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FRANK SCHILLBACH Let me
get started on lecture 20.

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So I'm going to finish
up with what we discussed

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last time, which is lecture 19.

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And then we're going to
talk about lecture 20,

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which is about malleability and
inaccessibility of preferences.

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For now, we're going to
talk for a little bit more

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about defaults and frames,
and nudges in particular.

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So what we left it
off last time was we

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talked about default effects.

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We talked about
that in particular

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in retirement savings.

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Defaults can be sort
of setting essentially

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in one default option.

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That is like, what happens if
you do nothing in a retirement

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savings account.

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Setting a certain
default option can

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have very powerful effects in
affecting people's behavior

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in a domain that's really
important in this case,

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savings, and in a domain where
traditional economic tools have

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not really gone very far, as
in matching contributions,

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or any sort of like types of
financial education, et cetera.

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It's just not doing very much.

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It's expensive to do.

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And it's hard to change
behavior, while using defaults

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is really powerful, and can
cause large behavior change

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or large changes in
outcomes even years later.

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Let me talk a little bit about
what is the optimal default

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decision regime.

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And that's getting
into tricky territory.

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We talked about this
last time a little bit.

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We'll talk about this
again in the last lecture,

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on lecture 23, when
we talk about policy.

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So when do you think about
active choice versus default,

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so what is active choice?

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Active choice to remind you
is like somebody has asked

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at the beginning,
or directly asked,

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you have to make a choice.

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And I'm just sort of forcing
you to do it, more or less.

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[INAUDIBLE] the company hires
somebody and in the hiring

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package, there is just a form
that you need to fill out.

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And otherwise you cannot really
start [INAUDIBLE] company.

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Sometimes that's not
really enforceable,

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but effectively,
essentially just everybody

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makes some choice.

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That's essentially active choice
versus default, which is just

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like, if you do
nothing, you either

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get zero retirement savings,
or some positive amounts.

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Now, if people are really
different, then essentially,

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active choice is a great thing.

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Because if people really
have different preferences,

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then we shouldn't just push
them into one direction

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or the other.

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They should choose.

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Everybody chooses on their
own what's best for them.

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In contrast, if you think most
people are the same anyway,

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and in addition,
people don't really

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know what's best
for them, well then

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it might be better to just
provide one default [INAUDIBLE]

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most people that's
best for most people.

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And then most people
will stick to anyway,

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because these defaults
tend to stick.

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And if people don't
know what they want

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or what's good for
them, then sort

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of letting them choose
actively might make things

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potentially worse anyway.

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And so that's sort of
the fundamental trade

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off when people have come down
on different sides of this.

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And it depends on
your view, kind of,

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about sophistication
and so on of customers

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who are [INAUDIBLE].

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And one big and important
issue with defaults

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and with the nudges,
in general, which

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I'm going to talk about
to you in a second

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is, we kind of want to make
sure that we don't make people

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worse off in some
ways by pushing people

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in certain directions.

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For example, one
thing you might say

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is, well, why not set the
default to like 5% or 10%

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of retirement savings?

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But then you worry about
people potentially over-saving

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in their retirement
savings accounts.

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And then essentially they
have lots of credit card debt,

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potentially, which
might be even larger.

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Sorry, the interest rate
on the credit card debt

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might be really large.

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And people get in trouble.

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Or people then withdraw
prematurely, and so on,

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which is [INAUDIBLE]
potentially worse for them.

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We talked very briefly
about the smart plan,

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which again, I'm going to get
back to in lecture 23 as well.

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Now I also talked briefly
about sort of default effects

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also are quite powerful
in other settings.

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For example, in organ
donations, in some places,

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organ donations are
explicit consent,

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which is like you
have to opt in,

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and otherwise you will
not be an organ donor.

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In other countries-- and
this is from a while ago--

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in other countries,
things are different,

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where there is what's called
presumed consent, which

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is like you have to opt out.

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And otherwise, if
you do not opt out,

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you're presumed to consenting
to organ [INAUDIBLE]..

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We see essentially
huge differences

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in otherwise quite
similar countries,

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which sort of shows you
that the default here

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can have really large effects.

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There's some other examples of
default effects in particular

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when it comes to
voter registration,

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or green energy choices.

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In some cases, in
particular when

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it comes to voter registration,
it's actually quite hard

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to come with arguments
against setting

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a default in a certain way.

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Like in some sense,
getting voters

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to be registered
when you get say

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a driver's license or
the like seems just very

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straightforward and--

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or when they turn 18, that seems
like a very straightforward

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thing to do.

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And there, in some
ways, the defaults

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can really sort of remove some
barriers and inefficiencies

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where we think we should
agree that everybody should

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be able to vote if they would
like to, with some exceptions,

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perhaps.

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And so, if you
can default people

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into getting registered to vote,
that seems like a good thing,

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unambiguously.

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So there sort of default effects
can be really, really powerful.

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Now, let's talk a little
bit about-- not just again,

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we're going to talk
about this again

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in lecture 23, when it
comes, about policy,

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but let me sort of
define the issue

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and sort of be clear about that.

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So you might have sort of come
across the very famous book

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by Richard Thaler,
who recently won

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the Nobel Prize in
economics, and Cass Sunstein,

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called Nudge.

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I'll give you the definition
by Cass Sunstein, who

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says a nudge is a feature of the
social environment that affects

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people's choices without
imposing coercion

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of any kind of
material incentive.

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So that-- default is
sort of like a clear case

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of that, where
essentially you just

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say, OK, if you
don't do anything,

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I'm going to just
pick a choice for you.

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But you can choose, however,
in whichever way you want.

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And there is essentially
no material incentive.

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But I'm changing essentially
your choice environment

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or what people
would call sometimes

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the choice architecture.

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And there's other
versions of that.

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There's simplification,
information disclosure.

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Again, these are all things
that are usually available.

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People can figure
it out on their own.

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But we make it
easier for people.

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And one of the big
mantras [INAUDIBLE]

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about like, what's the
main thing we should do

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to improve people's behavior?

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Dick Thaler would often say,
make it easy for people.

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Essentially, people are often--

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and he said that about
himself-- people are lazy.

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And they make simple choices.

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And if you make it easy for
them to make the right choice,

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they will be more likely to
make good choices for them.

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There's some other things
like warnings, reminders.

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Notice for reminders, for
example, again, you already

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have the information
that somebody gave it

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to you previously.

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So really it's only like
if you have memory issues,

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that might be useful for you.

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There's no material
incentives or [INAUDIBLE]..

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Use of social norms.

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That would be things like I'm
telling you all of your friends

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did x.

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Now would you like to do x or y?

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Or I can send you letters
and say your neighbors used

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so much energy, and you use
more energy than your neighbor.

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And then I put like a sad
face next to it, or something.

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And then you might feel
bad about it because

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of social norms, and sort
of reduce your energy usage,

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which people have in fact done.

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You can also like increase
ease and convenience.

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This is exactly what like
[INAUDIBLE] convenience.

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That's exactly what
Dick Thaler would say.

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Those are things
like, for example, I

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can put Snickers bars next to
the counter at the cashier.

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Or I can put apples next to it.

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And people are more
likely to buy apples

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when it's easy or
simple or when they're

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reminded of eating apples.

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And they're more likely to
eat Snickers bars essentially

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if [INAUDIBLE] to them.

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To the extent that
you want people

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to make what one might
think of as good choices,

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making it easy for them to make
the good choice without sort

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of restricting
anybody's choice sets

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or coercing them in any
way is considered a nudge.

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And then there's also some
things about framing of choices

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as in gains versus losses,
in terms of their contracts.

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Any questions on this?

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OK.

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So then let me give
you, briefly, sort of--

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and again, we're
going to get back

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to all of this in lecture 23.

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But let me briefly
sort of give you

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a couple of examples
of nudges in some cases

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where it's pretty clear that
some nudges are a good idea.

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So one thing that we
talked about quite

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a bit already when it
comes to procrastination

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or self-control problems present
bias, or [? losing focus ?]

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is the health domain, and
what people and in particular,

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individuals and society
often have aligned goals,

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where individuals often
want behavioral change.

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They want to
improve their diets,

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increase physical activity,
stop smoking, get vaccinated,

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use less energy, and so on.

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And often, there are societal
costs of these behaviors,

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or lack of those behaviors.

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Sometimes there's externalities
from smoking or getting or not

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getting vaccinated.

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Sometimes [INAUDIBLE]
health care costs and the

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like from obesity and so on,
where it's bad for everybody

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if the population is sick.

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So these goals are now aligned.

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And the social
planner might want

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people to improve their diet, or
the government might want that,

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or might want to reduce
smoking and so on.

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But individuals, as
we saw previously,

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often fail to follow through.

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And sort of often, education
and information interventions

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are often ineffective.

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Even price interventions
are often ineffective,

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or in the sense of
like increasing prices,

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or incentivizing people,
it doesn't always work.

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Plus, it's quite
expensive to do.

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So one natural question
you might want to ask

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is, can we use some nudges to
align intentions and actions?

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And the reason why this is
really popular, in particular,

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among governments, is that
it's really cheap to do this.

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So it's actually sending
some reminders or the like

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or providing information
in one way or the other,

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is essentially free.

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And if governments don't
have a lot of money,

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that's an easy thing
to do as opposed

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to paying people, which is
quite expensive in many cases.

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So here's an example of a
free intervention which is

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00:10:54,480 --> 00:10:56,340
about flu shot communications.

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00:10:56,340 --> 00:11:00,270
This is a study by Katy Milkman
and co-authors from 2011.

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00:11:00,270 --> 00:11:03,870
So here, the goal
of the intervention

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00:11:03,870 --> 00:11:08,220
is to get people to sign up,
or to actually get flu shots.

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00:11:08,220 --> 00:11:10,740
So the control group got
an informational mailing.

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00:11:10,740 --> 00:11:12,090
I'll show you this in a second.

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00:11:12,090 --> 00:11:17,000
The treatment group got the
same, plus an encouragement

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00:11:17,000 --> 00:11:18,840
to make a date plan.

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00:11:18,840 --> 00:11:23,550
And the treatment group got
the same plus make a date plan,

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00:11:23,550 --> 00:11:24,420
and a time plan.

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00:11:24,420 --> 00:11:25,987
Let me show you what
this looks like.

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00:11:25,987 --> 00:11:27,320
So here's the control condition.

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00:11:27,320 --> 00:11:30,368
This is just an
informational mailing.

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00:11:30,368 --> 00:11:32,448
It's saying here, the company--

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00:11:32,448 --> 00:11:33,990
this is a company
trying to do this--

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00:11:33,990 --> 00:11:37,350
is holding a free
flu shot clinic.

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00:11:37,350 --> 00:11:40,290
And companies very much want
their workers to get flu shots,

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because that reduces
essentially sort of sick days.

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00:11:44,070 --> 00:11:45,690
If everybody gets
their flu shot,

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00:11:45,690 --> 00:11:48,190
not only are they healthier and
it's probably good for them.

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00:11:48,190 --> 00:11:51,240
They're like less at risk of
dying and infecting each other,

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or just being sick.

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00:11:52,692 --> 00:11:54,150
But it's also good
for the company,

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00:11:54,150 --> 00:12:00,150
because the company now gets
workers to actually show up

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00:12:00,150 --> 00:12:02,533
more, and have fewer sick days.

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00:12:02,533 --> 00:12:04,200
So here's sort of the
control condition.

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00:12:04,200 --> 00:12:08,510
It looks like a perfectly
reasonable letter,

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00:12:08,510 --> 00:12:12,090
where you say, here is these
days, on which you can sign up.

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00:12:12,090 --> 00:12:14,820
And you are informed
about the dates and times

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00:12:14,820 --> 00:12:17,520
of the workplace flu clinic.

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00:12:17,520 --> 00:12:21,210
Now, the treatment condition
is the date plan condition,

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00:12:21,210 --> 00:12:24,360
which essentially is
asking people to--

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00:12:24,360 --> 00:12:27,660
or invite people to
choose a concrete date

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00:12:27,660 --> 00:12:30,000
for getting a flu vaccine.

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00:12:30,000 --> 00:12:33,510
And the rest of the
information [? mailer ?]

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00:12:33,510 --> 00:12:34,840
is exactly the same.

286
00:12:34,840 --> 00:12:37,500
So essentially, that's
just asking people,

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00:12:37,500 --> 00:12:43,200
pick a day of the week and a
month, or a month and a day,

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00:12:43,200 --> 00:12:45,100
and a day of week, and
just write it down.

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00:12:45,100 --> 00:12:47,100
And presumably, that also
then encourages people

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00:12:47,100 --> 00:12:50,010
to put it into their
calendar or the like

291
00:12:50,010 --> 00:12:53,070
and sort of acts as
some form of a reminder.

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00:12:53,070 --> 00:12:54,527
Notice, there's
no incentive here.

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00:12:54,527 --> 00:12:55,860
There's no financial incentives.

294
00:12:55,860 --> 00:12:56,910
There's no coercion and so on.

295
00:12:56,910 --> 00:12:59,430
It's just saying why don't
you just pick a day right now.

296
00:12:59,430 --> 00:13:02,220
Just have a look, check your
calendar, and just figure out.

297
00:13:02,220 --> 00:13:04,250
Make a plan for this.

298
00:13:04,250 --> 00:13:08,872
And the second condition is
then make a date and a time plan

299
00:13:08,872 --> 00:13:10,580
condition, which is
to say, why don't you

300
00:13:10,580 --> 00:13:15,030
also pick a time, which
is even more concrete.

301
00:13:15,030 --> 00:13:19,250
That would be Monday,
October 26, at like 9:00 AM

302
00:13:19,250 --> 00:13:20,590
or whenever I'm going to go.

303
00:13:20,590 --> 00:13:22,215
Presumably, that also
encourages people

304
00:13:22,215 --> 00:13:24,240
to put it into their calendar.

305
00:13:24,240 --> 00:13:26,570
Now what you then get
in this experiment--

306
00:13:26,570 --> 00:13:28,430
it is a very simple experiment.

307
00:13:28,430 --> 00:13:30,230
You get, when you
just send a letter,

308
00:13:30,230 --> 00:13:32,630
33% actually get the flu shot.

309
00:13:32,630 --> 00:13:36,080
When you also send
a date plan, 34%.

310
00:13:36,080 --> 00:13:39,122
And when you send a date plan
and a time plan, it's 37%.

311
00:13:39,122 --> 00:13:40,580
Now, these effects
are a little bit

312
00:13:40,580 --> 00:13:42,950
underwhelming in the sense
they're kind of small.

313
00:13:42,950 --> 00:13:48,470
It's like 1.6 percentage points
at 4.2 percentage points.

314
00:13:48,470 --> 00:13:51,800
And in relative terms
that's not huge effect.

315
00:13:51,800 --> 00:13:54,050
But notice what's
beautiful about here

316
00:13:54,050 --> 00:13:57,350
is that the costs
are essentially zero.

317
00:13:57,350 --> 00:14:00,580
So in some sense, if you value
additional flu shot adherence,

318
00:14:00,580 --> 00:14:06,770
if you value more people
getting flu shots, then a 4.2

319
00:14:06,770 --> 00:14:09,230
percentage points increase,
which is about like a 10%

320
00:14:09,230 --> 00:14:11,450
or whatever, 11%,
12% or something

321
00:14:11,450 --> 00:14:13,880
increase relative to the
control group, that's

322
00:14:13,880 --> 00:14:16,460
quite a bit of an
increase for something

323
00:14:16,460 --> 00:14:18,000
that's essentially free.

324
00:14:18,000 --> 00:14:20,310
So the cost effectiveness
of this is, of course, very,

325
00:14:20,310 --> 00:14:20,900
very high.

326
00:14:20,900 --> 00:14:22,525
Because it's essentially
free, or maybe

327
00:14:22,525 --> 00:14:25,190
it cost somebody a few
minutes to sort of write this

328
00:14:25,190 --> 00:14:28,790
down, or design the sheet.

329
00:14:28,790 --> 00:14:31,220
But really it costs
exactly the same

330
00:14:31,220 --> 00:14:33,500
to send the sheet
here on the left

331
00:14:33,500 --> 00:14:35,580
versus the sheet
here on the right.

332
00:14:35,580 --> 00:14:39,410
So that's kind of an example
of a win-win kind of situation

333
00:14:39,410 --> 00:14:44,330
where we make things
essentially more effective.

334
00:14:44,330 --> 00:14:47,580
It's not really hurting anybody,
and it's cheap and free to do.

335
00:14:47,580 --> 00:14:48,980
And so everybody is happy.

336
00:14:48,980 --> 00:14:52,190
And it's sort of uncontroversial
in the sense of nobody

337
00:14:52,190 --> 00:14:53,840
would argue that
this is a bad thing.

338
00:14:53,840 --> 00:14:55,400
Of course, some
people might sort of

339
00:14:55,400 --> 00:14:57,990
have some concerns about
the flu shots themselves,

340
00:14:57,990 --> 00:15:00,710
which I don't think there's any
actual evidence against that

341
00:15:00,710 --> 00:15:01,548
as far as I know.

342
00:15:01,548 --> 00:15:03,590
But that's sort of an
example where we say, look,

343
00:15:03,590 --> 00:15:04,760
this is very cheap to do.

344
00:15:04,760 --> 00:15:08,457
So presumably you should sort
of pick the right mailing,

345
00:15:08,457 --> 00:15:10,790
or the right design, if I'm
mailing, to encourage people

346
00:15:10,790 --> 00:15:14,390
to do desirable things, at least
from the company's perspective,

347
00:15:14,390 --> 00:15:17,240
while also preserving
people's freedom,

348
00:15:17,240 --> 00:15:21,530
not spending any money, but
also not encouraging anybody.

349
00:15:21,530 --> 00:15:22,640
Any questions on this?

350
00:15:28,220 --> 00:15:28,900
OK.

351
00:15:28,900 --> 00:15:31,690
So here's another example
of a similar intervention,

352
00:15:31,690 --> 00:15:34,780
which is signing up for FAFSA.

353
00:15:34,780 --> 00:15:36,250
This is a paper by
Bettinger et al.

354
00:15:36,250 --> 00:15:41,950
in 2009, where essentially,
people were provided

355
00:15:41,950 --> 00:15:44,950
free additional assistance
in completing and filing

356
00:15:44,950 --> 00:15:47,680
applications for
college financial aid.

357
00:15:47,680 --> 00:15:51,220
This is FAFSA, the
financial aid for college.

358
00:15:51,220 --> 00:15:55,660
And it really increased
college enrollment--

359
00:15:55,660 --> 00:15:59,020
not only FAFSA completion,
but also college enrollment.

360
00:15:59,020 --> 00:16:01,940
And there's sort of
different conditions.

361
00:16:01,940 --> 00:16:04,490
One is control versus just
providing people information

362
00:16:04,490 --> 00:16:04,990
only.

363
00:16:04,990 --> 00:16:06,990
Here's [INAUDIBLE]
information of like you could

364
00:16:06,990 --> 00:16:08,703
get some FAFSA help and so on.

365
00:16:08,703 --> 00:16:10,120
But it seems to
be really what you

366
00:16:10,120 --> 00:16:15,850
need is some additional
assistance of completing

367
00:16:15,850 --> 00:16:17,440
and filing this application.

368
00:16:17,440 --> 00:16:22,240
Just somebody essentially
walking you through the filing

369
00:16:22,240 --> 00:16:23,730
has a huge impact.

370
00:16:23,730 --> 00:16:26,230
There's a bit of a question of,
is that really just a nudge,

371
00:16:26,230 --> 00:16:28,060
or is it like a more
powerful intervention.

372
00:16:28,060 --> 00:16:29,650
But it's a really
minor intervention

373
00:16:29,650 --> 00:16:31,570
where some people just
need some level of help

374
00:16:31,570 --> 00:16:33,670
in filling out this form.

375
00:16:33,670 --> 00:16:35,530
And it has pretty
large effects, if you

376
00:16:35,530 --> 00:16:37,690
look at the FAFSA
[INAUDIBLE] completion

377
00:16:37,690 --> 00:16:41,800
of these forms, reasonably large
effect on college enrollment.

378
00:16:41,800 --> 00:16:44,470
And you might sort of think this
is a hugely important choice,

379
00:16:44,470 --> 00:16:49,840
and sort of if you get people
to make that really big change,

380
00:16:49,840 --> 00:16:53,420
that's pretty remarkable for
doing some very simple things.

381
00:16:53,420 --> 00:16:57,340
[INAUDIBLE] help me complete
and fill out a simple form,

382
00:16:57,340 --> 00:17:00,190
something that you
could have done anyway.

383
00:17:00,190 --> 00:17:04,750
So, and here again, so this is
a relatively cheap thing to do.

384
00:17:04,750 --> 00:17:07,089
And it's essentially
equivalent to the impact

385
00:17:07,089 --> 00:17:10,569
of several thousands of
dollars of education subsidy.

386
00:17:10,569 --> 00:17:14,180
So if you wanted to essentially
pay people to go to college,

387
00:17:14,180 --> 00:17:15,790
[INAUDIBLE]
subsidize that, which

388
00:17:15,790 --> 00:17:18,730
you might want to do for
other reasons anyway,

389
00:17:18,730 --> 00:17:22,780
one key issue with that is
that not only is it perhaps not

390
00:17:22,780 --> 00:17:24,970
particularly effective,
but also you're

391
00:17:24,970 --> 00:17:26,800
going to pay a lot of
for marginal people.

392
00:17:26,800 --> 00:17:28,270
You're going to pay a
lot of people who would

393
00:17:28,270 --> 00:17:29,530
have gone to college anyway.

394
00:17:29,530 --> 00:17:30,890
You're going to pay the subsidy.

395
00:17:30,890 --> 00:17:34,810
So if you have a low budget,
that's really tough to do.

396
00:17:34,810 --> 00:17:38,410
And sort of then
there's not a lot of--

397
00:17:38,410 --> 00:17:40,630
the cost effectiveness
tends to be very low.

398
00:17:40,630 --> 00:17:43,180
Because you have
essentially a low impact,

399
00:17:43,180 --> 00:17:45,580
but like really high costs.

400
00:17:45,580 --> 00:17:48,220
And you can read about this
more in the link that I had.

401
00:17:48,220 --> 00:17:49,720
But essentially the
bottom line here

402
00:17:49,720 --> 00:17:52,210
is, again, you can do
very small changes that

403
00:17:52,210 --> 00:17:55,540
can have pretty large effects.

404
00:17:55,540 --> 00:17:57,970
There's other types of
examples that government use,

405
00:17:57,970 --> 00:17:59,440
or where governments use--

406
00:17:59,440 --> 00:18:02,380
not just-- another
example would be

407
00:18:02,380 --> 00:18:05,440
sending out letters for people
to pay their taxes, which

408
00:18:05,440 --> 00:18:07,960
essentially are like
reminders, or often appealing

409
00:18:07,960 --> 00:18:12,460
to people's sort of
prosociality in various ways.

410
00:18:12,460 --> 00:18:14,080
But the government
sends you letters.

411
00:18:14,080 --> 00:18:15,670
And there's different
ways in which

412
00:18:15,670 --> 00:18:17,290
you can write these letters.

413
00:18:17,290 --> 00:18:18,970
You could say you
should pay your taxes,

414
00:18:18,970 --> 00:18:20,980
or everybody's
paying their taxes,

415
00:18:20,980 --> 00:18:23,420
or good citizens pay
their taxes, and so on.

416
00:18:23,420 --> 00:18:25,900
And people-- there's a whole
industry of nudged units

417
00:18:25,900 --> 00:18:27,760
where people then try
to figure out what's

418
00:18:27,760 --> 00:18:29,810
the best way of doing that.

419
00:18:29,810 --> 00:18:32,170
And by doing that
in different ways,

420
00:18:32,170 --> 00:18:37,160
that can have a pretty large
effect on people's behaviors.

421
00:18:37,160 --> 00:18:39,650
And the governments sort
of love this, because it's

422
00:18:39,650 --> 00:18:40,940
a very cheap thing to do.

423
00:18:40,940 --> 00:18:43,910
And it can have large impact
and change behavior quite a bit.

424
00:18:43,910 --> 00:18:46,730
In this case, in the tax
case, increase revenue

425
00:18:46,730 --> 00:18:50,420
by quite a bit without costing
the government very much.

426
00:18:50,420 --> 00:18:52,760
Because often, [INAUDIBLE]
send some letters anyway.

427
00:18:52,760 --> 00:18:55,430
And they send some more in
some less effective ways

428
00:18:55,430 --> 00:18:56,760
of doing that.

429
00:18:56,760 --> 00:18:58,700
When you think about
the intervention

430
00:18:58,700 --> 00:19:00,710
that I have here on the
slide, the FAFSA one

431
00:19:00,710 --> 00:19:02,240
is essentially just--

432
00:19:02,240 --> 00:19:03,860
the effects almost
surely will be

433
00:19:03,860 --> 00:19:07,250
persistent in the sense of
like, this is a one shot choice,

434
00:19:07,250 --> 00:19:09,720
whether you send your
kid to college or not.

435
00:19:09,720 --> 00:19:13,625
And once you increase
the college enrollment,

436
00:19:13,625 --> 00:19:17,865
which might have some other
issues, but once you do that,

437
00:19:17,865 --> 00:19:19,490
there's going to be
persistent effects.

438
00:19:19,490 --> 00:19:21,770
Because once kids
go to college, that

439
00:19:21,770 --> 00:19:23,850
has effects on their
behaviors and so on.

440
00:19:23,850 --> 00:19:25,040
Now when you're saying
something else, which

441
00:19:25,040 --> 00:19:26,060
is some other
decisions, [INAUDIBLE]

442
00:19:26,060 --> 00:19:28,330
just like about paying
taxes where every year

443
00:19:28,330 --> 00:19:30,770
you get this letter from the
government that sort of tells

444
00:19:30,770 --> 00:19:33,590
you you should pay your taxes,
maybe the first time it works.

445
00:19:33,590 --> 00:19:34,840
Maybe the second time as well.

446
00:19:34,840 --> 00:19:37,130
But at some point,
you're like, whatever.

447
00:19:37,130 --> 00:19:38,610
I don't care.

448
00:19:38,610 --> 00:19:40,070
That's a great question.

449
00:19:40,070 --> 00:19:44,000
And I don't know whether we
have lots of evidence or not.

450
00:19:44,000 --> 00:19:46,568
I think the governments
would sort of--

451
00:19:46,568 --> 00:19:48,110
I think there's some
research on this

452
00:19:48,110 --> 00:19:51,610
that I just am not
sure I'm aware of.

453
00:19:51,610 --> 00:19:54,830
I think governments or people
would say, well, in some sense,

454
00:19:54,830 --> 00:19:57,150
we don't care that
much about it.

455
00:19:57,150 --> 00:19:58,300
Of course we care.

456
00:19:58,300 --> 00:20:01,317
But it doesn't change the
fact that in the first year--

457
00:20:01,317 --> 00:20:03,650
so we know that in the first
year, it works pretty well.

458
00:20:03,650 --> 00:20:05,858
And there's some things that
work better than others.

459
00:20:05,858 --> 00:20:08,470
Many governments send
some letters or some forms

460
00:20:08,470 --> 00:20:09,757
of mailers anyway.

461
00:20:09,757 --> 00:20:12,340
So what you want to do is kind
of like make sure you optimize,

462
00:20:12,340 --> 00:20:15,670
at least the first or second
time you contact people.

463
00:20:15,670 --> 00:20:18,100
And that might have
some persistent effects

464
00:20:18,100 --> 00:20:20,500
by themselves, even if
you don't re-contact them.

465
00:20:20,500 --> 00:20:22,300
Because once you start
paying your taxes,

466
00:20:22,300 --> 00:20:25,120
maybe then it becomes a habit,
and people do it anyway.

467
00:20:25,120 --> 00:20:26,950
But even if that's
not persistent,

468
00:20:26,950 --> 00:20:29,650
governments would say, well, if
that gets people to pay taxes

469
00:20:29,650 --> 00:20:32,890
more at least once or
twice, that's worth

470
00:20:32,890 --> 00:20:34,450
sort of the money spent.

471
00:20:34,450 --> 00:20:38,770
[INAUDIBLE] somebody essentially
needs to design this letters.

472
00:20:38,770 --> 00:20:40,810
There's like, templates
of what you can use.

473
00:20:40,810 --> 00:20:48,060
And that's essentially
very cheap to do

474
00:20:48,060 --> 00:20:53,400
and has pretty large effects
at least in the short run.

475
00:20:53,400 --> 00:20:56,490
I think [INAUDIBLE] correct,
which is sometimes it's like,

476
00:20:56,490 --> 00:20:57,450
some effects--

477
00:20:57,450 --> 00:21:00,120
it's just information versus
some things about making

478
00:21:00,120 --> 00:21:02,043
you feel bad, or social norms.

479
00:21:02,043 --> 00:21:04,710
I think the information things--
if you think people just forget

480
00:21:04,710 --> 00:21:07,200
stuff-- for example, if people
forget to get their flu shot

481
00:21:07,200 --> 00:21:09,492
and so on, you should probably
send reminders and so on

482
00:21:09,492 --> 00:21:11,670
and get them to do that.

483
00:21:11,670 --> 00:21:14,840
If there's sort of these social
norms, or sort of [INAUDIBLE]

484
00:21:14,840 --> 00:21:17,070
makes you feel bad in some
ways, maybe those things

485
00:21:17,070 --> 00:21:20,280
are maybe more likely to
potentially at least go away

486
00:21:20,280 --> 00:21:22,527
once you do it like 17
times, because at some point,

487
00:21:22,527 --> 00:21:25,110
people are like, yeah, whatever,
the same letter I got always.

488
00:21:25,110 --> 00:21:26,700
And I haven't paid
my taxes last time.

489
00:21:26,700 --> 00:21:29,090
I'm not going to
pay them now either.

490
00:21:29,090 --> 00:21:32,100
It's additional assistance
in completing and filing

491
00:21:32,100 --> 00:21:33,480
applications.

492
00:21:33,480 --> 00:21:34,740
So essentially, it's not--

493
00:21:34,740 --> 00:21:36,750
so the financial aid
is always available.

494
00:21:36,750 --> 00:21:39,420
It's just who takes
advantage of financial aid

495
00:21:39,420 --> 00:21:41,940
depends on how easy
you make it to people,

496
00:21:41,940 --> 00:21:43,710
and whether you
support them, provide

497
00:21:43,710 --> 00:21:47,310
some support in completing
and filing applications.

498
00:21:47,310 --> 00:21:50,550
There's also [INAUDIBLE] with
that where essentially, once

499
00:21:50,550 --> 00:21:52,440
you do your taxes,
essentially, it already

500
00:21:52,440 --> 00:21:56,620
prefills you the forms,
which is even easier to do.

501
00:21:56,620 --> 00:21:59,070
But essentially, this falls
under the category of making

502
00:21:59,070 --> 00:22:00,930
things easy for people.

503
00:22:00,930 --> 00:22:05,140
And that can sort of change
behaviors quite a bit.

504
00:22:05,140 --> 00:22:07,980
But the key part
in the nudges is--

505
00:22:07,980 --> 00:22:10,500
and let me get back
again to the definition--

506
00:22:10,500 --> 00:22:16,200
is that there's no
financial incentives.

507
00:22:16,200 --> 00:22:20,340
So this part here is without
imposing any coercion,

508
00:22:20,340 --> 00:22:24,210
or without paying any kind
of material incentives,

509
00:22:24,210 --> 00:22:26,242
or at least, only very,
very small incentives.

510
00:22:26,242 --> 00:22:28,200
There's a bit of a question
how to define that.

511
00:22:28,200 --> 00:22:31,800
But once I pay you $1,000 to
go to college or whatever,

512
00:22:31,800 --> 00:22:34,430
subsidize you, that's
not a nudge anymore.

513
00:22:34,430 --> 00:22:38,340
Or once I'm taking away certain
options from you, [INAUDIBLE]

514
00:22:38,340 --> 00:22:40,470
eliminating choices
from your choice set,

515
00:22:40,470 --> 00:22:41,743
again, that's not a nudge.

516
00:22:41,743 --> 00:22:42,660
That's something else.

517
00:22:42,660 --> 00:22:43,993
That's changing your choice set.

518
00:22:43,993 --> 00:22:45,720
This one is-- nudges
are explicitly

519
00:22:45,720 --> 00:22:51,600
about keeping people's choices
fully free and available,

520
00:22:51,600 --> 00:22:56,060
but making it easier for them
to make a certain choice.

521
00:22:56,060 --> 00:22:57,770
Presumably, a choice
that's desired

522
00:22:57,770 --> 00:22:59,420
in some ways by
the social planner,

523
00:22:59,420 --> 00:23:03,030
or about people's
plans for their future.

524
00:23:03,030 --> 00:23:07,640
So anyway, there's a large
sort of set of examples

525
00:23:07,640 --> 00:23:09,180
of different nudges and so on.

526
00:23:09,180 --> 00:23:11,000
And they can be
fairly effective.

527
00:23:11,000 --> 00:23:12,500
Of course, not for
everybody and not

528
00:23:12,500 --> 00:23:15,830
for the fraction of people
who are swayed by these nudges

529
00:23:15,830 --> 00:23:19,020
is not huge, in part because
if you think about it,

530
00:23:19,020 --> 00:23:21,542
essentially people need to
be marginal in some ways.

531
00:23:21,542 --> 00:23:23,000
If people just
really, really don't

532
00:23:23,000 --> 00:23:25,417
want to go to college because
it's too expensive for them,

533
00:23:25,417 --> 00:23:27,980
or whatever for other
reasons, or if people really

534
00:23:27,980 --> 00:23:30,240
want to go to college
anyway, the nudge

535
00:23:30,240 --> 00:23:31,580
will not change that behavior.

536
00:23:31,580 --> 00:23:33,330
Whether somebody fills
out the form or not

537
00:23:33,330 --> 00:23:35,000
doesn't really matter.

538
00:23:35,000 --> 00:23:36,500
But if somebody is
sort of like, ah,

539
00:23:36,500 --> 00:23:38,030
maybe I should send the
kid to college or not,

540
00:23:38,030 --> 00:23:39,500
but now [INAUDIBLE]
form and then

541
00:23:39,500 --> 00:23:41,360
they forget about it
and so on and so forth,

542
00:23:41,360 --> 00:23:42,818
for that kind of
people, there will

543
00:23:42,818 --> 00:23:45,530
be potentially large effects.

544
00:23:45,530 --> 00:23:47,420
But sort of then by
definition, in some ways,

545
00:23:47,420 --> 00:23:49,420
the fraction of people
who are actually marginal

546
00:23:49,420 --> 00:23:50,570
will not be huge.

547
00:23:50,570 --> 00:23:53,930
But again, since the costs
tend to be extremely low,

548
00:23:53,930 --> 00:23:58,370
it tends to be very much
cost effective to do so.

549
00:23:58,370 --> 00:24:01,730
Now again, sort of
previewing a little bit what

550
00:24:01,730 --> 00:24:05,180
comes in the policy lecture
is, so minor interventions

551
00:24:05,180 --> 00:24:06,960
can have large effects.

552
00:24:06,960 --> 00:24:10,310
But nudges can often
achieve sort of--

553
00:24:10,310 --> 00:24:11,810
in some cases,
nudges can achieve

554
00:24:11,810 --> 00:24:13,057
unambiguous improvements.

555
00:24:13,057 --> 00:24:15,140
Like, if you send people
reminders and they forget

556
00:24:15,140 --> 00:24:17,780
to get the flu shot, and
now they do the flu shot,

557
00:24:17,780 --> 00:24:21,080
or if people don't
take their medication,

558
00:24:21,080 --> 00:24:23,360
and you remind them,
or provide information,

559
00:24:23,360 --> 00:24:25,730
or some other forms
[INAUDIBLE] [? tell ?]

560
00:24:25,730 --> 00:24:27,890
people to take their
medication, it's

561
00:24:27,890 --> 00:24:30,970
pretty clear that that's
making people better off.

562
00:24:30,970 --> 00:24:33,530
But there's also a bunch of
challenges and other situations

563
00:24:33,530 --> 00:24:35,860
which is kind of like--

564
00:24:35,860 --> 00:24:37,600
in some cases, it's
not at all obvious.

565
00:24:37,600 --> 00:24:39,310
Like, which nudge to choose--

566
00:24:39,310 --> 00:24:41,290
are we making
everybody better off?

567
00:24:41,290 --> 00:24:43,047
Are some people made worse off?

568
00:24:43,047 --> 00:24:45,130
For example, should everybody
save for retirement?

569
00:24:45,130 --> 00:24:48,370
Are we pushing people
to save too much?

570
00:24:48,370 --> 00:24:49,750
Should everybody go to college?

571
00:24:49,750 --> 00:24:51,100
Maybe in some ways,
for some people,

572
00:24:51,100 --> 00:24:53,267
it's more suitable than for
others to go to college.

573
00:24:53,267 --> 00:24:56,210
Often it's a huge financial
expense for the family.

574
00:24:56,210 --> 00:24:59,560
And if then the job prospects
are not necessarily better

575
00:24:59,560 --> 00:25:00,950
compared to not
going to college,

576
00:25:00,950 --> 00:25:03,257
then it's not clear
that one should do that.

577
00:25:03,257 --> 00:25:05,590
There's also some evidence
or some concerns about nudges

578
00:25:05,590 --> 00:25:07,503
making people feel bad.

579
00:25:07,503 --> 00:25:08,920
So you get these
letters that says

580
00:25:08,920 --> 00:25:11,200
you're destroying
the environment,

581
00:25:11,200 --> 00:25:13,630
and [INAUDIBLE] all
these sad faces,

582
00:25:13,630 --> 00:25:15,250
and you're worse
than your neighbors,

583
00:25:15,250 --> 00:25:16,840
people might just
feel bad about it.

584
00:25:16,840 --> 00:25:22,450
And we should put
some weight on that.

585
00:25:22,450 --> 00:25:26,560
If you send these letters
to 1,000 households,

586
00:25:26,560 --> 00:25:28,640
and 50 households
or 20 households

587
00:25:28,640 --> 00:25:30,640
change their behavior
in certain ways,

588
00:25:30,640 --> 00:25:32,740
but 300 households
feel bad about it

589
00:25:32,740 --> 00:25:35,500
because they feel uncomfortable
getting these nudges,

590
00:25:35,500 --> 00:25:40,130
or you get all these phone calls
and spam about the environment

591
00:25:40,130 --> 00:25:42,550
from sending too
many letters, we

592
00:25:42,550 --> 00:25:43,940
should put some weight on that.

593
00:25:43,940 --> 00:25:46,280
And then it's like, then
there's some trade offs.

594
00:25:46,280 --> 00:25:47,560
It's not like entirely free.

595
00:25:47,560 --> 00:25:50,257
And then there are some
costs and benefits of that.

596
00:25:50,257 --> 00:25:52,090
There's also some
questions about which self

597
00:25:52,090 --> 00:25:53,210
should we respect.

598
00:25:53,210 --> 00:25:54,770
We talked about
this a lot before,

599
00:25:54,770 --> 00:25:59,070
which is if one self
wants to be very virtuous

600
00:25:59,070 --> 00:26:01,080
and exercise a lot and
so on, and the other one

601
00:26:01,080 --> 00:26:03,210
wants to sit on the
couch and watch TV,

602
00:26:03,210 --> 00:26:06,370
or if one self wants to smoke
and the other one does not,

603
00:26:06,370 --> 00:26:09,210
it's not obvious that we
should respect the long run

604
00:26:09,210 --> 00:26:14,610
self compared to the short run
self that wants to just enjoy

605
00:26:14,610 --> 00:26:15,600
themselves, and so on.

606
00:26:15,600 --> 00:26:18,360
And sort of now there's
tricky issues [INAUDIBLE]

607
00:26:18,360 --> 00:26:21,178
are we actually making
people better off or not.

608
00:26:21,178 --> 00:26:23,470
And we'll get back to these
issues in the last lecture,

609
00:26:23,470 --> 00:26:26,400
which talks about policy.

610
00:26:26,400 --> 00:26:28,850
Any questions on this lecture?

611
00:26:35,030 --> 00:26:38,480
This is actually lecture
20 about malleability

612
00:26:38,480 --> 00:26:41,930
and inaccessibility
of preferences.

613
00:26:41,930 --> 00:26:46,430
This is, in a way, a
more radical deviation

614
00:26:46,430 --> 00:26:48,890
from neoclassical economics.

615
00:26:48,890 --> 00:26:50,750
Because so far, we
have always said,

616
00:26:50,750 --> 00:26:52,490
people know their preferences.

617
00:26:52,490 --> 00:26:53,660
People have certain beliefs.

618
00:26:53,660 --> 00:26:55,610
Their beliefs might
be wrong, and so on.

619
00:26:55,610 --> 00:26:59,180
But crucially, people
knew what they were doing,

620
00:26:59,180 --> 00:27:01,730
and they were deliberately
making certain choices.

621
00:27:01,730 --> 00:27:06,740
And whether their
preferences were perhaps

622
00:27:06,740 --> 00:27:09,530
including present bias, or
social preferences, a reference

623
00:27:09,530 --> 00:27:11,240
dependence or the like--

624
00:27:11,240 --> 00:27:13,370
but these preferences
were given and fixed.

625
00:27:13,370 --> 00:27:15,623
And people knew what
those preferences are.

626
00:27:15,623 --> 00:27:17,790
Now we're going to deviate
from that and think about

627
00:27:17,790 --> 00:27:22,970
[INAUDIBLE] evidence that
people might not actually A--

628
00:27:22,970 --> 00:27:24,740
these preferences
might be malleable.

629
00:27:24,740 --> 00:27:26,990
And B, people might
not even understand

630
00:27:26,990 --> 00:27:28,640
why they want what they want.

631
00:27:28,640 --> 00:27:30,230
And sort of the
preferences are sort

632
00:27:30,230 --> 00:27:32,120
of quite mysterious to people.

633
00:27:32,120 --> 00:27:35,540
And it's quite easy in some
ways to manipulate people

634
00:27:35,540 --> 00:27:38,660
in some ways, without them
even understanding it,

635
00:27:38,660 --> 00:27:40,340
knowing about it.

636
00:27:40,340 --> 00:27:44,142
So I tell you about some very
fascinating psychology work,

637
00:27:44,142 --> 00:27:46,600
which is called-- the paper is
called "Telling more than we

638
00:27:46,600 --> 00:27:48,267
can know" from Nisbett
and Wilson, which

639
00:27:48,267 --> 00:27:50,172
is a classic paper
in social psychology.

640
00:27:50,172 --> 00:27:52,630
And then we're going to talk
a little bit about willingness

641
00:27:52,630 --> 00:27:54,460
to pay, and then
the paper by Ariely

642
00:27:54,460 --> 00:27:58,540
et al on coherent arbitrariness,
which you were supposed

643
00:27:58,540 --> 00:28:00,970
to read for today.

644
00:28:00,970 --> 00:28:01,660
OK.

645
00:28:01,660 --> 00:28:04,630
So let's step back a little
bit, and talk about the Nisbett

646
00:28:04,630 --> 00:28:07,220
and Wilson paper.

647
00:28:07,220 --> 00:28:10,540
So this is-- so
many questions-- you

648
00:28:10,540 --> 00:28:14,560
might have any questions about
cognitive processes underlying

649
00:28:14,560 --> 00:28:17,595
our choices, evaluations,
judgments, and behaviors.

650
00:28:17,595 --> 00:28:18,970
You might wonder,
why do you like

651
00:28:18,970 --> 00:28:20,143
a certain person versus not?

652
00:28:20,143 --> 00:28:21,310
What do you like about them?

653
00:28:21,310 --> 00:28:23,602
And why do you like this
person and not another person?

654
00:28:23,602 --> 00:28:26,150
And why you're friends with this
person versus somebody else?

655
00:28:26,150 --> 00:28:27,817
And why do you like
Math versus English,

656
00:28:27,817 --> 00:28:29,770
and so on and so forth?

657
00:28:29,770 --> 00:28:31,395
How did you solve
a certain problem

658
00:28:31,395 --> 00:28:33,520
once you were sort of asked
to solve some problems?

659
00:28:33,520 --> 00:28:36,162
How did you come
up with a solution?

660
00:28:36,162 --> 00:28:37,870
Why did you take this
job, or why did you

661
00:28:37,870 --> 00:28:39,633
take this class,
versus another class?

662
00:28:39,633 --> 00:28:41,050
And you might sort
of say, well, I

663
00:28:41,050 --> 00:28:42,460
like this one and not that one.

664
00:28:42,460 --> 00:28:44,660
And I really like sort
of like computer science,

665
00:28:44,660 --> 00:28:47,350
versus math versus economics.

666
00:28:47,350 --> 00:28:49,950
But when you then ask
[INAUDIBLE] yourself

667
00:28:49,950 --> 00:28:52,810
for others, why exactly do you
like that one, versus something

668
00:28:52,810 --> 00:28:53,440
else?

669
00:28:53,440 --> 00:28:57,070
You'll realize quickly that
people often don't quite

670
00:28:57,070 --> 00:28:59,330
have a good answer
to those questions.

671
00:28:59,330 --> 00:29:03,100
And Nisbett and Wilson's
fairly provocative paper

672
00:29:03,100 --> 00:29:05,980
says, essentially, we have no
idea where these preferences

673
00:29:05,980 --> 00:29:07,070
are coming from.

674
00:29:07,070 --> 00:29:08,830
And we're just making stuff up.

675
00:29:08,830 --> 00:29:11,920
And so let me give you
some examples of that.

676
00:29:11,920 --> 00:29:15,060
The first example is
what's called Maier's

677
00:29:15,060 --> 00:29:17,640
two-string problem from 1931.

678
00:29:17,640 --> 00:29:21,180
This is [INAUDIBLE] one of these
classic psychology experiments.

679
00:29:21,180 --> 00:29:23,160
The experiments
works as follows.

680
00:29:23,160 --> 00:29:26,280
There's two cords
hung from the ceiling

681
00:29:26,280 --> 00:29:30,990
of a lab with many objects, such
as poles, ring stands, clamps,

682
00:29:30,990 --> 00:29:33,150
pliers, and extension cords.

683
00:29:33,150 --> 00:29:35,640
Subjects are now asked--

684
00:29:35,640 --> 00:29:38,550
are told that a task is to
tie the two ends of the cords

685
00:29:38,550 --> 00:29:39,100
together.

686
00:29:39,100 --> 00:29:41,400
So there's two cords
hanging on the side

687
00:29:41,400 --> 00:29:44,370
of each side of the room.

688
00:29:44,370 --> 00:29:48,700
And subjects are supposed to
tie these two cords together.

689
00:29:48,700 --> 00:29:52,290
The problem is that the
cords are placed far apart

690
00:29:52,290 --> 00:29:55,020
from each other,
such that subjects

691
00:29:55,020 --> 00:29:57,943
can't, while holding onto
one cord, reach the other.

692
00:29:57,943 --> 00:29:59,610
So you can't just
take one cord and then

693
00:29:59,610 --> 00:30:01,110
sort of like try
to reach the other,

694
00:30:01,110 --> 00:30:03,300
because it's too far away.

695
00:30:03,300 --> 00:30:07,080
And so there's all these
different objects in the room.

696
00:30:07,080 --> 00:30:10,210
And subjects are sort of trying
to figure out how to do this.

697
00:30:10,210 --> 00:30:14,547
And so then they usually come
up with one or two solutions

698
00:30:14,547 --> 00:30:17,130
that are not really solutions,
because it doesn't really work.

699
00:30:17,130 --> 00:30:19,590
So they can get [INAUDIBLE]
like extension cord,

700
00:30:19,590 --> 00:30:22,350
they use the pliers, and so on,
and the clamp, and some ring

701
00:30:22,350 --> 00:30:22,900
or whatever.

702
00:30:22,900 --> 00:30:24,710
And it just doesn't work.

703
00:30:24,710 --> 00:30:28,880
And then they sort of
try it and keep trying,

704
00:30:28,880 --> 00:30:30,570
but it doesn't really work out.

705
00:30:30,570 --> 00:30:33,990
And then they're told
to do it another way.

706
00:30:33,990 --> 00:30:36,110
And then Maier,
the experimenter,

707
00:30:36,110 --> 00:30:38,600
walks into the room at some
point, or walks around,

708
00:30:38,600 --> 00:30:40,617
and essentially,
accidentally-- this

709
00:30:40,617 --> 00:30:42,950
is sort of like on purpose
of course-- accidentally puts

710
00:30:42,950 --> 00:30:44,900
some of the cords in motion.

711
00:30:44,900 --> 00:30:48,230
And subjects then very
quickly afterwards figure out

712
00:30:48,230 --> 00:30:51,050
the solution within
the next 45 seconds.

713
00:30:51,050 --> 00:30:52,490
Of course, the
reasoning here is,

714
00:30:52,490 --> 00:30:54,890
why they figure it out is
because now the cords are

715
00:30:54,890 --> 00:30:55,730
put in motion.

716
00:30:55,730 --> 00:30:58,535
And subjects sort of
figure out how to do this.

717
00:30:58,535 --> 00:31:00,410
And what you're supposed
to do is essentially

718
00:31:00,410 --> 00:31:01,370
put the cords in motion.

719
00:31:01,370 --> 00:31:02,870
And once you put
them in motion, you

720
00:31:02,870 --> 00:31:07,380
can essentially reach them
both and then put it together.

721
00:31:07,380 --> 00:31:08,360
I have a video here.

722
00:31:08,360 --> 00:31:10,160
I'm a little traumatized
the last time

723
00:31:10,160 --> 00:31:11,280
where it didn't work out.

724
00:31:11,280 --> 00:31:13,730
So I'm not sure [INAUDIBLE].

725
00:31:13,730 --> 00:31:14,730
Now I don't even see it.

726
00:31:14,730 --> 00:31:15,960
So maybe let's just skip it.

727
00:31:15,960 --> 00:31:17,460
But you can watch
the video of that.

728
00:31:17,460 --> 00:31:20,120
It's the first two and
a half minutes video.

729
00:31:20,120 --> 00:31:21,390
[INAUDIBLE] see anything.

730
00:31:21,390 --> 00:31:25,410
But there's a video that sort of
demonstrates this task that you

731
00:31:25,410 --> 00:31:28,030
can sort of just skip this.

732
00:31:28,030 --> 00:31:31,920
So now then afterwards,
people are asked, well,

733
00:31:31,920 --> 00:31:36,780
how did you come up with the
idea of using a pendulum?

734
00:31:36,780 --> 00:31:39,540
And people then have all
these like explanations.

735
00:31:39,540 --> 00:31:40,980
Well, it just dawned on me.

736
00:31:40,980 --> 00:31:42,738
It was the only thing left.

737
00:31:42,738 --> 00:31:44,530
I thought about all
these different things.

738
00:31:44,530 --> 00:31:46,655
And at the end, I came up
with this other solution,

739
00:31:46,655 --> 00:31:48,570
which is using these
strings as a pendulum.

740
00:31:48,570 --> 00:31:51,112
Or I just realized
the cord would swing

741
00:31:51,112 --> 00:31:52,320
[INAUDIBLE] the weight on it.

742
00:31:52,320 --> 00:31:54,067
So what the solution
at the end is like,

743
00:31:54,067 --> 00:31:56,400
you put the plier on one of
the cords and then swing it.

744
00:31:56,400 --> 00:31:57,630
And then you sort of
use the other one.

745
00:31:57,630 --> 00:31:59,430
And then you could
put them together.

746
00:31:59,430 --> 00:32:02,520
There's one Harvard psychology
faculty subject, in fact,

747
00:32:02,520 --> 00:32:04,020
had the following
explanation, which

748
00:32:04,020 --> 00:32:06,320
is, having exhausted
everything else,

749
00:32:06,320 --> 00:32:07,650
the next thing was to swing it.

750
00:32:07,650 --> 00:32:10,670
I thought of the situation
of swinging across a river.

751
00:32:10,670 --> 00:32:13,560
I had an imagery of monkeys
swinging from trees.

752
00:32:13,560 --> 00:32:17,410
This imagery appeared
simultaneously with a solution.

753
00:32:17,410 --> 00:32:20,100
The idea appeared complete.

754
00:32:20,100 --> 00:32:22,500
Now of course, the
problem here is that--

755
00:32:25,050 --> 00:32:27,510
the problem here is
that's all bullshit.

756
00:32:27,510 --> 00:32:30,720
Because the reason why people
come up with a solution

757
00:32:30,720 --> 00:32:35,790
is because, as I told you, Maier
was walking in and accidentally

758
00:32:35,790 --> 00:32:37,110
putting the cords in motion.

759
00:32:37,110 --> 00:32:39,990
And there's
differences in timing.

760
00:32:39,990 --> 00:32:42,390
Sometimes they would come
in earlier, sometimes later.

761
00:32:42,390 --> 00:32:45,360
And every time the
experimenter walks in,

762
00:32:45,360 --> 00:32:46,900
people would sort
of accidentally

763
00:32:46,900 --> 00:32:48,840
then figure it out,
and then come up

764
00:32:48,840 --> 00:32:51,360
with these elaborate
explanations.

765
00:32:51,360 --> 00:32:53,160
And the reason why
we know that this

766
00:32:53,160 --> 00:32:56,820
is because of the
experimenter are coming in

767
00:32:56,820 --> 00:32:59,790
is because if the experimenter
doesn't accidentally come in,

768
00:32:59,790 --> 00:33:02,880
and puts the cords in
motion, then essentially,

769
00:33:02,880 --> 00:33:04,580
people are not figuring out.

770
00:33:04,580 --> 00:33:07,290
So we know the true
causal effect here

771
00:33:07,290 --> 00:33:09,840
is the experimenter
coming in and suggesting

772
00:33:09,840 --> 00:33:11,340
a solution to people.

773
00:33:11,340 --> 00:33:14,940
But people then make
up all these stories,

774
00:33:14,940 --> 00:33:16,410
including like the
monkeys swinging

775
00:33:16,410 --> 00:33:18,990
from trees, how they came
up with a solution, which

776
00:33:18,990 --> 00:33:21,340
is clearly not how they
came up with the solution.

777
00:33:21,340 --> 00:33:23,215
The reason why they came
up with the solution

778
00:33:23,215 --> 00:33:26,980
is because Maier
touched the strings.

779
00:33:26,980 --> 00:33:27,790
OK.

780
00:33:27,790 --> 00:33:30,010
Now there's a
second example here,

781
00:33:30,010 --> 00:33:31,760
or three examples in total.

782
00:33:31,760 --> 00:33:33,490
So let me tell you
about example number--

783
00:33:33,490 --> 00:33:38,910
or let me ask first, is there
any questions about this study?

784
00:33:38,910 --> 00:33:41,990
By the way, you should
lower your hands,

785
00:33:41,990 --> 00:33:43,670
if you asked
[INAUDIBLE] previously,

786
00:33:43,670 --> 00:33:46,770
like [? Brian ?]
and [INAUDIBLE]..

787
00:33:46,770 --> 00:33:48,610
Unless you have have
additional questions.

788
00:33:53,510 --> 00:33:57,380
Let me tell you the
second study now.

789
00:33:57,380 --> 00:34:01,460
This is a study by
Latane and Darley,

790
00:34:01,460 --> 00:34:04,400
which is, I told you
this a little bit

791
00:34:04,400 --> 00:34:08,150
about [INAUDIBLE] these are
the impacts of bystanders

792
00:34:08,150 --> 00:34:10,460
and witnesses on
helping behaviors.

793
00:34:10,460 --> 00:34:12,989
I told you about the story
of the Good Samaritan before.

794
00:34:12,989 --> 00:34:15,670
This is sort of a similar study.

795
00:34:15,670 --> 00:34:17,980
And this is
essentially a situation

796
00:34:17,980 --> 00:34:20,260
that's, again, created
by social psychologists.

797
00:34:20,260 --> 00:34:22,239
It's not a real
situation, but people are

798
00:34:22,239 --> 00:34:24,409
meant to think that it's real.

799
00:34:24,409 --> 00:34:27,550
And so here, the more
people over here, someone

800
00:34:27,550 --> 00:34:29,139
in another room,
having what sounds

801
00:34:29,139 --> 00:34:32,440
like an epileptic seizure,
the lower the probability

802
00:34:32,440 --> 00:34:35,280
that any given individual
will rush to help.

803
00:34:35,280 --> 00:34:38,699
And you get similar results
for individuals' reaction

804
00:34:38,699 --> 00:34:40,358
to dangerous-looking
smoke coming out

805
00:34:40,358 --> 00:34:41,400
of the ceiling of a room.

806
00:34:41,400 --> 00:34:43,108
So like there's people
in the experiment.

807
00:34:43,108 --> 00:34:45,630
And they have smoke
coming out in a room.

808
00:34:45,630 --> 00:34:48,060
And the more people that
are there, the less likely

809
00:34:48,060 --> 00:34:50,520
is any given person, perhaps
because they're freeriding

810
00:34:50,520 --> 00:34:53,620
is to actually do
something about it.

811
00:34:53,620 --> 00:34:55,425
And this looks kind
of very dangerous.

812
00:34:55,425 --> 00:34:57,300
But nobody does anything,
because essentially

813
00:34:57,300 --> 00:34:59,550
other people are also
not doing anything.

814
00:34:59,550 --> 00:35:01,470
Now when you then ask
people afterwards,

815
00:35:01,470 --> 00:35:05,430
you know, what
influenced your choices?

816
00:35:05,430 --> 00:35:10,290
And essentially, when you ask
them directly and tactfully

817
00:35:10,290 --> 00:35:13,540
and bluntly, you always get the
same answer, that essentially,

818
00:35:13,540 --> 00:35:15,900
they think their behavior
had not been influenced

819
00:35:15,900 --> 00:35:17,355
by the other people present.

820
00:35:17,355 --> 00:35:19,230
They think you're like--
for whatever reason,

821
00:35:19,230 --> 00:35:21,157
they didn't do
anything, or maybe they

822
00:35:21,157 --> 00:35:23,490
thought it wasn't so bad, or
there wasn't really danger,

823
00:35:23,490 --> 00:35:26,050
or whatever.

824
00:35:26,050 --> 00:35:28,280
But of course, these are
randomized experiments.

825
00:35:28,280 --> 00:35:30,030
We know that some
subjects were influenced

826
00:35:30,030 --> 00:35:32,155
by the presence of other
people, because precisely,

827
00:35:32,155 --> 00:35:33,960
the experiment was
creating that variation,

828
00:35:33,960 --> 00:35:36,090
and it affected
people's behavior.

829
00:35:36,090 --> 00:35:39,060
[INAUDIBLE] people essentially
just don't understand that,

830
00:35:39,060 --> 00:35:41,610
and sort of then come up
with other explanations

831
00:35:41,610 --> 00:35:46,990
of why they do or did
what they, in fact, did.

832
00:35:46,990 --> 00:35:49,690
And number three is
sort of very similar.

833
00:35:49,690 --> 00:35:54,890
These are called erroneous
reports about position effects.

834
00:35:54,890 --> 00:35:58,840
These are studies
where certain items

835
00:35:58,840 --> 00:36:04,330
are positioned in different
ways, to get people to--

836
00:36:04,330 --> 00:36:06,680
when people were
evaluating them.

837
00:36:06,680 --> 00:36:12,310
So passerbys were asked
to evaluate some clothing.

838
00:36:12,310 --> 00:36:16,630
And they were asked about the
quality and the preferences--

839
00:36:16,630 --> 00:36:18,460
the quality of certain
goods and people's

840
00:36:18,460 --> 00:36:20,760
preferences between
different goods.

841
00:36:20,760 --> 00:36:23,042
And the way this
experiment was set up--

842
00:36:23,042 --> 00:36:25,500
and this is sort of essentially
like a marketing experiment

843
00:36:25,500 --> 00:36:26,280
if you want--

844
00:36:26,280 --> 00:36:29,910
essentially, there's a
pronounced left-to-right

845
00:36:29,910 --> 00:36:30,990
position effect.

846
00:36:30,990 --> 00:36:33,510
The rightmost object
was heavily over-chosen

847
00:36:33,510 --> 00:36:34,600
in these experiments.

848
00:36:34,600 --> 00:36:36,990
And that's in some sense
irrelevant why that's the case.

849
00:36:36,990 --> 00:36:39,540
But essentially, from
previous experiments,

850
00:36:39,540 --> 00:36:41,790
we know that essentially
the rightmost object

851
00:36:41,790 --> 00:36:45,300
is most likely to be chosen,
perhaps because people

852
00:36:45,300 --> 00:36:46,320
look at it first.

853
00:36:46,320 --> 00:36:49,305
[INAUDIBLE] look at it last
and so on, it doesn't matter.

854
00:36:49,305 --> 00:36:50,680
What's important
for our purposes

855
00:36:50,680 --> 00:36:53,700
is that the rightmost object
is most heavily chosen.

856
00:36:53,700 --> 00:36:56,880
People like that object the
best in these experiments.

857
00:36:56,880 --> 00:36:59,190
And then there's going
to be randomization

858
00:36:59,190 --> 00:37:02,070
in the positioning
of experiments.

859
00:37:02,070 --> 00:37:03,630
And people are then
asked, well, why

860
00:37:03,630 --> 00:37:06,480
did you choose this
sweater versus another?

861
00:37:06,480 --> 00:37:09,810
And no subject
whatsoever ever mentions

862
00:37:09,810 --> 00:37:14,040
the position of the
article in the room,

863
00:37:14,040 --> 00:37:15,720
and virtually all
subjects denied

864
00:37:15,720 --> 00:37:18,270
it was, when asked directly
about the possible effect

865
00:37:18,270 --> 00:37:19,802
of the position of the article.

866
00:37:19,802 --> 00:37:21,760
And people come up with
all these explanations.

867
00:37:21,760 --> 00:37:24,030
It's like, green is really
always my [INAUDIBLE] favorite

868
00:37:24,030 --> 00:37:24,540
color.

869
00:37:24,540 --> 00:37:26,250
And this sweater
is really fluffy.

870
00:37:26,250 --> 00:37:27,000
And this and that.

871
00:37:27,000 --> 00:37:30,580
And I really like it
for reason x and y.

872
00:37:30,580 --> 00:37:33,090
Of course that's
true for some people,

873
00:37:33,090 --> 00:37:34,860
but we know that at
least some people must

874
00:37:34,860 --> 00:37:36,390
be swayed by these
position effects,

875
00:37:36,390 --> 00:37:39,302
because we set up an experiment
to precisely do that.

876
00:37:39,302 --> 00:37:41,010
And then that essentially
swayed behavior

877
00:37:41,010 --> 00:37:42,880
in a very predictable way.

878
00:37:42,880 --> 00:37:44,790
So essentially, there
are these determinants

879
00:37:44,790 --> 00:37:46,800
on people's preferences
of behavior,

880
00:37:46,800 --> 00:37:51,500
that people do not
seem to understand.

881
00:37:51,500 --> 00:37:52,010
OK.

882
00:37:52,010 --> 00:37:54,527
So let me summarize
what did we learn.

883
00:37:54,527 --> 00:37:57,110
So there are many instances in
which subjects have no idea why

884
00:37:57,110 --> 00:37:59,130
they choose what they choose.

885
00:37:59,130 --> 00:38:00,455
And then people--

886
00:38:00,455 --> 00:38:02,520
[INAUDIBLE] can read
this more in this paper,

887
00:38:02,520 --> 00:38:05,010
which I think is a
beautiful paper--

888
00:38:05,010 --> 00:38:07,940
people appear to
make up stories that

889
00:38:07,940 --> 00:38:11,450
are based on their a priori,
implicit causal theories.

890
00:38:11,450 --> 00:38:13,160
What I mean by that,
essentially, they

891
00:38:13,160 --> 00:38:16,770
have some theory of why
they do certain things.

892
00:38:16,770 --> 00:38:18,860
And when you ask them,
then, OK, well, why

893
00:38:18,860 --> 00:38:20,420
did you do what you just did?

894
00:38:20,420 --> 00:38:22,190
People will sort of
come up with some ways

895
00:38:22,190 --> 00:38:24,980
of justifying
[INAUDIBLE] in some ways

896
00:38:24,980 --> 00:38:27,020
their behavior, based
on some theories

897
00:38:27,020 --> 00:38:28,850
that they had about themselves.

898
00:38:28,850 --> 00:38:29,735
And sort of--

899
00:38:29,735 --> 00:38:31,820
I always like fluffy
sweaters, and therefore you

900
00:38:31,820 --> 00:38:32,820
choose the sweater.

901
00:38:32,820 --> 00:38:34,820
Of course, it happens to
be the only [INAUDIBLE]

902
00:38:34,820 --> 00:38:38,270
sweater if it's [INAUDIBLE] on
the right versus on the left.

903
00:38:38,270 --> 00:38:40,790
But people then sort of have
their ways in which they then

904
00:38:40,790 --> 00:38:44,510
explain what they do based on
essentially things that they

905
00:38:44,510 --> 00:38:47,950
sort of essentially make up.

906
00:38:47,950 --> 00:38:50,831
Any questions on this
before I move on?

907
00:38:57,900 --> 00:39:02,010
And I encourage you to read
the paper, more for fun

908
00:39:02,010 --> 00:39:03,265
than for anything.

909
00:39:03,265 --> 00:39:04,890
It makes you kind of
wonder quite a lot

910
00:39:04,890 --> 00:39:07,680
in why you do what you
do, and why you prefer

911
00:39:07,680 --> 00:39:11,540
certain things versus others.

912
00:39:11,540 --> 00:39:14,180
So let's briefly talk about
two experimental design

913
00:39:14,180 --> 00:39:17,630
tools, which will be useful
for the coherent arbitrariness

914
00:39:17,630 --> 00:39:18,642
paper.

915
00:39:18,642 --> 00:39:20,600
One is what's called the
strategy method, which

916
00:39:20,600 --> 00:39:22,292
you already came
across a little bit.

917
00:39:22,292 --> 00:39:23,750
And the second one
is what's called

918
00:39:23,750 --> 00:39:26,750
the BDM, the
Becker-DeGroot-Marschak

919
00:39:26,750 --> 00:39:28,850
procedure for
eliciting valuations.

920
00:39:28,850 --> 00:39:31,010
I'll try to be quick.

921
00:39:31,010 --> 00:39:38,240
So we're often interested in
behavior in rare contingencies.

922
00:39:38,240 --> 00:39:40,220
So often, we may
ask the question,

923
00:39:40,220 --> 00:39:43,370
how would people behave in
many different contingencies?

924
00:39:43,370 --> 00:39:44,840
Some of them are
often quite rare,

925
00:39:44,840 --> 00:39:47,730
that don't happen very often.

926
00:39:47,730 --> 00:39:50,070
And why do we care about
such contingencies?

927
00:39:50,070 --> 00:39:51,780
Well, sometimes we
just care about them

928
00:39:51,780 --> 00:39:55,200
like [INAUDIBLE] it's
inherently important

929
00:39:55,200 --> 00:39:59,640
how people behave or prevent
certain contingencies,

930
00:39:59,640 --> 00:40:01,995
disasters, earthquakes,
droughts, et cetera.

931
00:40:01,995 --> 00:40:03,370
We care a lot
about these things,

932
00:40:03,370 --> 00:40:04,890
even if they're sort
of rarely happening.

933
00:40:04,890 --> 00:40:06,432
So we kind of want
to know how people

934
00:40:06,432 --> 00:40:09,510
behave in certain situations.

935
00:40:09,510 --> 00:40:10,980
But events and
rare contingencies

936
00:40:10,980 --> 00:40:15,390
also can affect, on top of that,
events in likely contingencies.

937
00:40:15,390 --> 00:40:16,660
Here's a simple example.

938
00:40:16,660 --> 00:40:19,173
If your roommates think
you'll punch them in the face

939
00:40:19,173 --> 00:40:21,090
if they borrow your stuff
without asking them,

940
00:40:21,090 --> 00:40:23,130
they will not do it.

941
00:40:23,130 --> 00:40:26,310
Of course, hopefully, you are
not punching your roommates,

942
00:40:26,310 --> 00:40:30,010
and I very much do not want
to encourage you to do so.

943
00:40:30,010 --> 00:40:33,270
But here, the key part
here is that punching

944
00:40:33,270 --> 00:40:38,790
is rare but important, precisely
because you might do so in case

945
00:40:38,790 --> 00:40:41,910
they misbehave, they will
not borrow your stuff

946
00:40:41,910 --> 00:40:44,320
or steal your stuff
in the first place.

947
00:40:44,320 --> 00:40:46,410
So essentially, sort of
these [? equilibrium ?]

948
00:40:46,410 --> 00:40:49,512
or rare contingencies
might be quite important,

949
00:40:49,512 --> 00:40:51,720
not because we think they
actually happen very often,

950
00:40:51,720 --> 00:40:56,540
but they sort of discipline
behavior in other cases.

951
00:40:56,540 --> 00:40:58,970
Now, what's [? known ?]
as strategy method?

952
00:40:58,970 --> 00:41:02,480
Well, the strategy
method helps you

953
00:41:02,480 --> 00:41:06,890
to elicit behavior in many
potentially rare circumstances

954
00:41:06,890 --> 00:41:08,780
by asking subjects
what they would

955
00:41:08,780 --> 00:41:13,290
do with a choice implemented
if the circumstances arises.

956
00:41:13,290 --> 00:41:16,160
That is to say, I'm asking
you-- for many different cases,

957
00:41:16,160 --> 00:41:18,990
I'm going to implement
one of those cases.

958
00:41:18,990 --> 00:41:24,320
And that's going to allow me to
be [INAUDIBLE] [? compatible ?]

959
00:41:24,320 --> 00:41:25,860
in various ways.

960
00:41:25,860 --> 00:41:30,870
So since the decision does
count if the contingency occurs,

961
00:41:30,870 --> 00:41:33,180
subjects have an incentive
to choose correctly

962
00:41:33,180 --> 00:41:35,100
for each contingency.

963
00:41:35,100 --> 00:41:39,660
That is to say, I could say,
suppose this is what we're

964
00:41:39,660 --> 00:41:41,580
doing in class in some sense.

965
00:41:41,580 --> 00:41:43,140
We talked about
social preferences.

966
00:41:43,140 --> 00:41:46,080
I said, you know, I'm
asking you to make a choice.

967
00:41:46,080 --> 00:41:50,140
I'm going to only pick one of
you to implement that choice.

968
00:41:50,140 --> 00:41:57,145
And you have the incentives
now to answer truthfully,

969
00:41:57,145 --> 00:41:59,520
because it could always be
the case that your choice will

970
00:41:59,520 --> 00:42:01,420
be implemented.

971
00:42:01,420 --> 00:42:05,190
And so that allows then the
experimenter, me in that case,

972
00:42:05,190 --> 00:42:09,030
to generate a lot of data from
one simple experiment, where

973
00:42:09,030 --> 00:42:10,800
essentially, you
can give a subject

974
00:42:10,800 --> 00:42:12,900
many different
decisions, and then say,

975
00:42:12,900 --> 00:42:14,760
only one of your
choices will actually

976
00:42:14,760 --> 00:42:16,020
be implemented for sure.

977
00:42:16,020 --> 00:42:18,400
Or you can ask many people
the same question and say,

978
00:42:18,400 --> 00:42:21,630
[INAUDIBLE] only one of
you, or one of your choices

979
00:42:21,630 --> 00:42:23,140
will be implemented.

980
00:42:23,140 --> 00:42:27,480
And so then that's essentially
incentive-compatible,

981
00:42:27,480 --> 00:42:30,420
because it can always be that
your choice is the one, or one

982
00:42:30,420 --> 00:42:32,850
of the choices is
the one that counts.

983
00:42:32,850 --> 00:42:35,680
And when you look at sort
of experimental evidence,

984
00:42:35,680 --> 00:42:38,370
it seems to suggest that the
strategy methods are asking,

985
00:42:38,370 --> 00:42:41,372
essentially, if I can ask you--
so there's experiments where

986
00:42:41,372 --> 00:42:43,830
I can ask you 100 different
questions, and only one of them

987
00:42:43,830 --> 00:42:46,650
will be implemented, versus
a different group would

988
00:42:46,650 --> 00:42:49,110
be asked-- a randomized
group would be asked only one

989
00:42:49,110 --> 00:42:49,630
question.

990
00:42:49,630 --> 00:42:52,350
It turns out that people
actually answer in experiments

991
00:42:52,350 --> 00:42:57,250
these questions pretty similarly
in both of these cases.

992
00:42:57,250 --> 00:42:59,160
So that's to say the
strategy method seems

993
00:42:59,160 --> 00:43:04,424
to elicit individuals' true
preferences pretty well.

994
00:43:04,424 --> 00:43:05,103
Sorry.

995
00:43:05,103 --> 00:43:06,020
[INAUDIBLE] messed up.

996
00:43:06,020 --> 00:43:07,252
But I think that's fine.

997
00:43:07,252 --> 00:43:08,960
So what's now the
Becker-DeGroot-Marschak

998
00:43:08,960 --> 00:43:09,620
procedure?

999
00:43:09,620 --> 00:43:11,910
It's essentially
a version of that,

1000
00:43:11,910 --> 00:43:17,825
which looks something like this,
which is, people are asked--

1001
00:43:17,825 --> 00:43:19,200
[INAUDIBLE] so
what the goal here

1002
00:43:19,200 --> 00:43:22,523
is to understand people's
willingness to pay for a good.

1003
00:43:22,523 --> 00:43:24,440
So subjects are told
that a price for the good

1004
00:43:24,440 --> 00:43:25,730
will be randomly selected.

1005
00:43:25,730 --> 00:43:29,000
And the price goes from like
$0.50 to like, say, $10.

1006
00:43:29,000 --> 00:43:31,400
For each of these prices,
the person is asked,

1007
00:43:31,400 --> 00:43:35,780
do you prefer buy versus
not-buy in these options.

1008
00:43:35,780 --> 00:43:38,943
And so then, I ask you to
fill out the entire form.

1009
00:43:38,943 --> 00:43:41,360
Tell me, for each of these
prices, what do you want to do?

1010
00:43:41,360 --> 00:43:43,070
If the price is $3,
what do you want?

1011
00:43:43,070 --> 00:43:44,690
If the price is $1,
what do you want?

1012
00:43:44,690 --> 00:43:47,030
If the price is $10,
what do you want?

1013
00:43:47,030 --> 00:43:50,870
And then I'm going to afterwards
then pick a price and say, OK.

1014
00:43:50,870 --> 00:43:52,378
Now the price is $3.50.

1015
00:43:52,378 --> 00:43:54,920
And now I'm going to just look
at like, what did you actually

1016
00:43:54,920 --> 00:43:56,870
say, and whatever
your choice was then

1017
00:43:56,870 --> 00:44:03,440
for that specific price is
going to be implemented.

1018
00:44:03,440 --> 00:44:06,180
Is that clear?

1019
00:44:06,180 --> 00:44:09,270
Now, just to be clear what
the problem is that we're

1020
00:44:09,270 --> 00:44:12,930
trying to overcome here--

1021
00:44:12,930 --> 00:44:17,210
suppose I'm trying
to sell you a mug.

1022
00:44:17,210 --> 00:44:18,758
Or suppose I have this mug here.

1023
00:44:18,758 --> 00:44:20,550
I'm saying, would you
like to buy this mug?

1024
00:44:20,550 --> 00:44:23,220
It's a very beautiful mug
with lots of trees on them.

1025
00:44:23,220 --> 00:44:24,720
I'd like to sell it to you.

1026
00:44:24,720 --> 00:44:27,950
And I'm eliciting your
willingness to pay.

1027
00:44:27,950 --> 00:44:30,470
What's the problem
that arises from just

1028
00:44:30,470 --> 00:44:33,240
asking you this directly,
without the BDM procedure?

1029
00:44:33,240 --> 00:44:37,548
What problem-- what is the BDM
procedure sort of helping with?

1030
00:44:37,548 --> 00:44:39,090
So if you go to a
marketplace, or try

1031
00:44:39,090 --> 00:44:41,820
to bargain with me on
this mug, which again,

1032
00:44:41,820 --> 00:44:45,210
it's a beautiful mug--

1033
00:44:45,210 --> 00:44:47,850
you might want to
shade your valuation.

1034
00:44:47,850 --> 00:44:50,640
You might be willing
to pay $5, but you're

1035
00:44:50,640 --> 00:44:54,030
going to say $2, because you
are hoping to get a bargain

1036
00:44:54,030 --> 00:44:56,340
and get [INAUDIBLE] a
cheap price from me.

1037
00:44:56,340 --> 00:44:57,090
Right?

1038
00:44:57,090 --> 00:44:59,430
And the key part here is
that you are essentially

1039
00:44:59,430 --> 00:45:03,900
hoping that your willingness to
pay whatever you are offering

1040
00:45:03,900 --> 00:45:07,380
me will essentially
change whatever price I'm

1041
00:45:07,380 --> 00:45:09,210
offering the mug to you.

1042
00:45:09,210 --> 00:45:12,240
Notice that that's not the
case here in the BDM procedure.

1043
00:45:12,240 --> 00:45:15,600
In the BDM procedure,
whatever you say

1044
00:45:15,600 --> 00:45:19,103
is independent of the actual
price that's implemented.

1045
00:45:19,103 --> 00:45:20,520
I'm saying,
essentially, I'm going

1046
00:45:20,520 --> 00:45:23,490
to randomly pick one of
those 10 or 20 prices here.

1047
00:45:23,490 --> 00:45:26,700
And you're going to tell me, for
each of those prices, what you

1048
00:45:26,700 --> 00:45:28,710
want, either buy or not buy.

1049
00:45:28,710 --> 00:45:31,538
And your choices are-- since
I'm randomizing afterwards,

1050
00:45:31,538 --> 00:45:32,955
which price selection
you're going

1051
00:45:32,955 --> 00:45:38,810
to pick, your choices
are irrelevant for which

1052
00:45:38,810 --> 00:45:43,247
of the actual
prices are selected.

1053
00:45:43,247 --> 00:45:45,080
And so now essentially
get around this issue

1054
00:45:45,080 --> 00:45:47,480
about people shading or
essentially underreporting

1055
00:45:47,480 --> 00:45:49,220
their willingness to pay.

1056
00:45:49,220 --> 00:45:52,130
Precisely that's what makes
it incentive-compatible.

1057
00:45:52,130 --> 00:45:54,770
And that's essentially what's
called the BDM mechanism.

1058
00:45:54,770 --> 00:45:59,155
That's what many economists
use in many, many experiments.

1059
00:45:59,155 --> 00:46:00,530
There's another
version of what's

1060
00:46:00,530 --> 00:46:07,102
called the BDM which is a more
straightforward version of it.

1061
00:46:07,102 --> 00:46:08,810
Notice here you have
to ask 20 questions.

1062
00:46:08,810 --> 00:46:10,977
Ask would you like to pay--
would you like to buy it

1063
00:46:10,977 --> 00:46:14,910
for $0.50, $1.00, $1.50,
$2.00, and so on and so forth.

1064
00:46:14,910 --> 00:46:20,210
Another version of this is, I'm
asking you straight up what's

1065
00:46:20,210 --> 00:46:21,770
your willingness to pay.

1066
00:46:21,770 --> 00:46:25,100
And the bid is then compared
to a price determined

1067
00:46:25,100 --> 00:46:26,750
by a random number generator.

1068
00:46:26,750 --> 00:46:28,540
I'm just saying, like, tell me
what your willingness to pay

1069
00:46:28,540 --> 00:46:29,210
is.

1070
00:46:29,210 --> 00:46:32,220
Then I'm going to do like
a random number generator.

1071
00:46:32,220 --> 00:46:35,030
If the subject's bid is
greater than the price that's

1072
00:46:35,030 --> 00:46:37,670
generated by the random
number generator,

1073
00:46:37,670 --> 00:46:40,430
he or she pays the price,
not the announced willingness

1074
00:46:40,430 --> 00:46:43,430
to pay, and receives the
item being auctioned.

1075
00:46:43,430 --> 00:46:45,470
If the subject's bid is
lower than the price,

1076
00:46:45,470 --> 00:46:48,740
he or she pays nothing
and receives nothing.

1077
00:46:48,740 --> 00:46:53,210
And so now here again, the
final price the person must pay

1078
00:46:53,210 --> 00:46:55,670
is independent of what
the person indicated

1079
00:46:55,670 --> 00:46:57,380
as your willingness
to pay, which

1080
00:46:57,380 --> 00:47:00,265
essentially solves the
incentive compatibility issue.

1081
00:47:00,265 --> 00:47:01,640
Think of like this
version that I

1082
00:47:01,640 --> 00:47:04,670
have on this line as just a
more efficient way of eliciting

1083
00:47:04,670 --> 00:47:06,720
the question that's
on the previous slide.

1084
00:47:06,720 --> 00:47:08,960
This is essentially
exactly the same thing,

1085
00:47:08,960 --> 00:47:11,370
except for that it's a
more efficient thing to do.

1086
00:47:11,370 --> 00:47:13,700
The problem with this version,
often, is comprehension.

1087
00:47:13,700 --> 00:47:14,533
People get confused.

1088
00:47:14,533 --> 00:47:17,120
Or people tend to still
try to bargain and give

1089
00:47:17,120 --> 00:47:18,780
like lower willingness to pay.

1090
00:47:18,780 --> 00:47:21,308
So sometimes, this
version works better

1091
00:47:21,308 --> 00:47:23,100
because it's much
easier, much transparent,

1092
00:47:23,100 --> 00:47:25,350
when we say, here's a price,
do want to buy it or not,

1093
00:47:25,350 --> 00:47:27,200
versus and so on.

1094
00:47:27,200 --> 00:47:29,822
While here it's people are sort
of [INAUDIBLE] because they're

1095
00:47:29,822 --> 00:47:31,280
used to, essentially,
bargain, they

1096
00:47:31,280 --> 00:47:35,350
tend to sort of under-report
at least sometimes.

1097
00:47:35,350 --> 00:47:36,430
Any questions on this?

1098
00:47:45,920 --> 00:47:49,940
So now I'm also going
to skip this video.

1099
00:47:49,940 --> 00:47:50,805
It's a fun video.

1100
00:47:50,805 --> 00:47:52,805
Who knows the story of
Tom Sawyer and the fence?

1101
00:47:59,130 --> 00:48:02,250
I think it's in
the readings, no?

1102
00:48:02,250 --> 00:48:04,180
Tom Sawyer was misbehaving.

1103
00:48:04,180 --> 00:48:06,880
He was essentially punished
to paint the fence.

1104
00:48:06,880 --> 00:48:08,750
He really didn't want to do it.

1105
00:48:08,750 --> 00:48:10,980
But then his friend comes
along, and essentially,

1106
00:48:10,980 --> 00:48:12,730
he sort of tricks his
friend into thinking

1107
00:48:12,730 --> 00:48:15,115
this is really like
such a fun task,

1108
00:48:15,115 --> 00:48:16,870
and it ends up
being essentially,

1109
00:48:16,870 --> 00:48:21,190
the friend even paying him
for painting the fence,

1110
00:48:21,190 --> 00:48:23,380
and he not having to do it.

1111
00:48:23,380 --> 00:48:25,040
And the point of the
story, of course,

1112
00:48:25,040 --> 00:48:30,080
is that people's willingness to
pay is malleable in the sense,

1113
00:48:30,080 --> 00:48:33,340
like, even to the extent
that people don't even

1114
00:48:33,340 --> 00:48:35,500
know whether they're willing
to pay for something,

1115
00:48:35,500 --> 00:48:39,140
or you have to pay them
something to do it.

1116
00:48:39,140 --> 00:48:41,140
And so essentially,
people's preferences

1117
00:48:41,140 --> 00:48:46,180
are inherently malleable by
the way they're being marketed,

1118
00:48:46,180 --> 00:48:49,732
or the way they appear to
them, or being sold to them.

1119
00:48:49,732 --> 00:48:53,520
You can watch the video in
the slides if you download it.

1120
00:48:53,520 --> 00:48:56,340
For whatever reason this
is not working on Zoom,

1121
00:48:56,340 --> 00:48:57,730
at least for now.

1122
00:48:57,730 --> 00:49:01,940
So stepping back a
little bit-- so overall,

1123
00:49:01,940 --> 00:49:03,990
so far we talked about
two key components

1124
00:49:03,990 --> 00:49:05,250
of individual decision making.

1125
00:49:05,250 --> 00:49:08,340
Utility functions-- what people
want and what they care about,

1126
00:49:08,340 --> 00:49:10,350
and beliefs-- how people
perceive themselves

1127
00:49:10,350 --> 00:49:12,250
and patterns in the world.

1128
00:49:12,250 --> 00:49:13,960
And so understanding
these, of course,

1129
00:49:13,960 --> 00:49:17,580
is important because that
determines people's choices.

1130
00:49:17,580 --> 00:49:19,770
Now so far, we have
always sort of pretended

1131
00:49:19,770 --> 00:49:22,740
and said people's preferences
and beliefs are always

1132
00:49:22,740 --> 00:49:23,670
sharply--

1133
00:49:23,670 --> 00:49:26,400
people are always sharply aware
of what they want and believe

1134
00:49:26,400 --> 00:49:28,770
that costs [INAUDIBLE].

1135
00:49:28,770 --> 00:49:30,790
For example, a
homeowner might have

1136
00:49:30,790 --> 00:49:32,760
reference-dependent
preferences, but they know

1137
00:49:32,760 --> 00:49:34,907
what their preferences are.

1138
00:49:34,907 --> 00:49:36,990
There might be some issues
about how the reference

1139
00:49:36,990 --> 00:49:39,600
point is determined, but the
preference is the function.

1140
00:49:39,600 --> 00:49:42,467
The functional form is
always fixed, and it's known.

1141
00:49:42,467 --> 00:49:44,550
A person might have the
wrong theory of the world,

1142
00:49:44,550 --> 00:49:46,860
but she always has some
beliefs in mind, what

1143
00:49:46,860 --> 00:49:49,020
she uses to make those choices.

1144
00:49:49,020 --> 00:49:51,420
Or a smoker might
act suboptimally,

1145
00:49:51,420 --> 00:49:53,730
but he always has a
fully specific strategy

1146
00:49:53,730 --> 00:49:56,400
in mind for all his current
and future decisions.

1147
00:49:56,400 --> 00:49:58,020
So people-- the
smoker might sort of

1148
00:49:58,020 --> 00:49:59,940
have some issues
with present bias,

1149
00:49:59,940 --> 00:50:02,400
or some wrong beliefs in
some ways or the other.

1150
00:50:02,400 --> 00:50:04,440
But the utility
function was always

1151
00:50:04,440 --> 00:50:08,160
assumed to be fixed and known.

1152
00:50:08,160 --> 00:50:10,510
Now we're going to
deviate from that.

1153
00:50:10,510 --> 00:50:14,610
If you think about it like,
what are your preferences,

1154
00:50:14,610 --> 00:50:16,980
and what do you like and
what do you not like--

1155
00:50:16,980 --> 00:50:20,610
in many cases, we
actually don't know.

1156
00:50:20,610 --> 00:50:23,640
And in many cases,
people sort of just

1157
00:50:23,640 --> 00:50:26,560
make things up as they go along.

1158
00:50:26,560 --> 00:50:29,090
So that's to say, like,
people are essentially

1159
00:50:29,090 --> 00:50:30,630
making some choices.

1160
00:50:30,630 --> 00:50:32,795
And this one of the
examples that I showed you

1161
00:50:32,795 --> 00:50:34,170
from earlier--
the three examples

1162
00:50:34,170 --> 00:50:36,780
that I showed you first,
where people are just

1163
00:50:36,780 --> 00:50:39,127
induced to make certain
choices one way or the other,

1164
00:50:39,127 --> 00:50:40,710
depending on their
choice environment,

1165
00:50:40,710 --> 00:50:42,210
depending on their
social influence.

1166
00:50:42,210 --> 00:50:45,480
In Tom Sawyer's case,
what he tells his friend.

1167
00:50:45,480 --> 00:50:48,420
His friend is now willing to
pay to paint a fence, which

1168
00:50:48,420 --> 00:50:49,840
actually is a punishment.

1169
00:50:49,840 --> 00:50:54,730
So people's preferences
seem inherently malleable.

1170
00:50:54,730 --> 00:50:58,890
And so that's what this paper
about coherent arbitrariness

1171
00:50:58,890 --> 00:51:01,180
is very much about.

1172
00:51:01,180 --> 00:51:07,050
And so if you think about
it, in some ways, almost all

1173
00:51:07,050 --> 00:51:11,730
of economics, and any class that
you have taken, the professor--

1174
00:51:11,730 --> 00:51:15,540
or in any book, people will
write down the utility function

1175
00:51:15,540 --> 00:51:17,980
as if that's some truth that
we know about the world.

1176
00:51:17,980 --> 00:51:20,610
And this is what the
utility function looks like.

1177
00:51:20,610 --> 00:51:22,658
But if you think about
it, in many cases,

1178
00:51:22,658 --> 00:51:24,450
actually, we don't know
what is the utility

1179
00:51:24,450 --> 00:51:24,930
function [INAUDIBLE].

1180
00:51:24,930 --> 00:51:26,597
If somebody asked
[INAUDIBLE] particular

1181
00:51:26,597 --> 00:51:30,240
about new goods, who knows what
our preferences actually are.

1182
00:51:30,240 --> 00:51:33,700
So for example, if you say,
you're trying to buy a monitor,

1183
00:51:33,700 --> 00:51:36,120
and there's like a 30 inch
monitor versus a 24 inch

1184
00:51:36,120 --> 00:51:40,140
monitor, who knows how much
you're willing to pay for that.

1185
00:51:40,140 --> 00:51:43,770
Maybe $50, maybe $100,
maybe $20, maybe nothing.

1186
00:51:43,770 --> 00:51:47,460
It's very hard to sort
of figure this out.

1187
00:51:47,460 --> 00:51:50,190
And sort of when asked to
make these kinds of decisions,

1188
00:51:50,190 --> 00:51:52,877
people tend to sort of
construct their preferences

1189
00:51:52,877 --> 00:51:53,460
on this stuff.

1190
00:51:53,460 --> 00:51:56,010
They essentially make stuff up.

1191
00:51:56,010 --> 00:51:59,167
And so because of
that, because people

1192
00:51:59,167 --> 00:52:00,750
are sort of fundamentally
in some ways

1193
00:52:00,750 --> 00:52:04,980
unsure about their
preferences, this construction

1194
00:52:04,980 --> 00:52:08,070
of their valuation is very
much easily manipulated

1195
00:52:08,070 --> 00:52:12,600
by, often, cues that should
be really irrelevant.

1196
00:52:12,600 --> 00:52:16,470
And so one example that I
showed you a little bit--

1197
00:52:16,470 --> 00:52:19,560
I think in the second
class, or from the survey,

1198
00:52:19,560 --> 00:52:20,910
is what's called anchoring.

1199
00:52:20,910 --> 00:52:23,795
This is also in the Ariely
paper, which essentially

1200
00:52:23,795 --> 00:52:25,170
is, what they were
doing is, they

1201
00:52:25,170 --> 00:52:30,420
were asking people
about their willingness

1202
00:52:30,420 --> 00:52:32,460
to [INAUDIBLE] their
Social Security number.

1203
00:52:32,460 --> 00:52:34,043
And then afterwards,
their willingness

1204
00:52:34,043 --> 00:52:38,310
to pay for different things,
about like, wine, design books,

1205
00:52:38,310 --> 00:52:39,735
chocolates, and so on.

1206
00:52:39,735 --> 00:52:41,610
Notice that these are
somewhat unusual things

1207
00:52:41,610 --> 00:52:44,070
that people wouldn't
necessarily buy every day.

1208
00:52:44,070 --> 00:52:45,930
And essentially what
you see is people

1209
00:52:45,930 --> 00:52:48,690
who are in the highest quintile
of their Social Security

1210
00:52:48,690 --> 00:52:49,350
number--

1211
00:52:49,350 --> 00:52:51,960
this is like year number five--

1212
00:52:51,960 --> 00:52:53,760
have much higher
willingness to pay.

1213
00:52:53,760 --> 00:52:55,590
And this is also all
incentive-compatible

1214
00:52:55,590 --> 00:52:57,840
[INAUDIBLE] methods
essentially of using

1215
00:52:57,840 --> 00:53:00,300
some form of BDM methods.

1216
00:53:00,300 --> 00:53:03,750
People's willingness to pay is
way higher when their Social

1217
00:53:03,750 --> 00:53:04,890
Security number--

1218
00:53:04,890 --> 00:53:08,460
the last digits of their Social
Security number are higher.

1219
00:53:08,460 --> 00:53:10,290
Now of course, that
shouldn't be the case.

1220
00:53:10,290 --> 00:53:13,410
Your Social Security number has
nothing to do with your tastes

1221
00:53:13,410 --> 00:53:14,700
for wine.

1222
00:53:14,700 --> 00:53:17,280
Because that's [INAUDIBLE]
explicitly random.

1223
00:53:17,280 --> 00:53:20,070
Yet, people are
easily manipulable.

1224
00:53:20,070 --> 00:53:23,610
And the difference in sort of
valuations is like, [? huge. ?]

1225
00:53:23,610 --> 00:53:26,340
If you happen to have a
low Social Security number,

1226
00:53:26,340 --> 00:53:33,050
or the last digit are low, then
you are willing to pay $11.73.

1227
00:53:33,050 --> 00:53:35,900
If it's high, you're willing
to pay like three times or even

1228
00:53:35,900 --> 00:53:37,250
more as much.

1229
00:53:37,250 --> 00:53:41,630
So the huge differences show
that people are pretty easily

1230
00:53:41,630 --> 00:53:42,620
manipulable.

1231
00:53:42,620 --> 00:53:45,580
Now notice that these
questions that I asked here

1232
00:53:45,580 --> 00:53:49,040
are sort of somewhat
unusual sort of items.

1233
00:53:49,040 --> 00:53:50,540
This is not asking
like how much are

1234
00:53:50,540 --> 00:53:52,490
you willing to pay for
food at the food truck,

1235
00:53:52,490 --> 00:53:57,660
or whatever stuff that you
do every day, or for a pizza.

1236
00:53:57,660 --> 00:53:59,780
Because there, people
kind of know already

1237
00:53:59,780 --> 00:54:01,200
how much they're paying anyway.

1238
00:54:01,200 --> 00:54:03,090
And if I just ask you
something else that's

1239
00:54:03,090 --> 00:54:05,090
different from the market
price, people probably

1240
00:54:05,090 --> 00:54:09,650
would not want to be
paying like $30 for it,

1241
00:54:09,650 --> 00:54:14,010
even if their Social Security
number tends to be quite high.

1242
00:54:14,010 --> 00:54:17,120
Now, Ariely et al go
further with this.

1243
00:54:17,120 --> 00:54:21,413
In some sense they have sort
of more radical deviations.

1244
00:54:21,413 --> 00:54:23,330
So they elicit people's
willingness to accept.

1245
00:54:23,330 --> 00:54:26,450
And this is how
much they have to be

1246
00:54:26,450 --> 00:54:29,540
paid to endure an
unpleasant sound

1247
00:54:29,540 --> 00:54:32,940
for a different length of time.

1248
00:54:32,940 --> 00:54:36,800
Now, why did they pick
like an unpleasant sound?

1249
00:54:36,800 --> 00:54:38,630
In part, because they
could provide people

1250
00:54:38,630 --> 00:54:39,890
like a sample of it.

1251
00:54:39,890 --> 00:54:43,040
In part because people don't
have any experience with that.

1252
00:54:43,040 --> 00:54:45,330
It's completely unclear
how much you are

1253
00:54:45,330 --> 00:54:47,090
supposed to be willing to pay--

1254
00:54:47,090 --> 00:54:50,060
are willing to accept
for listening to a sound.

1255
00:54:50,060 --> 00:54:52,103
So there's no price or
market price for it.

1256
00:54:52,103 --> 00:54:54,020
And people sort of had
to sort of in some ways

1257
00:54:54,020 --> 00:54:56,250
rely on their own
preferences for that.

1258
00:54:56,250 --> 00:54:58,800
And then they know it's very
easy to change the quantity.

1259
00:54:58,800 --> 00:55:01,320
You can do like 10 seconds,
30 seconds, 50 seconds.

1260
00:55:01,320 --> 00:55:05,320
It's very easy to
manipulate that.

1261
00:55:05,320 --> 00:55:07,030
Now what is the procedure?

1262
00:55:07,030 --> 00:55:12,320
Subjects we're listening to a
30 second sample of the noise.

1263
00:55:12,320 --> 00:55:16,390
Then there were answering
whether they hypothetically

1264
00:55:16,390 --> 00:55:19,210
would be willing to listen
to the noise for another 30

1265
00:55:19,210 --> 00:55:20,970
seconds for x cents.

1266
00:55:20,970 --> 00:55:22,720
And then they were
asked their willingness

1267
00:55:22,720 --> 00:55:27,700
to accept for 10, 30 and
60 seconds afterwards.

1268
00:55:27,700 --> 00:55:32,170
Notice that number two is
only a hypothetical question,

1269
00:55:32,170 --> 00:55:35,870
and is essentially entirely
irrelevant for number three.

1270
00:55:35,870 --> 00:55:36,370
Sorry.

1271
00:55:36,370 --> 00:55:39,040
This is supposed to say
number three, not number one.

1272
00:55:39,040 --> 00:55:42,200
So number two here is like
completely irrelevant.

1273
00:55:42,200 --> 00:55:45,100
This should really have
no effect whatsoever

1274
00:55:45,100 --> 00:55:48,910
in affecting your willingness
to accept for the 10, 30 and 60

1275
00:55:48,910 --> 00:55:49,670
seconds.

1276
00:55:49,670 --> 00:55:51,580
Again, this is just a
hypothetical question

1277
00:55:51,580 --> 00:55:53,890
that really does not
matter, and is not

1278
00:55:53,890 --> 00:55:57,440
going to be implemented at all.

1279
00:55:57,440 --> 00:55:59,050
And then the
experimental variation

1280
00:55:59,050 --> 00:56:04,390
here is that x was
varied across subjects.

1281
00:56:04,390 --> 00:56:05,650
Now, why would x matter?

1282
00:56:05,650 --> 00:56:07,310
What's going on here?

1283
00:56:07,310 --> 00:56:10,380
What's the experiment
trying to do?

1284
00:56:10,380 --> 00:56:13,592
People are very unsure about
what their valuation is.

1285
00:56:13,592 --> 00:56:15,300
So now what they do
is, essentially, they

1286
00:56:15,300 --> 00:56:20,580
use the x-- the amount that's
offered as like an anchor.

1287
00:56:20,580 --> 00:56:24,570
The same way as in, usually in
markets, when you go to a store

1288
00:56:24,570 --> 00:56:27,000
and look at how much
do certain things

1289
00:56:27,000 --> 00:56:29,700
cost, and you don't know the
quality of the underlying

1290
00:56:29,700 --> 00:56:33,060
items, often people sort of
try to infer quality or lack

1291
00:56:33,060 --> 00:56:35,190
of quality from the price.

1292
00:56:35,190 --> 00:56:37,380
And if we sort of say,
if I'm telling you

1293
00:56:37,380 --> 00:56:39,210
I'm going to pay you
like $100 for this,

1294
00:56:39,210 --> 00:56:40,630
it must be really,
really painful.

1295
00:56:40,630 --> 00:56:43,440
So people try to sort of
infer in some ways something

1296
00:56:43,440 --> 00:56:44,340
from that.

1297
00:56:44,340 --> 00:56:47,920
Now notice that this is
explicitly hypothetical.

1298
00:56:47,920 --> 00:56:48,420
[SOUND]

1299
00:56:48,420 --> 00:56:48,990
And so on.

1300
00:56:48,990 --> 00:56:50,700
And so really it
shouldn't matter.

1301
00:56:50,700 --> 00:56:52,200
If people were sure about like--

1302
00:56:52,200 --> 00:56:53,580
I just played you the sound.

1303
00:56:53,580 --> 00:56:55,580
So you shouldn't be able
to tell me how much you

1304
00:56:55,580 --> 00:56:56,620
like it or dislike it.

1305
00:56:56,620 --> 00:56:58,240
So this should
really be irrelevant.

1306
00:56:58,240 --> 00:57:00,490
But people seem to sort of
essentially just not really

1307
00:57:00,490 --> 00:57:02,640
know what's appropriate,
or how much they're

1308
00:57:02,640 --> 00:57:05,820
willing to accept
or not to do that.

1309
00:57:05,820 --> 00:57:08,600
And x essentially is sort of
then anchoring [INAUDIBLE]..

1310
00:57:08,600 --> 00:57:09,100
OK.

1311
00:57:09,100 --> 00:57:11,560
So now we get these
somewhat messy graphs.

1312
00:57:11,560 --> 00:57:15,410
Can somebody explain to
me what this graph shows?

1313
00:57:15,410 --> 00:57:17,920
What do we find?

1314
00:57:17,920 --> 00:57:20,950
These are [INAUDIBLE]
certain subjects.

1315
00:57:20,950 --> 00:57:24,080
And then there's like
10 seconds, 30 seconds,

1316
00:57:24,080 --> 00:57:25,420
and 60 seconds here.

1317
00:57:25,420 --> 00:57:26,950
So people are always--

1318
00:57:26,950 --> 00:57:29,470
for each of these lines,
on average, at least,

1319
00:57:29,470 --> 00:57:31,600
willingness to accept
goes up, in the way

1320
00:57:31,600 --> 00:57:34,250
you expect, in the sense
of, for more time, people

1321
00:57:34,250 --> 00:57:35,890
are asking for more.

1322
00:57:35,890 --> 00:57:37,760
That's very reasonable.

1323
00:57:37,760 --> 00:57:40,360
So 30 seconds, presumably,
are worse than 10 seconds.

1324
00:57:40,360 --> 00:57:43,240
And 60 seconds are
worse than 10 seconds.

1325
00:57:43,240 --> 00:57:46,120
But the levels seem to
be completely arbitrary.

1326
00:57:46,120 --> 00:57:48,430
Essentially, giving
people a high anchor

1327
00:57:48,430 --> 00:57:52,570
increases the levels by
a lot for each duration.

1328
00:57:52,570 --> 00:57:55,130
And giving people a low anchor
decreases their willingness

1329
00:57:55,130 --> 00:57:57,255
to pay at least a little
bit compared to no anchor,

1330
00:57:57,255 --> 00:57:59,890
and surely compared to
the [? high anchor. ?]

1331
00:57:59,890 --> 00:58:00,702
That is to say--

1332
00:58:00,702 --> 00:58:02,660
and this is sort of where
this term comes from,

1333
00:58:02,660 --> 00:58:06,130
coherent arbitrariness,
which is, essentially, people

1334
00:58:06,130 --> 00:58:08,230
seem to be coherent
in the sense of like,

1335
00:58:08,230 --> 00:58:11,890
once you fix a certain
level, based on that level,

1336
00:58:11,890 --> 00:58:14,570
if you ask them, OK, if you
tell me about 10 seconds

1337
00:58:14,570 --> 00:58:17,020
and I ask you about 30
seconds, about 60 seconds,

1338
00:58:17,020 --> 00:58:19,900
this demand curve or
supply curve, if you want,

1339
00:58:19,900 --> 00:58:21,400
looks pretty reasonable.

1340
00:58:21,400 --> 00:58:23,620
But the actual
level to start with

1341
00:58:23,620 --> 00:58:27,520
is completely arbitrary,
because I can essentially

1342
00:58:27,520 --> 00:58:29,380
manipulate you by quite a bit.

1343
00:58:29,380 --> 00:58:32,090
Look at the differences
in magnitudes.

1344
00:58:32,090 --> 00:58:33,460
This is like 50 versus 30.

1345
00:58:33,460 --> 00:58:34,840
That's almost like
twice as much,

1346
00:58:34,840 --> 00:58:37,937
depending on just this
[INAUDIBLE] anchor.

1347
00:58:37,937 --> 00:58:39,770
And there's sort of
different rounds in that

1348
00:58:39,770 --> 00:58:41,853
that you can sort of do
this one way or the other.

1349
00:58:41,853 --> 00:58:45,010
And this is like essentially
increasing or decreasing,

1350
00:58:45,010 --> 00:58:48,360
starting in 10 seconds
versus-- and then going up.

1351
00:58:48,360 --> 00:58:52,170
People's willingness to accept
goes up the longer it is.

1352
00:58:52,170 --> 00:58:54,420
Or if you start with
60 seconds and go down,

1353
00:58:54,420 --> 00:58:56,220
essentially, people's
willingness to accept

1354
00:58:56,220 --> 00:58:57,880
goes down the shorter it is.

1355
00:58:57,880 --> 00:58:59,800
So the direction is
very much coherent.

1356
00:58:59,800 --> 00:59:01,770
The direction of
essentially this sort

1357
00:59:01,770 --> 00:59:05,340
of change in terms of
relative to duration

1358
00:59:05,340 --> 00:59:06,720
is very much coherent.

1359
00:59:06,720 --> 00:59:09,930
The level seems
very much arbitrary.

1360
00:59:09,930 --> 00:59:14,370
And so this is where the
title of the paper comes from.

1361
00:59:14,370 --> 00:59:17,880
Arbitrariness, essentially,
people's willingness to accept

1362
00:59:17,880 --> 00:59:20,390
depended strongly on x.

1363
00:59:20,390 --> 00:59:22,140
For x equals 50, the
willingness to accept

1364
00:59:22,140 --> 00:59:25,350
is like about $0.59 on average.

1365
00:59:25,350 --> 00:59:29,040
For x equals 10,
it's only $0.40.

1366
00:59:29,040 --> 00:59:32,760
But it's also coherent
in very sensible ways.

1367
00:59:32,760 --> 00:59:34,770
Their willingness
to accept are highly

1368
00:59:34,770 --> 00:59:36,390
sensitive to the
duration in the--

1369
00:59:36,390 --> 00:59:38,670
very much in the
expected direction.

1370
00:59:38,670 --> 00:59:43,640
Longer is always perceived
to be more painful.

1371
00:59:43,640 --> 00:59:44,180
OK.

1372
00:59:44,180 --> 00:59:45,430
So how do we think about this?

1373
00:59:45,430 --> 00:59:50,612
Well, so one, preferences can
be influenced by relevant cues.

1374
00:59:50,612 --> 00:59:52,820
For instance, [INAUDIBLE]
arbitrary initial question,

1375
00:59:52,820 --> 00:59:54,862
or the Social Security
number, or whatever that's

1376
00:59:54,862 --> 00:59:56,490
being elicited to start with.

1377
00:59:56,490 --> 01:00:00,440
But once people have
stated a preference,

1378
01:00:00,440 --> 01:00:03,080
related preferences,
they're like, essentially,

1379
01:00:03,080 --> 01:00:07,010
surrounding preferences are
consistent in a sense of like,

1380
01:00:07,010 --> 01:00:10,380
if you think listening
to the sound is painful,

1381
01:00:10,380 --> 01:00:14,910
asking you to listen to it twice
as long will be more painful.

1382
01:00:14,910 --> 01:00:16,460
Therefore, I have
to pay you more

1383
01:00:16,460 --> 01:00:21,860
to do that compared to what
you said in the first place.

1384
01:00:21,860 --> 01:00:23,350
Any questions or is that clear?

1385
01:00:25,980 --> 01:00:27,490
OK.

1386
01:00:27,490 --> 01:00:29,530
So now there are
some concerns about x

1387
01:00:29,530 --> 01:00:32,800
might be viewed as a hint
from the experimenters,

1388
01:00:32,800 --> 01:00:34,390
how bad the sound is.

1389
01:00:34,390 --> 01:00:36,730
But you know, people just
listened to the sound

1390
01:00:36,730 --> 01:00:38,200
for 30 seconds to start with.

1391
01:00:38,200 --> 01:00:40,100
Like, I gave you the
sound for 30 seconds.

1392
01:00:40,100 --> 01:00:41,930
I told you exactly what it is.

1393
01:00:41,930 --> 01:00:47,120
So in some sense, that seems
like not really a concern

1394
01:00:47,120 --> 01:00:47,630
anyway.

1395
01:00:47,630 --> 01:00:49,250
But there's also-- the very
end of this experiment,

1396
01:00:49,250 --> 01:00:51,440
where x was generated
by the last two digits

1397
01:00:51,440 --> 01:00:55,130
of the subject's
Social Security number,

1398
01:00:55,130 --> 01:00:58,190
and explicitly so, and still
there was a correlation between

1399
01:00:58,190 --> 01:01:00,680
essentially x and subjects'
willingness to accept,

1400
01:01:00,680 --> 01:01:03,740
which really shouldn't
be in any other--

1401
01:01:03,740 --> 01:01:06,070
in the absence of such
anchoring effects.

1402
01:01:06,070 --> 01:01:07,280
Are stakes too low?

1403
01:01:07,280 --> 01:01:09,740
I told you about like,
$0.30, and $0.50.

1404
01:01:09,740 --> 01:01:11,592
Maybe people just
don't care, and so on.

1405
01:01:11,592 --> 01:01:13,550
But there's also another
experiment [INAUDIBLE]

1406
01:01:13,550 --> 01:01:14,390
10-fold stakes.

1407
01:01:14,390 --> 01:01:16,350
And they got essentially
the same results.

1408
01:01:20,110 --> 01:01:22,950
So this evidence now is very
much consistent with the idea

1409
01:01:22,950 --> 01:01:25,380
that subjects are searching
for their preferences.

1410
01:01:25,380 --> 01:01:27,240
They don't quite know
their true willingness

1411
01:01:27,240 --> 01:01:30,940
to accept for the sound, and
this is essentially arbitrary.

1412
01:01:30,940 --> 01:01:33,000
But they know their
willingness to accept

1413
01:01:33,000 --> 01:01:35,370
should relate to each
other in a coherent way.

1414
01:01:35,370 --> 01:01:38,310
And in fact, once you fix
the level in some ways,

1415
01:01:38,310 --> 01:01:42,150
they are in fact coherent,
or essentially they're

1416
01:01:42,150 --> 01:01:43,320
sort of making sense.

1417
01:01:43,320 --> 01:01:45,240
They're [INAUDIBLE]
consistent with that,

1418
01:01:45,240 --> 01:01:48,060
once you fix a certain level.

1419
01:01:48,060 --> 01:01:52,930
Now this is now getting
back to Tom Sawyer.

1420
01:01:52,930 --> 01:01:56,300
Now, the paper goes-- so this
essentially is sort of saying,

1421
01:01:56,300 --> 01:01:59,630
your level of willingness
to accept for a certain good

1422
01:01:59,630 --> 01:02:02,510
that's unpleasant is malleable.

1423
01:02:02,510 --> 01:02:04,130
Essentially, I
can manipulate you

1424
01:02:04,130 --> 01:02:08,960
to ask for a lower
or a higher price,

1425
01:02:08,960 --> 01:02:11,450
depending on some irrelevant
question that I ask you,

1426
01:02:11,450 --> 01:02:14,990
for a given thing that is
perceived to be unpleasant.

1427
01:02:14,990 --> 01:02:19,010
Similarly, I can manipulate
you to pay more or less

1428
01:02:19,010 --> 01:02:21,530
for a certain good
that's perceived

1429
01:02:21,530 --> 01:02:23,750
to be a good, something
that you want.

1430
01:02:23,750 --> 01:02:25,880
So the stuff on the
Social Security number

1431
01:02:25,880 --> 01:02:29,130
that I showed you
previously, going back,

1432
01:02:29,130 --> 01:02:30,390
these are all kind of things--

1433
01:02:30,390 --> 01:02:32,760
presumably, there's some
use for these things.

1434
01:02:32,760 --> 01:02:35,550
Belgian chocolates are
supposed to be delicious.

1435
01:02:35,550 --> 01:02:37,230
Red wine, even if
you don't like wine,

1436
01:02:37,230 --> 01:02:39,190
you can sell it to
somebody else or something.

1437
01:02:39,190 --> 01:02:42,600
These are all things that
seem to be worth willing

1438
01:02:42,600 --> 01:02:45,210
to pay for something.

1439
01:02:45,210 --> 01:02:47,460
And now essentially,
given that you

1440
01:02:47,460 --> 01:02:50,430
are willing to pay something,
or some positive amount for it,

1441
01:02:50,430 --> 01:02:53,580
I can manipulate now-- or the
experimenters, in this case,

1442
01:02:53,580 --> 01:02:58,230
can manipulate people into
higher or lower willingness

1443
01:02:58,230 --> 01:02:59,690
to pay.

1444
01:02:59,690 --> 01:03:02,650
And so that's true for
positive or negative things.

1445
01:03:02,650 --> 01:03:05,680
Now, what's amazing about
the Tom Sawyer story,

1446
01:03:05,680 --> 01:03:08,540
however, isn't the--

1447
01:03:08,540 --> 01:03:09,820
it's ain't that work?

1448
01:03:09,820 --> 01:03:12,340
It's sort of like, that's the
expression he sort of says

1449
01:03:12,340 --> 01:03:13,870
towards the end.

1450
01:03:13,870 --> 01:03:16,690
The amazing part
here is that not only

1451
01:03:16,690 --> 01:03:20,770
is Tom Sawyer able to manipulate
his friend's willingness

1452
01:03:20,770 --> 01:03:25,090
to accept, or willingness
to pay in one direction or--

1453
01:03:25,090 --> 01:03:27,670
increase or decrease
it, but he's even able

1454
01:03:27,670 --> 01:03:30,155
to flip it from
something that he

1455
01:03:30,155 --> 01:03:32,530
hates doing, that's essentially
something that you really

1456
01:03:32,530 --> 01:03:34,510
do not want to do, where
essentially one has

1457
01:03:34,510 --> 01:03:37,840
to pay somebody to do it,
but instead, his friend

1458
01:03:37,840 --> 01:03:41,135
is willing to pay Tom Sawyer
for being able to do it, right?

1459
01:03:41,135 --> 01:03:42,760
The friend, now,
instead of like having

1460
01:03:42,760 --> 01:03:45,260
the friend to pay for it, you
can say, I have to pay you $10

1461
01:03:45,260 --> 01:03:48,190
to do it, the friend is
very happy to say, Tom,

1462
01:03:48,190 --> 01:03:49,838
I'm going to pay
you some amount.

1463
01:03:49,838 --> 01:03:51,880
So I think he gives him
some apples or some candy

1464
01:03:51,880 --> 01:03:55,570
or whatever, so that he
can actually do it himself.

1465
01:03:55,570 --> 01:03:57,670
So essentially, what the
manipulation here does

1466
01:03:57,670 --> 01:04:00,280
is not only changing
the level for something

1467
01:04:00,280 --> 01:04:02,890
that's good or bad, but
it's flipping the sign

1468
01:04:02,890 --> 01:04:06,130
from willingness to accept
to willingness to pay, which

1469
01:04:06,130 --> 01:04:08,387
is a more radical deviation.

1470
01:04:08,387 --> 01:04:10,470
You might sort of think
we know what's good for us

1471
01:04:10,470 --> 01:04:11,630
and what's bad for us.

1472
01:04:11,630 --> 01:04:13,630
But it seems to be that
what Tom Sawyer is doing

1473
01:04:13,630 --> 01:04:17,764
is manipulating sort of the
social perception of the item

1474
01:04:17,764 --> 01:04:20,380
or the activity, and that
sort of flips essentially

1475
01:04:20,380 --> 01:04:22,930
the sign of the item.

1476
01:04:22,930 --> 01:04:27,880
So then Ariely now does that
in a very beautiful experiment

1477
01:04:27,880 --> 01:04:28,420
in class.

1478
01:04:28,420 --> 01:04:31,180
And I always have wanted
to sort of replicate this,

1479
01:04:31,180 --> 01:04:34,000
but I'm not sure I should.

1480
01:04:34,000 --> 01:04:37,510
So what he does is, or at
the time, this is with MBAs--

1481
01:04:37,510 --> 01:04:42,340
where he did a poetry
reading from Walt Whitman's

1482
01:04:42,340 --> 01:04:44,020
Leaves of Grass.

1483
01:04:44,020 --> 01:04:47,725
And there, he has an experiment,
where half of the class

1484
01:04:47,725 --> 01:04:49,588
is asked hypothetically--

1485
01:04:49,588 --> 01:04:51,130
again, hypothetically,
whether they'd

1486
01:04:51,130 --> 01:04:53,590
be willing to pay $10
to listen to Ariely

1487
01:04:53,590 --> 01:04:55,450
recite poetry for 10 minutes.

1488
01:04:55,450 --> 01:04:59,440
So he's like, OK, in
class, some of you

1489
01:04:59,440 --> 01:05:01,120
are able to listen to this.

1490
01:05:01,120 --> 01:05:02,320
But it could be like--

1491
01:05:02,320 --> 01:05:05,230
I think it's outside of class,
because otherwise [INAUDIBLE]..

1492
01:05:05,230 --> 01:05:09,460
And are you willing to pay
$10 for attending this poetry

1493
01:05:09,460 --> 01:05:10,220
reading?

1494
01:05:10,220 --> 01:05:12,220
And I think actually,
Ariely is a very good sort

1495
01:05:12,220 --> 01:05:13,120
of story reader.

1496
01:05:13,120 --> 01:05:15,040
So it might actually
be fun to listen to it.

1497
01:05:15,040 --> 01:05:17,050
But some of you know
to ask hypothetically,

1498
01:05:17,050 --> 01:05:19,690
again, are you willing
to pay $10 for it?

1499
01:05:19,690 --> 01:05:21,700
The other half then are
asked hypothetically

1500
01:05:21,700 --> 01:05:25,660
are they're willing to accept
$10 to listen to Ariely recite

1501
01:05:25,660 --> 01:05:26,920
the poetry for 10 minutes.

1502
01:05:26,920 --> 01:05:30,190
That's to say, it sounds
like it's pretty painful

1503
01:05:30,190 --> 01:05:31,570
to listen to Ariely.

1504
01:05:31,570 --> 01:05:33,430
He's going to pay
you $10 to do it.

1505
01:05:33,430 --> 01:05:36,920
And are you willing to do that?

1506
01:05:36,920 --> 01:05:39,110
Notice that here is
only hypothetical.

1507
01:05:39,110 --> 01:05:40,700
These are all
hypothetical choices

1508
01:05:40,700 --> 01:05:42,455
that will not be implemented.

1509
01:05:42,455 --> 01:05:44,330
So these hypothetical
questions should really

1510
01:05:44,330 --> 01:05:47,810
have no effect whatsoever
on what's asked afterwards.

1511
01:05:47,810 --> 01:05:50,510
Because afterwards, people
are in fact indicating

1512
01:05:50,510 --> 01:05:53,210
their monetary valuations
for one, three or six

1513
01:05:53,210 --> 01:05:56,230
minutes of poetry reading.

1514
01:05:56,230 --> 01:05:59,340
Now you can already guess
what's happening here is here,

1515
01:05:59,340 --> 01:06:00,780
the first condition
is essentially

1516
01:06:00,780 --> 01:06:02,460
asking for people's
willingness to pay.

1517
01:06:02,460 --> 01:06:03,930
That's essentially
selling the item

1518
01:06:03,930 --> 01:06:06,180
as like a good, that's
something that you really want.

1519
01:06:06,180 --> 01:06:09,060
And you're sort of
essentially encouraging people

1520
01:06:09,060 --> 01:06:11,880
to say, well, you
should be willing to pay

1521
01:06:11,880 --> 01:06:16,440
something for it, even as much
as like $10 for 10 minutes.

1522
01:06:16,440 --> 01:06:18,270
And that'll [INAUDIBLE]
encourage people,

1523
01:06:18,270 --> 01:06:22,140
since they don't quite know,
listening to your professor

1524
01:06:22,140 --> 01:06:24,480
is like doing some weird
poetry could be really great,

1525
01:06:24,480 --> 01:06:27,060
or could be really bad,
they don't quite know.

1526
01:06:27,060 --> 01:06:30,270
But here, essentially, they're
manipulated into paying for it,

1527
01:06:30,270 --> 01:06:34,440
while here they're manipulated
into being paid for it,

1528
01:06:34,440 --> 01:06:37,890
or asking for money
to be paid for it.

1529
01:06:37,890 --> 01:06:43,765
So now, what they then get
is their willingness to pay,

1530
01:06:43,765 --> 01:06:45,390
and their willingness
to pay conditions

1531
01:06:45,390 --> 01:06:47,160
when the first
condition here, where

1532
01:06:47,160 --> 01:06:51,870
they are given the hypothetical
$10 for 10 minutes.

1533
01:06:51,870 --> 01:06:56,260
Here, the willingness to
pay goes up and is positive.

1534
01:06:56,260 --> 01:06:59,110
And here, it's
negative and goes down.

1535
01:06:59,110 --> 01:07:03,100
So what we see essentially
is that not only is it

1536
01:07:03,100 --> 01:07:06,760
the case that when you make it
essential, when you ask people

1537
01:07:06,760 --> 01:07:08,200
how much are they
willing to pay,

1538
01:07:08,200 --> 01:07:10,890
people are in fact afterwards
willing to pay for it.

1539
01:07:10,890 --> 01:07:13,120
But notice that everybody
could have just said zero

1540
01:07:13,120 --> 01:07:14,650
if they didn't want to pay.

1541
01:07:14,650 --> 01:07:18,190
But in addition,
once you sort of

1542
01:07:18,190 --> 01:07:21,490
fix their willingness
to pay, the demand curve

1543
01:07:21,490 --> 01:07:24,790
is very much
sensible in a sense.

1544
01:07:24,790 --> 01:07:27,195
Once you're willing to pay
some amount for one minute,

1545
01:07:27,195 --> 01:07:28,570
you're going to
be willing to pay

1546
01:07:28,570 --> 01:07:31,240
more money for more minutes.

1547
01:07:31,240 --> 01:07:33,280
Essentially, once we
define this good to be

1548
01:07:33,280 --> 01:07:35,830
a good for you, or like
this item or this activity

1549
01:07:35,830 --> 01:07:37,570
to be like a good
thing for you, people

1550
01:07:37,570 --> 01:07:39,190
say more must be
better, and sort of

1551
01:07:39,190 --> 01:07:42,020
are willing to pay
more for more minutes.

1552
01:07:42,020 --> 01:07:47,320
On the other hand, once the item
is determined as like a bad,

1553
01:07:47,320 --> 01:07:49,450
in the sense of this is
really a bad activity.

1554
01:07:49,450 --> 01:07:52,000
Listening to your
professor reciting

1555
01:07:52,000 --> 01:07:55,993
poetry is really awful, and
you have to be paid for that,

1556
01:07:55,993 --> 01:07:57,910
then they sort of say,
well one minute is bad,

1557
01:07:57,910 --> 01:07:59,680
but like six minutes
surely is really bad.

1558
01:07:59,680 --> 01:08:02,410
And you have to pay me a lot
more for six minutes than

1559
01:08:02,410 --> 01:08:04,270
for one minute.

1560
01:08:04,270 --> 01:08:05,920
And that's essentially
saying subjects

1561
01:08:05,920 --> 01:08:09,430
don't know whether this
reading is good or bad.

1562
01:08:09,430 --> 01:08:11,180
But they do know,
essentially, either way,

1563
01:08:11,180 --> 01:08:13,180
more requires more money.

1564
01:08:13,180 --> 01:08:16,000
And that's essentially exactly
the coherent arbitrariness,

1565
01:08:16,000 --> 01:08:19,180
where essentially,
the level or even like

1566
01:08:19,180 --> 01:08:20,680
the sign is really unclear.

1567
01:08:20,680 --> 01:08:22,180
But once the sign
is sort of fixed,

1568
01:08:22,180 --> 01:08:26,340
people behave in
pretty reasonable ways.

1569
01:08:26,340 --> 01:08:27,670
I actually don't remember.

1570
01:08:27,670 --> 01:08:29,406
I should look it up--

1571
01:08:29,406 --> 01:08:33,569
surely in the paper, whether
it's possible in this condition

1572
01:08:33,569 --> 01:08:34,439
to actually have--

1573
01:08:34,439 --> 01:08:36,147
[INAUDIBLE] so the
[INAUDIBLE] experiment

1574
01:08:36,147 --> 01:08:39,060
would surely always ask
you a whole range where

1575
01:08:39,060 --> 01:08:43,540
you can always say, between
say, minus six or minus 10,

1576
01:08:43,540 --> 01:08:44,790
and plus 10.

1577
01:08:44,790 --> 01:08:47,569
Now tell me your willingness
to accept versus willingness

1578
01:08:47,569 --> 01:08:48,069
to pay.

1579
01:08:48,069 --> 01:08:49,944
So if it's positive,
it's willingness to pay.

1580
01:08:49,944 --> 01:08:52,020
If it's negative, it's
willingness to accept.

1581
01:08:52,020 --> 01:08:53,189
I think that's what's--

1582
01:08:53,189 --> 01:08:54,689
so surely, that's
how the experiment

1583
01:08:54,689 --> 01:08:56,010
should have been done.

1584
01:08:56,010 --> 01:08:58,838
I would like to think
and hope that's also

1585
01:08:58,838 --> 01:08:59,880
how it was actually done.

1586
01:08:59,880 --> 01:09:01,080
I don't remember.

1587
01:09:01,080 --> 01:09:02,543
This is quite a while ago.

1588
01:09:02,543 --> 01:09:04,210
But it's really in
the paper, so I don't

1589
01:09:04,210 --> 01:09:05,609
know if anybody remembers.

1590
01:09:05,609 --> 01:09:07,312
But I think it's exactly right.

1591
01:09:07,312 --> 01:09:09,270
In some sense, the
experiment is very much sort

1592
01:09:09,270 --> 01:09:11,340
of manipulating people in
the way of saying like,

1593
01:09:11,340 --> 01:09:16,319
well, so the prompt here really
gets you into like, OK, you're

1594
01:09:16,319 --> 01:09:17,463
supposed to pay for this.

1595
01:09:17,463 --> 01:09:19,380
Now it's kind of a little
bit of a weird thing

1596
01:09:19,380 --> 01:09:21,630
to say I'm willing to accept.

1597
01:09:21,630 --> 01:09:26,189
Professor says, are you
willing to pay $10 for it?

1598
01:09:26,189 --> 01:09:27,689
And then you say,
well, how much are

1599
01:09:27,689 --> 01:09:30,390
you willing to pay
for like six minutes?

1600
01:09:30,390 --> 01:09:32,580
And then you say, well you
have to pay me like $5,

1601
01:09:32,580 --> 01:09:35,340
is a bit of a weird thing to
say and the other way around.

1602
01:09:35,340 --> 01:09:38,390
So it's very much sort
of like I think a set up

1603
01:09:38,390 --> 01:09:40,950
to sort of generate the effects
that they're looking for.

1604
01:09:40,950 --> 01:09:43,719
I think the underlying-- so I
think the underlying essence--

1605
01:09:43,719 --> 01:09:46,399
and there are some other
experiments that show somewhat

1606
01:09:46,399 --> 01:09:47,580
similar results--

1607
01:09:47,580 --> 01:09:50,600
the underlying essence is
right that particularly

1608
01:09:50,600 --> 01:09:53,240
for unknown goods,
people's preferences

1609
01:09:53,240 --> 01:09:54,770
are very much malleable.

1610
01:09:54,770 --> 01:09:57,182
And people just don't
know what they are.

1611
01:09:57,182 --> 01:09:58,640
And there's also
some other things.

1612
01:09:58,640 --> 01:10:01,970
For example, if you think about,
for example, social activities,

1613
01:10:01,970 --> 01:10:05,090
where maybe your friends like
them, or they don't like them,

1614
01:10:05,090 --> 01:10:07,880
and people are very much
like-- and this is exactly

1615
01:10:07,880 --> 01:10:10,490
the Tom Sawyer example, where
people are very much sort

1616
01:10:10,490 --> 01:10:12,020
of malleable.

1617
01:10:12,020 --> 01:10:14,660
And you can vastly
shape what people

1618
01:10:14,660 --> 01:10:18,080
want versus not in many cases.

1619
01:10:18,080 --> 01:10:20,730
And for example, one
example would be like,

1620
01:10:20,730 --> 01:10:23,060
there's some very nice
work by Loewenstein

1621
01:10:23,060 --> 01:10:27,020
and coauthors that
looks at education.

1622
01:10:27,020 --> 01:10:30,730
And sort of, do students
want to study versus not.

1623
01:10:30,730 --> 01:10:34,130
And do you want to be a
nerd versus not in class.

1624
01:10:34,130 --> 01:10:37,550
And so depending very much
on your environment as a kid,

1625
01:10:37,550 --> 01:10:40,310
when you grow up, if
all of your friends

1626
01:10:40,310 --> 01:10:42,830
are sort of essentially not
working hard, and sort of

1627
01:10:42,830 --> 01:10:45,740
want to be cool, and sort
of do not want to study,

1628
01:10:45,740 --> 01:10:48,380
and it's not a cool thing in
your environment to study,

1629
01:10:48,380 --> 01:10:50,450
people might just not want that.

1630
01:10:50,450 --> 01:10:53,742
But on the other hand, if you
have like five nerd friends who

1631
01:10:53,742 --> 01:10:55,700
are all working really
hard, or like, if you're

1632
01:10:55,700 --> 01:10:57,990
running around MIT,
studying is a cool thing.

1633
01:10:57,990 --> 01:11:00,050
And everybody sort
of is working hard.

1634
01:11:00,050 --> 01:11:04,890
And that becomes suddenly very
much like a desirable activity.

1635
01:11:04,890 --> 01:11:06,560
So I think more
generally, while this

1636
01:11:06,560 --> 01:11:08,660
is a bit of a
contrived experiment,

1637
01:11:08,660 --> 01:11:11,900
surely people's
preferences are very much

1638
01:11:11,900 --> 01:11:16,310
malleable through their
social environments,

1639
01:11:16,310 --> 01:11:19,790
and what they
think others think,

1640
01:11:19,790 --> 01:11:21,380
and how they perceive it.

1641
01:11:21,380 --> 01:11:23,035
And that can be
[INAUDIBLE] shaped by--

1642
01:11:26,470 --> 01:11:29,090
manipulated in certain ways,
and potentially affected.

1643
01:11:29,090 --> 01:11:31,520
That could be very much
like a policy angle

1644
01:11:31,520 --> 01:11:33,710
if you wanted to change
people's behavior profoundly

1645
01:11:33,710 --> 01:11:38,340
without spending
much money, in fact.

1646
01:11:38,340 --> 01:11:41,600
Let me-- I think that's
mostly what I have to say.

1647
01:11:41,600 --> 01:11:44,240
Let me summarize, and then
tell you about next week

1648
01:11:44,240 --> 01:11:46,170
for a second.

1649
01:11:46,170 --> 01:11:48,110
So we asked the
question, whether people

1650
01:11:48,110 --> 01:11:49,340
have stable preferences.

1651
01:11:49,340 --> 01:11:50,870
And it seems to me
that people don't

1652
01:11:50,870 --> 01:11:53,450
have clear preferences
for goods and experiences,

1653
01:11:53,450 --> 01:11:56,330
and sort of construct their
preferences on the spot.

1654
01:11:56,330 --> 01:12:00,020
Now, they're influenced
by environmental cues

1655
01:12:00,020 --> 01:12:03,050
that, in a way, that
doesn't necessarily

1656
01:12:03,050 --> 01:12:05,870
reflect the true utility
from the good or experience.

1657
01:12:05,870 --> 01:12:07,610
And that's very much
also what companies

1658
01:12:07,610 --> 01:12:08,527
are doing [INAUDIBLE].

1659
01:12:08,527 --> 01:12:12,230
And sometimes, some items are
made really, really expensive.

1660
01:12:12,230 --> 01:12:13,820
Like, why is this
thing expensive?

1661
01:12:13,820 --> 01:12:16,640
And somehow companies
are able to create

1662
01:12:16,640 --> 01:12:19,580
some fads or some way of making
things desirable by just making

1663
01:12:19,580 --> 01:12:23,095
them expensive and making
people want them in that way.

1664
01:12:23,095 --> 01:12:24,470
That very much
relies on the fact

1665
01:12:24,470 --> 01:12:26,643
that people are in
fact sort of malleable.

1666
01:12:26,643 --> 01:12:28,310
And you can sort of
introspect and think

1667
01:12:28,310 --> 01:12:31,400
about what things in the world
make you generally happy.

1668
01:12:31,400 --> 01:12:32,827
What things do you really like?

1669
01:12:32,827 --> 01:12:34,910
And what things are sort
of more things that like,

1670
01:12:34,910 --> 01:12:36,860
well, other people like
them, and you kind of

1671
01:12:36,860 --> 01:12:39,193
get sort of manipulated, or
you get sort of like tricked

1672
01:12:39,193 --> 01:12:40,920
into doing that.

1673
01:12:40,920 --> 01:12:42,410
And in some sense,
and we'll talk

1674
01:12:42,410 --> 01:12:44,420
about this next week a
little bit about happiness--

1675
01:12:44,420 --> 01:12:46,712
it's important to sort of
try and figure it out and try

1676
01:12:46,712 --> 01:12:49,910
to sort of not perhaps be as
much influenced by others,

1677
01:12:49,910 --> 01:12:53,960
and rather figuring out what
you generally and truly like.

1678
01:12:53,960 --> 01:12:56,390
So there's a nice
series of experiments

1679
01:12:56,390 --> 01:12:59,510
that sort of demonstrate
this coherent arbitrariness,

1680
01:12:59,510 --> 01:13:02,480
in very sort of like
clean variation,

1681
01:13:02,480 --> 01:13:06,080
and somewhat contrived context.

1682
01:13:06,080 --> 01:13:08,900
So you might wonder then, does
it matter in the real world?

1683
01:13:08,900 --> 01:13:11,772
Well it's perhaps less
important in settings

1684
01:13:11,772 --> 01:13:12,980
where people have experience.

1685
01:13:12,980 --> 01:13:14,897
Again, like if I had
done the same experiments

1686
01:13:14,897 --> 01:13:17,488
with like pizza, you
know how much you're

1687
01:13:17,488 --> 01:13:18,530
willing to pay for pizza.

1688
01:13:18,530 --> 01:13:19,613
You know the market price.

1689
01:13:19,613 --> 01:13:21,260
And you know also, and so on.

1690
01:13:21,260 --> 01:13:23,810
And so there, probably,
your willingness to pay

1691
01:13:23,810 --> 01:13:26,990
and your preferences
are very much like set.

1692
01:13:26,990 --> 01:13:29,630
But in some other cases,
in particular like new

1693
01:13:29,630 --> 01:13:32,310
environments,
[INAUDIBLE] sort of new--

1694
01:13:32,310 --> 01:13:34,057
when preferences are shaped--

1695
01:13:34,057 --> 01:13:36,140
for example, think about
maybe back when you first

1696
01:13:36,140 --> 01:13:40,610
started at MIT, sort of
seeing lots of other students,

1697
01:13:40,610 --> 01:13:42,890
when norms are shaped,
people's preferences

1698
01:13:42,890 --> 01:13:46,820
are very much malleable and
can be influenced profoundly.

1699
01:13:46,820 --> 01:13:52,370
Now, there's not so much
like actual field evidence

1700
01:13:52,370 --> 01:13:55,663
in high stakes settings that
are sort of this clean nature.

1701
01:13:55,663 --> 01:13:57,080
Having said that,
the examples of,

1702
01:13:57,080 --> 01:13:58,970
for example,
environmental-- sorry,

1703
01:13:58,970 --> 01:14:01,982
educational choices is perhaps
the most compelling one

1704
01:14:01,982 --> 01:14:03,440
because that's
really a high stakes

1705
01:14:03,440 --> 01:14:05,160
setting that matters a lot.

1706
01:14:05,160 --> 01:14:08,450
But people's preferences
or their choices

1707
01:14:08,450 --> 01:14:10,940
are very much malleable.

1708
01:14:10,940 --> 01:14:14,920
That's all I have to say
on coherent arbitrariness.

1709
01:14:14,920 --> 01:14:19,370
So next time, Monday, we're
going to talk about poverty.

1710
01:14:19,370 --> 01:14:21,895
Please read the
paper by Mani et al.

1711
01:14:21,895 --> 01:14:23,270
And then on
Wednesday we're going

1712
01:14:23,270 --> 01:14:25,460
to talk about happiness
and mental health.

1713
01:14:25,460 --> 01:14:30,290
Now, I promised you
a guest lecturer.

1714
01:14:30,290 --> 01:14:32,990
And so you know, I was
thinking about what's

1715
01:14:32,990 --> 01:14:33,810
a good thing to do.

1716
01:14:33,810 --> 01:14:37,080
And so you may have heard
about this at UC Berkeley.

1717
01:14:37,080 --> 01:14:40,560
They have llamas come to
campus to make students happy,

1718
01:14:40,560 --> 01:14:42,370
and destress them in some ways.

1719
01:14:42,370 --> 01:14:45,623
Now, of course, I can't
bring any real llamas.

1720
01:14:45,623 --> 01:14:47,040
But what I found,
and you may have

1721
01:14:47,040 --> 01:14:48,460
seen this on The Daily Show.

1722
01:14:48,460 --> 01:14:50,210
There's this thing
called Goat To Meeting,

1723
01:14:50,210 --> 01:14:53,280
where you can essentially
get like a goat or a llama

1724
01:14:53,280 --> 01:14:56,040
to come to your
meeting for 10 minutes.

1725
01:14:56,040 --> 01:15:00,600
And I did ask for like
a llama to arrive.

1726
01:15:00,600 --> 01:15:02,340
But there's apparently
a chance that it

1727
01:15:02,340 --> 01:15:03,990
might be a goat or a cow.

1728
01:15:03,990 --> 01:15:08,490
So we'll have a visitor
at the end of the lecture.

1729
01:15:08,490 --> 01:15:14,280
I think I asked for 2:20,
or between 2:20 and 2:30.

1730
01:15:14,280 --> 01:15:17,400
And which we'll have a guest
lecturer that will hopefully

1731
01:15:17,400 --> 01:15:20,640
either tell us about happiness
or maybe make some of you,

1732
01:15:20,640 --> 01:15:23,370
or at least myself, happy.

1733
01:15:23,370 --> 01:15:27,040
That's all I have for today.

1734
01:15:27,040 --> 01:15:30,740
I'm happy to answer any
questions that you might have.