WEBVTT - Trust in Finance and Consumer Confidence With Meir Statman 0:00:02.400 --> 0:00:11.119 Bloomberg Audio Studios, Podcasts, radio News. This is Master's in 0:00:11.200 --> 0:00:16.959 Business with Barry Ridholts on Bloomberg Radio. This week on 0:00:17.000 --> 0:00:21.040 the podcast, I have an extra special guest, returning champion, 0:00:21.079 --> 0:00:24.800 Professor Meyer Statman. We've talked a number of times about 0:00:24.800 --> 0:00:28.520 what investors really want all sorts of different aspects of 0:00:28.600 --> 0:00:33.760 behavioral finance. His new book is really comprehensive, A Wealth 0:00:33.800 --> 0:00:36.800 of well Being, A Holistic Approach to Behavioral Finance. I 0:00:36.880 --> 0:00:41.080 found this conversation to not only be informative, but to 0:00:41.200 --> 0:00:45.040 be rich with both data and anecdotes. He has spent 0:00:45.159 --> 0:00:48.960 the past forty four years studying this work. Lots of 0:00:49.000 --> 0:00:52.839 what forms his opinion is data driven, is based on 0:00:53.400 --> 0:00:56.560 research he's done, and he really flavors the book with 0:00:56.600 --> 0:00:59.720 a lot of specific anecdotes. I found it quite interesting 0:00:59.760 --> 0:01:03.000 and I think you will also. With no further ado. 0:01:03.320 --> 0:01:05.800 My conversation with Professor Meyer Stafmann. 0:01:07.080 --> 0:01:09.399 Well, I'm so delighted to be with you again. 0:01:09.640 --> 0:01:12.679 Very so before we get to the book, which I'm 0:01:12.720 --> 0:01:15.920 really enjoying, I have to go over your background, which 0:01:15.959 --> 0:01:19.720 is really fascinating. Right, So your academic background, you get 0:01:19.720 --> 0:01:24.160 a Bachelor of Arts and an MBA, from Hebrew University 0:01:24.200 --> 0:01:27.480 of Jerusalem. You come to the US where you get 0:01:27.520 --> 0:01:33.039 your PhD in economics from Columbia University. Was academia always 0:01:33.080 --> 0:01:33.480 the plan? 0:01:34.080 --> 0:01:37.320 No, it was not at all. I didn't really know 0:01:37.440 --> 0:01:40.759 exactly what I wanted. When I was in the army, 0:01:40.959 --> 0:01:44.480 I was destined to go to a kibbutz collective farm 0:01:44.560 --> 0:01:48.800 in Israel, and I took a course on agriculture and 0:01:49.080 --> 0:01:52.600 we had an economists who came and talked about exporting 0:01:52.960 --> 0:01:55.960 oranges and what it involved. And I was thinking, you know, 0:01:56.080 --> 0:01:59.200 this is stuff that I can understand that makes sense 0:01:59.240 --> 0:02:04.480 to me. I'll pick economics. My dad said, study accounting. 0:02:04.520 --> 0:02:08.760 You know, that's a practical thing. I thought that my 0:02:09.160 --> 0:02:12.400 second major is going to be literature because I did 0:02:12.440 --> 0:02:16.520 not know that I had sufficient background in mathematics. But 0:02:16.560 --> 0:02:19.840 I went to one of those psychotechnic tests and they 0:02:19.840 --> 0:02:22.480 say you can you can take it, and I did so. 0:02:22.560 --> 0:02:27.680 I studied economics and statistics and then finance for an MBA. 0:02:27.919 --> 0:02:32.160 So your curriculum, Vitail is kind of fascinating, mostly because, 0:02:32.240 --> 0:02:35.080 as far as I can tell, since nineteen eighty, you've 0:02:35.080 --> 0:02:40.160 had one job that's forty four years. Professor of finance 0:02:40.200 --> 0:02:44.919 at Santa Clara University. You're the Glenn Klimaic professor. That's amazing. 0:02:45.040 --> 0:02:47.520 Forty four years the same school. Is has it been 0:02:47.520 --> 0:02:49.359 the same subject the whole time? 0:02:49.720 --> 0:02:51.960 Well, you know, it is the same subject, but the 0:02:52.040 --> 0:02:56.120 subject itself is changing a lot rapidly. I'm lucky to 0:02:56.200 --> 0:02:59.000 be one of those people who is changing the subject. 0:02:59.440 --> 0:03:03.760 And so it turned out that it is just the 0:03:03.880 --> 0:03:06.840 right place for me. It is a place that values 0:03:06.880 --> 0:03:11.640 teaching and values scholarships. So teacher scholar is the way 0:03:11.639 --> 0:03:14.600 we describe our faculty, and that is what we strive 0:03:15.440 --> 0:03:18.880 to be. And it is open, perhaps because at the 0:03:18.919 --> 0:03:22.520 beginning it just was turning, moving from being just a 0:03:22.639 --> 0:03:26.520 teaching place to a teaching and scholarship place, and so 0:03:26.680 --> 0:03:29.040 they didn't really have the notion that it must be 0:03:29.080 --> 0:03:31.480 a paper in the Journal of Finesse or whatever it was. 0:03:31.639 --> 0:03:35.200 R just do stuff that has an audience, you know, 0:03:35.480 --> 0:03:38.640 And to this very day they are very flexible as 0:03:38.680 --> 0:03:41.440 to the audience they have in mind. It might be 0:03:41.520 --> 0:03:45.520 fellow academics, but also professionals and also the general public. 0:03:45.560 --> 0:03:48.360 And so they that delighted when I write something for 0:03:48.400 --> 0:03:50.080 the Wall Street Journal, for example. 0:03:50.720 --> 0:03:53.800 So you got the PhD from Columbia. How did you 0:03:53.920 --> 0:03:56.840 make your way to California. That's not the first place 0:03:56.840 --> 0:03:57.440 you would think of. 0:03:58.080 --> 0:04:02.080 Well, you know, when I was studying at Columbia, I 0:04:02.120 --> 0:04:06.240 was teaching at Rutgers College. And when I got to 0:04:06.320 --> 0:04:08.560 my PhD, I went to the chair of the department 0:04:08.600 --> 0:04:13.120 and asked whether there's a pay raise accompanying completioning of 0:04:13.200 --> 0:04:17.279 the PhD. And he said, well, the way you get 0:04:17.720 --> 0:04:20.320 a raise is you go to another university. You get 0:04:20.320 --> 0:04:23.560 an offer, and then we see if we can match it. 0:04:23.640 --> 0:04:26.560 And so I went to Binghamton University, which you know 0:04:27.000 --> 0:04:30.520 is and that was the end of follow It is 0:04:30.760 --> 0:04:33.320 highly regarded and cold, not a. 0:04:33.279 --> 0:04:35.880 Fun place in the winter, especially if you're from a 0:04:36.000 --> 0:04:37.560 much warmer climate like Israel. 0:04:37.600 --> 0:04:40.760 Yeah, and so I went to Santa Clara and it 0:04:40.920 --> 0:04:44.720 really felt like home from the beginning. Now, remember that 0:04:44.800 --> 0:04:48.159 this is a Jesuit, a Catholic Jesuit university, and I 0:04:48.200 --> 0:04:52.640 am Jewish, so so you know, I didn't really know 0:04:52.800 --> 0:04:57.160 much about Jesuits so Christianity more generally, but it just 0:04:57.240 --> 0:05:00.279 turned out to be just right. And I say, you 0:05:00.279 --> 0:05:03.080 know that kind of similar. Both begin with the letter J. 0:05:03.480 --> 0:05:07.520 So hey, they both started with the same book, right. 0:05:07.480 --> 0:05:11.000 You know, it is a wonderful place. Yeah. 0:05:11.320 --> 0:05:14.599 So you're teaching the same subject for forty plus years. 0:05:14.680 --> 0:05:19.799 But as we said earlier, behavioral finance and the entire 0:05:19.880 --> 0:05:25.400 field of economics has clearly evolved over that time. You've 0:05:25.440 --> 0:05:30.960 been part of that process, pushing behavioral finance through one, two, 0:05:31.080 --> 0:05:34.160 and now let's call it three generations. Tell us a 0:05:34.200 --> 0:05:35.479 little bit about that process. 0:05:36.279 --> 0:05:41.800 Well, so I studied standard finance, which we all studied 0:05:42.080 --> 0:05:47.919 at graduate school then, and some places still where people 0:05:47.920 --> 0:05:53.080 are rational, they are interested only in maximizing their wealth, 0:05:53.240 --> 0:05:58.440 maybe subjects to risk considerations, and that is it. And 0:05:58.480 --> 0:06:00.640 you say, so, what that they got to do with 0:06:00.680 --> 0:06:02.920 the wealth? And they say, well, that's not our field, 0:06:02.960 --> 0:06:06.640 you know, that's marketing. I never, I never felt that 0:06:06.800 --> 0:06:10.400 it is right, but I didn't really know how to 0:06:10.480 --> 0:06:14.000 put it together into something that would look like an 0:06:14.040 --> 0:06:18.320 academic paper. I came to New York to study at Columbia. 0:06:18.320 --> 0:06:21.240 That was in the summer of seventy three, and that 0:06:21.440 --> 0:06:26.320 was just before the Omekipour War and the energy crisis 0:06:26.360 --> 0:06:32.160 and so on, and con Edison felt compelled to suspend 0:06:32.320 --> 0:06:37.000 its dividend and they had a raucous annual meeting in 0:06:37.040 --> 0:06:41.200 April of seventy four, and people were really trying to 0:06:41.440 --> 0:06:46.599 physically harm the chairman of the body, mister Lewce. One 0:06:46.600 --> 0:06:50.040 woman said, I used to be a husband. Now con 0:06:50.240 --> 0:06:53.800 Edison is my husband. Whereas my dividend, you know, I 0:06:53.880 --> 0:06:56.599 live on the dividend. It occurred to me that contrary 0:06:56.640 --> 0:07:00.720 to what we studied about rational behavior, did not occur 0:07:00.800 --> 0:07:02.560 to them that they can sell a few shares and 0:07:02.640 --> 0:07:06.159 generate homemade So that stayed with me. And then when 0:07:06.200 --> 0:07:09.800 I came to Santa Clara, I heard my colleague her 0:07:09.920 --> 0:07:14.080 Chefrin speak about those issues of mental accounting and framing 0:07:14.240 --> 0:07:17.280 and self control, and it just clicked, you know, I said, 0:07:17.360 --> 0:07:22.760 here is the answer to the issue of dividends. Now. 0:07:23.320 --> 0:07:26.880 I did not know at that time the work of 0:07:27.040 --> 0:07:29.880 Kanman and Firsky. And the funny thing is that while 0:07:29.920 --> 0:07:33.440 I was at the Hebrew University, the economics building was 0:07:33.560 --> 0:07:36.920 right next to the psychology building, and Conman and Firsky 0:07:36.960 --> 0:07:39.760 themselves were doing their work there. But I had no 0:07:39.880 --> 0:07:44.200 idea who they were, their work, none of my professors. 0:07:44.480 --> 0:07:49.320 Late sixties early seventies, they had extablished and really become 0:07:49.480 --> 0:07:50.280 name Jet. 0:07:50.440 --> 0:07:53.440 That is exactly right. That is when they did their 0:07:53.480 --> 0:07:56.640 their pioneering work. In fact, I went over to do 0:07:56.760 --> 0:08:00.840 some of those experiments later on with them. It turns 0:08:00.880 --> 0:08:03.800 out that none of them were their experiments, but but 0:08:03.920 --> 0:08:06.400 at least, you know, it kind of gave me a sense, 0:08:06.440 --> 0:08:08.360 but I just did not know how to connect it. 0:08:08.480 --> 0:08:12.200 And then once I got to know their work, it 0:08:12.400 --> 0:08:16.680 really clicked together. And so the first paper that her 0:08:16.760 --> 0:08:19.920 Chefren and I did was about dividends. It is about 0:08:20.000 --> 0:08:26.040 why it is that people like dividends. We were exceedingly 0:08:26.120 --> 0:08:29.360 lucky to have Fisher Black as their reviewer as a 0:08:29.440 --> 0:08:33.200 referee for that paper. And he said, uh, and and 0:08:33.240 --> 0:08:35.480 you're going to see my blush now. He said, this 0:08:35.640 --> 0:08:37.040 paper is brilliant. 0:08:37.640 --> 0:08:40.080 Really, Oh that's great, that's. 0:08:41.600 --> 0:08:45.920 The editor wrote. After a lot of soul searching, I 0:08:45.960 --> 0:08:47.240 guess I agree. 0:08:48.080 --> 0:08:51.800 So so the interesting thing about dividends from my perspective, 0:08:52.040 --> 0:08:58.160 I always thought dividends were preferred by investors over stock buybacks. Yes, right, 0:08:58.440 --> 0:09:02.760 stock buybacks are arguably more tax efficient. But if you're 0:09:03.160 --> 0:09:05.640 like those people who are kind at investors, if they're 0:09:05.679 --> 0:09:09.120 living on the dividends. We used to call those widows 0:09:09.120 --> 0:09:12.080 and orphan stocks. The loss of a dividend is a 0:09:12.120 --> 0:09:14.920 real loss and income, and people really feel it. Yes, 0:09:15.000 --> 0:09:18.320 of course you can sell a few shares, but I'm 0:09:18.320 --> 0:09:21.520 going to bet those people who either bought that stock 0:09:21.679 --> 0:09:24.560 or were handed that stock by a parent or a spouse. 0:09:24.960 --> 0:09:29.880 We're told this is a great, reliable dividend payer, never sell. 0:09:29.720 --> 0:09:34.160 It, exactly. And people make the distinction between what is 0:09:34.240 --> 0:09:37.840 capital and what is income, and so the rule that 0:09:37.880 --> 0:09:42.360 we follow is move money from income to capital, such 0:09:42.400 --> 0:09:47.080 as four one K, but don't dip into capital when 0:09:47.160 --> 0:09:50.720 you spend dividend. Dividends count as income and so you 0:09:50.800 --> 0:09:55.640 can spend them freely, but selling shares it's dipping into capital, 0:09:55.760 --> 0:09:56.000 you know. 0:09:56.520 --> 0:09:58.360 And they've been admonished against that their. 0:09:58.280 --> 0:10:00.360 Whole lives exactly. 0:09:59.760 --> 0:10:03.240 That hivid and I have all these examples that I 0:10:03.320 --> 0:10:06.400 have to hide because I don't want people to recognize them. 0:10:06.440 --> 0:10:09.600 And we'll talk about them. But in my day job, 0:10:10.080 --> 0:10:12.480 one of the things that we notice all the time 0:10:12.679 --> 0:10:17.120 are people who have been workers and savers and investors 0:10:17.640 --> 0:10:21.280 hit a certain point where they slow down working. They 0:10:21.280 --> 0:10:23.280 have a ton of money in the bank and in 0:10:23.320 --> 0:10:27.200 their portfolio, and they have a real hard time making 0:10:27.200 --> 0:10:30.000 that adjustment to hey, you don't have to be an 0:10:30.000 --> 0:10:34.000 accumulator saver. You could start spending some down. Even if 0:10:34.040 --> 0:10:37.320 you live to one hundred, you're good. It's a very 0:10:37.440 --> 0:10:38.240 tough transition. 0:10:38.320 --> 0:10:42.320 It is indeed a very tough transition. Yeah. When my 0:10:42.480 --> 0:10:46.720 mother in law was old, she had a rickety old sofa. 0:10:47.640 --> 0:10:50.840 The kids said you must replace it, and she said, no, 0:10:51.080 --> 0:10:54.280 it is just fine. Finally they just bought the new 0:10:54.360 --> 0:10:58.480 Sofaine tossed the old one and she smiled and she said, well, 0:10:58.559 --> 0:10:59.720 y're dipping into. 0:10:59.559 --> 0:11:04.520 Your so I literally I had a conversation with a 0:11:04.600 --> 0:11:08.200 guest who was driving a twenty five year old car. 0:11:08.520 --> 0:11:10.640 I said, why don't you go get yourself a new car? 0:11:11.120 --> 0:11:14.079 And his answer was, I'm dipping into the money I 0:11:14.080 --> 0:11:17.520 would otherwise give to charity. I said, not for nothing. 0:11:17.640 --> 0:11:22.040 But you know, the latest cars they have the emergency 0:11:22.120 --> 0:11:26.240 stop and the seatbelt pretensioners, and the improved brakes, and 0:11:26.280 --> 0:11:30.120 the lean departure warnings and the automatic stop in case 0:11:30.160 --> 0:11:31.880 you're getting too close to the car in front of you. 0:11:32.440 --> 0:11:34.560 If you're not around to keep making all this money, 0:11:34.600 --> 0:11:36.560 you're gonna have that much less to give to charity. 0:11:37.040 --> 0:11:39.040 And about three months later, I got an email, all right, 0:11:39.040 --> 0:11:41.360 you guilted me and to getting a new Lexus. I 0:11:41.400 --> 0:11:43.760 go listen, the fifty grand you're spending on the Lexus 0:11:43.800 --> 0:11:46.240 that'll keep you alive. You'll be able to keep giving 0:11:46.280 --> 0:11:47.920 money to charity for that much longer. 0:11:48.200 --> 0:11:51.720 Exactly. In fact, I just days ago gave my thirty 0:11:51.800 --> 0:11:56.160 year old Toyota station wagon to my handyman, and my 0:11:56.280 --> 0:11:59.280 wife compelled me to buy a Subaru that has all 0:11:59.320 --> 0:12:02.840 of those good thing to say, that right that you mentioned, 0:12:02.920 --> 0:12:05.520 And it took me a while to make this switch. 0:12:05.840 --> 0:12:08.800 But the last time you hear we talked about compounding 0:12:08.960 --> 0:12:14.079 and how money grows over time. You just don't recognize 0:12:14.240 --> 0:12:18.560 how much all of these little incremental changes, whether it's 0:12:18.600 --> 0:12:22.480 automobile technology or your phone or whatever. You know, you 0:12:22.520 --> 0:12:25.480 don't notice it year to year, but twenty thirty years later, 0:12:25.600 --> 0:12:28.319 oh my god, it's a much better phone, it's a 0:12:28.400 --> 0:12:31.800 much better car, it's much better. Things improve over time, 0:12:31.880 --> 0:12:34.600 and why not have the latest, greatest if it's going 0:12:34.640 --> 0:12:35.840 to protect you and your family? 0:12:36.400 --> 0:12:39.440 It is. Yeah, I was reluctant to do it, and 0:12:39.480 --> 0:12:41.760 of course I'm happy now that I did that. I 0:12:41.840 --> 0:12:45.559 listened to my wife, what can you do this better 0:12:45.600 --> 0:12:46.400 than that. 0:12:46.360 --> 0:12:50.240 Happy wife, Happy life. Right, let's talk a little bit 0:12:50.240 --> 0:12:53.400 about the book, which I'm finding to be fascinating, and 0:12:53.440 --> 0:12:57.280 I want to start with a quote from you. Financial 0:12:57.280 --> 0:13:02.120 well being alone is not enough. True life wellbeing comes 0:13:02.120 --> 0:13:06.320 from living a satisfying life, full of meaning and purpose. 0:13:06.920 --> 0:13:10.800 That doesn't seem like the traditional Wall Street definition of 0:13:10.840 --> 0:13:13.440 financial success discuss. 0:13:13.360 --> 0:13:15.920 Well, it is not, but of course it is just 0:13:16.040 --> 0:13:19.280 common sense. That is, if you just think about your life, 0:13:20.040 --> 0:13:23.560 when I think about mine, and the listeners as well. 0:13:24.120 --> 0:13:27.280 In finance, we usually end with financial well being. That 0:13:27.400 --> 0:13:29.600 is what you should do to get financial well being, 0:13:29.640 --> 0:13:33.640 but what comes after that? So if you ask people 0:13:33.800 --> 0:13:35.960 what really matters in life, they are going to say 0:13:36.040 --> 0:13:40.040 things like family and friends and work and health and 0:13:40.080 --> 0:13:44.160 so on. All true, but often they forget the finance part. 0:13:44.240 --> 0:13:46.680 And so it is this kind of like like two worlds, 0:13:46.760 --> 0:13:51.080 one focused on finance entirely and one focused on things 0:13:51.120 --> 0:13:55.599 other than finance. But of course finance by itself enhances 0:13:55.640 --> 0:13:59.880 well being. That is, being a millionaire really makes you 0:14:00.080 --> 0:14:05.280 happier than just earning fifty thousand a year. And being 0:14:05.320 --> 0:14:09.240 a billionaire is not bad. You know, I'm a few 0:14:09.280 --> 0:14:12.800 million short of a billion. I don't really aspire to 0:14:13.240 --> 0:14:18.000 a billion. I'm doing just fine. But money matters period 0:14:18.480 --> 0:14:21.560 on its own, but it also matters because it underlies 0:14:21.760 --> 0:14:26.760 other things. If you want a sure divorce, make sure 0:14:26.760 --> 0:14:30.240 that you are unemployed and there's not enough money to 0:14:30.320 --> 0:14:35.840 support your spouse and children. So you need money for family, 0:14:36.560 --> 0:14:40.920 You need money for health, you need money for education. 0:14:41.800 --> 0:14:44.920 You even need money for religion because you know they 0:14:45.000 --> 0:14:48.520 expect you to support the church or synagogue or any 0:14:48.560 --> 0:14:52.280 other temple that you go to. And so money matters 0:14:52.320 --> 0:14:55.360 because it underlies everything else. You don't have to be 0:14:55.520 --> 0:15:00.360 wealthy to enjoy friendship and family and the rest, but 0:15:00.440 --> 0:15:05.040 you have to have some minimum that will get you there, 0:15:05.440 --> 0:15:07.960 and from that you can build on, of course, to 0:15:08.240 --> 0:15:12.760 get life, well being life. Where you are, you can 0:15:12.840 --> 0:15:17.800 describe yourself as as say, having a vocation, not just 0:15:18.280 --> 0:15:18.760 a job. 0:15:19.400 --> 0:15:24.520 So it sounds almost as if you're referencing Maslow's hierarchy 0:15:24.560 --> 0:15:28.000 of needs. You have to take care of your basic survival. 0:15:28.080 --> 0:15:31.400 You need a shelter, food, clothes, and then the next 0:15:31.440 --> 0:15:33.640 tier is you want a little bit of security and 0:15:33.720 --> 0:15:36.600 a little bit of reserve to deal with any sort 0:15:36.640 --> 0:15:40.640 of emergency and then beyond that, you want options to 0:15:40.680 --> 0:15:43.880 be able to spend your time how you want. Is 0:15:43.920 --> 0:15:47.000 that the wrong frame of reference or or is there 0:15:47.040 --> 0:15:47.880 other parallels? 0:15:48.840 --> 0:15:54.400 It is similar to it, except that that sequence is 0:15:54.440 --> 0:15:57.840 not a sequence that any that everyone goes through or 0:15:57.880 --> 0:16:01.560 aspires to. That is, there are lots of people for 0:16:01.600 --> 0:16:05.560 whom gathering more and more money gets to be the 0:16:05.880 --> 0:16:08.920 ultimate in what life is meant to be? 0:16:09.920 --> 0:16:11.160 The contest aspect. 0:16:11.360 --> 0:16:14.520 Yeah, the contest and so on. That is what they are. 0:16:14.680 --> 0:16:16.240 That's the polite way to describe it. 0:16:16.840 --> 0:16:22.800 Yes, So I think that that Maslow got it right, 0:16:23.120 --> 0:16:25.840 and I think that I can describe myself as someone 0:16:26.200 --> 0:16:31.440 who followed Maslow. That is, I have more than enough money, 0:16:31.680 --> 0:16:35.440 but I also have a vocation. I'm seventy seven now 0:16:35.800 --> 0:16:39.480 and I'm not even thinking about retirement. That is not 0:16:39.640 --> 0:16:42.680 because I need the money. It is because I am 0:16:42.720 --> 0:16:46.760 a professor. This is who I am. And emeritus professor. 0:16:46.800 --> 0:16:49.240 You know, you get the title that you are no 0:16:49.280 --> 0:16:50.200 longer connected. 0:16:50.640 --> 0:16:51.800 You're still teaching classes. 0:16:51.920 --> 0:16:55.480 I am still teaching classes. I'm still teaching classes, I'm 0:16:55.520 --> 0:16:59.800 still writing. Yeah, this is my life. I mean, of 0:16:59.840 --> 0:17:02.120 course I have lots of other things. I have lots 0:17:02.120 --> 0:17:02.680 of other thing. 0:17:02.840 --> 0:17:07.639 Right, So that's a perfect opportunity to ask about the 0:17:07.760 --> 0:17:13.960 four kinds of capital you explore in the book financial, social, cultural, 0:17:14.160 --> 0:17:17.120 and personal. Let's go over each of those what what 0:17:17.359 --> 0:17:18.560 makes them all so different? 0:17:19.080 --> 0:17:23.639 So, so financial capital is kind of straightforward. That is, 0:17:23.800 --> 0:17:27.639 you need you need money, and money, as I said, 0:17:27.880 --> 0:17:31.880 underlies everything else. But it is also important on its own. 0:17:32.320 --> 0:17:37.720 And contrary to a very famous article that experienced well being, 0:17:37.840 --> 0:17:42.920 emotional wellbeing stops growing after you have seventy five thousand 0:17:42.960 --> 0:17:44.120 dollars a year. 0:17:44.280 --> 0:17:46.880 And that's an old number, right, yeah, right. 0:17:46.800 --> 0:17:51.600 But even even adjusted for inflation, that turns out not 0:17:51.680 --> 0:17:55.600 to be true. So really, more and more recent study 0:17:56.040 --> 0:17:59.880 by killing Worth found that it is not so. Now 0:18:00.080 --> 0:18:04.520 canman in Deton who did this original famous study, They 0:18:04.560 --> 0:18:09.200 asked people what emotions they had yesterday, but the emotions 0:18:09.320 --> 0:18:11.879 you remember from yesterday and not the emotions that you 0:18:11.960 --> 0:18:15.280 feel right now. The way he did it was working 0:18:15.320 --> 0:18:18.800 with an iPhone and asking people how do you feel 0:18:18.880 --> 0:18:22.919 right now? And people had to make choices now. And 0:18:22.960 --> 0:18:28.160 it turns out that in fact, emotional well being experienced 0:18:28.160 --> 0:18:33.960 while being grows without limit, but without limit but diminishing benefits. 0:18:34.040 --> 0:18:37.560 So it starts the plateau exactly what's that number where 0:18:37.600 --> 0:18:40.320 you really see because I remember seeing something I don't 0:18:40.320 --> 0:18:42.560 know if it was this study. There's around four hundred 0:18:42.680 --> 0:18:43.560 k it starts to. 0:18:44.920 --> 0:18:49.480 So if you go from from say twenty to sixty, 0:18:49.640 --> 0:18:53.760 that is three times the increment is the same as 0:18:53.880 --> 0:18:58.000 going from say one hundred to three hundred, right, which 0:18:58.040 --> 0:19:02.080 is three times the second one you by two hundred thousand. 0:19:02.680 --> 0:19:07.439 But it really accounts in terms of your well being 0:19:07.880 --> 0:19:10.720 as an increase in forty thousand when you begin with 0:19:10.800 --> 0:19:12.119 twenty thousand, I got you. 0:19:12.320 --> 0:19:15.880 Yeah, going from broke to or right, I have enough 0:19:15.880 --> 0:19:17.879 money to pay my rent and to pay the doctor 0:19:17.920 --> 0:19:21.280 and to get food. That's like a big threshold. But 0:19:21.359 --> 0:19:23.920 going from one hundred to three hundred or I would 0:19:23.960 --> 0:19:27.040 imagine ten million to thirty million. You know, there's a 0:19:27.160 --> 0:19:30.040 there's a joke. I love to tell two clients, what's 0:19:30.080 --> 0:19:33.439 the difference between one billion dollars and two billion dollars? 0:19:33.440 --> 0:19:36.639 And the answer is nothing, There's no difference, right, What 0:19:37.160 --> 0:19:39.320 how does that? How is your standard of living going 0:19:39.359 --> 0:19:41.920 to be affected between a billion or two billion? It's 0:19:41.960 --> 0:19:42.240 the same. 0:19:42.320 --> 0:19:45.920 Yeah, well it is the same. But of course, if 0:19:45.960 --> 0:19:50.560 you have a fellow Hatch fund manager who has a 0:19:50.840 --> 0:19:55.600 twenty five billion Boy, you feel like it's puny. You know. 0:19:56.119 --> 0:19:58.199 I read I read the book by a sociologists that 0:19:58.320 --> 0:20:02.240 interviewed very wealthy people being in Manhattan. Uh and a 0:20:02.280 --> 0:20:05.480 woman whose income annual income is in the millions and 0:20:05.600 --> 0:20:08.960 wealth is many multiples of that. She said, I guess 0:20:08.960 --> 0:20:11.480 I'm in the middle. You know that there are there 0:20:11.480 --> 0:20:15.119 are people who have chauffeurs that have private planes, and 0:20:15.160 --> 0:20:16.000 we don't have that. 0:20:17.040 --> 0:20:20.800 There's always going to be unless you're you know, Warren 0:20:20.880 --> 0:20:24.080 Buffett or Bill Gates or I guess now Elon Musk, 0:20:24.440 --> 0:20:26.840 there's always someone that's going to have more money than you. 0:20:27.400 --> 0:20:30.320 Is that really the way people should be measuring themselves? 0:20:30.560 --> 0:20:33.640 I hope not. You know this is this is guarantee 0:20:34.160 --> 0:20:39.400 of being wealthy and miserable. That is not life wellbeing. 0:20:39.520 --> 0:20:44.760 It is surely financial wellbeing. But this is extreme example 0:20:45.160 --> 0:20:48.960 of the difference between financial wellbeing and life wellbeing. 0:20:49.080 --> 0:20:52.159 So I just want to make sure I understand the 0:20:52.400 --> 0:20:58.159 does money by happiness question? So it starts to diminish, 0:20:58.320 --> 0:21:02.359 but in terms of proportions, when you're going from twenty 0:21:02.359 --> 0:21:05.160 five to seventy five or two fifty to seven fifty. 0:21:05.840 --> 0:21:09.520 The tripling is more or less parallel no matter where 0:21:09.560 --> 0:21:10.200 you start from. 0:21:10.520 --> 0:21:11.080 Exactly. 0:21:11.280 --> 0:21:13.879 So if you like drugs, you need a bigger and 0:21:13.880 --> 0:21:19.360 bigger hit to experience the same increase in satisfaction that 0:21:19.400 --> 0:21:22.720 you're going to get when you're in the millions or billions. 0:21:22.359 --> 0:21:26.200 That's right. And once your your income is seven hundred 0:21:26.359 --> 0:21:30.080 and fifty a year still you know that is that 0:21:30.720 --> 0:21:35.040 is there. I'm just describing it from my perspective. You 0:21:35.080 --> 0:21:39.400 know that is I ask myself how much do you need? 0:21:39.600 --> 0:21:42.160 And there comes a point, you know, such as when 0:21:42.200 --> 0:21:45.280 you know that your state is going to be subject 0:21:45.359 --> 0:21:48.399 to a state tax, we wou say, come on, mayor 0:21:49.040 --> 0:21:51.080 now it's a question of whether you're going to give 0:21:51.080 --> 0:21:54.000 it to the government or give it to charity. And 0:21:54.040 --> 0:21:58.159 so for me, I established with my wife, we established 0:21:58.520 --> 0:22:03.679 an endowment if at Santa Clara University to support the 0:22:03.760 --> 0:22:07.639 work of my colleagues, you know, several million dollars. And 0:22:07.720 --> 0:22:11.240 I'm thinking, think about it, Mayor, I mean, you have enough. 0:22:11.680 --> 0:22:15.439 I always laugh when people complain about the estate tax, 0:22:15.880 --> 0:22:19.159 which as of right now is married couple over twenty 0:22:19.160 --> 0:22:22.320 four million dollars. To me, it's like The only excuse 0:22:22.359 --> 0:22:24.840 for paying a state tax is you're hit by a 0:22:24.840 --> 0:22:27.359 boss on the way to the estate attorney. You fill 0:22:27.400 --> 0:22:30.280 out some forms, you sign a document, and you're donating 0:22:30.320 --> 0:22:34.320 that money to charity as opposed to you know, that's 0:22:34.359 --> 0:22:36.439 to say nothing about trust and estates and doing all 0:22:36.480 --> 0:22:39.119 these other things if you want to move money around. 0:22:39.520 --> 0:22:42.119 But it's not that hard to not pay a state tax. 0:22:43.160 --> 0:22:46.960 Yes, but the question really is again about life well being. 0:22:47.080 --> 0:22:49.840 So when I told my younger daughter that we have 0:22:50.040 --> 0:22:53.439 established this endowment, and I said, there's going to be 0:22:54.119 --> 0:22:58.640 enough left for you, and she said dead, I already received. 0:22:58.160 --> 0:23:00.880 My bequests lovely. 0:23:01.240 --> 0:23:04.560 And you know truth. I mean, she got quite a 0:23:04.600 --> 0:23:07.960 lot of help buying your house and so on. And 0:23:08.000 --> 0:23:10.800 I'm so happy that she is not one of those 0:23:10.840 --> 0:23:14.680 greedy people who know that they're going to get ten 0:23:14.760 --> 0:23:17.120 million and say, but I want twenty. 0:23:18.119 --> 0:23:20.600 So let's talk about that a little bit. Another quote 0:23:20.640 --> 0:23:25.200 of yours, life well being comes when we live satisfying lives, 0:23:25.240 --> 0:23:29.520 full of meaning and purpose. How can we measure meaning 0:23:29.560 --> 0:23:33.280 and purpose for ourselves? And how as an academic can 0:23:33.320 --> 0:23:35.280 you measure that in other people? 0:23:35.640 --> 0:23:39.040 Well? Measuring it is really quite easy. Now it is 0:23:39.080 --> 0:23:42.080 not as precise you might say as saying my income 0:23:42.240 --> 0:23:45.600 is one hundred thousand or two hundred thousand. But you 0:23:45.680 --> 0:23:48.080 ask people, you know, do you think that your life 0:23:48.320 --> 0:23:52.679 has purpose? And they say, ah, I have a job, 0:23:52.800 --> 0:23:57.080 I have a family. Okay, but I'm waiting to retire. 0:23:57.280 --> 0:24:00.119