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0:04
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.
0:31
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
1:07
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
2:05
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
2:52
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.
3:36
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.
4:09
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.
4:57
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.
5:35
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
6:09
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,
6:41
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.
7:19
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.
7:41
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,
8:27
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
9:14
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
9:53
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.
10:35
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.
11:06
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.
11:46
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.
12:19
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.
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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.
13:41
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.
14:35
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
15:25
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
16:13
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?
16:56
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.
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And in fact, at that point, we broke for drinks.
17:36
RICHARD THALER: I don't think you're serving drinks after this talk, right? HAL VARIAN: Just for you.
17:45
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.
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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.
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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.
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10 yes.
19:57
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.
20:31
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.
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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.
21:38
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
22:22
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.
22:49
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
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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.
24:12
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.
24:56
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--
25:33
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.
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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.
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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?
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And it costs nothing to add that sentence to that letter. You're already mailing the letter out.
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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,
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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.
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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.
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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
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like us remember pensions. Hal have a very nice one at UC Berkeley.
30:20
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.
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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.
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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,
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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,
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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.
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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%,
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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
35:17
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.
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It would be good for some of us if there were, but there isn't. Technology may help.
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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.
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RICHARD THALER: Right. Notice, econs never have hangovers, and never have to go on diets, because they way the optimal amount.
36:53
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
37:28
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.
37:57
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
38:34
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,
39:17
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.
40:00
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.
40:45
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
41:35
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.
42:25
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.
43:06
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.
43:39
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.
44:07
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.
44:55
But then, you've got to take it to scale.
45:00
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?
45:25
RICHARD THALER: Sure.
45:29
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,
46:12
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
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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?
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Driver's licenses are only one way to prompt.
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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.
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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.
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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.
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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
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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
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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.
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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.
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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
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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.
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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?
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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.
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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?
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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.
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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?
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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.
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