Okay, it's the last leg. Our final speaker focuses
on human irrationality and uses science to identify
the behavioral tweaks which can lead to the biggest impacts. He's the professor of psychology and behavioral economics
at Duke University and the founder of the Center
for Advanced Hindsight. Dan Ariely's best-selling books include "Irrationally Yours" and
"Predictably Irrational". Now I don't want you to think that I'm predictably irrational. But I have to just let you know, Dan, that we are both Taureans and we both have a warning today to expect an awkward experience. Please give a rationally
enthusiastic welcome to Dan Ariely. Thank you. Good morning. So first of all I should point out that the reason that I have half a beard is not because I lost a bet. It's because I was badly
burned many years ago, so much of my body is covered with scars including the right side of my face, in case you were wondering. So I want to talk a little bit about behavioral change today. And when it comes to behavioral change, we often think that the right thing to do is just to tell people what
they should be doing, right. If somebody's not behaving in
a way that we think we should, they probably just don't
have the right information. So let's tell them what
the right thing to do is and then people would
immediately go ahead and do that. Is this the case? Let's reflect a little bit
about our own behaviors. So if you don't mind, I'll
ask you a few questions. How many of you in the last month, and please be honest, how many of you in the last month have eaten more than you think you should? Just kind of a general statement. Okay. How many of you in the last month have exercised less than
you think you should, okay. How many of you in the last month have at least once texted while driving. Please be honest. Okay, I know some of you just
don't drive so you say oh. How many of you in the last
month have at least once not washed your hands when
you left the bathroom? It's interesting, right. You say oh yes, I text and drive. But I'm not willing to admit
that I don't wash my hands. Two more questions. How many of you in the last
month have not slept enough? Everybody and last question. How many of you have ever had
unplanned, unprotected sex? Wow, that's amazing. Very few, I'm impressed. Okay so, for most things, for most things we realize that knowing what's the right
thing to do is no remedy, is no guarantee that we'll
actually go ahead and do it. And what that means is that when we think about behavioral change, we need to take different approaches. And what I want to do today is to kind of get you to think a little
bit about social science and about experiments as a
way to kind of get better foundations on how to
get behavioral change. How do we get people to save, exercise, take their medication, care
about their planet and so on? And I'll give you a couple of examples. So let's start with example one. Imagine that we want people
to save for an emergency. Let's call rainy day. In this case, we're talking about some of the poorest people in the world. The experiment I'll tell
you about we did in Kibera, a slum in Kenya. People live on let's say about $10 a week. And we want these very, very poor people to save a little bit. This is not for retirement. It's for a rainy day. And why do we care so much? Because the very poor have
negative income shocks multiple times a year. And what happen when they
have a negative income shock, they have no extra money. Imagine you're very poor. You live hand to mouth. You have no extra money and
one day something bad happens. Maybe you have a goat
and your goat gives you 20% of your income and
one day the goat is sick. And maybe you are sick or
maybe something happens. You have no extra income. You have no way to make
up this gap, you borrow. In Kibera, you might be
borrowing at 10% interest a week. And then let's say four
weeks later things improve. You yourself get healthy. The goat is healthy again, but now you're four weeks
behind plus interest. Really hard to get out of it. So for the poor the world over, people who live hand to mouth, the moment something bad
happens, things deteriorate. So we want people to have
a little emergency fund. Now what would happen if we told people please hold your regular
wallet in your right pocket and hold your saving wallet
in your left pocket, right. And just separate the money this way. What do you think would happen? They would spend the money. I mean, if you walk around even Kibera, you have things to spend. You could buy more water, fruit. There's all kinds of things to buy. So the first principle
of designing this system was to make not the wallet
that is in your pocket, but to get a wallet that
is easy to put money in and hard to get money out. Right, easy in, hard out. Because if it's easy in, easy out, the money will come in and will go out. If it's easy in, hard out, that might get people to put money in but not get them not to have
an easy time getting it out. So we teamed up with M-Pesa, the payment company in
Kenya that you all know. And we created a system
where people could put money through M-Pesa very easy
through their cell phone. But every night, M-Pesa moved the money to an investment bank. And now the money was
in an investment bank. And if you want to take it out, you had to take a bus, go to the city, go to the bank, fill a form, wait an hour, take a bus back. It could take you four or five hours. That's on purpose, right. Why, because you want people to think about putting money in. But then when they get it out, to get it out only when
it's a real emergency. You want people to have
access to the money when it's a real emergency, but not have access to
the money all the time. So that's the starting point, right. Easy in, hard out. And we gave it to lots and lots of people. And then we said, okay, on top of that we probably need to give
people extra motivation. People are not that interested in savings. It's not as if you wake up in the morning and say to yourself, what can I do today to
increase my savings? So we said, what other
motivations can we give? So some people, we just
gave them that system. Easy in, hard out. Another group of people we
gave them the same system with a weekly text reminder that said, please try and save a hundred shillings, about a dollar, this week, right. We just reminded them about it. Another group got the same reminder but it was framed as if
it came from their kids. It says, hi mom, hi dad. This is little Joseph, whatever
the name of the kid was. We knew the name of their kids. Please save a hundred shillings this week for the future of our family, right. Using a little bit of guilt. I'm Jewish. So using a little bit of guilt
and reminder of their family. Another group got a 10% match. We said, if you save up to 100 shillings, we'll give you 10% match. Another group got a 20% match. Right, more money. Two other groups also got the match but they got it together
with loss aversion. What's loss aversion? In behavioral economics, we have the sense that
gaining money is good, losing money is extra bad. In fact, it's twice as miserable to lose than the joy you get from winning. So if today you lost $1,000, you would be really, really miserable. If you gain $1,000, that could be happy. But the happiness will be about
half the size of the misery. Now if you think about somebody who is putting money in and getting more, they're in the gain frame. We said, how do you get people to feel that they are losing, right. So imagine that you're
in the 10% condition and you put 40 shillings in. You get four more at the end of the week. But you gave up six, but you don't see it. So we said, what if we gave
people the 10 shillings in the beginning of the week? Here is your full match. Put as much as you want. And now if you put 40, we leave four in and take six back. So financially, it's the same thing. But what it gives people is the sense of the money that they are
giving up, right, loss aversion. And then the final condition, we gave people a coin about this size and we had number made on that coin. There were 24 numbers for
the 24 weeks of the program. We said, please put that coin
somewhere visible in your hut and every week take a knife and scratch the number for that week. Week one, I saved, I didn't save. Scratch it this way if you didn't save, this way if you saved. Now think about all of those methods. Nothing, the control condition. Text, text from kids, 10%, 20%, beginning of the week, end of the week and the coin. Which one do you think worked the best? Which one do you think worked the best? Now I'll ask you to vote. Not that your vote will change anything. But I want you to think
carefully about what you think, what's your theory, what's your prediction. And also please don't abstain. Like have an opinion, okay. So how many people think that the regular text worked
the best, the regular text? Okay, nobody. Good, it didn't. How many of you think that
the text worked at all, that in fact compared to no text, texting people helped to some degree? Absolutely, it was very
effective, just wasn't the best. How many of you think the text from the kids worked the best? Interesting, usually
it's people without kids that think this way. How many of you think the 10% at the end of the week worked the best? Okay a few. 20% at the end of the week? 10% at the beginning of the week? 20% at the beginning of the week? Okay, and how many people
think the coin worked the best. Okay, so here's what happened. You give that system to
people and people start saving even with no reminder, right. And that's a good thing, right. It basically says that
people want self control. It's kind of like your program
that you think about, right, that people save up front
for the future, right. So you give people a
system with self control and they already wanted and start saving. A weekly reminder helped a lot, right. That's great. 10% at the end of the
week helped some more. Financial incentives work. 20% at the end of the week, just like 10%. Turns out no difference whatsoever. 10% in the beginning of
the week helped some more. Loss aversion works. 20% in the beginning of
the week, just like 10%. But the biggest surprise, oh sorry. And kids were just like 10 and 20% in the beginning of the week, right. So if you think about having kids, they're worth about
20% plus loss aversion. In terms of a motivational force. By the way, this is an amazing
thing about kids, right. It's amazing thing about kids to think that reminding people about kids has the power of 20%
match plus loss aversion. It's amazing, right. And I think we don't use kids enough. And I don't mean in the child labor sense. But if you think about motivation, parents are often incredibly
motivated about their kids. They represent the future. They represent kind of the
better side of ourselves. And thinking about how to use that in persuasion I think is very important. But the bigger surprise of
this study was the coin. The coin basically doubled savings compared to everything else. And I have to say it surprised me. Now, you can come up with
all kinds of theories about why the coin worked so well. But let me tell you how
I came up with this coin. So I was in Soweto, a
slum in South Africa. And I was sitting in a place
that sells funeral insurance. And if you know South Africa, funerals in South Africa
are very, very expensive. People spend sometimes a year or two years of income on funerals. It's their biggest celebration
of their lifetimes, right. In the West we have weddings, for example. In South Africa, it's funerals. You could kind of reason which one is more rational to do but you know, at least with funerals you
have one in your lifetime, so. So I sit in this place and
they sell funeral insurance. And a father comes and he buys
funeral insurance for a week. Right, and just to be clear what it means, it means that it would only be effective if he dies in the next week, right. It only cover him... These are very poor people. They buy small amount of soap
and small amount of insurance. And he buys funeral insurance for a week. And what he does then is he takes the certificate of the insurance and in a very ceremonious
way gives it to his son. And as he does this I think to myself, what is this father doing? Now think about it in a general way. If you're a breadwinner for a family and one day you decide to take money and direct it to long-term
savings or insurance, what is the family going to see tonight? They're going to see less. If you're very poor, they'll see less. There'll be less food
on the table tonight. If they are not as poor,
there'll be less this week. If they are not as poor. But there'll be something
less in the near future. And if you're a breadwinner, when do you get positive
reinforcement from your family? When you do visible stuff. So all of a sudden we do
something that is invisible. And this father, what he
was doing is he was saying, it's not that there's
less, it's just different. And our coin was trying
to do the same thing. Right, we asked them to put the coin somewhere public in the hut. By the way, people don't
visit each other's huts. It's just for the family. But the coin was visible
to basically symbol there's another economic
activity happening in the family. It's just less on the table and more here, but it's not that it's invisible. By the way, when you start
thinking about it this way, think about the nature
of money for a second. 2,000 years ago, how did we save? Basically with goats. Right, goats, chickens, whatever. And the nice thing about saving with goats is you can come home from the office and you could see how many
goats your neighbor has, right. And we could compete
on who has more goats. We could compete on savings. But then what we did was we invented money and then we invented digital money, and we took this incredible activity called saving and insurance
and we made it invisible. And then we took another
activity called spending and made it extra visible. Now think about this competition. What do we care about? Things that are visible or
things that are invisible? Right, of course with that imbalance, we spend much more and
worry less about our future. There was this very sad
study recently that showed that when people win the lottery, their neighbors start spending more money. And in fact, some of them
spend so much more money that they go bankrupt. Now I know what you're thinking. These crazy Americans,
they will do anything. No, these were Canadians. Good people, okay. So if you think about this point, there's this assymetry
between spending and saving, visible and invisible. And the question is how can you solve it? So of course the coin is one approach. I'll give you two other examples. One example, in the US, there's a saving plan called 401k. You go to a new job and they ask you, how much of your salary do you want to divert to long-term saving and the company can
match a little bit of it. Imagine somebody makes some money and now they take a chunk
of it and redirect it into long-term saving. That part is going to be
invisible to the family. Maybe it will be visible
in 30 years from now. But today, it will be invisible. What did we do? We asked people to call
their significant other and discuss it. The moment you call your
significant other and discuss it, it's not visible forever. It's visible for the three minutes that you make that decision. And guess what, you
discuss it, it's visible. People save more. Anther example, imagine that
you take a group of kids on the day that they are born and you randomly open to half of them college savings accounts. And you put $500 in these
college savings accounts. And then you go to visit those
kids on the fourth birthday and what do we find? The kids with college savings accounts have higher cognitive and social skills. How can it be? Do four year old kids know that they have college savings accounts? Of course not, their parents know. Once a month, the parents
get a statement that said, this little kid has a
college savings account. And you look at your kid and you say, you're still in diaper, but they already have
college savings account. And people treat their
kids slightly differently, buy them a few more books, read to them a bit more. It's not big steps but it's
over a really long time. With this data, by the way, we recently, last year, we convinced the Israeli government to open college savings
account for every kid from January 1st 2017 on
the day that they're born. And when we started this project, the people in the
ministry of finance said, let's just reduce the cost of college. It's not the same thing. It's not the same thing to have a kid that the parents and the
kid think of themselves as going to college. Okay, so that's one example of how you want to think not
just about the big picture but the small details. And once you understand
the true nature of money, you think about what's visible, what creates attention, what motivates people, what's friction, what's our behavior. Now we can help people
redirect in a much better way. Let me give you another example. We wanted to help people lose some weight and we said, how do we start? And we said, when do you think, when you walk around your house, when do you think about your health? What in your house
reminds you about health? And the answer is almost nothing. The one exception is the bathroom scale. So we said, okay, let's think about the bathroom scale. By the way, how many of
you have bathroom scales? Great, how many of you are looking forward to stepping on those things? Okay, so we said okay, what do we know about the bathroom scale? The first thing we note, it's a really good thing to
step on a scale every morning. Not so good to step in the evening. The reason by the way is not that we weigh more
in the evening, we do. But what happen if you step
on the scale in the morning, you remind yourself that
you want to be healthy and you eat a little
bit less for breakfast. If you stand up on it in the evening, you just go to bed and
you forget by the morning. Okay, so it's good to step
up on the scale every day. The second thing we know
that weight fluctuates a lot. So we talked about loss aversion. In weight, it's gain aversion. You gain two pounds, lose two pounds. Imagine you don't, on average,
you don't change your weight. It's just up and down, up and down. High misery, slight happiness. High misery, slight happiness. What's the overall average effect? We're not looking forward
to this experience. It's mostly bad news. And the third thing we know, and the third thing we know is that people expect
changes to happen very fast. You go on a diet and you step on the scale
and you say to yourself, I've been on a diet
since yesterday morning. I've eaten nothing but
salad and I went for a run and now look at my weight. Nothing has changed. In fact, it went up. Now what happen is that weight behavior, the time where you start
changing your behavior to the time it has an effect can be about 10 days to two weeks. But we don't have this intuition. So what do we do? We expect changes. So you've been on a diet for four days. You step on the scale and you
went up by 0.7 of a pound. And you feel terrible. And then you take a day off break and you have Netflix and cheesecake and you step up on the scale the next day and now your weight goes down. It's confusing and demotivating. So what did we decide to do? We said, let's create a
scale with no display. If stepping on the scale is a good thing, let's get people to step on the scale. And if they step on the
scale in the morning, let's say congratulation,
you've done your job. And let's give people feedback on an app, but not in terms of pounds. Let's do it in a five point feedback. You're just the same, nothing happens. You're just the same, congratulations. By the way medicine and health know nothing happen is
really good news, right. You've aged for another
year with nothing bad. Congratulations, great news. And then we look at the trend. Here is what happened
the last three weeks. Nothing happened, slightly worse, much worse, slightly better, much better. And it's a running average
of the last three weeks. And we tested this system. We went to a call center. We took a group of about a
thousand low-income obese people. Some of them got the the regular scale and they gained a little
bit of weight every month, about o.3% of their body weight
every month for five months. The people who got our scale
lost 0.7% of their body weight every month for five months. Now think about how beautiful this is. You take this very simple
social science approach and you look at daily things like money, and wallets and scales. And if you just think
about them the right way, you can change behavior. Let me just summarize with the following. If you look at the last,
I don't know, 300 years, a lot of what we have done as humanity is to handle our physical limitations. Think about this amazing auditorium. We have seats, we have stairs, we have lights, we have... I mean, we need heat, we need cooling. And when you have all of those things and we've basically invested
a tremendous amount of money and effort, and motivation, and energy and innovation to basically overcome
our physical limitations. We can travel great distances very fast. We could do all kinds of amazing things. What about our cognitive? What about our mental limitations? What about our ability
to think about money, our long-term wellbeing, our happiness, our health? And I think that's kind
of the next frontier and that's where social science and behavioral economics can help. And the good news is that you, if we just take those approaches, and we even look at the very simple things like money and scale and so on, there's lots of improvements. Thank you very much. They're standing up for you.
Thanks, thanks. Dan, come sit with me. We're all tired. It's the end of a long
conference, there we go. So this is your first Skoll World Forum. Yep. And you didn't need to go to such an effort by the way with the... Oh okay. Nobody told me, yeah. Have you done work on climate change? 'Cause surely that is the
archetypal area where, you know, we are not behaving in the
rational way in which we need to. We know that the majority of
people all over the world now believe that climate change is true, it's real, it's happening, and it's caused by human activities. And yet, we're not moving forward. Are you working on that and if you're not, can I get you to pay recompense for your extremely off-color joke by committing to do so
right here right now? So first of all, it's true. Global change is the worst problem from a social science perspective, right. Think about all the
things that cause apathy. It will happen to somebody
else, sometime in the future. We don't see the progress. We don't see any specific
persons suffering. And you know, we just don't care. Like all the things that cause apathy come together in global warming. It's a very tough problem. And of course everything we will do is a drop in a bucket as individually. One of my students did a very nice project on trying to understand the people who don't believe in climate change. And here is what he did. He took a group of people who, let's just call them Republicans for this, but I really mean people, I really mean it's a shortcut for people who don't believe in climate change. Actually that's old
white conservative men. Quite specifically, I think young women
Republicans are just fine. Genuinely they are just fine. So okay, let's not use that term. He took a group of those people, divided them into three random groups. In one group he said, how big is the problem of climate change? And those people said
ah, not a big problem. Another group he came
and he said, you know, the thing about climate change
is if you want to solve it, you really need more
government regulation. You need more rules to this. How big is this problem? They said, not a problem. The third group he said, the solution to global
warming, climate change, is less government intervention, more small business, support the economy. How big is the problem
of climate change, huge. So one of the findings, the finding here is what
he calls solution aversion. It's that the people who
seem to deny the problem don't deny the evidence. We just think, let's
give them more evidence. They just don't like the solution. Imagine I told you that you
have some medical condition and you just can't eat chocolate. What would you say? I don't have this problem, right. Kind of denying. The people who deny the data, I think one of the questions, are they truly denying the data or do they have some
really deep motivation to deny the data? So I think we need to do that. And then the other things
is we do need to work on, if you think about the experiment I described to you in Kenya, when we said people don't
seem to care enough. Actually, if you think
about all of these problems, not saving and so on, it's just we don't care. We don't seem to care enough
about our long-term wellbeing in all kinds of ways. And the question is, how
can we take our long-term general understanding of what we want and bring it to short-term motivation? How do we make it easy? How do we make it actionable? How do we get pride, motivation? How do you, if you think about the coin, how do you get a daily joy from doing something that is good
for you in the long-term? That's the key. Good, well I hope, I'd love to know that you're
doing more work on it. And perhaps we can speak
further about that. And my final question. You're familiar with Alice in Wonderland which I chose for its fantastic
absurdist irrationality. Which character from Alice in Wonderland do you most relate to? Maybe the Mad Hatter. I think you're a bit Cheshire Cat. I feel like long after you've gone, this smile will still be here. Dan, thank you so much.
Thank you, thank you.
