 00:17:58,996
Speaker 2: It right exactly. Yeah, And the opposite happens. The more

327
00:17:59,076 --> 00:18:03,276
Speaker 2: money that's there, the more likely that it gets returned

328
00:18:03,436 --> 00:18:06,756
Speaker 2: with the money to the fictional owner.

329
00:18:07,396 --> 00:18:09,836
Speaker 1: And so these are anomal is when it comes to

330
00:18:09,876 --> 00:18:12,276
Speaker 1: the standard economic model, but they're kind of great when

331
00:18:12,276 --> 00:18:14,436
Speaker 1: it comes to human nature, that we're kind of naturally

332
00:18:14,516 --> 00:18:16,876
Speaker 1: not selfish jerks. But a question I had for you,

333
00:18:16,876 --> 00:18:18,716
Speaker 1: given all the evidence, is what can we do to

334
00:18:18,716 --> 00:18:22,236
Speaker 1: get people to become even more cooperative? Are there ways

335
00:18:22,236 --> 00:18:25,756
Speaker 1: that we can bump this lack of selfishness up even more?

336
00:18:26,116 --> 00:18:28,156
Speaker 3: Yeah, So one of the things that's been shown to

337
00:18:28,236 --> 00:18:31,556
Speaker 3: matter a lot is how much people can connect interpersonally.

338
00:18:31,796 --> 00:18:35,876
Speaker 3: So any sort of communication between people before some sort

339
00:18:35,916 --> 00:18:38,676
Speaker 3: of potential exchange takes place or any sort of decision

340
00:18:38,716 --> 00:18:43,596
Speaker 3: takes place, facilitates more cooperative, less selfish behavior. People kind

341
00:18:43,596 --> 00:18:46,076
Speaker 3: of get to know each other, that connection brings them

342
00:18:46,076 --> 00:18:48,916
Speaker 3: closer together, and then they're a lot less selfish. So

343
00:18:48,916 --> 00:18:53,556
Speaker 3: that's one thing that really very intuitively boosts cooperation. The

344
00:18:53,636 --> 00:18:56,076
Speaker 3: other thing is that in society we have a bunch

345
00:18:56,116 --> 00:19:00,796
Speaker 3: of norms. Some of those norms involve punishment of people

346
00:19:00,836 --> 00:19:03,596
Speaker 3: who don't cooperate, and when you introduce these sorts of

347
00:19:03,636 --> 00:19:06,636
Speaker 3: norms into these kind of very abstract games, turns out

348
00:19:06,716 --> 00:19:10,236
Speaker 3: that boosts cooperation tremendously. Of the largest effects in the

349
00:19:10,236 --> 00:19:12,916
Speaker 3: behavioral economics literature is that when you take a standard

350
00:19:12,916 --> 00:19:15,436
Speaker 3: sort of abstract game where people can contribute to the

351
00:19:15,476 --> 00:19:18,276
Speaker 3: public good or something like that, if you introduce the

352
00:19:18,316 --> 00:19:22,436
Speaker 3: opportunity for other people to punish non cooperators at a

353
00:19:22,516 --> 00:19:24,916
Speaker 3: costs to themselves, by the way, which is itself an

354
00:19:24,956 --> 00:19:28,316
Speaker 3: anomaly the standard economic model. If it costs me something

355
00:19:28,356 --> 00:19:30,836
Speaker 3: to punish somebody else, I would never do it. But

356
00:19:30,996 --> 00:19:35,716
Speaker 3: turns out people do, and because there's this threat of punishment,

357
00:19:35,996 --> 00:19:39,196
Speaker 3: everybody ends up cooperating. So this is kind of like

358
00:19:39,236 --> 00:19:42,356
Speaker 3: a little model of society where you take a group

359
00:19:42,396 --> 00:19:45,796
Speaker 3: of people interacting, you introduce the types of things that

360
00:19:45,836 --> 00:19:47,636
Speaker 3: we see in the real world, like norms and the

361
00:19:47,676 --> 00:19:49,916
Speaker 3: ability to punish, and all of a sudden, the world

362
00:19:49,956 --> 00:19:51,396
Speaker 3: looks a lot less selfish.

363
00:19:51,796 --> 00:19:54,196
Speaker 1: So it seems like there's some fun happiness implications from

364
00:19:54,196 --> 00:19:56,756
Speaker 1: this anomaly, it seems like happiness. Implication Number one is like,

365
00:19:56,836 --> 00:19:59,716
Speaker 1: we can just trust people more than we might think.

366
00:20:00,076 --> 00:20:02,276
Speaker 1: The other is that there's ways you can boost cooperation

367
00:20:02,396 --> 00:20:05,516
Speaker 1: even more, talk to people more, get more social connection,

368
00:20:05,636 --> 00:20:08,716
Speaker 1: which honestly is great for happiness anyway, and if possible,

369
00:20:08,756 --> 00:20:11,436
Speaker 1: give people both the opportunity to set up norms where

370
00:20:11,476 --> 00:20:13,516
Speaker 1: you can call out bad actors, which is good.

371
00:20:13,996 --> 00:20:18,996
Speaker 2: Yeah. The one finding is that if you are trusting,

372
00:20:19,956 --> 00:20:25,996
Speaker 2: you produce more trustworthy behavior. You know, in the old

373
00:20:26,276 --> 00:20:32,876
Speaker 2: book I talked about farm stands in Ithaca, where I

374
00:20:32,956 --> 00:20:36,196
Speaker 2: used to teach at Cornell, where a farmer would put

375
00:20:36,276 --> 00:20:41,196
Speaker 2: out like fresh corn on the honor system, and people

376
00:20:41,276 --> 00:20:46,196
Speaker 2: would put money in the box. And Alex and some

377
00:20:46,276 --> 00:20:51,316
Speaker 2: of our behavioral economics friends were out hiking in the

378
00:20:51,436 --> 00:20:56,836
Speaker 2: Swiss Alps this summer and came across a place that

379
00:20:56,956 --> 00:20:59,916
Speaker 2: had wine and cheese. What were they selling?

380
00:20:59,956 --> 00:21:02,356
Speaker 3: Alex there was like you know, these like little cabins

381
00:21:02,396 --> 00:21:05,676
Speaker 3: and secluded in the Alps. There's nobody there. You come in,

382
00:21:05,756 --> 00:21:08,596
Speaker 3: there's wine, and she set up. You take however much

383
00:21:08,596 --> 00:21:10,116
Speaker 3: you want than you put your money in the little

384
00:21:10,156 --> 00:21:10,916
Speaker 3: box and you leave.

385
00:21:11,116 --> 00:21:14,036
Speaker 1: It's less quaint than cornell, I guess with fresh corn

386
00:21:14,156 --> 00:21:16,036
Speaker 1: versus really nice French wine.

387
00:21:16,036 --> 00:21:18,236
Speaker 2: But yeah, but you have to hike up there to

388
00:21:18,236 --> 00:21:18,556
Speaker 2: get it.

389
00:21:21,196 --> 00:21:23,436
Speaker 1: Coming up after the break, we'll dive into more of

390
00:21:23,516 --> 00:21:26,996
Speaker 1: my favorite irrationalities, like why keep paying for a gym

391
00:21:27,036 --> 00:21:29,276
Speaker 1: that I've only ever used once? And why it's so

392
00:21:29,396 --> 00:21:32,636
Speaker 1: hard to actually redeem the frequent flyer miles I've been hoarding.

393
00:21:33,276 --> 00:21:43,996
Speaker 1: The Happiness Lab will be right back, all right, So

394
00:21:44,036 --> 00:21:47,916
Speaker 1: now we're moving on to irrationality number three, something that

395
00:21:47,956 --> 00:21:51,476
Speaker 1: I struggle with a lot personally, which is that as humans,

396
00:21:51,516 --> 00:21:53,956
Speaker 1: we seem to have more of a problem with inertia

397
00:21:54,036 --> 00:21:57,556
Speaker 1: than the standard economic model might predict. Richard, tell me

398
00:21:57,596 --> 00:22:01,036
Speaker 1: about the classic mug study that sholowed us the problems

399
00:22:01,036 --> 00:22:02,476
Speaker 1: that people face with inertia.

400
00:22:03,236 --> 00:22:07,676
Speaker 2: Yeah. So there's something that I originally called the endowment effect,

401
00:22:07,996 --> 00:22:12,636
Speaker 2: because your endowment is something you own, and the empirical

402
00:22:12,676 --> 00:22:18,396
Speaker 2: result is that we value stuff we have more than

403
00:22:19,116 --> 00:22:20,956
Speaker 2: we would be willing to pay to get it.

404
00:22:21,236 --> 00:22:23,236
Speaker 1: So, maybe having me in Alex play, if you're putting

405
00:22:23,276 --> 00:22:25,356
Speaker 1: me in an endowment effects study, how would you do it?

406
00:22:26,036 --> 00:22:29,036
Speaker 2: You and Alex are in a class, sitting next to

407
00:22:29,116 --> 00:22:33,236
Speaker 2: each other, and I go around and I give half

408
00:22:33,356 --> 00:22:38,636
Speaker 2: of you a Yale University coffee mug. It says Boola

409
00:22:38,756 --> 00:22:42,196
Speaker 2: boulah or something on the mug.

410
00:22:41,956 --> 00:22:44,236
Speaker 1: Boola boola, which, of course, for those that don't know,

411
00:22:44,396 --> 00:22:47,556
Speaker 1: is the Yale fight chant. There are literally those mugs

412
00:22:47,556 --> 00:22:48,196
Speaker 1: in the bookstore.

413
00:22:48,236 --> 00:22:51,556
Speaker 2: So yeah, yeah, yeah, And then we say, all right,

414
00:22:51,596 --> 00:22:53,956
Speaker 2: what we're going to do is we're going to have

415
00:22:53,996 --> 00:22:57,476
Speaker 2: a market for these mugs. Laurie, you have a mug

416
00:22:57,796 --> 00:23:00,876
Speaker 2: and you're asked for each of the following prices, are

417
00:23:00,876 --> 00:23:03,876
Speaker 2: you willing to sell it or not? So ten dollars,

418
00:23:04,276 --> 00:23:07,996
Speaker 2: nine to fifty so forth down and Alex is asked

419
00:23:08,356 --> 00:23:11,476
Speaker 2: and each of these is are you willing to buy one? Now?

420
00:23:12,116 --> 00:23:17,036
Speaker 2: A principle of economic rationality is if you wouldn't pay

421
00:23:17,156 --> 00:23:21,076
Speaker 2: six dollars to get it, then you should be willing

422
00:23:21,116 --> 00:23:24,316
Speaker 2: to sell it for six dollars. Suppose we hand out

423
00:23:24,356 --> 00:23:27,836
Speaker 2: five dollar bills, Well, people will be willing to trade

424
00:23:27,876 --> 00:23:31,436
Speaker 2: those for six dollars and they won't pay six dollars

425
00:23:31,476 --> 00:23:34,836
Speaker 2: to get one. Right, So mugs should be like five

426
00:23:34,876 --> 00:23:39,196
Speaker 2: dollar bills. But when we run those experiments, the people

427
00:23:39,196 --> 00:23:43,156
Speaker 2: who get mugs demand twice as much to give them

428
00:23:43,236 --> 00:23:47,756
Speaker 2: up as the people who randomly didn't get a mug

429
00:23:48,156 --> 00:23:51,356
Speaker 2: are willing to pay to get it. And notice it's

430
00:23:51,436 --> 00:23:56,916
Speaker 2: not like we're asking about your favorite hat, right this

431
00:23:57,116 --> 00:24:01,476
Speaker 2: mug has been in your possession for about two minutes

432
00:24:02,076 --> 00:24:05,916
Speaker 2: and you haven't grown to love it, but you act

433
00:24:05,996 --> 00:24:06,436
Speaker 2: like you do.

434
00:24:06,836 --> 00:24:09,516
Speaker 1: So Alex, explain what endowment effect is exact example of

435
00:24:09,556 --> 00:24:12,236
Speaker 1: us showing inertia, because I think that it's part of

436
00:24:12,276 --> 00:24:14,476
Speaker 1: a broader set of biases that you talk about in

437
00:24:14,516 --> 00:24:16,356
Speaker 1: the book that I find really fascinating.

438
00:24:16,996 --> 00:24:17,236
Speaker 2: Yeah.

439
00:24:17,236 --> 00:24:21,156
Speaker 3: So basically, there's a bunch of different biases that are

440
00:24:21,276 --> 00:24:24,356
Speaker 3: essentially an effect that's observed in a particular context that

441
00:24:24,356 --> 00:24:27,756
Speaker 3: are kind of driven by the same sort of underlying psychology,

442
00:24:27,796 --> 00:24:31,676
Speaker 3: which you can describe as inertia, that is driven by

443
00:24:31,716 --> 00:24:36,276
Speaker 3: something that we discuss as loss aversion. Particularly. Look, I'm

444
00:24:36,396 --> 00:24:41,156
Speaker 3: already here. I have this thing or this activity that

445
00:24:41,196 --> 00:24:43,756
Speaker 3: I'm doing, or whatever you want to call it. This

446
00:24:43,836 --> 00:24:46,276
Speaker 3: is now kind of my status quo. This is where

447
00:24:46,316 --> 00:24:49,876
Speaker 3: I'm at lose that thing, and that loss really hurts.

448
00:24:50,316 --> 00:24:54,076
Speaker 3: In fact, a loss hurts about twice maybe sometimes more

449
00:24:54,436 --> 00:24:56,916
Speaker 3: than an equivalent gain feels good. This is what we

450
00:24:56,956 --> 00:24:58,636
Speaker 3: call loss a version, and this.

451
00:24:58,596 --> 00:25:00,756
Speaker 1: Fits with the mug results that Richard was just talking about,

452
00:25:00,756 --> 00:25:03,316
Speaker 1: because people are demanding twice as much to sell this

453
00:25:03,436 --> 00:25:06,036
Speaker 1: mug as buyers are willing to buy. It's like losing

454
00:25:06,076 --> 00:25:08,556
Speaker 1: the mug kind of hits them twice as hard financially.

455
00:25:09,116 --> 00:25:09,396
Speaker 2: Exactly.

456
00:25:09,516 --> 00:25:11,956
Speaker 3: Now this mug is mine, this kind of now my

457
00:25:11,996 --> 00:25:14,836
Speaker 3: status quo giving it up will hurt a lot. So

458
00:25:14,916 --> 00:25:18,156
Speaker 3: I need more money to be compensated for that paint.

459
00:25:18,396 --> 00:25:20,036
Speaker 1: And so that's in the context of again this sort

460
00:25:20,036 --> 00:25:23,036
Speaker 1: of toy example where you're selling mugs, but this kind

461
00:25:23,076 --> 00:25:25,916
Speaker 1: of status quot inertia bias is something that lots of

462
00:25:25,956 --> 00:25:29,076
Speaker 1: companies are using against us all the time. I have

463
00:25:29,116 --> 00:25:31,676
Speaker 1: my own example right now. I have paid to join

464
00:25:31,716 --> 00:25:34,276
Speaker 1: a gym as part of this summer program. This really

465
00:25:34,276 --> 00:25:36,276
Speaker 1: cool bouldering gym near my house was like we have

466
00:25:36,356 --> 00:25:38,196
Speaker 1: yoga classes, and I was like, oh great, I'm going

467
00:25:38,276 --> 00:25:40,436
Speaker 1: to join the bouldering gym. And it turns out that

468
00:25:40,516 --> 00:25:42,876
Speaker 1: so far this summer, I've had a very expensive single

469
00:25:42,956 --> 00:25:46,396
Speaker 1: yoga class for the price of the entire summer enrollment.

470
00:25:46,476 --> 00:25:48,436
Speaker 1: It's like a three hundred dollars yoga class, which is

471
00:25:48,436 --> 00:25:51,716
Speaker 1: really embarrassing. But this is my status quote bias at work.

472
00:25:51,996 --> 00:25:53,356
Speaker 1: Richard explain why this is.

473
00:25:54,076 --> 00:25:59,556
Speaker 2: Yeah, our friends, the married couple of Stefanodelavigna and Ulrika Malmonde,

474
00:26:00,036 --> 00:26:02,476
Speaker 2: wrote a paper about this when they were grad students.

475
00:26:02,716 --> 00:26:05,156
Speaker 2: That was called paying not to go to the gym,

476
00:26:05,796 --> 00:26:10,276
Speaker 2: which is what Laurie did this summer. You know, this

477
00:26:10,356 --> 00:26:14,516
Speaker 2: is an example of what's called status quo bias. Whatever

478
00:26:14,556 --> 00:26:17,996
Speaker 2: the status quo is you tend to stick with. We

479
00:26:18,116 --> 00:26:24,156
Speaker 2: all know this happens. Suppose you're watching some show, say

480
00:26:24,196 --> 00:26:29,516
Speaker 2: you're streaming, and an episode ends and then the next

481
00:26:29,516 --> 00:26:33,316
Speaker 2: one starts. So if you do nothing, which people are

482
00:26:33,356 --> 00:26:37,276
Speaker 2: really good at, then you start watching the next one

483
00:26:37,316 --> 00:26:40,036
Speaker 2: and the next thing you know, you've watched four of

484
00:26:40,116 --> 00:26:44,556
Speaker 2: this stupid sitcom that really wasn't all that much fun,

485
00:26:44,636 --> 00:26:47,716
Speaker 2: but you just found yourself doing it. You know, you

486
00:26:47,756 --> 00:26:51,596
Speaker 2: can use this for good or for bad, and firms

487
00:26:51,636 --> 00:26:57,356
Speaker 2: have figured this out, so that gym warning Laurie they

488
00:26:57,396 --> 00:27:04,836
Speaker 2: are going to automatically renew your subscription. Yeah right, and

489
00:27:04,876 --> 00:27:07,436
Speaker 2: you know what, you're only going to go once this

490
00:27:07,716 --> 00:27:11,876
Speaker 2: fall because you'll be even busier. So I'm gonna save

491
00:27:11,916 --> 00:27:14,876
Speaker 2: you a lot of money here and suggest you quit now.

492
00:27:15,556 --> 00:27:21,156
Speaker 2: But we've used exactly that trick for good. When the

493
00:27:21,356 --> 00:27:25,196
Speaker 2: new kind of retirement plans for one K type plans

494
00:27:25,956 --> 00:27:29,396
Speaker 2: first came on the scene. One of the problems was

495
00:27:29,516 --> 00:27:33,476
Speaker 2: that people just didn't sign up even if their employer

496
00:27:33,716 --> 00:27:37,716
Speaker 2: was matching their contributions dollar for dollar, which is really

497
00:27:37,756 --> 00:27:42,156
Speaker 2: really stupid. And so we got the clever idea, why

498
00:27:42,196 --> 00:27:46,156
Speaker 2: don't we just change the default and say, hey, Laurie,

499
00:27:46,556 --> 00:27:48,436
Speaker 2: we have a new retirement plan. We're going to put

500
00:27:48,476 --> 00:27:51,676
Speaker 2: you in unless you fill out some form and say

501
00:27:51,676 --> 00:27:55,916
Speaker 2: you don't want it, and boom, that gets enrollment up

502
00:27:55,956 --> 00:28:00,236
Speaker 2: to ninety percent. And notice that's something economists would say,

503
00:28:00,276 --> 00:28:04,356
Speaker 2: we'll have no effect because what kind of idiot would

504
00:28:04,436 --> 00:28:09,116
Speaker 2: turn down a dollar for dollar match of six percent

505
00:28:09,276 --> 00:28:13,076
Speaker 2: of their salary. No, no idiot would say, oh, because

506
00:28:13,116 --> 00:28:15,436
Speaker 2: I have to fill out a one page form. But

507
00:28:16,196 --> 00:28:19,516
Speaker 2: you know, enrollments went from fifty percent to ninety percent

508
00:28:20,076 --> 00:28:24,556
Speaker 2: just by doing that. So that was using inertia for good.

509
00:28:25,076 --> 00:28:30,316
Speaker 2: Automatically renewing your gym membership is for profit and we

510
00:28:30,396 --> 00:28:35,116
Speaker 2: observe both. And there are lots of policy decisions. One

511
00:28:35,156 --> 00:28:37,476
Speaker 2: that is a little up in the air. The last

512
00:28:37,756 --> 00:28:42,916
Speaker 2: weeks of the Biden administration, they passed a rule saying

513
00:28:43,636 --> 00:28:47,036
Speaker 2: that you have to be able to unsubscribe the same

514
00:28:47,116 --> 00:28:51,916
Speaker 2: way you subscribed. So if it was with one click,

515
00:28:52,556 --> 00:28:57,756
Speaker 2: it should be one click. Some gyms during during COVID,

516
00:28:58,356 --> 00:29:02,236
Speaker 2: we're requiring people to come to the gym which was

517
00:29:02,356 --> 00:29:08,596
Speaker 2: closed in person to quit. That's really evil, right, So

518
00:29:09,116 --> 00:29:11,116
Speaker 2: this rule is up in the air. I don't know

519
00:29:11,396 --> 00:29:14,796
Speaker 2: whether it's going to be enforced or not, but I

520
00:29:14,836 --> 00:29:17,516
Speaker 2: strongly believe that's a rule for good.

521
00:29:17,916 --> 00:29:20,356
Speaker 1: So it seems like the happiness lesson from this problem

522
00:29:20,396 --> 00:29:23,436
Speaker 1: we have with inertia is like, if you're stuck in

523
00:29:23,516 --> 00:29:26,076
Speaker 1: some status quo, make sure it's a status quo that

524
00:29:26,076 --> 00:29:28,356
Speaker 1: you like, or build your own status quos that might

525
00:29:28,396 --> 00:29:31,516
Speaker 1: be helpful, But try to notice when you're getting stuck

526
00:29:31,556 --> 00:29:33,156
Speaker 1: in something just because it was the thing that you're

527
00:29:33,236 --> 00:29:33,476
Speaker 1: used to.

528
00:29:33,716 --> 00:29:34,636
Speaker 2: Yeah, okay, So.

529
00:29:34,596 --> 00:29:38,196
Speaker 1: That was irrationality number three that I think has interesting

530
00:29:38,236 --> 00:29:41,156
Speaker 1: implications for happiness. Now we get to irrationality number four,

531
00:29:41,636 --> 00:29:43,596
Speaker 1: which is I think a very very big one when

532
00:29:43,636 --> 00:29:45,916
Speaker 1: it comes to our happiness. And this is this idea

533
00:29:46,036 --> 00:29:50,356
Speaker 1: that we have a defective telescope, as economist Arthur Pigu

534
00:29:50,436 --> 00:29:53,556
Speaker 1: put it. What does Pigu mean by a defective telescope.

535
00:29:54,316 --> 00:30:00,316
Speaker 2: The idea is that the difference between today and tomorrow

536
00:30:01,036 --> 00:30:06,596
Speaker 2: seems bigger than the difference between two days apart in

537
00:30:06,636 --> 00:30:12,956
Speaker 2: the year, irrationally so. So Laurie is going to say, well, today,

538
00:30:13,076 --> 00:30:16,636
Speaker 2: she's busy, she's taping this podcast, she doesn't have time

539
00:30:16,676 --> 00:30:19,556
Speaker 2: to quit that gym. She's going to do it tomorrow,

540
00:30:19,876 --> 00:30:23,956
Speaker 2: and tomorrow there's going to be something else, so we

541
00:30:24,076 --> 00:30:27,556
Speaker 2: all procrastinate. That Maybe one reason it took just four

542
00:30:27,636 --> 00:30:31,636
Speaker 2: years to do this simple revision of this book, Alex

543
00:30:31,676 --> 00:30:33,876
Speaker 2: had a couple of kids, so he has an excuse.

544
00:30:34,436 --> 00:30:40,076
Speaker 2: So that defective telescope affects things like saving for retirement,

545
00:30:40,476 --> 00:30:45,636
Speaker 2: because retirement seems like it's a long way off, and

546
00:30:45,676 --> 00:30:48,876
Speaker 2: then suddenly you wake up and you're old like me.

547
00:30:49,196 --> 00:30:51,196
Speaker 1: I mean, I'll give you an even closer to home

548
00:30:51,276 --> 00:30:53,876
Speaker 1: example for listeners who might not be as old as

549
00:30:53,916 --> 00:30:54,956
Speaker 1: you are, Richard, which.

550
00:30:54,796 --> 00:30:58,236
Speaker 2: Is imagine that.

551
00:30:57,236 --> 00:31:00,276
Speaker 1: Which is just what's happening in your calendar weeks or

552
00:31:00,316 --> 00:31:03,556
Speaker 1: months from now, you know today, Laurie, if you ask me, hey,

553
00:31:03,596 --> 00:31:05,356
Speaker 1: would you want to write a chapter for a book

554
00:31:05,356 --> 00:31:08,036
Speaker 1: that doesn't even sound that interesting, I'm like, no way.

555
00:31:08,156 --> 00:31:10,876
Speaker 1: But if you ask me, does December Laurie want to

556
00:31:10,876 --> 00:31:12,956
Speaker 1: put some time into writing a chapter that sounds kind

557
00:31:12,956 --> 00:31:15,036
Speaker 1: of interesting. I'm like, oh my god, December Laurie would

558
00:31:15,036 --> 00:31:17,276
Speaker 1: love that. She would love to spend her time doing

559
00:31:17,276 --> 00:31:19,956
Speaker 1: that thing. And so I feel like my personal calendar

560
00:31:20,236 --> 00:31:24,316
Speaker 1: is filled with these instances of past Laurie's myopia, Like

561
00:31:24,436 --> 00:31:27,516
Speaker 1: somehow she thought that, you know, doing this podcast interview

562
00:31:27,516 --> 00:31:29,636
Speaker 1: today would be totally fine to do that with a

563
00:31:29,676 --> 00:31:32,196
Speaker 1: bunch of student meetings and she doesn't need lunch that day.

564
00:31:32,236 --> 00:31:33,636
Speaker 1: She'll just squeeze other things in.

565
00:31:34,236 --> 00:31:35,996
Speaker 3: And I think that, you know, in terms of like

566
00:31:36,916 --> 00:31:39,676
Speaker 3: rules in order to kind of solve these sorts of issues.

567
00:31:39,876 --> 00:31:42,636
Speaker 3: My favorite one is, what if that person asks you

568
00:31:42,716 --> 00:31:44,716
Speaker 3: to do that today, would you do it If the

569
00:31:44,756 --> 00:31:46,516
Speaker 3: answer is no, don't do it a year from now,

570
00:31:46,676 --> 00:31:49,676
Speaker 3: because a year from now, unless something real bad happens,

571
00:31:49,716 --> 00:31:52,516
Speaker 3: will at some point become today, and you will be like,

572
00:31:52,916 --> 00:31:53,916
Speaker 3: holy you.

573
00:31:53,876 --> 00:31:57,716
Speaker 1: Know, yeah No. I think this is so powerful, right,

574
00:31:57,756 --> 00:32:00,436
Speaker 1: because I think one of the big happiness implications of

575
00:32:00,476 --> 00:32:03,716
Speaker 1: this defective telescope is that we're just constantly screwing over

576
00:32:03,876 --> 00:32:07,316
Speaker 1: our future selves. Interestingly, we talked recently on a podcast

577
00:32:07,396 --> 00:32:09,716
Speaker 1: about a different way we screw over our future cells

578
00:32:09,756 --> 00:32:11,996
Speaker 1: that I'd be curious to think how behavioral economists think

579
00:32:12,036 --> 00:32:14,916
Speaker 1: about this. Behavioral economists are constantly talking about cases of

580
00:32:14,956 --> 00:32:18,596
Speaker 1: my apia, but happiness scientists often consider these cases of

581
00:32:18,596 --> 00:32:22,156
Speaker 1: what's called hyperopia, right where you kind of wind up

582
00:32:22,196 --> 00:32:24,916
Speaker 1: saving these good things for the future that you never

583
00:32:25,036 --> 00:32:27,436
Speaker 1: end up enjoying. So I'm thinking of cases of like

584
00:32:27,556 --> 00:32:30,076
Speaker 1: my frequent flyer miles. I'm sitting on one hundred thousand

585
00:32:30,076 --> 00:32:32,756
Speaker 1: frequent flyer miles that I'm like, someday I'll want to

586
00:32:33,116 --> 00:32:35,956
Speaker 1: enjoy these, but I never actually planned the vacation to

587
00:32:36,076 --> 00:32:38,236
Speaker 1: use them. Or you know, a really nice bottle of

588
00:32:38,276 --> 00:32:40,476
Speaker 1: wine that a good friend gave me for a birthday

589
00:32:40,676 --> 00:32:42,476
Speaker 1: and I'm like, oh, I want to wait for the

590
00:32:42,516 --> 00:32:45,356
Speaker 1: special day to use that, and then I never use it,

591
00:32:45,396 --> 00:32:47,436
Speaker 1: and years later I'll probably open it and it's corked

592
00:32:47,436 --> 00:32:50,036
Speaker 1: and I've forgotten about it. Are there hyper optic cases

593
00:32:50,076 --> 00:32:51,436
Speaker 1: that behavioral economists think about?

594
00:32:52,116 --> 00:32:56,556
Speaker 2: Yeah, So I have a student named Suzanne Chu, and

595
00:32:56,636 --> 00:33:00,956
Speaker 2: she talks about the example that you have two tomatoes

596
00:33:00,996 --> 00:33:05,716
Speaker 2: sitting on your kitchen counter and one is perfect, it's

597
00:33:05,916 --> 00:33:12,836
Speaker 2: like God's tomato, and one is two days past, which

598
00:33:12,916 --> 00:33:18,356
Speaker 2: one do you eat tonight? And in my family we

599
00:33:18,436 --> 00:33:23,396
Speaker 2: refer to the perfect one as Suzanne's tomato. My wife

600
00:33:23,436 --> 00:33:27,396
Speaker 2: is more frugal than me, and she can't bear the

601
00:33:27,516 --> 00:33:33,956
Speaker 2: thought of throwing away that almost still good tomato, whereas

602
00:33:34,036 --> 00:33:36,316
Speaker 2: I always want to go for the perfect one.

603
00:33:36,636 --> 00:33:39,836
Speaker 1: And that's important because if you wait till tomorrow, Susanne's

604
00:33:39,836 --> 00:33:41,916
Speaker 1: tomato is going to be not so good too.

605
00:33:42,236 --> 00:33:46,916
Speaker 2: You never eat Susanne's tomato, that's the problem. So you

606
00:33:47,036 --> 00:33:50,516
Speaker 2: gotta go for Suzanne's tomato when it's there.

607
00:33:51,156 --> 00:33:53,596
Speaker 3: Our friend George Lowenstein has and we talk about this

608
00:33:53,636 --> 00:33:57,236
Speaker 3: in the book, this idea of anticipatory utility. You were

609
00:33:57,236 --> 00:33:59,956
Speaker 3: talking about a nice bottle of wine or all of

610
00:33:59,956 --> 00:34:02,916
Speaker 3: these travel miles or something like that. You're kind of

611
00:34:02,916 --> 00:34:05,236
Speaker 3: saving it for something. You have this dream in your

612
00:34:05,236 --> 00:34:07,676
Speaker 3: head that there's gonna be this perfect event where you

613
00:34:07,956 --> 00:34:10,516
Speaker 3: open up the bottle, you have this incredible dinner party,

614
00:34:10,636 --> 00:34:13,076
Speaker 3: everything is amazing. It's gonna happen at some point in

615
00:34:13,116 --> 00:34:15,116
Speaker 3: the future. And what this allows you to do is

616
00:34:15,156 --> 00:34:17,436
Speaker 3: kind of just like go on imagining that that's gonna happen,

617
00:34:17,756 --> 00:34:20,716
Speaker 3: which provides you some sort of happiness over time. And

618
00:34:20,756 --> 00:34:25,276
Speaker 3: this sort of anticipatory utility leads to what looks like

619
00:34:25,796 --> 00:34:28,916
Speaker 3: putting nice things into the future too much.

620
00:34:29,276 --> 00:34:31,716
Speaker 1: And so it seems like we want to embrace the savoring.

621
00:34:31,756 --> 00:34:34,836
Speaker 1: We want to embrace the anticipatory utility. But maybe just

622
00:34:34,876 --> 00:34:38,036
Speaker 1: put in the calendar that, like, you know, October twenty first,

623
00:34:38,196 --> 00:34:41,716
Speaker 1: I'm gonna drink the good wine, or maybe like January

624
00:34:41,756 --> 00:34:44,556
Speaker 1: right in your calendar, use a frequent flyer miles this month.

625
00:34:44,356 --> 00:34:47,316
Speaker 2: And next time sailors in New Haven. That's when you

626
00:34:47,396 --> 00:34:47,756
Speaker 2: open that.

627
00:34:49,916 --> 00:34:52,276
Speaker 1: We'll see if we have some assusiasts tomatoes. Then I

628
00:34:52,276 --> 00:34:54,516
Speaker 1: don't know if we will Okay. When we get back

629
00:34:54,516 --> 00:34:57,796
Speaker 1: from the break, we'll dive into my final two favorite anomalies.

630
00:34:58,436 --> 00:35:01,756
Speaker 1: Think why Dustin Hoffmann, how did Gene Hackman for lunch money?

631
00:35:02,196 --> 00:35:05,996
Speaker 1: And why people buy convertibles in snowy climates. The Happiness

632
00:35:06,076 --> 00:35:16,916
Speaker 1: Lab will be back in a moment. Irrationality number five

633
00:35:17,076 --> 00:35:20,476
Speaker 1: gets us into monetary territory, and it's the idea that

634
00:35:20,716 --> 00:35:24,316
Speaker 1: money is actually fungible. We don't treat it like that, Alex.

635
00:35:24,396 --> 00:35:25,956
Speaker 1: What's this idea of fungibility?

636
00:35:26,556 --> 00:35:29,596
Speaker 3: The idea of fungibility underlies the whole reason we have

637
00:35:29,676 --> 00:35:32,116
Speaker 3: money in the first place, and we're not bartering anymore.

638
00:35:32,276 --> 00:35:34,556
Speaker 3: It just basically means a dollar is a dollar. It

639
00:35:34,556 --> 00:35:36,796
Speaker 3: doesn't matter how I got the dollar. It'll buy you

640
00:35:36,836 --> 00:35:39,116
Speaker 3: the same thing. So you should spend it the same way,

641
00:35:39,156 --> 00:35:41,396
Speaker 3: regardless of how you got it. So let's say you

642
00:35:41,476 --> 00:35:44,716
Speaker 3: got a nice bonus at work, come home, you think

643
00:35:44,716 --> 00:35:47,396
Speaker 3: about how you to spend that five hundred dollars, or

644
00:35:47,836 --> 00:35:50,356
Speaker 3: you found five hundred dollars envelope on the ground, you

645
00:35:50,396 --> 00:35:52,316
Speaker 3: think about how you want to spend it. You should

646
00:35:52,356 --> 00:35:54,916
Speaker 3: basically spend it the same way. It doesn't really matter

647
00:35:54,956 --> 00:35:57,036
Speaker 3: how you got it. The money is worth the same

648
00:35:57,076 --> 00:35:59,876
Speaker 3: to you. You should spend it exactly the same way.

649
00:36:00,276 --> 00:36:05,716
Speaker 3: And this idea of fungibility underlies the very very basic

650
00:36:05,796 --> 00:36:07,116
Speaker 3: principles of economics.

651
00:36:07,396 --> 00:36:09,676
Speaker 1: Except the problem is that we tend to do that.

652
00:36:09,956 --> 00:36:13,076
Speaker 1: In fact, we violate this fungibility principle in pretty much

653
00:36:13,076 --> 00:36:15,756
Speaker 1: every behavior we engage in Richard, in the book, you

654
00:36:15,836 --> 00:36:17,956
Speaker 1: use an example of the way we violate it when

655
00:36:17,996 --> 00:36:21,116
Speaker 1: we're purchasing gas under certain situations. I hadn't heard about

656
00:36:21,116 --> 00:36:22,516
Speaker 1: this was share the gas example.

657
00:36:23,196 --> 00:36:26,836
Speaker 2: Yeah. So one of the big themes in the book

658
00:36:26,876 --> 00:36:30,436
Speaker 2: in terms of methodology, Alex referred to this earlier. Is

659
00:36:30,876 --> 00:36:34,316
Speaker 2: a lot of stuff that was demonstrated with thought experiments

660
00:36:34,556 --> 00:36:39,476
Speaker 2: or lab experiments has now been replicated with actual data.

661
00:36:40,076 --> 00:36:43,436
Speaker 2: And this is a good example of that. Our friends

662
00:36:43,636 --> 00:36:48,596
Speaker 2: Jesse Shapiro and Justine Hastings looked at what happened when

663
00:36:48,996 --> 00:36:53,516
Speaker 2: the price of gasoline fell by fifty percent during the

664
00:36:53,596 --> 00:36:59,116
Speaker 2: financial crisis, right, so this was really bad times. Also unemployment.

665
00:36:59,476 --> 00:37:04,396
Speaker 2: People are coming back on everything. But gas has gotten cheap.

666
00:37:04,996 --> 00:37:08,236
Speaker 2: So they were spending eighty dollars a week on gas

667
00:37:08,276 --> 00:37:12,036
Speaker 2: and now it's for So there's forty dollars extra in

668
00:37:12,076 --> 00:37:15,476
Speaker 2: their budget. And what do they do with that windfall, Well,

669
00:37:15,476 --> 00:37:20,996
Speaker 2: they spend some of it very stupidly on better grade gas.

670
00:37:21,276 --> 00:37:23,716
Speaker 1: So it'd be like I would buy the eighty seven percent,

671
00:37:23,876 --> 00:37:26,516
Speaker 1: you know, the cheapo gas, the cheapest one on the board.

672
00:37:26,796 --> 00:37:29,836
Speaker 1: But then when the price of gas falls, instead of

673
00:37:29,836 --> 00:37:31,476
Speaker 1: saying like, oh, I can save that money and go

674
00:37:31,516 --> 00:37:34,276
Speaker 1: get an extra coffee or something like that, I say today,

675
00:37:34,316 --> 00:37:37,836
Speaker 1: I'm going to get the ninety two percent the premium, right.

676
00:37:37,756 --> 00:37:41,356
Speaker 2: Exactly, and that will do exactly no good. The car

677
00:37:41,436 --> 00:37:44,796
Speaker 2: won't appreciate it. Go buy a better bottle of olive oil.

678
00:37:44,996 --> 00:37:45,196
Speaker 3: You know.

679
00:37:46,036 --> 00:37:49,756
Speaker 2: So that's a good example of what I call mental accounting.

680
00:37:50,036 --> 00:37:52,276
Speaker 1: Yeah, and so what's mental accounting? Because I think it's

681
00:37:52,276 --> 00:37:53,876
Speaker 1: so intuitive once you explain it.

682
00:37:54,156 --> 00:37:56,876
Speaker 2: Mental accounting is sort of the way we keep track

683
00:37:56,916 --> 00:38:01,236
Speaker 2: of stuff. There's a great video you can find online

684
00:38:01,596 --> 00:38:07,956
Speaker 2: Dustin Hoffman and Gene Hackman and they're having this discussion.

685
00:38:08,036 --> 00:38:12,636
Speaker 2: It's about back when they were starving actors, and Hackman

686
00:38:13,116 --> 00:38:17,556
Speaker 2: tells this story about going to he calls him Dusty,

687
00:38:18,116 --> 00:38:23,196
Speaker 2: going to Dusty's apartment in Pasadena, and Hoffman says, he

688
00:38:23,276 --> 00:38:25,916
Speaker 2: needs some money? Can he loan him some money? And

689
00:38:25,956 --> 00:38:29,236
Speaker 2: then Hackman goes into the kitchen and he says, hey,

690
00:38:29,276 --> 00:38:33,956
Speaker 2: you need money. There's these jars in your kitchen and

691
00:38:33,996 --> 00:38:36,636
Speaker 2: they've got money in them. Why do you need money?

692
00:38:37,076 --> 00:38:39,276
Speaker 2: And Hoffman says, yeah, but there's no money in the

693
00:38:39,316 --> 00:38:46,596
Speaker 2: food jar, right, So that is mental accounting. Now, I

694
00:38:46,636 --> 00:38:51,076
Speaker 2: should say budgeting per se is not stupid, you know,

695
00:38:51,156 --> 00:38:53,796
Speaker 2: and making sure that you have enough money to pay

696
00:38:53,796 --> 00:38:57,996
Speaker 2: the rent each month, that's smart, and in fact, creating

697
00:38:58,436 --> 00:39:03,156
Speaker 2: the equivalent of those jars can be helpful. But spending

698
00:39:03,276 --> 00:39:07,156
Speaker 2: the gas windfall on gas that's stupid.

699
00:39:07,316 --> 00:39:09,916
Speaker 1: But we can harness these biases also, so for good

700
00:39:10,276 --> 00:39:12,956
Speaker 1: you mentioned before the example of the tool you were

701
00:39:13,036 --> 00:39:15,556
Speaker 1: using to get people to save more, and this is

702
00:39:15,596 --> 00:39:17,796
Speaker 1: another spot where you were able to use people's mental

703
00:39:17,796 --> 00:39:21,396
Speaker 1: accounts to do better a little bit too, using people's raises,

704
00:39:21,476 --> 00:39:23,636
Speaker 1: for example, to get them to save a little bit more.

705
00:39:23,636 --> 00:39:25,156
Speaker 1: Explain what you did in that program.

706
00:39:25,836 --> 00:39:29,396
Speaker 2: Yeah, so I mentioned before that the first problem we

707
00:39:29,436 --> 00:39:32,116
Speaker 2: had to solve was getting people to sign up. Then

708
00:39:32,156 --> 00:39:35,356
Speaker 2: the second problem was getting them to put more money in.

709
00:39:36,076 --> 00:39:41,236
Speaker 2: And the trick there was another one of my former students,

710
00:39:41,356 --> 00:39:44,596
Speaker 2: Sloman BENARTZI and I create a program we called save

711
00:39:44,876 --> 00:39:47,796
Speaker 2: More Tomorrow. And this goes back to what we were talking

712
00:39:47,836 --> 00:39:48,756
Speaker 2: about before, because it's.

713
00:39:48,596 --> 00:39:51,116
Speaker 1: Tomorrowmorrow is far away. I'm happy to save. Laurie's going

714
00:39:51,116 --> 00:39:52,596
Speaker 1: to be a great saver tomorrow.

715
00:39:52,436 --> 00:39:55,196
Speaker 2: Right, So we would go to people and say, how

716
00:39:55,236 --> 00:39:59,796
Speaker 2: about if you increase your saving contribution when you get

717
00:39:59,836 --> 00:40:04,236
Speaker 2: your next raise? All right, So that's combining two of

718
00:40:04,276 --> 00:40:07,836
Speaker 2: the things. So first of all, it's tomorrow, right it

719
00:40:08,236 --> 00:40:10,836
Speaker 2: you know it's in janu when I get the raise,

720
00:40:11,036 --> 00:40:14,556
Speaker 2: so sure, and I'm going to have more money, so

721
00:40:14,796 --> 00:40:18,436
Speaker 2: I'll take some of that new money and I'll save

722
00:40:18,556 --> 00:40:23,156
Speaker 2: that and that program. In the first company we tried at,

723
00:40:23,156 --> 00:40:28,036
Speaker 2: we triple saving rates. Wow. That has created billions and

724
00:40:28,076 --> 00:40:31,596
Speaker 2: billions of dollars in savings around the world.

725
00:40:31,876 --> 00:40:33,516
Speaker 1: And this kind of fits with the ideas we've been

726
00:40:33,516 --> 00:40:35,516
Speaker 1: talking about for so many of these other anomalies, right,

727
00:40:35,516 --> 00:40:38,636
Speaker 1: which is that mental accounting in some context looks sort

728
00:40:38,636 --> 00:40:40,996
Speaker 1: of silly when you're just kind of spending your gas

729
00:40:41,036 --> 00:40:43,996
Speaker 1: budget on higher priced gas just because you can. But

730
00:40:44,116 --> 00:40:46,196
Speaker 1: you can also use mental accounting to do things that

731
00:40:46,276 --> 00:40:47,156
Speaker 1: make you happier.

732
00:40:47,236 --> 00:40:47,396
Speaker 3: Right.

733
00:40:47,396 --> 00:40:49,356
Speaker 1: You can think of the account of, Oh, I'm going

734
00:40:49,396 --> 00:40:51,916
Speaker 1: to get this future raise that's not allocated for yet,

735
00:40:51,956 --> 00:40:54,076
Speaker 1: so I can put that into savings. I feel like

736
00:40:54,116 --> 00:40:56,196
Speaker 1: I do this all the time when the so called

737
00:40:56,276 --> 00:40:58,756
Speaker 1: pain of paying is kind of high, Like I want

738
00:40:58,756 --> 00:41:01,516
Speaker 1: to do something, but it feels sort of luxurious if

739
00:41:01,516 --> 00:41:03,676
Speaker 1: I take some random windfall I get, say I get

740
00:41:03,676 --> 00:41:06,476
Speaker 1: an extra honorarium from a talk I wasn't expecting. I

741
00:41:06,556 --> 00:41:09,356
Speaker 1: put that towards the stuff that normally i'd feel little

742
00:41:09,356 --> 00:41:11,876
Speaker 1: bit embarrassed about getting, and then that makes me feel

743
00:41:12,076 --> 00:41:14,156
Speaker 1: not so bad. That's like a happiness hack that I

744
00:41:14,236 --> 00:41:15,876
Speaker 1: use for mental accounting all the time.

745
00:41:16,196 --> 00:41:19,556
Speaker 2: I'll tell you a funny story about my daughter, My

746
00:41:19,676 --> 00:41:24,156
Speaker 2: daughter Maggie, who has been raised by a beaveral economist. Right.

747
00:41:24,556 --> 00:41:27,516
Speaker 2: She lives in Rhode Island, and one of her neighbors

748
00:41:27,876 --> 00:41:31,276
Speaker 2: grew into be a Major League baseball pitcher playing for

749
00:41:31,316 --> 00:41:34,836
Speaker 2: the Mets. And I noticed the Mets were going to

750
00:41:34,876 --> 00:41:37,476
Speaker 2: have a game in which this kid was going to

751
00:41:37,476 --> 00:41:41,316
Speaker 2: be pitching, and so I called Maggie and said, hey,

752
00:41:41,716 --> 00:41:44,156
Speaker 2: would you want to go to that game? I'll treat

753
00:41:44,196 --> 00:41:47,476
Speaker 2: you to two tickets, and she said, okay, great. So

754
00:41:47,716 --> 00:41:49,956
Speaker 2: this game was like in another day and a half,

755
00:41:50,316 --> 00:41:52,716
Speaker 2: so we had to act fast. So I look online.

756
00:41:53,196 --> 00:41:56,516
Speaker 2: I send her a link and say, look, mag you

757
00:41:56,596 --> 00:41:59,436
Speaker 2: can get what looked like pretty nice tickets for three

758
00:41:59,516 --> 00:42:02,436
Speaker 2: hundred dollars each. By the ones you want, I'll send

759
00:42:02,436 --> 00:42:06,516
Speaker 2: you one thousand dollars and go have fun. And she

760
00:42:06,996 --> 00:42:10,276
Speaker 2: text me back and said, well, this is just like

761
00:42:10,356 --> 00:42:13,316
Speaker 2: in your book. If you send me one thousand dollars,

762
00:42:13,596 --> 00:42:15,356
Speaker 2: I'm not going to use it on going to a

763
00:42:15,396 --> 00:42:16,196
Speaker 2: baseball game.

764
00:42:18,996 --> 00:42:21,516
Speaker 1: All right, So now we get photo. My final irrationality

765
00:42:21,596 --> 00:42:24,156
Speaker 1: that I think matters for happiness, which is the problem

766
00:42:24,356 --> 00:42:26,516
Speaker 1: that we don't always know what we're going to like

767
00:42:26,996 --> 00:42:29,436
Speaker 1: in the future. Alex. In the book, you use this

768
00:42:29,516 --> 00:42:31,276
Speaker 1: so called the hungry shopper example.

769
00:42:31,356 --> 00:42:34,676
Speaker 3: What's that well, I think everybody's kind of probably familiar

770
00:42:34,756 --> 00:42:37,436
Speaker 3: with this one. You're you shouldn't shop on an empty

771
00:42:37,476 --> 00:42:41,036
Speaker 3: stomach because everything feels like it's going to be really good,

772
00:42:41,076 --> 00:42:43,356
Speaker 3: and you fill your grocery cart with all of these

773
00:42:43,396 --> 00:42:46,796
Speaker 3: delicious looking things. You go home, you eat dinner, and

774
00:42:46,796 --> 00:42:49,156
Speaker 3: then you're like, why did I buy seventeen different types

775
00:42:49,196 --> 00:42:52,116
Speaker 3: of potato chips? And it's the idea that you can't

776
00:42:52,156 --> 00:42:55,516
Speaker 3: really accurately imagine what you're going to be like and

777
00:42:55,516 --> 00:42:58,356
Speaker 3: what you're going to want in the future. So if

778
00:42:58,396 --> 00:43:00,236
Speaker 3: I'm hungry, you kind of think I'm always going to

779
00:43:00,276 --> 00:43:03,116
Speaker 3: be hungry, I'm always gonna want these things. You're going

780
00:43:03,196 --> 00:43:05,876
Speaker 3: to fill your grocery cart with those things, and then

781
00:43:05,916 --> 00:43:08,516
Speaker 3: all of a sudden, you eat and your house is

782
00:43:08,556 --> 00:43:10,796
Speaker 3: filled with stuff if you don't want, especially you know,

783
00:43:10,876 --> 00:43:13,236
Speaker 3: stuff you really don't want, like chips and other sorts

784
00:43:13,276 --> 00:43:17,076
Speaker 3: of unhealthy things. It's this idea that we started perspective taking,

785
00:43:17,396 --> 00:43:20,156
Speaker 3: only it's not perspective taking with respect to other people's

786
00:43:20,196 --> 00:43:22,876
Speaker 3: perspective taking with respect to what you're going to be like.

787
00:43:22,956 --> 00:43:23,556
Speaker 2: In the future.

788
00:43:23,836 --> 00:43:25,716
Speaker 3: So people struggle with both.

789
00:43:26,516 --> 00:43:28,076
Speaker 1: In some ways, it makes sense that we struggle with

790
00:43:28,076 --> 00:43:30,596
Speaker 1: both when it comes to like hunger, right, it's hard

791
00:43:30,636 --> 00:43:33,036
Speaker 1: to kind of imagine a different state that you're in.

792
00:43:33,356 --> 00:43:35,676
Speaker 1: But we see these kinds of effects more broadly than

793
00:43:35,756 --> 00:43:38,356
Speaker 1: like what's happening in the grocery store. Alex tell me

794
00:43:38,396 --> 00:43:41,356
Speaker 1: the example of the effect of a person's weather and

795
00:43:41,396 --> 00:43:43,396
Speaker 1: the present day on their car purchases.

796
00:43:43,876 --> 00:43:46,476
Speaker 3: Yeah. So this is by our colleague Devin Pope and

797
00:43:46,516 --> 00:43:48,756
Speaker 3: his co authors. They basically looked at data. This is

798
00:43:48,756 --> 00:43:51,636
Speaker 3: again going into this kind of revolution and behavioral economics.

799
00:43:51,636 --> 00:43:54,876
Speaker 3: We started out with these experiments with college students and

800
00:43:54,916 --> 00:43:57,036
Speaker 3: now most of the results that we're seeing are with

801
00:43:57,356 --> 00:44:01,076
Speaker 3: data millions of car purchases. They take this database of

802
00:44:01,116 --> 00:44:04,116
Speaker 3: what sort of cars people are buying and when, and

803
00:44:04,156 --> 00:44:06,436
Speaker 3: they find that when it's sunny, people are a lot

804
00:44:06,476 --> 00:44:09,876
Speaker 3: more likely to buy a convertible. And the funny thing

805
00:44:09,956 --> 00:44:12,556
Speaker 3: is is that you know, if you're in Minnesota, you're

806
00:44:12,596 --> 00:44:15,676
Speaker 3: on that one sunny day June seventh.

807
00:44:15,836 --> 00:44:17,836
Speaker 1: Yeah, you all lived in Chicago. We know the one

808
00:44:17,876 --> 00:44:18,956
Speaker 1: sunny day in Chicago.

809
00:44:19,316 --> 00:44:22,756
Speaker 3: Yeah, and you know people are buying these convertibles and

810
00:44:23,396 --> 00:44:27,276
Speaker 3: they're going out, they're happily driving off the lot, and

811
00:44:27,276 --> 00:44:30,276
Speaker 3: then you know, the rest of the year starts and

812
00:44:30,316 --> 00:44:33,116
Speaker 3: they're like, oh crap. And the idea is that when

813
00:44:33,116 --> 00:44:36,756
Speaker 3: it's sunny, you kind of imagine yourself wind flowing through

814
00:44:36,796 --> 00:44:39,876
Speaker 3: your hair driving down the highway, and it's really hard

815
00:44:39,916 --> 00:44:42,796
Speaker 3: for you to imagine, Wait, it's going to snow tomorrow

816
00:44:42,916 --> 00:44:45,356
Speaker 3: probably and I'm going to have to close it up

817
00:44:45,716 --> 00:44:47,316
Speaker 3: and it's just going to be kind of a windy,

818
00:44:47,516 --> 00:44:50,396
Speaker 3: cold car. And then similarly, you know, when it's a

819
00:44:50,436 --> 00:44:53,036
Speaker 3: cold day, people are really not likely to buy convertibles

820
00:44:53,076 --> 00:44:55,636
Speaker 3: because they can't imagine the sunny day where they're actually

821
00:44:55,676 --> 00:44:56,396
Speaker 3: going to enjoy it.

822
00:44:56,516 --> 00:45:01,236
Speaker 2: Danny Kahneman my mentor coin the phrase the focusing illusion,

823
00:45:02,116 --> 00:45:06,676
Speaker 2: like nothing is as important as the thing you're thinking

824
00:45:06,716 --> 00:45:07,596
Speaker 2: about right now.

825
00:45:08,036 --> 00:45:10,396
Speaker 1: So this is a big problem, right because we need

826
00:45:10,556 --> 00:45:13,556
Speaker 1: our predictions to make decisions about the kinds of things

827
00:45:13,556 --> 00:45:15,156
Speaker 1: that we're going to engage with in the future that

828
00:45:15,196 --> 00:45:17,196
Speaker 1: are going to make us happy, and it seems like

829
00:45:17,236 --> 00:45:20,516
Speaker 1: this focusing illusion really messes us up. Right, whatever our

830
00:45:20,516 --> 00:45:23,236
Speaker 1: attention is focused on, we start thinking about that and

831
00:45:23,276 --> 00:45:25,756
Speaker 1: we ignore all the other stuff. So how can we

832
00:45:25,796 --> 00:45:29,036
Speaker 1: do better, Alex, any advice for how we can kind

833
00:45:29,036 --> 00:45:30,916
Speaker 1: of notice what we're going to like in the future

834
00:45:30,956 --> 00:45:33,316
Speaker 1: a little bit better and maybe open up our narrow attention.

835
00:45:34,196 --> 00:45:36,356
Speaker 3: Yeah, so I have some work on this myself. I

836
00:45:36,396 --> 00:45:40,156
Speaker 3: mean the kind of easy advice is just to think

837
00:45:40,196 --> 00:45:43,796
Speaker 3: about it for longer. People become a lot better calibrated

838
00:45:43,876 --> 00:45:46,756
Speaker 3: just by giving them what we call a waiting period.

839
00:45:47,076 --> 00:45:50,236
Speaker 3: And these waiting periods are actually not something we invented.

840
00:45:50,316 --> 00:45:53,276
Speaker 3: As you probably know, waiting periods are all over the place.

841
00:45:53,716 --> 00:45:56,116
Speaker 3: Many states have been as part of kind of gun laws.

842
00:45:56,516 --> 00:45:58,436
Speaker 3: The idea is that if I'm in a hot state,

843
00:45:58,476 --> 00:46:00,516
Speaker 3: I can't imagine what it's going to feel like when

844
00:46:00,556 --> 00:46:02,156
Speaker 3: I'm in a cold state. If I'm in a hot state,

845
00:46:02,196 --> 00:46:04,436
Speaker 3: I'm angry at somebody I go out there and buy

846
00:46:04,436 --> 00:46:06,516
Speaker 3: a gun and do something really stupid that I'm going

847
00:46:06,556 --> 00:46:09,716
Speaker 3: to regret. So states impose a waiting period to kind

848
00:46:09,716 --> 00:46:12,516
Speaker 3: of simulate like, let me think about it for a

849
00:46:12,556 --> 00:46:14,756
Speaker 3: little longer and then maybe I won't need it. It's

850
00:46:14,796 --> 00:46:18,916
Speaker 3: there for marriages, too, right. Somebody meets somebody at a

851
00:46:18,956 --> 00:46:20,516
Speaker 3: bar and is like, you're the love of my life.

852
00:46:20,556 --> 00:46:24,156
Speaker 3: Let's go, and it's like wait a second, think about

853
00:46:24,156 --> 00:46:26,196
Speaker 3: it for a little bit. And this same sort of

854
00:46:26,396 --> 00:46:29,956
Speaker 3: very simple intervention we found this in careful experimental tests

855
00:46:29,996 --> 00:46:32,396
Speaker 3: allows you to kind of simulate what you're going to

856
00:46:32,476 --> 00:46:34,276
Speaker 3: feel like in the future a lot more accurately.

857
00:46:34,436 --> 00:46:35,796
Speaker 1: And so it seems like there are two pieces of

858
00:46:35,796 --> 00:46:38,356
Speaker 1: advice there when you're making a big life decision, right.

859
00:46:38,436 --> 00:46:41,156
Speaker 1: One is give your attention a moment to catch up

860
00:46:41,196 --> 00:46:43,756
Speaker 1: with all the stuff it's not currently paying attention to.

861
00:46:44,236 --> 00:46:46,236
Speaker 1: And the other piece of advice is, just like one

862
00:46:46,316 --> 00:46:48,836
Speaker 1: end doubt, give it a little time because over time

863
00:46:48,956 --> 00:46:51,196
Speaker 1: more stuff will reveal. And whatever state you're in now,

864
00:46:51,196 --> 00:46:53,916
Speaker 1: if that's hungry, sitting out in the sunshine thinking you

865
00:46:53,916 --> 00:46:56,556
Speaker 1: want a convertible, you might revert to a different state,

866
00:46:56,596 --> 00:46:58,796
Speaker 1: which might be more of a baseline for how you're

867
00:46:58,796 --> 00:46:59,836
Speaker 1: going to feel in the future.

868
00:47:00,476 --> 00:47:03,876
Speaker 2: No, And there's one another extension of that. When I'm

869
00:47:03,916 --> 00:47:09,036
Speaker 2: talking to students about career choices. The mistake I find

870
00:47:09,196 --> 00:47:12,996
Speaker 2: people make all the time is they decide a career

871
00:47:13,116 --> 00:47:16,356
Speaker 2: based on what they like to study in school. And

872
00:47:16,796 --> 00:47:20,116
Speaker 2: I always say, no, think about what you can imagine

873
00:47:20,156 --> 00:47:23,796
Speaker 2: doing every day for the rest of your life, and

874
00:47:24,516 --> 00:47:28,236
Speaker 2: that may not be the same thing. Go you know,

875
00:47:28,596 --> 00:47:32,436
Speaker 2: shadow somebody for two weeks. See if that seems like

876
00:47:32,796 --> 00:47:35,756
Speaker 2: that's exciting. I think there are lots of careers that

877
00:47:36,556 --> 00:47:41,116
Speaker 2: sound good until you think about doing it every day.

878
00:47:41,996 --> 00:47:44,036
Speaker 1: Well, Richard, I'm so glad that what you decided to

879
00:47:44,036 --> 00:47:45,676
Speaker 1: do every day for the rest of your life was

880
00:47:45,716 --> 00:47:47,876
Speaker 1: to be a behavioral economist because it's been so fun

881
00:47:47,916 --> 00:47:50,676
Speaker 1: to learn about these anomalies from you through the years.

882
00:47:50,716 --> 00:47:52,316
Speaker 1: It was fun to read this book back in the

883
00:47:52,356 --> 00:47:54,196
Speaker 1: late nineties, and it was even more fun to read

884
00:47:54,236 --> 00:47:56,476
Speaker 1: it new in twenty twenty five, when we have all

885
00:47:56,476 --> 00:47:59,236
Speaker 1: of Alex's new insights there. So everyone should go out

886
00:47:59,236 --> 00:48:01,196
Speaker 1: and check out The Winner's Curse. There's so many cool

887
00:48:01,196 --> 00:48:03,396
Speaker 1: anomalies that we'd get any chance to go into for

888
00:48:03,556 --> 00:48:05,356
Speaker 1: Richard and Alex, thanks so much for being on the show.

889
00:48:05,676 --> 00:48:06,996
Speaker 2: Thanks Laurie, great to see you.

890
00:48:08,396 --> 00:48:12,076
Speaker 1: So it seemed humans are not vulcans. We don't always

891
00:48:12,076 --> 00:48:16,516
Speaker 1: act rationally, but as these six anomalies show, understanding the

892
00:48:16,516 --> 00:48:19,876
Speaker 1: irrational quirks of our species can help us live richer,

893
00:48:19,956 --> 00:48:23,116
Speaker 1: happier lives in ways that I think pure logic may

894
00:48:23,116 --> 00:48:26,476
Speaker 1: not have predicted. The new and improved version of the

895
00:48:26,516 --> 00:48:29,356
Speaker 1: Winner's Curse is out in October, and it's available for

896
00:48:29,436 --> 00:48:33,076
Speaker 1: pre order now. Next time on the Happiness Lab, we'll

897
00:48:33,076 --> 00:48:35,836
Speaker 1: hear about another of my favorite books of twenty twenty five,

898
00:48:36,396 --> 00:48:39,676
Speaker 1: one that's also from a scholar trained in economics and who,

899
00:48:39,956 --> 00:48:43,796
Speaker 1: like Richard Taylor, also wants to break the rules. But

900
00:48:43,956 --> 00:48:46,756
Speaker 1: her rule breaking involves teaching us why we should all

901
00:48:46,836 --> 00:48:49,756
Speaker 1: be working a bit less. All that. Next time on

902
00:48:49,836 --> 00:48:55,996
Speaker 1: the Happiness Lab with me Doctor Laurie Santos,