HAL VARIAN: Welcome, you
all, to this session,
where Richard Thaler is going
to tell us about his new book.
And I should tell
you, both Richard
and I were on a panel in
San Francisco last night.
So this is kind of a lot of
instant replay, deja vu for us.
RICHARD THALER: I'm going
to change the answers, so--
HAL VARIAN: It's kind
of like the distinction
between microeconomics
and macroeconomics,
because in micro, it's different
questions but the same answers.
In macro, it's the same
question, with different.
So this is kind of a
behavioral economics
has in common with some
other parts of economics.
But one of the good
lead-in questions
that we had last night, I'm
going to run again today,
is, what does this
mean, Misbehaving?
What kind of title is that?
Where did it come from?
RICHARD THALER: So
title kind of reflects
three aspects of the book.
The first is that economists
have a particular view
of humanity-- if we want to
call it humanity, or inhumanity.
So if you read a
graduate level textbook,
like Hal's-- that'll be
$1 please, for the plug--
the people he's describing
in the models are not ones
you'd recognize
in ordinary life.
They're are as good
at math as Hal.
They are as good at
self control as Gandhi.
And they're complete jerks.
If you left your
wallet lying around,
they would take it if they were
sure they wouldn't get caught.
So for the last 40
years or so, I've
been studying humans-- I call
those mythical creatures econs,
and I've been studying humans.
And by economists'
standards, humans misbehave.
And so, that's the first meaning
of misbehaving in this book,
it's the people I talk about.
The second meaning
is the fact that I've
devoted my career to
studying that was itself
an act of misbehaving,
because economists
are supposed to study econs.
And what are you doing
studying these other people?
And maybe a third
is, and it's kind of
consistent with the
second, the book
is not written as a proper
book, or at least everyone
in the publishing
industry told me
one is not supposed to
write a book like this.
So it's structured
kind of as a memoir,
but it's a primer in
behavioral economics,
so there's a lot of
substance in there.
And it's at least
meant to be funny.
And I was told that
the set of books
that are substantive,
funny memoirs,
and have sold as many as
100 copies, is the null set.
And so you probably shouldn't
write a book like that.
But that's the book I wrote.
It was the only
book I could write.
HAL VARIAN: You might say, also,
that the econs are misbehaving
from the viewpoint
of the humans.
Like for example,
humans are expected
to leave tips at restaurants,
and that kind of thing.
RICHARD THALER:
Ah, that's right.
I mean, econs don't
leave tips at restaurants
they don't plan to go back
to, because why would you?
HAL VARIAN: Of course,
that's a bit of exaggeration.
RICHARD THALER:
Well, only a bit.
I mean, it is true that many
economists have taken seriously
some of the departures.
My late colleague Gary
Becker, in some ways,
his career was devoted
to the opposite of mine.
Although we both studied
odd kinds of behavior,
his approach was
modeling everything
through the lens of a
rational economic agent.
So he has a rational
model of addiction.
He could rationalize anything.
HAL VARIAN: Gotta
do this, sorry.
RICHARD THALER:
That is misbehaving.
HAL VARIAN: I
know, I'm so sorry.
RICHARD THALER:
That's a new chapter.
Take the books back, I
have to add the chapter
on cell phone misbehaving.
So yeah, I mean you
could write down
a model where you care about
the opinion of the waiter,
and so therefore
you leave a tip.
But that's kind of
a tautological model
that isn't very helpful.
HAL VARIAN: And I should say,
we warned people last night.
The American Economics
Association meeting,
annual meeting, is going to be
in San Francisco in January.
And we expect all waiters
and waitresses to leave town.
So--
RICHARD THALER:
Yeah, it's probably
going to be a really bad time.
Unless they don't-- either they
don't realize that the AEA is
in town in January, or they
don't know that economists are
bad tippers.
But yeah, otherwise
it'll be a good time
to go on vacation
if you're a waiter.
HAL VARIAN: I once
did a informal study
of this of tipping, just
by talking to people.
Unusual methodology, I know.
RICHARD THALER: Yeah, you
could lose your credentials
as a real economist
by doing that.
HAL VARIAN: So it turns
out that, I think the best
explanatory variable
for whether or not
you leave a generous
tip is whether you ever
worked as a waiter or waitress.
RICHARD THALER: Yeah,
I think that's true.
You know, I saw an interesting
op-ed about tipping,
that I've kind of
taken to heart,
which is that if you're
concerned about inequality
of the sort that
Piketty talks about,
here's one small thing you can
do-- become a better tipper.
And so I've just decided
to leave bigger tips.
It's not going to
change the world,
but all the people
who get tips from me
are much poorer than me.
And I can spend a
little wealth that way.
HAL VARIAN: That's
a very useful tip.
RICHARD THALER: Nice one, Hal.
HAL VARIAN: I couldn't resist.
So tell us about some
of these anomalies.
In fact, tell me how you
got started in the business.
RICHARD THALER: Ah
yeah, well there's
fishing for a compliment.
No, deservedly so.
So Hal once introduced
me to someone, and said,
this is Richard Thaler.
Actually, I invented him.
And so here's what Hal meant.
We've known each
other for longer
than we would care to admit.
And, let's see,
this was about 1986.
We were at a
conference together.
I don't remember where, we
were eating a meal together.
And Hal was telling
me about a new journal
the AEA was starting, called
the Journal of Economic
Perspectives.
And the aim of the
journal was to have
articles written
in what economists
would pass for plain English.
So not really
articles for laymen,
but articles for
non-specialists.
So an article that any economist
or economics grad student
could read.
And so I said, oh,
that's interesting.
And then he and I
dreamed up the idea
for a column in that journal
that I ended up starting
to write, called Anomalies.
And for four years,
once a quarter,
I wrote about an anomaly.
And I think that--
so I owe Hal a debt,
and the field of
behavioral economics
owes Hal a debt for that.
He convinced Joe
Stiglitz, who was
the editor at the
time-- who, I think,
didn't need much convincing.
HAL VARIAN: No, he
was easy to convince.
RICHARD THALER: Joe's a
bit of a troublemaker,
so he liked the fact that I
was going to stir the pot.
You know, Kuhn, the great
philosopher of science,
talks about paradigm shifts.
And how do you create
a paradigm shift?
And the only way to
do it is to create
a long list of anomalies.
Because any one or two
can be explained away.
OK, so people leave
tips, even at restaurants
they don't go back to.
But, you know, maybe--
and if the set of excuses
for each anomaly
has to be different,
then people start
to wonder, oh, yeah,
maybe there's a more
basic problem here.
So the fact that I could
write 14 Anomalies columns
about different things, I think
changed some people's mind.
And the fact that
the 1987 stock market
crash occurred during
the very period
when I was writing these
columns may have also helped.
You didn't do that,
I don't think.
HAL VARIAN: No, that wasn't
my fault. In the book,
you said it was partly a
tutorial about behavior
economics.
And you go through
this long list--
it's a long list of
aspects of human behavior
that are not accounted for
by conventional theory.
And the first one-- both
temporally and in the book--
is in fact the endowment effect.
So why don't you tell us
about the endowment effect.
RICHARD THALER:
So let me tell you
when I first discovered
what I later came
to call the endowment effect.
My PhD thesis was
on a topic that
sounds funny-- or not funny,
but odd-- the value of a life.
And this wasn't philosophical,
this was an economics problem.
And it's a problem that all
governments have to deal with.
We can make things safer.
We can make highways safer--
we could lower the speed limit,
we can do all kinds
of things to reduce
the chance you're going die.
How much should we be
willing to spend on that?
We don't want to spend
all our money on that.
So we need a number.
And so that was what
my thesis was about.
And it was a very
straight economics,
econometrics
exercise, estimating
how much you had to pay people
to get them to take risky jobs.
Like in logging, or
coal mining, or window
washing on skyscrapers.
But while I was
working on that, sort
of as a break from
writing Fortran code,
I decided I'd ask a question.
So I asked the following
question-- suppose,
by attending, this
lecture today,
you've been exposed to
a rare, fatal disease.
And there's a one
in a thousand chance
you're going to
drop dead next week.
A quick and painless
death, not to worry.
We have one cure.
It's in this glass right, here.
And we'll sell it to
the highest bidder.
How much will you pay?
That's question one.
Question two is Stanford
is running some studies
on that same disease,
and they need
volunteers for an experiment.
All you have to do
is walk into a room
and expose yourself to one
in a thousand risk of death.
There will be no cure available.
What would you have to
be paid to participate
in that experiment?
Now according to
economic theory,
the answers to those
questions should
be approximately the same.
And the responses I got
were wildly different.
So someone would say, oh,
I'd pay $5,000 for that cure,
but I wouldn't do that
experiment for $500,000.
So orders of
magnitude difference.
And then, I started
lowering the stakes.
You know, suppose somebody
offers you two tickets to one
of the Warriors playoffs games.
And let's say the market
price for those tickets
is $1,000 each.
Would you be willing to pay
$1,000 to get those tickets?
Probably not.
Would you sell them for $1,000?
Probably not.
OK, well that's the
endowment effect.
And what it implies is a
kind of status quo bias.
That if somebody gives
us the tickets, we'll go.
But if they don't give us
the tickets, we won't go.
And your econ 101 quiz question,
if you've got those tickets
and the market prices
is $1,000, how much does
it cost you to go to the game?
Answer, $1,000.
But that's not the way
people think about it.
And eventually, I started
having a list on my blackboard,
as an assistant professor,
of weird shit people do.
And that was the first
thing on my list.
The second one goes
back to a dinner party
I hosted as a graduate student.
And while some
roast or something
was cooking in the oven,
creating delightful aromas,
I brought out a
bowl of cashew nuts.
And we all started
munching away.
And the bowl of cashew nuts and
our appetites were in danger.
And so after a few
minutes, I took the bowl,
and-- eating a few
more nuts on the way--
went and hid it in the
kitchen, and came back.
And this was a group
of econ grad students.
And so we immediately
started analyzing
what had just happened.
There's a rule of
thumb I mentioned
in Nudge, my
previous book, which
is that the conversation
at a dinner party
will be ruined if more
than half the guests come
from the economics department.
And this story is
an illustration
of that, since the removal
of a bowl of cashew nuts
led to a decision tree.
And what economists
all know is that one
can't be made better
off if one's choice
set is made smaller.
And that's what I just did.
We previously had the choice
eat nuts or don't eat nuts.
Now we didn't have that
choice, and we were happy.
How could that be?
OK, it goes on my list.
And so for a long time,
all I had was a list.
And dwindling
professional aspirations,
because a list of
weird shit people do
doesn't get you tenure.
HAL VARIAN: I think last
night at our meeting,
I cited a well known 20th
century philosopher, who said,
the Lord above made
liquor for temptation
to see if man could
stay away from sin.
The lord above made
liquor for temptation,
but with a little bit of
luck, when temptation comes,
you'll give right in.
And in fact, at that
point, we broke for drinks.
RICHARD THALER: I don't
think you're serving drinks
after this talk, right?
HAL VARIAN: Just for you.
So that was one of them.
And by the way, the
tickets is a nice example,
because tickets come up in
another place in the book,
and that's on scalping.
This is also a case
where economists may not
like tipping so much, but
they really like scalping.
RICHARD THALER:
They like scalping.
And economists have no trouble
with Uber's surge pricing,
no matter how high
the surge goes.
And economists are
unique in that.
I did a study with my good
friend and colleague Danny
Kahneman in 1985.
I was 12.
And it was a study of basically
what pisses people off.
And so we had a whole series
of questions where we would
ask whether something is fair.
So here's an example
from that study.
A hardware has been selling
snow shovels for $15.
The morning after a
blizzard, the store
raises the price to $20.
Rate that on a one to
four scale fairness,
from completely fair
to totally unfair.
People hate that.
They hate it.
Now I give that same
question to my MBA students.
They all say, yeah.
Right.
Because they took a price
theory class, and in that class,
this was the right
answer, right?
Demand has shifted,
price goes up.
So in New York City,
there was a blizzard,
and Uber thought it
was a really good time
to raise the price of cab
rides by a factor of 10.
10, yes.
Many people, including
the state attorney general
decided that wasn't
really a good idea.
And in fact, many
states have a law
against what's called gouging.
Now the literal
meaning of gouging
is to poke a hole in something.
And that's what most
humans feel like you
are doing if you charge them 10
times the usual fare because it
happens to be snowing.
Uber ended up making an
agreement with the state
attorney general to cap
the amount by which they
would surge in an emergency.
I write in the book that it's
my opinion that they should
have done that unilaterally.
And a similar thing
happened in Sydney.
I don't remember the
details of what happened,
but there was some
terrorist attack,
or maybe it was thought to
be a terrorist-- something
like that.
And there was a surge.
And as I describe
in the book, imagine
had Uber been around on 9/11.
And all the cabs were
snagged by investment bankers
who needed a ride to Greenwich.
I think that would've been the
last day Uber was in business.
So the norms of fairness
say in emergencies,
we help each other out.
And I've actually talked
to several Uber drivers
about that, and
said, what would you
want to do in that situation?
And most of them say,
I'd want to help.
And Uber doesn't make very
much money on those surges.
And I think they
could do better,
and I may try to convince them
that they should do better.
HAL VARIAN: So one
thing in your book
that I think could use
a little more exposition
is this distinction between
a psychological predilection
towards something, and
a social convention.
So let's take the
example like tipping.
Well, in some countries,
tipping's not practiced.
So of course, you don't tip.
That's a service
charge or something,
built into the record.
And the same thing
with fairness norms.
So I mentioned
scalping, originally.
And scalping, some
people thought
that was this terrible
thing, that you buy tickets
at a low price, resell
them at a high price.
But now, there are organized
markets like StubHub,
everybody expects, well if
I don't use the tickets,
I could go into the
secondary market.
And I don't think scalping
is really considered immoral
anymore.
I don't know, what does
the audience think?
Is scalping immoral?
Nobody.
But at one point, that the view.
RICHARD THALER: No, no.
So, look.
I think these things-- so
to the specific question
you're raising, which I think
is a really good one, what
the distinction I would make
is, what is the cultural norm?
And then, do people
adhere to it?
And then, what the
cultural norms are
will depend on the cultures.
So one of the
reasons why Greece is
in so much trouble is the
cultural norm in Greece
is that if you pay your
taxes, you're a sucker.
That's a problem.
None of us love paying taxes.
Most of us grumble about
how high our taxes are.
But we think that
we have to do it.
And, I mean, people may
be imaginative in thinking
of deductions.
But basically, in
this country, people
pay most of the tax they owe.
And that's not the
case in Greece.
And so they have an
economic problem,
but they have kind of
a social norms problem.
And there's all
kinds of discussion
about whether they should
have more or less austerity.
The only way Greece is going to
solve their economic problems
in the long run is to
change their cultural norms.
And it's not that I have an
answer about how to do that.
I kind of know some of the
things you'd want to do.
Hal knows that I have
been doing some work
for the British government
for the last five years.
After I wrote, with my
friend Cass Sunstein,
the book Nudge,
David Cameron created
a tiny little government unit,
called the Behavioral Insights
Team that everyone now
just calls the Nudge Unit.
And it started out with five
people, it's now over 50.
And one of our big success
stories, early on-- I
say, we, because
I've been working
with that team from
its conception--
was exactly on collecting
money from people
who owed on their taxes.
And we were able to
run an experiment.
So we met some guy.
One of the very first
meetings I had over there
was with a guy whose job it
was to collect from people
who owed money on their taxes.
We say, all right,
what do you do?
And he says, well, we
send them a letter.
Dear Mr. Varian, you owe
$15,000-- 15,000 pounds,
we'll make that-- on your taxes.
Here's how to pay,
and if you don't pay,
we're going to be mean to you.
And so we got permission
to run experiments
of the sort of Google
does every minute,
changing the wording
of that letter.
And the winning
letter uses a trick
from the Robert Cialdini bible.
Robert Cialdini is a
social psychologist
who wrote the famous
book Influence.
And so what we told
people-- truthfully--
is that the residents-- and then
we localized this, because it
turns out that helps.
So the residents
of Manchester-- 90%
of the residents of Manchester
pay their taxes on time.
You are in the minority
of those who don't.
That increased
the percent to pay
within the first window, which
happens to be 23 days, by 5
percentage points.
Now that means millions
of pounds, right?
And it costs nothing to add
that sentence to that letter.
You're already mailing
the letter out.
So there are several
lessons from that.
One is people respond
positively to social norms.
You know, what do
you do when you
go to another country--
going back to tipping.
Those of us who like
to behave, we ask,
what's the tipping
norm in this country?
And then, we try to behave
the way the natives do.
So if everybody pays
their taxes on time,
you try to behave
that way, as well.
The second lesson
from that is one
that Google has largely learned,
although not completely,
which is when you can, you
should run experiments.
And the only way really to
learn is to run experiments.
And most organizations are
really terrible at this.
And Google is not
terrible, but I
would argue even Google
could run more experiments.
They're very good in
the domain in which it's
very easy to run experiments,
like changing the order of ads
and wording of various things.
But probably not as good
at experimenting on what
kinds of people to hire,
and what kinds of jobs
to give them.
HAL VARIAN: So one
thing, I'm going
to say a word of
defense of the Greeks,
because I think your
analysis is right.
But of course, this has
developed over 100 years.
They didn't really like
paying taxes to the Ottomans.
And in fact, the
Americans didn't
like paying taxes to the Brits,
because they weren't getting
perceived value in return.
But once you develop that
norm, than it's going to be--
RICHARD THALER: That's
right, the Ottomans
have been gone a long time--
almost as long as the Brits.
We've gotten over it.
HAL VARIAN: So
one thing I wanted
you to talk a little
more about the savings,
because I think that's an
extremely interesting part
of the book, of how you can
help people increase savings
in a unobtrusive way.
RICHARD THALER: So
probably the domain
in which behavioral
economics has
had its greatest impact is
in the domain of retirement
saving.
And As I think most of you
know, once upon a time,
there were pensions.
Before many of you were
born, but dinosaurs
like us remember pensions.
Hal have a very nice
one at UC Berkeley.
Where all you did
is work, and then
when you were done working,
you got a paycheck.
And you got that
paycheck until you died.
Now you have to figure out-- you
have to join the 401(k) plan,
you to figure out how much
to save and how to invest it.
And then you're going
to, at some point,
figure out what to
do with that money.
So that's asking a lot of
people who don't know very
much about financial markets.
So the first step is just to
get people to join the plan.
And there, we encouraged people
to make a very simple change,
which is to change
the default. So this
is called automatic enrollment.
And under the old
regime, when you're first
eligible for the plan, you get
a pile of papers to fill out.
And if you don't fill those
out, you don't get in the plan.
Under automatic
enrollment-- I assume
you have automatic
enrollment at Google?
HAL VARIAN: Yes.
RICHARD THALER: Good.
Then you're told, unless
you fill out this form,
we're going to enroll you.
However, what is the
saving rate at which
you get started, if
you're automatically
enrolled at Google?
AUDIENCE: 10%.
RICHARD THALER: 10%?
Excellent.
That is really
good, I'm impressed.
I'd say 90% of companies that
use automatic enrollment enroll
people at 3%.
And the reason for
that is sad and funny.
So back in the mid '90s,
when this idea was new,
companies would
come to me and say,
you know, we'd like
to do this, but we're
worried about
whether it's legal,
because we're going
to sign people up
without their permission.
So I called a friend of mine
who worked in the Treasury
Department, and said, can
you get some letter written
clarifying that this is legal?
And he said, yeah,
I could do that.
And so he and somebody from
the IRS drafted a letter.
And the way those letters
tend to be written
is you give a general statement,
and then you give an example.
So for example, suppose
there's a company,
and it signs people up
for their pension plan,
at a 3% saving rate,
blah, blah, blah.
And it's still now the case
that most companies sign people
up at 3%.
Yeah, so this is called
an unintentional anchor.
And it's had the effect
of anchoring people
at a very low saving
rate, which created
the need for another
behavioral economics idea
that a former student of
mine, Shlomo Benartzi and I,
developed, that we call
save more tomorrow.
And save more tomorrow
is based on the premise
that we all have more self
control in the future.
So I'm planning a
diet, but not tonight.
And probably not this week,
or at least not until the end
of this book tour.
So, you know, Lord give
me strength, but not now.
You know that?
So the idea of
save more tomorrow
is you invite people to
increase their saving
rates in the future,
when they get a raise.
And so modern 401(k) plans
now have automatic enrollment.
And you don't need
it so much at Google
if you start people at 10%.
But automatic escalation
to get them up to 10%,
or some number higher.
And then that, plus a sensible
default investment vehicle,
like a target date
fund-- my mantra when
I'm in the UK with
the Nudge Unit
and we're talking
to these ministers,
in virtually every
meeting, I would
find myself repeating the same
three words-- make it easy.
If you want to get
people to do something,
remove the barriers that are
preventing them from doing it.
And automatic enrollment
is a good example.
And there are now countries
all over the world starting
these Nudge Units.
And the advice I give them is,
start with low hanging fruit.
And saving was
low hanging fruit,
because, a, it's hard, both
cognitively to figure out
what to do, and
then will power, you
have to get yourself to do it.
And we could solve all
of that with one click.
Or zero clicks, if it's
automatic enrollment.
There are other problems--
there's no one click diet.
It would be good for some of us
if there were, but there isn't.
Technology may help.
So if we can find other domains,
where we can make it easy
and help with problems, then
that's the place to start.
HAL VARIAN: I'll
give you a Google
example of this phenomenon.
If you ask, what day of the
year are the most queries
for weight loss?
RICHARD THALER: January 1.
HAL VARIAN: Of course.
But at the same time,
what day of the year
are the most queries
for hangover?
RICHARD THALER: January 1.
HAL VARIAN: Exactly.
So it's a kind of demarcation
on both the future and the past.
RICHARD THALER: Right.
Notice, econs never have
hangovers, and never
have to go on diets, because
they way the optimal amount.
HAL VARIAN: So
I'm going to break
for questions in just a minute.
But I would like you to
say another word or two
about the applications
of behavioral, economics,
and finance.
Before I do that, I want to
throw in another Google story.
Back when we have
the IPO-- in 2004,
I think-- we wanted
to give advice
to all of the people
that were working
at Google at that time of
how to do responsible money
management, and so on.
But we weren't allowed to.
A company can't give
financial advice
to its employees,
which is unfortunate,
for the reasons you
describe, but you can also
understand why it might make
sense to have such a rule.
And my boss, at the time,
Jonathan Rosenberg, said, look,
we've got to do something.
Hal, will you organize a
seminar series-- sorry,
a lecture series?
So we brought in some of the
real luminaries of finance--
Bill Sharp, and Burt
Malkiel, we got some people
from real estate, and
in charitable giving,
and a number of other topics.
And gave these
tech talks, really,
to the entire group of Googlers.
And I can't tell you how
many times since then
people have come up
to me and said what
a great service that was to do.
And I will say, it's Jonathan
who really had the idea.
It was his vision, and I think
it was just a great help.
And I wish more Silicon Valley
companies could do that.
RICHARD THALER: Yeah.
So financial markets-- the
conventional University
of Chicago view of
financial markets
is called the efficient
market hypothesis.
It's coined by my friend
and colleague Gene Fama,
and it has two components.
One is that you can't
beat the market.
You can't predict the
future from the past
or from anything else,
because all information
is impounded in today's price.
And the second
component is what I
call the price is
right component, which
is that asset prices are equal
to their intrinsic value,
whatever that is.
It may be the net present
value of future cash flows,
or something like that.
HAL VARIAN: Just like our
optimal weight is [INAUDIBLE]
value.
RICHARD THALER: Right.
So I think the first
part is not far off.
I say that in spite
of the fact that I'm
a principal in a money
management firm, located
about 10 miles north
of here in San Mateo,
that uses behavioral finance
to try and beat the market.
And we are moderately
successful.
Nevertheless, I don't advise
any of you to try to do it.
And I do not own any
individual securities.
I don't think I can do it.
I think our guys can do it,
but they work full time on it,
and they have disciplines
that we've given them,
and they have access to
information that you don't.
The second part of the
hypothesis-- prices
are equal to intrinsic value.
For a long time,
financial economists
lived in the comfort of thinking
that that part of the theory
was untestable.
And there's no better feature
in a theory than untestability.
I mean that's a really
comforting fact.
But of course, everything turns
out to be testable in the end.
And you need some
special circumstances
to find obvious
violations of that.
Let me give you a recent one.
There is a closed
end mutual fund.
I will give a 15 second
definition of a closed end
mutual fund-- they sell
a fixed amount of money,
and then the shares are traded.
And you buy and sell them.
And what that
means is the shares
can trade at a price
different from the value
of the asset they own, which
is already embarrassing
to efficient market zealots.
But there is a closed
end mutual fund.
It happens to have the
ticker symbol C-U-B-A.
Now, needless to say, it
has never, and cannot,
invest in Cuba, in
spite of its name.
It invests-- it's called the
Caribbean something fund.
And it invests in things
like cruise lines,
and companies in
Mexico, but not in Cuba.
And has been trading at about
a 15% discount to its net asset
value for several years.
The day-- you can see
where this is going.
The day that President Obama
made this announcement about
relaxed terms with Cuba, the
C-U-B-A a fund jumped to a 70%,
which means people were
paying $170 for $100 worth
of securities that they
could have got for $85 a week
earlier.
That is not an efficient market.
HAL VARIAN: Lucky for me,
I missed that opportunity.
RICHARD THALER: Yeah,
well lucky for you
that you didn't buy before.
My former co-author's wife
is the ambassador to the UN.
If we had gotten
a tip from her, we
could afford to
pay our bills, Hal.
He's suffering.
HAL VARIAN: I think it's
time to open the time up
for the audience questions.
I'm sure there are people
who want to ask something.
RICHARD THALER: So I think
you guys know the rig.
Go to the mic so your questions
are preserved for posterity.
HAL VARIAN: Go ahead.
AUDIENCE: Hey there.
So I had a question about
qualitative approaches
to gathering some information
about misbehavior.
User interviews, or
observational studies.
Any way on how to
incorporate that with sort
of the more quant data
you get from experiments.
RICHARD THALER:
So, good question.
I think the answer
is, it's hard.
Take focus groups--
I think people
who watch a focus group
think they've learned
way more than they have.
And, look-- it's small samples.
And I use those kinds of
things to form hypotheses,
and then I go test them
with large data sets.
So I think it's great
to talk to people,
and I think people
who are developing
new software absolutely should
be watching real people use it.
And seeing that what
was obvious to them
wasn't obvious to somebody who
hadn't written the software.
But then, you've got
to take it to scale.
AUDIENCE: Hey, Professor.
Good afternoon.
I wanted to first thank you.
I work in sales here
at Google, and I
use anchoring all the time.
RICHARD THALER: Good idea.
AUDIENCE: My question is this--
given Google's enormous reach
and how we're involved in so
many different ways in millions
and billions of
people's lives, I
was wondering if
were are any ways
that you wish that we would
nudge people towards something
at all?
RICHARD THALER: Sure.
Let's talk about
organ donations.
And let me clear up a
misconception, first of all.
So many people, even
those who've read Nudge,
think that I endorse an opt
out solution to organ donation,
meaning that-- this is sometimes
called presumed consent.
We presume you give your
permission unless you opt out.
I don't like that plan.
The reason I don't
like that plan--
it is the case that
almost no one opts out,
so it has some appeal.
The downside is that
in most countries,
they don't really implement
the plan strictly.
And so family members are
presented with an extremely
difficult problem.
A loved one has
died, often suddenly.
They have no clue what
the donor's wishes were.
And so I prefer what I
call prompted choice.
And so, for example, in
the state of Illinois, when
you renew your driver's
license, they ask you,
would you like to
be an organ donor?
Yes or no?
And I like that better, because
now family members know--
and, in fact, most
states also have
a law called first
person consent, which
means the donor's wishes count.
So now the transplant team goes
to the family members, and say,
our condolences
about your loved one,
but you may be comforted
to know that your son
or daughter wanted his
or her organs to be used.
And it may prolong the
life of 10 other people,
and they actually get
no say in the matter.
If they throw a complete
fit, they usually win.
But they usually don't.
All right, so what does
this have to do with Google?
Driver's licenses are
only one way to prompt.
Hal and I both have spent
time writing columns
for the New York Times.
And I wrote one
on organ donation,
and it was around the time that
Steve Jobs had gotten his liver
transplant.
And I challenged him
to make it as it easy
to sign up to be an organ donor
as it was to download an app.
And a week later,
there was an app.
Jobs had nothing to do with
it, somebody had written it.
So OK, here's where
Google comes in.
Why not prompt people
to be organ donors?
There is an app, and you guys
could create another one.
Somebody here could
do it in a few days.
All you need is a root into each
of the state-- every state has
an online registry, and have a
once a year, a day-- an organ
donation drive.
And that could matter.
If you want to really do it--
I mentioned this last night,
and use the same phrase.
Google the phrase,
immortal fans,
and you will see an
extremely powerful video
that could be used for
this organ donation drive.
And if anyone in the room
takes this idea seriously,
I would love to help you.
Send me an email,
and we'll figure out
how to make it happen.
HAL VARIAN: There's
another interesting thing
about organ donation,
and it also depends
hugely on cultural norms.
Great variation across
cultures, and not always the way
you would think.
It's sometimes
counter-intuitive ways.
RICHARD THALER: But what's
true is, if you ask people,
would you like to
be an organ donor?
You at least 80% in
this country saying yes.
So our goal should be to
get all the people who
want to be organ donors
to be organ donors.
Then the next step might-- we
maybe could get 80% up to 95%.
But getting to 80% will
get most of the job done.
Yeah?
AUDIENCE: You mentioned briefly
inequality and Piketty earlier.
And I was curious, because
one of the weird things
about our current
inequality situation
is, depending on how you phrase
the problem to Americans,
you get very different
answers, right?
A lot of Americans
don't really like
the idea of redistribution,
even if they'd
be the beneficiaries
of redistribution.
But if you talk about
equality of opportunity,
or better access to
education, or whatever,
then they're kind
of excited about it.
And so in a democracy,
where we're not
voting for more
redistribution, do
think there's partly
a behavioral economics
explanation for why there's
that seeming mismatch,
and what we could do about it?
RICHARD THALER: You know,
politics is all about words
and all about framing.
The most successful
political phrase in my memory
is the word, death tax.
Now, there's never
been a death tax.
You can die, and it
doesn't cost anything.
But calling the
estate tax a death tax
was extremely effective.
And if you ask people, are
you in favor of a death tax?
Everyone says no.
And right now, you
only pay an estate tax
if you have an estate,
for a married couple,
of excess of $10 million.
So this is not the 1%, this
is the point 0.01, or 0.001.
So it's quite striking
that 90% of the people
are opposed to something
that would have nothing
to do with them.
So politicians on whichever
side of the line you're on
need to be concerned
about the words they use.
Here's an
interesting-- there was
something in The Economist
I saw this morning.
And I may get a chance to
talk to some people in the UK
about this summer.
David Cameron has promised a
vote on in or out of the EU.
He hasn't said what the
phrasing of that would be.
And undoubtedly, the way
that question is worded
will have a strong
influence on the outcome.
I don't know which way
he wants it to come out,
but I intend to find out.
HAL VARIAN: By the way, econs
are in favor of a death tax.
Because if you tax it,
there'd be less of it.
RICHARD THALER: Nice.
Dumb econs.
AUDIENCE: What do you think
is the next breakthrough
for behavioral economics
affecting policy?
The next low hanging
fruit, as it were?
RICHARD THALER: I'm not sure
what the next low hanging
fruit is, but I can tell you
I end the book with my hope.
And so my hope is that
there's a new wave
of behavioral macroeconomics.
And macroeconomics is the
field that needs the most work.
The state of macroeconomics
is really pitiful,
and we don't agree on
the most basic of things.
So should Greece have increased
or decreased austerity?
You'll get very strong
opinions on both sides of that.
That's bad.
We pretty much all agree
if you raise the price,
people will buy less.
That's microeconomics.
Macroeconomics, we can't
agree on first principles.
But of course,
macroeconomics is nothing
more than microeconomics
plus summation signs.
So we ought to be
summing up based
on behaviorally
sound microeconomics,
and I'm hoping
there are a bunch of
smart young graduate
students out there
that are going to do that.
HAL VARIAN: And I'm
going to give you
the last word on
this topic-- who
is the best known behavioral
economist of the 20th century
of macroeconomics?
RICHARD THALER:
John Maynard Keynes.
HAL VARIAN: Exactly, because
if you read the book,
it's got chapter after chapter
full of astute observations
about how people
actually behave.
And so that's a good start.
RICHARD THALER: Yeah, anyone
who this is here or watches
this talk, if you want to go
be the next great behavioral
macroeconomist, start
by reading Keynes.
HAL VARIAN: Good place to stop.
So thank you very much, and
thanks for coming, Richard.
RICHARD THALER:
Thank you, thank you.
We should do this every
day, we'll get good at it.
