thank you I'll take this take this very good and so before we start I thought I'll explain why I have half a beard and the that I have the other half but I and there are two reasons for this one is that I stopped shaving that's the reason for this half and the second reason is I was burned a long time ago so I have no no no heron on the right side and but but I started I started not shaving I turned 50 this year and I I went on a month-long hike there's a trail in Israel that goes from the north to the South called the Israel trail and I I took a little bit more than a month to walk not all of it but almost all of it and it was it was a great it was a great month and I did it with the friend from seventh grade and every day we invited people to join us we wanted some people we knew some people we didn't know and we made two or three people and every morning and and walked for about 12 hours and we had three rules for the trail no phones from 7 a.m. to 7 p.m. very good rule and what he said on the trail stays on the trail the Las Vegas of Israel and and the third rule was that everybody introduced himself with an embarrassing story and I have to tell you that I I heard lots of embarrassing stories and I shared lots of embarrassing stories over over this month and it's a it's a great way to introduce yourself to two people so when you when you get a chance embarrassing stories go for it so just don't like lay it out what was your embarrassing story I had many I had 30 days and turns out I didn't have to repeat a story you know and when you start telling them you just realized oh I'll tell you one though so so this was maybe and maybe two years after I was injured and I had a friend with me in hospital and she thought it's about time for me go on a date and she asked me if I would be interested in going in a date and I said yes and she said she'll check with her friends if anybody would be willing to date me and he had no beard at the time wasn't happy but a very different period yeah that's not as attractive as now anyway from this side he looks great of a bearded very rugged look and so I don't know how long she'll be searched but eventually she came up with one candidate and we agreed to go and meet by the beach in Israel and have ice cream so my friend drove me I couldn't drive at a time we we went to the beach and we met her friend and we got ice cream and we sat and watched the Mediterranean and what kind of two minutes into the date and this this woman asked me something about hospital I really don't member what was the trigger and what exactly she asked but she has something about Hospital and I go into this emotional speech about a nurse I really hated this guy was was cruel he would not listen to the patients he would he would he would just hurt us I try to find out when he was on shift and tried to shift my treatment around so he would never treat me and if he was around on duty on the weekend I would try to get operated on Friday so that no really I really hated and I was afraid of this guy and I didn't talk about him for two years I was just afraid of him and hated him but I didn't really talk about him and then she asked me a question and I just go go and I go and I go and I go and I think it's like 15 minutes in which I described details in depth of my my hate to this guy and how miserable he made me and and I finished this 15 minutes of hate speech and I feel cleansed you know I I just offloaded this whole thing and and I feel I feel tremendous relief and she looks at me and she says what's his name and and I say his name and she stands up and she says it's my father and I didn't I did not see her since I think oh all embarrassing stories have dating how I'm anyway shall we move yeah well let's get there let's let's embarrass them and we're gonna do that with I want to start with three questions okay if raise your hand if you know roughly speaking within ten twenty cents the price per gallon to drive your car to fill up your car price per gallon of gas okay keep your hand up if you know roughly speaking within ten twenty cents the price per gallon to heat your home yeah man nobody raise your hand if you use credit cards pretty much everyone keep your hand up keep your hand up if you know at the end of the month exactly what your credit card bill will be a few Liars in the packet raise your hand Megan knows yeah well she has to it's like her job is to be rational uh we'll get to that later raise your hand if at some point this week you promise yourself you're going to get some exercise most people keep your hand up if raising your hand is all the exercise you've gotten this week so we ask these questions because it shows how hard it is to think about money and hardest thing about human behavior that's what our book is about right that first question really home or a car it's the same question what's the price for a gallon of energy yet in one context we're very aware acutely aware of it and the other we have no idea second question about credit cards is sort of about how the time between buying something consuming it and then paying for it really affects how much we're aware of what we spend right we bought you something on a credit card we have no idea how that adds up with other credit card charges and everything else and the third is really about self control how do we when we make a promise to our self at someone who were hopefully not trying to deceive we still break that promise and so the challenge becomes even when we learn good ways to behave with money how can we keep our promises how can we have self-control and really it's true as I found and I'm sure you experience that people do have a really hard time thinking about money we do think about it all the time right how am i how to get more how to spend it who has what we don't really think about how we think about it we just sort of obsess right like we don't watch lifestyles of the porn decrepit whose lifestyles are rich and famous we want money all the time and even the smartest among us like it affects all of us no matter our income level or intelligence level I gotta say for myself before making it big before making it here I I went to Princeton and then I went to law school and Burning Man two or five times but whatever I went to Princeton and my economics professors were the best right that yeah Ben Bernanke was there Alan Blinder that other white guy and I learned from the best and I'm smart I got good grades I got a degree in economics from Princeton so I understood what the perfect economic actor should do but that doesn't mean I did it because I'm also human and you bring in the human element and it just throws off all of the rules of traditional economics and that's what we try to discuss in our book it's like how does human psychology mesh with traditional economics to create you know the real world the mistakes that we make and the real challenge is that we can't think about money rationally sometimes you don't even know what money is and so down I'll start with that like what what is money so so the amazing thing about money is that we can buy lots and lots of things with money right that's really the beauty of money and if you think about the barter economy you have one good and another you just trade them off not very difficult not not not difficult to do now we invented money which means that we can money is the common good there's lots of things and everything has an exchange rate with money which means that we can get money and then we can get other things and that's the amazing thing about money but it's also the thing that makes money difficult to think about so how should we think about money we should think about what are we giving up so every time you go to buy a cup of coffee you should be thinking is this the best is this the best use of three dollars um San Francisco eight a thank you you know so is this the best use of money now in later right now when was the last time you thought about anything this way what was the last time you went to buy anything and said is this the best use for this amount of money now and later very hard to think about it and it's not just for small things it's also for big things a few years ago he went to Toyota dealership and we talked to people who are about to buy a new car these were people who already got the quote they knew how much they were going to pay and we asked him if you were going to go ahead and buy a new car today what are you not going to be able to do what are you giving up and people had no answer why because they never thought about it and then we pushed and we said look something has to give the most common answer we got was if I buy it to your town I can't buy a Honda and they were correct I mean it's true but but it's not relevant right the real thing you wanted people we wanted people to say was I'm giving up eight weeks of vacation over the next four years and 700 lattes and three cappuccinos and 17 books right some some trade off across time and across product category that's the things that people are really giving up but the fact is it's really hard to think about this now imagine that you woke up every day and I gave you $50 to spend today this is the whole amount you head for the day you would realize your opportunity cost very quickly right you would say if I take uber or lyft I don't have money for lunch if I have a big lunch I don't money for dinner the trade-offs would become very very apparent very quickly what would happen if I gave you $350 on Monday morning on Monday you will not think about the opportunity cost on Tuesday you will not buy Thursday you will think about the opportunity cost but it'll be a little bit too late what would happen if I gave you the money for the whole month what would happen if I gave you the money for the month but charge you taxes the following April and then I added credit cards and student loans and mortgages and car payment now the trade-offs between what we get and what the consequences are are really marking if you're walking down the street today and you see a new bicycle for $1000 and you think about getting it what exactly would you not be able to do if you get this new bike incredibly unclear so the thing about money the magical thing about money is that it can buy lots and lots of different things but we have to think about opportunity cost sadly we can't think about opportunity cost and technology things like mortgages credit cards student loans are making it harder for us to think about opportunity cost and therefore if we can't think about something the right way we think about it the wrong way and and it turns out there's many wrong ways to think about money and that's the will will try and touch if you have that's sort of what we try to lay out in the book is the wrong ways we think about money and you know I want to be clear one of the reasons I sort of agreed to do the book is we don't end up being like Suze Orman and saying you should put 10% here you have to do this it's more you want to show you what you're doing so that you can then essentially create systems to use your human faults to your benefit all right we're realistic we're not gonna change human nature we just want to recognize it so that we can improve the outcomes that we have and one of the big things that is sort of a human fault to human nature trap has to sort of do technology it is what's called the pain of pain and technology reduces the pain of paying and what the pain of paying is is what it sounds like we feel pain when we pay for something I'd imagine handing over $20 bills of goodbye 20 and actually like the same area of the brain is activated that is pain area at when you pay and normally pain is a good thing right you feel a broken leg you feel that pain you know you should get attention you put your hand on a stove there's a burn you know you should take your hand off the stove right in seventh grade you call up Megan Flaherty and say hey it's Jeff you want to go out and she goes Jeff whoo you avoid girls named Megan sorry Megan but instead of feeling the pain what we end up and then thinking oh I should avoid the activity that's causing pain we numb ourselves to it we don't let ourselves feel the pain and then we're never in a position where we have to consider opportunity costs right and you know Jerry Seinfeld has a great routine sort of demonstrating this like about helmets I said you know all these humans we were doing all these activities which are bashing in our heads instead of stopping the head bashing activities we just put a helmet a little piece of plastic on our head right to numb the pain and that's sort of what we do like credit cards a little piece of plastic that numbs the pain of pain and credit cards are you know in some ways the best example of it because they adjust the two things that cause the pain of paying one is the time between payment and consumption of an activity or product and the other is the attention we pay to it now as far as the time you can consume something and pay for something in a three basic different ways one is you can pay for it beforehand and this has the last the least amount of pain of pain all right like imagine going on a vacation like this has happened to us on our honeymoon we paid for it all in advance prepaid we probably paid more than we would have if we had done a different method right but we chose to do that and then on vacation we didn't feel any pain of paying right every time you went to get a drink or rent a snorkel or get another drink or go swimming or find out what we could drink we didn't think about money we just enjoyed the time he was not painful at all now imagine if we had instead paid for that after the vacation right on checkout are we looking through a 19 page itemized bill and we're wondering how was it worth it to get that wine that we left behind and while we're doing things we might be thinking oh should we go snorkel it's like the fifteen dollar charge I don't know if it's worth it and we wouldn't really you know enjoy it as much now we probably would spend less money that's a choice but it wouldn't be will be more painful of course the most painful way to spend is to pay when you consume it I imagine every time you go to the snorkel Hut you hand over 15 dollars cash or every meal you pay for that meal while you're on a week-long vacation we would spend less money feel the pain more but will we be less enjoyable I and and dan has a couple great experiments about the pain of paying and you know I just want to point out with this example again we're showing you what you do but you can choose to youth like we chose less pain of paying because it was a vacation but when you do it all the time unconsciously it sounds good so so imagine tonight you going to dinner and you can either pay with credit cards or with cash right which one would be worse the cash right more painful we all painful you you will enjoy it less and it's because of the timing right and we can actually make it worse how to make it worse what would happen if I gave you and if I charge you per bite right and I would give you a discount but I'll charge you for bite I'll serve you your dish I'll sit back and every time you take a bite or mark a little check on my note notebook and at the end of the evening I'll charge you per bite how much would you enjoy that meal not so much and when I teach about the psychology of money in my class I sometimes bring pizza and I charge the students 25 cents per bite what do you think happens huge bites George bites and and you would think that the students would learn right you would think oh I'll take one huge bite they'll realize it's really impossible to chew that amount that is incredibly unpleasant and then they'll learn for the next bite but they don't they they sit there with the pizza and it's like they say to themselves I can push a little bit more in and make it more financially efficient and and they can but they really don't enjoy the process and so so the pain of pain is this thing that we can dial up and we can dial down right if we wanted people to eat less we could charge people per bite and then people would eat less so think about energy consumption and how can we decrease the pain of paying with energy consumption it turns out the on average when people move from writing a check to automatic deductions from their checking account energy consumption goes up by about four percent why because we don't notice it now writing a check once a month it's not a big deal it's not a lot of pain of paying but it's some pain of pain and it turns out that if you go through the process of writing this check once a month you basically as you write it down you look at the lights around you and you decide to change a few things and if you somebody else is in the household you tell them to start turning lights off right so you terrorize people a little bit but you don't consume as much as much energy now how could we increase the pain of paying even further imagine that we took your energy meter and rather than having it outside we would have it in the middle of your kitchen and not only that you had to feed it cash it wouldn't take credit cards you had to feed it cash and you see how the cash is going down and then you have to fill it more if you had a system like this I'm willing to bet it you will be much less comfortable at home right you would be you would be colder in the winter and warmer in the summer it could be less less pleasant or another example you remember when the law in California was passed to charge people 10 cents per paper bag on that day I happened to be in California I was in Palo Alto and I went to sit in Whole Foods now Whole Foods Palo Alto probably the most expensive supermarket in the world yogurt costs an hour of minimum wage and you know people paid incredible amounts so a little bit to scale and in something and how foods could have increased the price by a dollar and nobody would have paid attention if the price went from $150 251 nobody would have paid attention but it didn't just increase the price they wanted to increase the pain of pain so they said this was your bill do you want to pay 10 cents per bank right now it's a very small amount but it's important that it was separated and now people say no give me this canvas bag for five dollars and people start carrying it and bring it back by the way it was not the first attempt to get people to start stop they stopped using a paper bags but separating increasing the pain of pain made a big impact on on behavior so in Jeff example you say you know you don't go on your honeymoon too too often two or three times three times yeah you know go for it enjoy it dial down the pain of pain but but on many things in life we might not want that now think about where technology is going we said we have cash we have debit cards we have credit cards right pain of pain goes down where are Apple pay and Android pay they're even less pain of pain it's wave something in it you just you just walk them in the ideal of the payment industry is you just go into a store buy stuff you disappear somebody at some point will charge you you don't even think about that that would certainly get us to spend more money and save less who exactly is it good for and they you know their studies that this is really the credit cards do make people spend more tip more and they're less likely to remember how much they spent and therefore be able to change and one study that I found fascinating was just credit card paraphernalia like a MasterCard sticker and a little charger machine had the same effect it's made us still spend more and more and forget it it was like we were Pavlovian except a set of drooling at food or eaters Elba it was credit cards and it's incredible to me that it has that impact and that's why again think about it for the honeymoons fine but be aware of those habitual habits one example that I've used recently because I'm at this age is about investments 401ks right typically if you're at a job congratulations you get a 401k you pick it once right and the money goes in and then you know maybe every six months or whenever you get a report of your earnings you see it go up but you've also chosen something with a management fee all right let's for round on real estate it's 1% management fee you never see that money leaving you just see what you're earning but imagine you have like a million dollar portfolio which I realized in the Bay Area is poor but in passion you have million dollar portfolio there's one percent fee on that what if instead of just getting your reports and casually looking at them and every noticing what if instead at the end of each year you had to write your broker a check for $10,000 wouldn't you feel the pain of that pain and stop and consider opportunity cost is there another place I could put my money you would but we don't and that isn't even that advanced technology and the technology is going further and further and technology I think particularly in the Bay Area is something that I really I want to talk about because I think dan and I are both very skeptical of financial technology but there is a way to use technology to sort of attach on to our behavior to do better and and one area is perhaps about goal setting and maybe there's something in you know a new have you I'm trying to like yeah tell about the scale Dan okay I'll work on the segue okay so okay so so I want tell you a story about the study that we've been doing not in the financial realm but something in the weight management realm and and there's some and there's some similarities you will see so so imagine that you approached the world of weight management and you said I want to help people reduce their weight what would you start from where would you start from like what what would be a starting point and you know if you think about people's mindsets you would say most of the things we see around us are about being unhealthy and think about your own house what in your own house reminds you being about being healthy maybe your toothbrush right maybe your medicine cabinet and maybe your bathroom scale but that's about it right so we said okay let's take on the bathroom scale if somebody gives you two square feet in their house take it right if you're an app on somebody's page four of your phone that's not good real estate if you get two square feet in somebody's house that's a really good place to be so we said okay and we have this scale we want to we want to create a good scale then we said okay what do we know about this scale and we know three things about this scale the first thing we know is that it's really good to stand up on the scale every morning it's not so good to step on the scale in the evening the reason by the way is not because we gained some weight we do but the reason is that if you stand on the scale in the morning you basically are careful about your weight it's almost like a commitment device you said you said oh I want to be healthy and then you remember it for a few hours and you eat a little bit less for breakfast if you step on the scale at night you just go to sleep you wake up in the morning you forgot the whole thing so stepping on the scale every morning is a good thing the second thing is that weight fluctuates a lot think about weight fluctuates in up and down up and down up and down let's say by 2 or 3 pounds a day what is that experience of having your weight fluctuates and there's something in in financial decision-making we call loss aversion loss aversion is the idea that we hate losing more than we enjoy gaining if one day you lose $1,000 you're really miserable if another day you win $1000 you're happy but they don't balance each other out you need to win $2,000 to make up for the thousand dollars loss it's about two to one ratio imagine somebody that on average doesn't change their weight but they go up and down up and down the days you go weight goes up really miserable the day your weight goes down slightly happy on average the experience is not positive and think to yourself how many of you have bathroom scales almost everybody how many of you look forward to the experience of stepping on those things one okay and so so that's the this creates gain aversion right these factors the other thing that happened is that we expect changes to happen very quickly so if you go on a diet for a whole day like the whole day like salad you go for a run and you step on the scale the next day what do you expect you expect to see something happening it's been a whole day the reality is you can go on a diet for 4 or 5 days and not see anything improving the body can take ten days can take two weeks so imagine somebody who's gone on a diet for three days and then they step on the scale and the weight goes up by half a pound and then they have a whole day of Netflix and pizza and they step on the scale the next day and the weight goes down by 3/4 of a pound it's it's confusing and demotivating so we said okay if you think about all of these things scale good stepping good variance bad and confusing and demotivating we decide to create a scale with no display okay we said we said let's separate this idea of weighing yourself from the feedback they're two separate things right when the scale was mechanical the display was on top but now we don't need to have it anymore so we created a scale with no display people stood up on the scale and we say congratulation you stood up on the scale you've done your job that's great right if people step in the morning and then and then we do go on to give people feedback but we don't want this variance so we give people feedback on a five-point feedback you're just the same nothing is happening if you're within one standard deviation we say you're just the same slightly better slightly worse much better much worse and this is a running average of three weeks and if you think about it sometimes we think about information is accuracy like let's be accurate I'm a hundred fifty eight point seven and not point eight it's point seven and but the reality is that most of the time we want information not for accuracy but to help people make good decisions and if you think about this idea I'm just the same improving deteriorating a little bit that's basically all the information we have granularity for I stopped eating dessert basically it's moving in the right direction I started exercising it's starting moving in the right direction I stopped exercising this is what's happening that's basically all we have now up to now this is just theory right I'm just telling you the the logical argument based on what we know about human motivation so we tested this we tested this in a call center you know it's relatively easy to test improvement in health for healthy people the difficulty is to is to take people who are low-income relatively obese and change change we have you so we went to a call center mostly obese low-income and we had a thousand people it's about a thousand people and one-third of them got the regular scale they stood up on the scale and they got the exact reading of their weight you're 225 point three whatever it was to two-thirds got our scale they stood in a scale they just say congratulation that they got the feedback on this truncated approach the first group the group that got the regular scale gained a bit of weight every month for five months every month people gain a little bit of weight with our scale people lost about 0.7 percent of their body weight every month for five months now ideal body weight is one percent it doesn't create ideal body weight loss I did body weight loss is one percent we didn't get all the way there but think about this idea that you take the regular scale you look at it from the lens of social science and you say let me think about what all the functions of this scale are does the stepping is the feedback that's the learning and let's improve that and just with very simple if movement we can change behavior quite quite dramatically and and you will see that the lessons here I mean there's there's all kinds of lessons here but our approach when we talk about making better decisions about money is not about you going to buy coffee and rethinking about your life priorities every time it's about creating a system that actually gives us a good sense of control and can help and can help us process the information better and make better decisions you seem like in that situation a comparison would be investing in the market or for retirement right there's gonna be fluctuations and if something happens you get emotional and a loss and you might react whereas if you do something more like set it and forget it as a term paper and you are not reacting to that your long-term results will be better actually fidelity in fidelity found that the best investors were dead ones really yeah because because dead people don't go in and change their portfolios when when things happen they just don't react and and good good strategy I mean just imagine you were dead in 2007 and you wouldn't have touched your portfolio right that would have been really no good for the portfolio a lot of people's companies were dead in 2007 but you talk about the real estate in someone's apartment or house and trick of the Bay Area prices are crazy and I know people probably deal with buying real estate and it's stressful and you deal with brokers who in a minute or a few minutes when we can talk about maybe there's a conflict of interest of brokers - but put that aside the real estate market is a great example to sort of enter into another of the traps that we set for ourselves one another one of our human faults when it comes to the way we miss think money and this is not about right we're moving now from small decisions to huge decision and it really it's the big decisions that we should think about these things that everyday coffee or piece of gum don't worry but it's the big ones so real estate I think is a great example so there's a study in Tucson Arizona some years ago and this is the Bay Area in 2017 don't cry when I tell you the prices they brought realtors into a home that they'd set up and they gave them the MLS listing they told him about the school's the construction every piece of information you need to assess the value of a home and they asked the Realtors what is the value of this home right now they also told the Realtors what it was listed at now to the Realtors that they said it's listed at one hundred and fifty thousand dollars those Realtors said a figure let's say you know it should be 135 - the Realtors that they said it was listed at $200,000 those Realtors gave a higher estimate 250 even higher this price the list price is totally irrelevant should be it should be right but they were affected by they should just judge the schools of construction all that they're experts in the field and yet they were influenced by this list price now just to not give any Realtors here a bad name they also brought in lay people who had no experience and they were affected in the same way but much more right they were much more affected by that listing price and I wonder we hope you've still give real - as a bad name well yeah I the bear there's probably a lot of real homer actors who are trying to be Realtors no just me and my friends perfect okay so beyond the potential for making realtors are non-existent industry what is what's happening there why are realtors and lay people affected by listing for us so so this is basically about anchoring and relativity right so so think of yourself how do we judge things how do we value how we judge the value of something and it's very hard to judge the value of something in isolation so what do we do we value it in relative terms relative to what whatever we can find listing price irrelevant but it's a number let's let's use that as a as an example and think about the example of the first the first Apple iPhone right we just had the Apple 10 this was maybe 10 years ago anybody here bought the first iPhone and came out a few people in the back okay so so if you remember when the first iPhone came out it came out at $600 and then a few weeks later Apple said sorry sorry sorry it's only $400 now was this a good idea was this a good idea to start with 600 and go to 400 also they've started with 400 now think about the following tasks that you have to do as an individual to figure out how much this phone is worth and we knew about phones beforehand but this one was different and what was so different about it you could do this and you could do this you could pinch and you could swipe that was basically it and your task is the consumer was to say how much are these two things worth is pinching like $50 and swiping 75 if you're running for office is inching is very not enough so so if you think about it it's really hard to value how do you value the thing itself how do you value the thing itself and figure out if it's worth something but now think about two universes in one universe it started at 600 and now it's 400 in the other one it starts at 400 in which one of these two universes do you think the iPhone is a better deal and 400 in the first one you say my goodness it's 2/3 of the price I can't believe it it's this cheap I get swipe and pinching so for 2/3 of the price that's an amazing deal so what happened is that we have lots of irrelevant cues even more bizarre irrelevant cue is one of my friends in the study she asked people to evaluate art people saw a piece of art and for the study she asked him to pick up the painting and to kind of put it to different angles and to look at it very carefully and then put it back and say how much they would pay for it and what she did was sometimes the frame was just the regular frame and sometimes she filled it with lead so it was really heavy now people did not get the frame they were just asked how much they would pay for the art and people are willing to pay much more for the art when it was on a heavy frame like but you know you lift it up it feels serious and all of a sudden the evaluation of the art goes up we are influenced by lots of irrelevant views listing price is one now the thing about listing price you know it's not often the case that we lift paintings with with lead frames but listing prices are on everything right this is what the manufacture suggested retail prices almost everything you go to somebody has a starting point starting price are you evaluating separately how much you're willing to pay for it how valuable it is or are you saying that's the price let me just pay for this right if you if you say that with real estate we take the listing price and we're willing to pay much more for a house if it has a high higher listing do we do the same thing for coffee the answer is probably yes by the way there's another thing about coffee here and sorry about this side and I went I went to somewhere to have coffee maybe feels no that's right and maybe not actually don't to bad-mouth anybody specific I really don't remember but anyway who feels so so sorry I go I go to have coffee and like each cup is a ceremony they they they have Delk a little wooden thing and they put the cup below it and they have a special filter and they pull the water very slowly the right shines down and and it's it's a huge ceremony in ceremony and eventually the coffee you know it's fine and it takes a really long time and the line is very long and and it's a lot of work and it was like I think it was close to $8 but but it was it was a lot of work for coffee and I I was wondering what would happen if they made it in a two gallon bucket right like they had a huge wooden thing and a huge filter and they would put the water from like a faucet to the hot water and they scooped it out with their hands the coffee and they would basically make a big pile of it every time so they could serve people fast how many of those people would pay not eight dollars they would pay like 150 for it and and I think that what happened there is that people fell paid for the labor of that person they didn't think about it they thought they're paying for the coffee but the reality is that they were paying for this person to pour the coffee very very slowly and take a lot of their time in the process they're paying for the effort the effort right which is another like value cue that we fall for like how much effort you're more likely to pay more for a locksmith that takes an hour fumbling and breaking stuff to let you in than someone who opens a or in a minute because you how do you value the worth of getting into your home that's a hard thing to put a price on but you see this guy's working hard for an hour and and saying like data recovery you'll pay for someone that takes a week to recover your computer or not that does it right away and that's another thing that we fought that like there's a legend of Pablo Picasso sitting in a park and a woman comes up to him says your Picasso would you paint my portrait and he looks at her for a minute takes out his brush and one stroke creates an image and hands at or she goes oh my god you've captured everything about me I essence my life my future this is amazing you know what do I owe you he says $5,000 she was what that's that's not fair took you know effort you just took you a minute he said no it took me my lifetime plus a minute but in that moment how does she value the worth of a Picasso painting of herself all she can go on is the effort that she saw and when we rely on effort or fairness of a price we sort of take ourselves further away from thinking about opportunity costs and and before we dig into fairness because it's in the book something about fairness and about what you're talking about with the real estate agencies and relativity it's I've always been struck by the potential for there being sort of a conflict of interests with real estate agents because to them you've got you what a million dollar if you're trying to sell a home right and you got it it's a million dollars and maybe you could hold out for a million and 50,000 but they only get 6% of that so to them the relative earnings is you know a few hundred dollars they're gonna want to get it off their hands and get their money whereas it relatively speaking you're gonna you're gonna get more money so so in there's a conflict of interest and I wonder how the conflicts of interest really play out yeah so so we've actually been studying conflicts of interest for a long time and what's interesting is that we have lots of them and we don't seem to think of them as being very corrosive and you know one of the best investments in the u.s. even before the current administration was to invest in lobbying and and the reason that lobbying is such a good investment is that people are cheap you know you buy somebody a sandwich and a drink and they start looking at life from your perspective right and and in the social realm it's beautiful right it means you meet somebody you buy them a drink and they start looking like from your perspective and you become friends it's great you combine that with business or with lobbying now it's incredibly dangerous and we've created an economic system with lots of conflicts of interest of course banking medicines I mean we have a lot of conflicts of interest government and the thing about it is we just don't don't see it and so we we've been trying to we trying to figure out how to solve this and actually I'll tell you want one monster office of interest I'll still about my beard I know it sounds like I'm obsessing with half a beard but excessive like itchy stage right it really is so so this was when I was shaving and I this was maybe I don't know three or four years after I left the hospital and and I go back for a checkup and the head of the department catches me and says Dan I have a new fantastic treatment for you come with me to my office I go into his office and he says look your left side when you shave you have little black dots stubble the right side there's no hair there's no stubble it to look non symmetrical and he says let's fix it how he was going to tattoo the right side of my face and with little dots too to match the left side and he says go home shave tomorrow come in the morning by noon your symmetrical I Drive home and I think to myself what kind of symmetry should I aim for like the early morning shave the afternoon shadow you know it's a big question right it's for life you know anyway I I get to his office the next day and I say you know what I'm not sure I like this so much it's I'm not sure it's for me I said can you show me some pictures of people you've done this to and you showed me to two people that they've done it to and looks really nice I mean it looks like stubble I decide it's not to me I said you know what it's not something and then he gives me this guilt trip he says Dan what's wrong with you he says do you enjoy looking on symmetrical do you get some benefit from looking different said doo-doo-doo people feel sorry for you and you like this and and anyway I left this office and I was a little surprised about the guilt trip so I went to his deputy and I said what's going on like was this guilt trip I was in this department for three years I did lots of surgeries I refused quite a few I why the culture and he said well we've done it on to patients already which I knew he said and we need a third for an academic paper now now you could think that this guy was just a terrible human being but he wasn't he wasn't and I'll tell you another story about the same person you don't have luck with medical mail so I also lost the the right half of my eyebrow and this guy really wanted to fix it and you know I couldn't care about half a diaper like so many things were wrong with me half an eyebrow was not high on my priority list and he really wanted to fix it so any kept on bugging me and bugging me about half an eyebrow and one day I went into surgery from my hand and I told him you know what if you really want to do the eyebrow come at the same time I'm not doing another surgery for half an eyebrow but come and join the party when I'm sleep anyway go have do it anyway he shows up after the surgery started and it turns out that the hand team is taking way too much space he can't do it so he has to wait eight hours when they finish then he starts in and you might think that half an eyebrow is an easy thing you just plucked some hairs and put them there now it turns out it's complex he shaved my head they took a Doppler machine he tracked all the blood vessels he isolated a blood vessel going up to a piece of hair a blood vessel going down isolated them kept the act they they the little piece of hair scalp connected to the two blood vessels going in and going out redirected it and took it out of the half an eyebrow it's called an island flap and anyway took him I don't know six hours to do it now this was Israel so socialized medicine the guy doesn't get paid for anything he does I mean it gets a fixed salary but that's that's it and so so basically the only thing he got from this was you know not sleeping another night and maybe some you know satisfaction to his symmetry fetish and now now you hear about that story and you say here's a wonderful kind human being and he was right he was my doctor for many years he passed away sadly a few years ago but he was an amazing guy in many ways but at that moment he had a conflicts of interest right he really wanted that paper out and and when we have conflicts of interests and money is a tremendous source of conflicts of interest we basically behave in debt conflicts of interest colors our perception of all kinds of things and we don't see things the right the right way and there's lots of examples and lots of examples out there sure and so one of the lessons is to be aware of potential conflicts of interest our own our own end and people who are providing us with service and I mean you know sort of not related but I find that our book solves all of life's problems yeah but I do think that our our book and the lessons and all these we don't have a conflicts of interest I mean because it's obvious that words because I all all the money goes to the research center it's true yes so so we'll buy me a sandwich and I will see your perspective that's right but the book is not going to help this your perspective no but the book will help save your life and it will help you create ideally systems again we're not gonna teach you tell you what exactly to do but to think about human failings and think about systems and I would love if we can do a relatively short version of a system that you designed that I think really demonstrates that that no matter what the contacts no matter what the culture like human behavior is the same across all cultures when it comes to thinking about money you know you designed a system in Kenya that I think was very effective and shows what thinking about the psychology of money can do and when you say very quick you mean I need to go I mean like can you do six minutes take spoofing formula 35 and danboy okay okay let's put in two weeks on tour so so okay so this is this is a study in Kibera Kibera the slum in Kenya and we try to get very poor people people who live in about ten dollars a week to save a little bit of money and this is not retirement this is for a rainy day because here's what happened and it happens the world over if you're very poor you live hand-to-mouth you don't have any reserves and then bad things happen and bad things happen from time to time and then what you either borrow at a very high interest rate in Kibera interest rate can go up to ten percent a week or you sell some possessions so you have a lent in year you have a bucket and you have to sell them but whatever it is life start deteriorating so bad things happen there's no reserve and things start getting worse and worse and worse so we want people to keep a little bit of money for a rainy day so so what are the principles of designing something like this it's to make the desirable behavior either easy or hard depending on what we want so we said let's make putting money in very easy so we team up with impaired so the Kenyan payment company 80% of the people in Kenya have an impaired account about 20% of them have bank accounts but empresa is everywhere and we create a system where people can tax money in point number one but every night and pacer moves the money to an investment bank and now you can take the money back through an peso if you want to get the money you have to take a bus go to the city go to the band fill the form wait an hour take a bus back it could take you about five hours and that's by design because if it would be very easy to get the money back lots of things would become emergencies so we wanted people to have access to the money when there's a real emergency but we didn't want everything to become a real emergency okay so imagine the system is in hard out and we give it to lots and lots of people and then we add things to it one group just get that system let's call it the control condition another group get that system plus a weekly reminder that said try and save a hundred shillings about the dollar this week and the group get the same text message but it's phrased as if it came from their kids so it says hi mom hi dad this is little Joseph whatever the name of the kid was try and save your hundred shillings this week for the future of our family a little bit guilt connected another group got a 10% the Jews names you right you guys know another group get a 10% match save up to a hundred shows with 10% another group get a 20% match to other groups get 10% and 20% but with what we call pre match so imagine you're in the 10% condition and you put 40 shillings we give you four now you did not get the full 10 you gave up on six but you don't see it so in the pre match condition we put 10 shillings in your account in the beginning of the week and then if you put 40 we leave you four and we take back six but the idea is that every week that you don't put at least 100 shillings we take money back it's like that loss or any loss aversion exactly and then the last condition is we made a coin about this size and we had 24 numbers etched on the edge of it and every week we asked them to take a knife and scratch the number of that week week 1 2 3 4 up to 24 scratch it this way horizontally if you didn't save and vertically if you saved now think about all of those approaches text at some kids 10% at the end of the week 20% then of the week then person beginning of the week 20% bigger of the week in the coin how do they perform when we ask people to predict people think 20% will create lots of saving 10 less and the rest of it will not do anything reminders kids coin will not will not matter and people think loss aversion will have a small effect what actually happens what actually happened is that you give the system to people and people start saving it's like a self control system easy in hard out people want to have some money that they can't have access to right and you can think to yourself about how many of you over pay taxes so you get a refund at the end of the year it's not optimal but we like to basically have some money that we then can draw that we can't access as easily so you give that system to people people start saving you remind people once a week saving goes up a lot you add 10% at the end of the week people save a bit more 20% at the end of the week just like 10% no difference 10% in the beginning of the week people save a bit more 20% the beginning of the week just like 10% and kids were just like 10 and 20% in the beginning of the week now think about what it means about kids right what it means about the motivational power of kids and and I don't think we use kids enough and easy then watch your language and I don't mean in a child labor kind but but if you think about kids were instrumental in things like seatbelts and smoking and is it because it helps us think about the future exactly exactly and so but anyway but the big surprise of the study was the coin condition the coin condition basically doubled savings compared to everything else and the question is why why was the coin so effective so so I'll tell you how I came up with the coin idea I was in sweater sweater the different slum in South Africa and I walk around and I see a father a buying funeral insurance for a week funeral insurance for a week fuels in South Africa sDrive Eric's are very very expensive people spend up to two years of income on them they're like the the big celebration of life right in the u.s. it's maybe weddings in in in Africa South Africa in particular it's it's funerals and this father bought funeral insurance for a week which means it would only apply if he dies in the next seven days right these are very poor people they buy small amount of soap and small amount of insurance and it gets this little paper certificate for his insurance in a very ceremonious way he gives it to his son and as it does this I think what is this father doing I say let's think about the family when this father who is the breadwinner and the main breadwinner when he puts money into insurance or saving what is the family going to see what is the thing that they are mostly going to be selling to them is that there's going to be less right if you're very poor they're going to be something less tonight on the dinner table maybe a little bit of less water less kerosene is going to be less if you direct money away from consumption is going to be less and if you're not as poor it will be less in the next week on the next month but it's going to be less and and what the coin was supposed to do was to show that it's not less it's just different it's to basically get a family level of understanding that we have this other activity it's represented by this coin and we're doing that as well now now what this suggests is that we should think about how we make money more visible particularly savings particular savings so for example when you went to your current employer and you sign up for your 401k what is the process you go through a jar you get this form you decide how much to to put in your 401k and then the rest goes to your family what would happen instead if at that moment you had to call your significant other and talk to them about how much to save my guess is that your significant others don't know how much you're putting in your 401k it's a decision we make during a jar we don't necessarily communicate that so it's invisible but but if we make those things visible within the family people do do save do save more and there's a bigger thought here imagine a thousand years ago how did we use to save we save in goats livestock right and when when we saved in goats you could come home from work and you could see how many goats your neighbor has and you could see how many goats you have and you could compete on who is more goats we could compete on savings then we invented money then we invented digital money and we took this incredibly important activity called saving and insurance and remade it invisible and then we took this other incredibly important activity called spending and we made it extra visible think to yourself how much how much what do you know about what your neighbors are saving it's nothing you know quite well what they're spending money on right there was a recently a very sad study that showed that when people win the lottery their neighbors start spending more money and and you probably think all these crazy Americans you know know these were Canadians no good reasonable people got a handsome leader and I probably said no politics handsome person the others and now now the thing is we would compete on anything right we just need to be able to measure it and and we've created I don't think we did it intentionally to say let's take this incredibly important activity called saving and let's make it invisible but that's what we got and and this will means kind of the one of the reasons to think now about money as long as we had paper money we're kind of limited in what we're going to do it was paper money now we have digital money we can do lots of things with it and the question is what kind of money do we want to invent do we want to invent the kind of money that would get us not to think about spending and spend more with less pain of paying do we want to keep to invent the kind of money that would get us to think more about saving do we want to get the kind of money to get us to think about opportunity cost what kind of wallets do we want to have and I'll give you one one last example for this there was a study that was done in the north of India these were migrant workers who could not find a good job at their local place and they went to the north of India to try and find job and then send money back and as you can imagine the place where men to find local work temptation shows up as well and people spend too much and don't send enough money home imagine the following experiment with three conditions condition one you give people an envelope with all the money they made for the week in one envelope people spend almost all of it condition 2 you give them the same amount of money in 4 envelopes and you seal the envelopes what happens people send more money home and people stop at the end of an envelope when you open an envelope you kind of finish it it's like a big bag of popcorn versus a lot of little bags you'll stop each one if you have a big tub of popcorn you'll just finish the whole thing if you have 4 tubs with the same total amount of popcorn you will think about it when you switch from tub to tub if you're in the middle you just eat but this small change of saying I really want another one gets people to pause stop and something decide not so you divide it into 4 people do better and the best approach was to divide it into 4 envelopes and write the name of their kids on each envelope and now people could see the opportunity cost right this money was supposed to go to this this case this is what what we do so so what kind of money are we going to design I think and we could design things internally within the family right you could decide to start talking to your significant other about how much you would holding you could decide to figure out what to do with credit cards debit cards and cash and and how to move money automatically all we can think about startups and we can think about what kind of new systems do we want to create for money so that we can make better decisions yeah and I think the comparison of savings and spending is really demonstrative there's a study again men are more willing to admit whether they're using viagra then how much they're saving for retirement all right think about the embarrassing stories what's more embarrassing right like how little your retirement is or if you're using viagra and our hope and my certainly my don't how many people here you want to try and see if people are willing how many how many people here have some sort of sexual dysfunction and need to take pharmaceutical aids how many seats help to see with the light yeah it's hard to see like okay how many people here are on track for their retirement savings yeah they're Liars okay the point is you have been primed to give the answers that you think we want to hear but the point is in general we don't want to think about savings and it's a demonstrative of the type of systems a type of human behavior we can use to create systems so that we behave better with money and our hope our delusion is that this book and other people's work and the studies out there will encourage more conversation about our human flaws that we can talk within the family or the community about our savings about how we deal with money so that we can all really live a richer more full life and and use a little bit less mental energy obsessing about money and more doing things that matter like sharing time together drinking wine and coming to events like this so with that I'd like to open it up to some questions and I will insist on gender equity we're two men talking about finance so please ladies ask away to short Jewish men I wasn't going to draw attention to the obvious of question over here yes hi thank you very interesting stuff I'm curious if there are any examples of experiments or systems that you could talk about that incorporate need because I find that I often have packages arriving to my home and often they're full of books and that I have a full bookshelf and I will find room for yours but curious how need sometimes comes into these considerations do you mean need in terms of like I need to get food to survive or need like I need more room for a bookshelf it need of of products that you're buying that you probably don't need yeah so so so I have to admit I have a Kickstarter fetish I'm trying to get better and you know and and I have this optimistic bias that I say this is such an amazing idea and I'm sure they'll do it now I no longer think they'll do it on time like I've I've cured but I think they'll actually get there at some point within a year from the date there's still some things I've been waiting for so so I think what happens is that when you see something that you crave right I don't think we want to call it needs but but you see something that you crave your emotion gets acted and and then you're just not thinking so let's think for a second about how emotions work emotion in general is basically like a program that gets executed and substitutes thinking so evolutionary speaking imagine that it's 10,000 years ago you're at the edge of the jungle and you see something that looks like a tiger what what what does Nature wants you to do to take out an Excel spreadsheet and start calculating the cost and benefit and what's going to be of course not nature wants you to turn around run away as fast as possible right emotions are supposed to take over and get us not to think now in that case it's the emotion was an in egative one but tiger woulda caught me I'm really slow but but they there's a lot of things that the emotion is positive and at that point you're not in a mindset of cost-benefit analysis right now imagine that businesses had two ways of approaching you one was through your rational logical part of yourself and one was through your emotional hot triggers which one of them do you think is easier and think about beer commercials while you're answering yes so so the emotion is easier right it's easier to get you to take to the connection and the things that we need to do is we need to take things to take actions against it right so so if you buy a too many books oh so I was just a great obsession by oh it's a great addiction so I'll talk about myself so and I try not to go into Kickstarter right I know that when I'll see these amazing ideas that is amazingly creative people I'll just feel like supporting them and I try to limit myself now it would be really nice if Kickstarter helped my addiction by saying you know what then why don't you pick an amount per year that you're willing to to support here and will not let you do more than that right that would have been a really helpful approach and I think I would have supported more things right now I have kind of this love-hate relationship with it so you know you want to think about rules because if you have to think about it every time if you have a book fetish you'll see a book you'll buy it the real issue is to create a rule for yourself of what you're going to do and then just have a more strict approach about this more questions you got the gentleman in the white shirt here on the right sure go ahead you're moving you're young I'm not gonna fight you okay so if you're in a store and there's they're selling something for $99.99 and something for $100 you're going to pick the 99.99 cents one and if the so imagine like the hundred dollar one is right in front of you in the 99 cents $99.99 one is on the shelf way at the top so most people I think you talked about this in predictably irrational was where you said most people would reach up really high and grab the cheaper one but if there was a penny on the top of the shelf that you like had to strain to get most people wouldn't get it so why do you think that is you know so so one of the things with money is that it's incredibly salient attribute it's really measurable it's measurable it's easy to think about it has death animals and because of that we attribute way too much importance for it so if you basically say saving a dollar right in some cases we might put way too much effort we'll pay way too much attention on that attribute because it's so easily so easily measurable now you can think about this problem in the way that that you said right that you say oh you just I would feel guilty not taking the the discount right because it's the same thing and this one is a penny less it it's it's measurable right where but in other things it might not now this problem is particularly acute I think in relationships where people don't make the same income so so think about the relationship a relationship have lots of attributes somebody has a better sense of humor somebody is kind of people do all kinds of things that let's say there's a hundred attributes for people in relationship and earning potential is one of a hundred but because it's so easily measurable it gets way too much attention so it's hard to measure kindness you can feel it but you can't put a decimal on it right and and because of that power in your relationship is often determined it is overly determined by income capacity rather than by other dimension that could have been just as just as important and and that's - you can think about how to decrease that problem right so for example couples that have separate accounts separate checking accounts that that makes the the difference larger right we don't have separate kindness accounts or separate help around the house account so all of those things but but with money we we feel differently about it so want one approach is to have just a joint account or or if you do have a joint account and separate account which also has some advantages and the right approach is to have your salary deposit into the joint account first and then you each take some money to the separate accounts for discretionary spending that you don't want the other person to know exactly what what you buy which is also healthy for relationships by the way um so so here too you could say here is an attribute that we pay way too much attention to because it's so easily measurable and you can say what kind of system would we create so we don't over emphasize in relationships for example okay we're gonna take one more question and I just want to remind everybody that we're gonna have a book signing immediately following in the atrium join us there last question question over here on the right hi thank you my question this is your opinion do you foresee the elimination of all paper currency in the near future do you think we'll be digital at some point think yeah I think gonna hold you to the answer okay well I mean new future is ambiguous but but but I think I think we will I think we will and I think first of all paper currency is incredibly expensive to maintain there's lots of inefficiencies the government has tremendous incentives to eliminate some of the non taxpaying activities and conveniences higher so I think lots of things are in favor of eliminating eliminating papers so I I would vote for it I I think I think it will happen in the next few years you know maybe not three but maybe eight and the other thing that I'm very excited about is blockchain and cryptocurrency and not so much because I think like you know buying Bitcoin is a good investment and but but what happened is that this especially if you think about something like aetherium it's it's a it's a cryptocurrency that has a programming layer on top of that and now you could do all kinds of amazing thing with money that you couldn't do before just like like a community currency so for example this is this is one one example of things you could do so there's a company I love called Co Lucio Lu and and what they do is they try to create a hyperlocal currency so do you know the term the tragedy of the Commons yeah so so the tragedy of the Commons the standard account is to say we have a piece of grass we each have a cow the cow graze the grass grows the cow eat the grass and the rate of growth and the rate of depletion is about the same one day one of us gets two cows now the rate of depletion of the grass is slightly faster than the rate of growth every day there's slightly less grass eventually there's not enough grass all the community everybody suffers right none of the cows have enough ability to produce milk now in many ways we have the same problem in our local economy so think about the neighborhood that you live livin you want your neighborhood to be vibrant you want a small grocery store and you want a couple of restaurants and so on and you want a bookstore but on any particular day you could save money by driving to Costco or Sam's Club and buying things from Amazon and you would be financially better every day betraying the local economy now this company color is trying to create a hyper local currency which i think would get us to refocus and they've done a few things already like this would get us to refocus on the local economy and figure out how we're going to deal with this and now there's other opportunities so I have a particular coffee shop that I like and I go there for breakfast when I can and imagine that they wanted alone to improve what they're doing they can get money from the bank of course banks don't treat small businesses very nicely and and but not only that I have a vested interest in them functioning well and I'm going to eat there hopefully for a long time I would be very happy to buy my next hundred breakfasts there in advance in advance right which is basically alone so so if you think about this they're the opportunities for digital money if we create things that are kind of contracts that can easily be be transfer basically hoping a whole new frontier of how we're going to how we're going to do things I'm I'm very excited about digital money not just saying I have a dollar and you have a dollar but but creating all kinds of new contracts all kinds of ways for us to transfer money back and forth and based on some rules of what's going on and I think that's where I used to live in San Francisco and my wife is from the Bay Area and I think it's particularly pertinent that to like the high cost of housing can kind of create crater a local community right and if you want to reinvest in being the community something like this can really help so again another example of how understanding human behavior individual interaction with money mentally can create systems for itself a family and the community and our hope is that whether it's through our book or your own exploration you will discover new ways and in the future whether it's a cashless world or not we all live a little bit better and relate a little better to money so with that for Dan and myself I say Thank You San Francisco we'll be out [Music] you
