Dollars and Sense: Dan Ariely with Jeff Kreisler

thank you everyone thank you all for joining us today tonight and we hope that you change your lives for the better is that the plan yeah I can see like the third the first three rows I'm not sure they're people there here okay they're the ones that could afford the seats where they can't be asked questions I actually want to start with three questions for everyone do me a favor raise your hand if you know pretty much what the price of gas per gallon is to fill up a car keep your hands up if you know pretty much what the price per gallon is to heat your home okay raise your hand if you use a credit card raise your hand if at the end of the month you know exactly what your credit card bill will be raise your hand if sometime in the last week you promised yourself you would get some exercise okay keep your hand up if raising your hand is the most exercise you've gotten this one so I ask these questions to show how it is difficult to think about money how even when we think we know what we're doing thinking about gas we realize we're not thinking about all gasp how it's difficult to think about issues like self-control and even making promises to ourselves that's what our book dollars and cents available now is about is about the way that we miss think money but our book is hopeful right it's not just you're doing terrible things that you're doing these things let's be aware of it so that we can then improve so before we get too deep into all of the ways we must think money and all the science behind all the stories I'm gonna throw it over and I'm gonna have Dan give us just two quick tips for how we can improve our lives and prove our thinking about money and so now this is Dan every dinner this is Dan Riley all right all right so the first one might not be so quick so there is this thing called adaptation and adaptation is the idea that we get used to stuff and the interesting thing in adaptation is that we get used to stuff faster than we than we think so you know you think to yourself oh really be happy if I'll have a new car and it's true you get happier if you get a new car but then your happiness goes down and it goes down faster than you anticipate then you say well I'm not as happy anymore what made me happy last time I bought the car I was happy this time let me renovate my kitchen in Europe's Rainier with your kitchen you get happier and so on and this is called the hedonic treadmill where we run in place we're trying to use money to buy to buy happiness and there's a couple of things to think about how not to get to get into this issue and one of them is to buy experiences rather than buying stuff so imagine that you buy sofa you buy yourself and you think yourself oh I'll have this sofa for a really long time I'll derive lots of pleasure from it going on but it's not true you buy sofa you get happy then you get used to it and the happiness goes down on the other hand you might be thinking well if I'll go scuba diving it'll be something that I enjoyed the moment I scuba dive in then it will go away turns out it's not you enjoyed maybe when you scuba dive but then the experience changes you and stays with you for longer after the fact so that's one of the things like buying tickets to see a show that you was amazing not all shows so that's that's one one aspect is to is to buy experiences rather than then stuff and the second one is to be careful about what kind of things we we spend so if you think what happiness is being relative it means that you want to live we want to live at a level below what we can afford and then from time to time splurge so if we just get used to living in a certain level we'll get used to it rather quickly so imagine for example you think to yourself let's say you like wine can you say to yourself what kind of wine should I spend i spending the twelfth dollar range $24 range fifty or hundred whatever range or more whatever range you spend in you'll get used to it at some point and you'll not be happy all right if you if you're in year two of drinking wine and you're spending $100 you just as happy and if you're year two and you're spending $24 there's not there's not a big difference so the thing you want to do is to figure out what's the level of spending that you want constant and then from time to time increase things so that's that would be one elaborate piece of advice and okay so to stop here we could keep going we'll get back to more welcome back to more advice I mean there's so much that we can talk about that's in the book that is just some of the stuff that you studied because money is so hard to think about but we all think about money all the time but we don't think about how we think about it it's it's an obsession and you think no one watches the TV show lifestyles or the poor and decrepit their watch sells rich and famous for Keeping Up with the Kardashians not Keeping Up with the Kardashians Butler right we're always thinking about money and yet we don't think about it well no matter how much money we have we were on a radio show earlier today and some of the caller's were complaining about having to pay their bills and then some were complaining about boats and planes that they bought I'm not getting value out of it now we should all have sex probably sleep this was NPR by the way yeah elitist liberals we all worry about like even those of us to really understand money that understand economics like before making it big or before making it here I went to Princeton and the economics professors there included like Ben Bernanke and Alan Blinder and that other white guy and I studied economics and I understood it but I couldn't really apply it because I'm a human and all of us really are human and we have our human concerns psychology that affects our ability to think about money because it's so it's so emotional it's so difficult to figure out I remember when I first stumbled upon Dan's work and we started doing things together he struck me is true because how can we expect humans to figure out for instance retirement savings all right retirement savings you have to figure out when you're gonna stop working then how much longer you're going to live then how much money you need each year what the cost of living is what markets going to do while your investments you can do how your health is going to be all these calculations they expect humans to figure that out when many humans can't believe it's not butter it's just it's just a challenge that I don't think it's fair to put on people by the way with retirement is also there's really no opportunity to fix things right it's not as if you can get a second chance if you get right aged 65 and you got it wrong there's no you can help your kids they're better than you you can and you can move in with them but imagine life without money right we can talk about how it's difficult and it's a challenge but imagine if we didn't have money we wouldn't have so many incredible things you wouldn't have like wine and art and philosophy or there wouldn't be time for it wouldn't be in this big building right you wouldn't have rent-controlled apartments there wouldn't be Zabar's they don't accept guilt all right but it's important to think about life without money so not just we appreciate what money gives us but so we understand what money is about so for just a moment I'd like everyone just to close your eyes and imagine there's no money open your eyes you wake up start your day you need coffee it's gonna be long day go to the coffee shop grab your little bag your barter bag you go there you say tell you what I have some leftover broccoli and a couple dirty socks you can use to clean the counter so have a cup of coffee maybe he agrees you have your coffee you get in your car you're driving to work and you need to get gas pull into the gas station you don't have anything he wants the person there says well you can clean the bathroom be in the bathroom I'll give you half a tank of gas so you clean the bathroom and you go to work you're at work and you want to negotiate a raise you go into your boss's office you're like listen I don't been here for 10 years I'd like an extra bushel of spinach some more gallons of water and I like 10 chickens ik said I can't give you 10 chickens I can give you seven chickens right now say ok fine you go back to your desk right you open up your abacus you start working end of the day you're excited you go to a furniture store there's a sofa you've been waiting to get turns out they want 11 chickens for but you only have seven there's no way to take 711s of a sofa so maybe you make a deal you know what I'll come back in a week I have a table I've been trying to get rid of so I'll bring that you agree go home turns out you're wanting your kids has to go to the doctor you don't know how to pay the doctor you were just there you already mowed his lawn all right so what are you gonna do and this is how our life would be every day a series of negotiations and bartering and hustling and we would just be so mentally exhausted you wouldn't have time to do anything except just survive and there's no way we could save how can you save for retirement you know spinach goes bad you're not gonna lug around tables when you're 80 right we wouldn't have so many of things we need and that's one of the beautiful things about money because money can come in and represent the value of all those items money is divisible you can have half of a hundred dollars money is can be used generally can be used for anything spinach and chickens and gas money is storable it's not going to go bad like the spinach and other items we money ultimately is about the value of things and a nice to say that money is about opportunity costs so what is opportunity costs so so the thing about money is that you know if you trade chicken and broccoli it's it's one trade off with another money basically represents all the things that you could buy in principle now in later and that's how we're supposed to think about money right so every time you go to buy a cup of coffee or dinner or whatever it is you're supposed to think about what am i giving up now and in the future for this privilege of getting this cup of coffee or whatever whatever it is the problem is that it's really hard to think about those trade-offs I mean thinking to yourself about when was the last time you bought anything and you thought about opportunity cause people just don't do it it was supposed to do it but it's really hard to do a few years ago we went to the auto dealership and there were some people who were buying got coming to buy a new car and we caught these people not cuz we we talked to them and and we said if you were going to go ahead and buy this car this new Toyota what are you giving up what are you giving up people had no answer and they had no answer because they never thought about it they they knew what would be the payment but they haven't thought about what they're giving up so then we pushed him and we said look something has to give up you're going to spend all this money buying a new car through one payment but what what's going to give and the most common answer we got was if I buy to yota I can't buy a Honda which which means that people thread it off in the same timeframe in the same category now what people should have said is something like I'm giving up two weeks of vacation for the next three years and 700 lattes and 17 books and doing some kind of intertemporal trade-off with the future but also across categories the thing is it's really hard to think about about money and this is kind of the interesting trick is that the main value of money is that it represents everything we could buy with it but this amazing benefit is only also the reason that it's really hard to think about money because what exactly are we are we giving imagine that I gave you now four dollars how happy would you be in what would you exactly get what would you how do you think about you're supposed to think about the best thing you could do with four dollars but that's not how we think about it so it's four dollars if I gave you a cappuccino you would be much happier right even though it's four dollars you can buy you could buy cappuccino but when I say four dollars you know thinking about what's the best thing I can buy with four dollars when you get the cappuccino it's something concrete and then on top of that we have to recognize that it's not only that money is difficult to think about the opportunity cost but the technology is making it harder imagine a world in which I came to you every day and I gave you $50 every morning I said here's $50 it's yours spend as much as you want throughout the day opportunity costs would be quite clear you would realize if you take an uber to work you don't have money for breakfast and if you have a big lunch you might not have money for dinner and if you have well you can't your $50 there's no there's no but if you have if you have a $45 bottle of wine you have nothing nothing else and now what would happen if I gave you all the money once a week every Monday morning when Monday you don't you wouldn't think you have an opportunity cost but on Wednesday you'll realize that there's opportunity call that would be a bit too late what would happen if I gave you the money for the whole month what would happen if there were taxes that you would charge a year later on April 15 and what about if I also gave you a credit card in student loans and in a mortgage now you have to ask yourself the question of what is the opportunity cost if I if I see a new bicycle and I really want this bicycle and I see something physical tangible that I want right now and what's the opportunity cost of that where is it coming from is it is it coming from my my credit card bill at some point really really hard to think about actually even if you try to do it it's really hard so the point is that opportunity cost is necessary to think rationally about money but it's basically impossible so what do we do we don't think about money the right the right way we develop all kind of tricks that are not correct they're not accurate are not rational they're not perfect but at least they help us deal with money in a way that makes us think as if we're making reasonable decisions so it's all sorts of like value Q's I think we call it and shortcuts because we wouldn't suggest that every time you have a financial decision you go to coffee shop you think what else can I do with this $3.00 and you think of all the possibilities right that's just crippling mm-hmm so we it's reasonable to have shortcuts in your life but sometimes those shortcuts lead us down a bad path the trend I would actually I'd like to talk about some of the shortcuts some of the things that really struck me Dan's gonna talk about some these are some of the items we cover in the book because I think in order to sort of design for our future if you will in order to really learn you have to understand the mistakes that we're making and we're not going to suggest that we change human nature rather we recognize human nature and use what that is to create a better tomorrow it's not delusional at all to think we're gonna change the world one of the things that really struck me was this concept of the pain of pain does anybody here like pain if you figured New York you be somebody at the end their pain so there was the marathon right and and marathon is really interesting because because you go anybody here ran a marathon ever really well you know you you go ahead Oh Jim schools and you go ahead and you see people who run marathon and they don't seem happy you know if you if you were an alien and you came and you came to earth and you looked at people running marathon you would say these people did something terrible they they did some terrible crime to society and society is now punishing them in this in this terrible way I don't and and let's hope that they will they will forgive them at some at some point if they if they do this but we looked we looked at athletes and we found that they have something we call benign masochism where where they basically learn to enjoy the pain right and and for example professional cyclists they have tremendous amount of pain it's the same muscle group working against friction all the time really really hard and but they learn to attribute something something good for the for the pain and and on a side note we're trying now to figure out whether we could get people with side effects with medications not to enjoy the side effects but to suffer less to kind of go through this process of how people who are running or doing whatever are learning to enjoy the pain in some in some way and can we infuse that into medical treatment so that people suffer less for example from from chemotherapy but anyway that that was about a process of getting people to enjoy pain let's start yeah but I think there might be an application in a minute I'll explain more about the pain of paying it's the idea that when you pay for something you feel pain physiologically maybe people that do like retail therapy the people that are really depressed and say they go and buy stuff maybe it's secretly some sort of masochistic thing they want to get in today no pain of pain I do the ideas you tell me they're wrong that's how the book came about and what I took for years hey the pain of pain is as I said this concept that when we spend we feel pain right because it's we're giving up something that we have and normally pain is a good thing I normally pain tells us that something's wrong and we adjust our behavior I had the pain of a broken leg tells us that we should go get medical help put her hand on a hot stove that pain tells us not to get burned right you call up Megan Flaherty and said with gray and say it's Jeff you want to go out and she says Jeff who become a comedian I guess we learn from pain or we should but again as humans what we tend to do is we tend to numb the pain instead of changing that behavior we protect ourselves from it Jerry Seinfeld has a bit about helmets right talks about how humans were doing all these things that were bashing our heads in and instead of not doing head bashing things we put a little piece of plastic on our head right and that's what we do with paying instead of feeling that pain and using the feeling of that pain to assess the opportunity cost to say hey should we continue to we spend now is this a good choice instead of feeling that we numb it and the way we know it is through time or attention first time what I'm talking about is a time between paying for something and consuming it right paying and having the experience for instance consider a nice vacation you can pay for a vacation in three ways you can pay for it beforehand all right all inclusive just pay that amount you pay for that say a month before that feels a little painful then you've got a month of anticipation or an excitement and when you get to the vacation you don't think about money you just enjoy it why drink you swim you drink you surf you drink you snorkel and you drink you have more of a drink you have a good time you could also pay after the experience right you pay at the end when you check out of the resort now while you're experiencing things you're not always thinking about money maybe you have some hesitation but at the end you get the bill right and you look back on it you start to question oh was it really worth it to spend all that money on that one dinner well you have a little bit of regret now the most painful time is to pay during consumption imagine you're on vacation and every time you want to go and have a surfboard or have a snorkel you have to walk up not only just suck in your gut you have to pay money all right every time you order a drink you have to see the price and you have to pay you have to pay for the wine it'd be very unpleasant experience dan did an expose it a real experiment I thought experiment with the pizza it was it was not an experiment there was no control group but I did it with my students I did with the students where he would have he brought in pizza and he told everyone they could pay per bite not can they have to oh they have to pay per bite they have to pay by 25 cents it's not expensive 25 cents per bite so imagine that imagine you're giving a pizza and it's pay per bite a lot of you be like oh one are you gonna enjoy that pizza show up in here amount maybe if you're like in college or something but for most part no even even they don't enjoy it and and what's interesting is they don't learn like you would think ok they'll take one big bite and they'll say ok I've learned but it's really hard like you sit there with the pizza and you could push a little bit more in and and it can become more economically efficient and it's really hard not to do it right so we're having pizza later so there are the three different times you can pay for things and of course the wider the distance between paying and consuming the more pleasurable that consumption is and the less painful the paying is right and there are a few things out there you'll recognize that use this distance between paying and consumption sort of against us Amazon Prime pay $99.00 beginning of the year the rest of the year free shipping but it's not really free you've paid for it it just doesn't feel that way each time you go there and then there are other effects you certainly think of Amazon as being free right that's where you shop and then Jeff Bezos takes over the world and of course credit cards right speaking of little pieces of plastic we use to shield ourselves credit cards when you go to a meal and you sign the credit card bill you're not paying right then you're making a promise to pay later and then when you do get the bill you consumed it earlier so there's a gap of time right that's one of the reasons why credit cards are so effective the other is the attention that we pay and you know the more that the pain of paying a salient - the more that we really are conscious of it the more likely we will be to judge opportunity costs to really think about that decision vice versa the less salient the less attention we pay the more likely we are not to consider opportunity costs and so many things you talk about technology are now about making it so we're not aware of the pain right things like easy pass and automatic bill pay and Amazon you know their first patent was the one click technology so just one hit Amazon even has a store now where you just go in you put items in your bag there's a little chip and you just walk out the door you don't even look at the prices you're not aware of the spending and so therefore you're likely to spend more I mean if you think about it this is the Upper East Side so imagine some of you have investment portfolios imagine you have a hundred million dollar portfolio and you're paying your manager 1% would you value his or her contributions differently if they just took that 1% and maybe put on a report or if at the end of every year you had to write a check for $10,000 if you had to feel that paying if you had to feel that pain you would really assess whether or not he or she worth doing a good job but we don't that's just buried that just automatically disappears or think about the example you gave earlier like many people said that you know the price of gasoline but don't know the price of energy at home hmm so and this is an example where you could say is the pain of paying always good always bad or should we should we change it so for example imagine that we try to increase the pain of paying for energy at home let's say for electricity what would we do and we would not have the energy meter outside of the house we would have it inside of the house we'll have it maybe in the kitchen so imagine that you had a big meter in the middle of the kitchen and and this was your your energy meter and you had to feed it cash and you would you would put it wouldn't accept credit cards it would put a cash in the morning and then it would draw the Sun in England that did that then I put coins in the home heating so so in England it used to be that the heaters were exactly like it's just the heaters it and you would put it in and now they have some systems where you you like buy a laundry machine and to operate it every time you have to put money in so they it's kind of not exactly you're not buying it exactly what you're renting it and you're prepaying every time and and if you had a system like this we have to admit that we would save much more energy again this is New York how many of you in the winter have your windows open few people are admitting it because you got the radiator there's like ten or so people this way so so so so you know it's kind of crazy because you're not paying for it directly it's indirect and so on if it was direct people would feel very differently so so the pain of paying is this interesting thing that we can control how much people enjoy an experience and how much they're experiencing and we can take some things like energy cigarettes things we don't want people to consume and increase the pain of paying and therefore decrease consumption and we can take some other things that people and don't enjoy consuming but you do more often and so the point where you're sort of getting at is that there are ways to design systems to react to the pain of pain we can do it for benefit of society and individually and I think we really just want to make sure we're aware of it so it's not the only people aware of it our Amazon and Apple pay so that we are and I think it's about choice because for instance you on that vacation the the best way to get the most pain of paying is to pay while you're doing or eating pizza is to pay per bite but that's not enjoyable something like a vacation a special trip a special occasion it's fine to not feel the pain of pain as long as you're making that conscious choice and I think that that's what we often do is a lot of these biases and cues are unconscious and we hope to sort of help everyone you know talk about and understand what that consciousness is and there's a great example of how to use this that we put in the book which is why it's great about when you go to dinner with a group of friends and do you want to explain what that is go fridg alright so you go to dinner with a group of friends the end if you have a group of friends that you go to dinner with frequently say for friends the best way to really get the most pleasure and enjoy that is for one person to pay for dinner for everyone now that one person is gonna suffer some pain of pain but the pain of pain they suffer isn't four times whatever what they would feel actually the biggest amount of pain of pain is going from zero to something right they have some pain of paying but it diminishes little at the same time they get pleasure out of treating their friends out of the kindness out of the community out of being kind to one another and their friends get pleasure out of having something treated to them so instead of for people suffering and amount of pain one person has a little bit of pain and there were other people feel pleasure and so in many ways if you have a group of friends that do that it's great to pay for everyone and Dan and I can give you our schedules if you want to test that out and so this is this is just another example of how we can use these these flaws in our thinking in this case the flaw in our thinking is that we run away from the pain of pain we numb ourselves to the pain and that makes it so we don't consider opportunity cost but we can use those flaws to our benefit what is another flaw in our thinking that really struck you so so I'll tell you about some experiment we did in a on trying to get very poor people to save in Kenya and you'll see where this leads us so this was a study we did in a slum called Kibera in Kenya and we were trying to get people who live in about ten dollars a week to save a little bit of money and the reason we were trying to get them to save money is not for retirement they don't live long enough for that but it's for a rainy day and here's the reason imagine you're very poor you live hand-to-mouth and from time to time something bad happens maybe you had a goat maybe your goat gave you 25% of your income and one day your goat is is sick now you're 25% of your income is is missing you live hand-to-mouth there's no access you can't really cut down your expenses and what do you do you borrow if you in Kibera you might be boring at 10% a week and let's say that four weeks later something good happens your goat is healthy that's great but you're four weeks behind plus interest how do you get out of this and this is something that happens in general to the poor is bad things happen what's called negative income shocks and then things just deteriorate very very quickly from there if you had a bucket maybe a lantern year you might have to sell them in and so on so so we wanted people to have a little bit of reserve a rainy day fund now what would happen if we said look you have your regular world in your right pocket why don't you have a special reserved wallet for savings in your left pocket what would happen is people would spend that money right you walk around Kibera frutos water there's a bit more kerosene there's things to to spend money on so we said let's create a savings system that will be easy to put money in but hard to get it out so we teamed up with m-pesa m-pesa is the online payment company in Kenya and in Kenya about 20% of the people have bank accounts about 80% of the people have impaired sight accounts so so impressive is a very good system so we got people to have an impress I can't and then we got an agreement with an investment bank that every night took the money from the empresa account and invested it in the Kenyan stock market so what happened people could text money in but every night they the money moves to the stock market and the reason for that is that now you couldn't get it back with texting if you wanted the money back you had to get on the bus go to the city fill the form wait an hour take a bus back it could take four or five hours and we did this on purpose we want a system it was easy to put the money in hard to get it out so imagine you have the system easy in hard out and you give it to lots and lots of people and now you have all kinds of experimental conditions to try and get people to say so one group just got that system that's the control condition another group got that system plus a weekly reminder that said try and save a hundred shillings about the dollar this week another group got the same text message but it was framed as if it came from their kids hi mom hi dad this is little Joey whatever the name was the kid was try and save a hundred shillings try and save a hundred shillings this week for the future of our family by the way these people know that their kids don't have cell phones and it was just a reminder of that so we had nothing text text from kids another group got a 10% match we said save up to how much earns we'll give you 10% another group got a 20% match two other groups also got 10% and 20% but they got it in what we call pre match you remember the the notion of loss aversion loss aversion is the idea that people hate losing more than we enjoy gaining if one day you lose 10% one you lose $10,000 that's very very painful if another day you gain $10,000 it's happy but it doesn't make up for it you have to gained about twice as much to make up for for the loss so we said look in a regular match condition people put money in and then we give them the match it's just gain they don't see the money they did not match what if we gave them the match in the beginning of the week then they put their money and what they didn't match we took it back so for example imagine you're in the 10% condition if you're in the match at the end of the week you put 40 and you get four more if you're in the pre match condition we give you ten you put 40 we take six back so no matter what happens you get 40 for the amount is the same but in the pre match condition you experience loss of version you see six shillings leave your your account so we had 10% post match 20% post match 10 percent pre match 20% pre match and then we had another condition with the coin about this size and the coin had 20 phone numbers written on it and we asked him to put the coin somewhere in their hat and every week to take a knife and scratch the number for the coin for that week week 1 2 3 scratch it this way if they didn't save in this way if they saved so think about all of those methods nothing text text some kids 10% at the end of the week 20% bane of the week 10% beginning of the week 20% beginning of the week and the coin which one do you think work the best so let me ask you to a kind of vote not that your vote will change anything but like having an opinion about which one do you think would work the best so how many people here think the regular text would work the best okay nobody good it didn't and how many of you think the text on the kids work the best okay this is also an experiment in hurting go along with the people that have the most and how many people think that the 10% at the end of the week worked the best 20% the end of the week if you 10% beginning of the week 20% the beginning of the week there's a majority how many people think the coin worked the best yeah okay now you are here to discuss things that have to do with rational and irrational thinking so I don't take your opinions too - seriously you know that there must be a trick and you're thinking perhaps differently by the way when you work with Dan I'm convinced my life is a trick at this point and I don't know what the payoff is gonna be yeah I the end of the experiment I thought I taught the classroom cursor it's an online platform and the problem was that every time there was a glitch in the Coursera platform the students were sure it was an experiment that something was what's going on so anyway here the results you give the system to people and people start saving that's amazingly good news it means that we want a system which self-controlled it sometimes we want a system that forced us to do things that are good for our long-term and doesn't let us spend money that's good news text once a week helped a lot 10% at the end of the week help some more 20% at the end of the week just like 10% no difference 10% in the beginning of the week helped some more loss of version works 20% beginning of the week just like 10% and kids were just like 10 and 20% the beginning of the week and by the way it's an amazing force to think about kids as having this amount of impact like 20% plus loss aversion I'll remember that when my daughter wakes me up at 3:00 this month it's right your 20% plus loss aversion Utley but the big surprise in the experiment was the coin because the coin basically doubled savings compared to everything else and now the question is why and I have to admit I was interested in the coin I didn't think it'll be this effective and our Research Center with Duke is called the Center for advanced hindsight and and we used this name to remind ourselves that we didn't necessarily kind of you know after the fact because oh yes I knew that all along but we don't always predict everything so so how did I come up with this coin why why did I do it so so I was in sweater sweaters a another slummin in South Africa and I walk around so I took I'm trying to have a better insight into into what's what's going on and I see a father buying furniture for a week and he gets a certificate for these federal insurance and very ceremoniously he gives it it gives it to his son and and just to be clear funerals in South Africa are very very expensive even in in slums people spend up to two years of income on funerals it's the equivalent of a Bar Mitzvah or wedding in South Africa they have the same type of music and dancing not exactly but it's a celebration it's very very fast they don't have a bunch of Jews dancing with the Claes was em and this guy bought funeral insurance for a week right so it means they could cover him only if he dies in the next seven days these are very poor people they buy small amount of soap and small amount of insurance and so on but when he gave that certificate to his son I was thinking without giving the certificate to his son what would the family see that day imagine you're very poor and you're diverting some money to savings or to insurance what is the family going to see they're going to see less it's going to be something less tonight if you're very poor this will be less food less something is going to be less than ITIF if you're not very poor it will you'll also have less but you know if you're a breadwinner and you get credit from the family from getting the family to live better if you're diverting money into something invisible like insurance or saving where are you getting your credit from and so so the coin the coin basically got the family to realize that it's not less it's just different right it's still not food but it was somewhere in the heart it was visible the whole family could see it and it was understanding that there is going to steal the still investment in the family you just don't see it on the table but but more generally that the thought that I've been thinking about is think about this money revolution so a thousand years ago how did people save we saved with basically goats and chickens right and when people saved in goats and chickens you can come home from work and you could see how many goats you have and you could see how many goats you ever has and you could compete on who has more goats we could compete on who has more savings more assets then we invented money then we invented digital money and now we don't see how much our neighbors are saving we do see how much they're spending we do see how much they're spending up with the joneses you see the cars you see the paint on the house there's no way to show what they're saving more important and and we would compete on anything we would compete on anything as long as we can see it and we could measure it but in general as a society the way we designed the money not intentionally but the way we design money is such that we get to see what people are spending and we don't get to see what people are are saving and because of that we compete for spending there was recently a study that showed that when people win the lottery the neighbors start spending more money right and and you could think all you know these crazy Americans you know know these were Canadians and but but you know it's incredibly not it's incredibly natural to to compete on whatever whenever we can so so now here's the thought and should we change the visibility of savings right we could change it for ourselves so it's more visible to us we could make it more visible within the family we could make it abstractly visible to society for example we could have next to your Facebook profile whether your kids have college savings accounts or whether you have you know we don't have to say the amount we can just say what so there's all kinds of ways to do it but realizing that those things will become social standards and people will start competing on there maybe maybe the right thing to do is not to have money that is dedicated to saving and insurance completely invisible but part of that is just going back to this idea that we all are obsessed about money but we don't really talk about it like money is sort of taboo we don't talk about it with our family we don't talk about it you know with our friends the number one cause a divorce is money I think in part because it's so difficult to talk about and then if we were to have more conversations with your neighbors like I talked to my neighbor about how to fix piping and what to do on the sidewalk and who do they get to paint their house don't have a conversation about who's your financial adviser are you doing your 401k and those things are much more important and if we come together we can learn from these things we combat the Apple pays and the 1% investment fees right but we don't value thing we talk about oh you've got a nice big TV screen not oh you you know are saving it for your daughter's college right and it's it's a shame and it's one thing I found just in the process of writing this book I'm much more open talking about money because I want to learn and I think you know that expression a wise man knows himself to be a fool but a fool opens his wallet and proves himself you know to be right yeah can I say one other thing about college savings accounts this this research about the coin it's really a research about reminder there was another piece of research that show that when you take kids on the day that they're born and you randomly open to half of them college savings accounts with $500 like you take kids they are born you randomly open to half of them college savings account and then you go and you visit those kids when they turn four and it turns out the kids with college savings accounts have higher social and cognitive skills how can it be how can it be that these kids are somehow more successful do they know that they have $500 in the conference saving and the answer is they don't know but their parents get a bill a statement the statement once a month and the statement tells them this kid while still in diapers is headed to college and the parents don't do things that are very different but they do read to them a little bit more and they do buy another book from time to time and if you think about for years it's a really long time and you could do small things every day for for a very long time and it makes a difference and in with those papers we recently convinced the Israeli government to start and a college savings account a higher education accounts for every kid that is born since January 2017 and when we started this process the people from the government said let's just reduce the cost of education but it's not the same thing it's not the same thing to reduce their price of education because then the kids who think they're going to go there anyway and their parents treat them differently but if you have an account and you get this state now think about what it mean it means that it's not just about the money it's about this statement it's about how do we get people to think about themselves how do we get people to think about their kids and those things have really important feedback loops so it's about designing systems I mean essentially it's a big trend in all industries how do you design change and you do that you don't try to change human behavior human nature you try to change the systems around them I know we're gonna take some questions you know we had I had a plan but much like thinking about money Dan Ariely came along but I think the big thing for me the reason that I was interested in working on this book was because we don't want to tell people what to do with their money don't do XYZ we want to just show people how they already are doing things and why they already are doing things and then they can decide like before the idea of a vacation if you want to have over spend for a vacation go for it just make that conscious choice and all of these things that are in the book and that Dan study is about human behavior they don't just apply to money they apply to life they apply to politics and relationships you know no one ever lay on their deathbed wishing they could spend more time with their money right and no one ever liked it just wondered about how they could I totally lost my train of thought is that a good ending it's a wonderful ending um so I actually have a very good ending because there's a thing called peak end rule in behavioral science where no matter what happens if the ending is good we'll really enjoy it was actually a study with colonoscopies believe it or not go ahead describe it this private tip is stunning yeah it's a good study so can I have a volunteer basically if they found that in a colonoscopy if the ending was go ahead describe describe to think give you some detail so colonoscopy involves like sort of a thing going up a thing and if you pull it out quickly it's more painful right in that moment but if you pull it out slowly it's like a slow less painful experience and those that had the slow removal of the thing inside the thing actually looked back on their colonoscopy more fondly so it was actually a little bit worse so if I get these they probably sound I don't care unless capiz is unpleasant particularly when the device goes around corners okay half the people anybody have a butt with a corner nothing about it so half the people had the regular colonoscopy they started they ended the regular colostomy the other half of the people just before they pulled it out they waited for five minutes so some people had this length of colonoscopy the other group had the same length of colonoscopy plus a five minute where the probe did not move but was stationary just about to leave and they thought about the whole time they think about baseball so so if you think about it the second group had the first group had an annex unpleasant experience the second one had an unpleasant experience plus a slightly less unpleasant experience but that final thing was not positive by itself nobody would want the colonoscopy edge in them for five minutes so it wasn't the positive thing it was just less negative what happened the second group enjoyed or suffered who suffered less from the colonoscopy so so the point is that ends really color our experience right and and if you think about it as many things in life where the end point is not ideal you go on vacation the last moment might be paying the bill delayed flights lost luggage right it's kind of a bad way to end to end things and in general we find that it's really good to try and end on a on a high note speaking of which you may have noticed I've got my Halloween socks on and I've also got Halloween candy so the end after questions before signing book you're all welcome to come have some candy as part of the ending is colin oscar p of a talk very good until then we have some time for questions do you have any questions about anything yes over here sir let me just repeat the question question is how come some people are able to think about things like credit cards money in a concrete way think about credit card as that cash that they're spending and others are in la-la land doing some sort of dance and don't think about that way yeah why are some people better than others damn so so in general I think that we tend to attribute lots of differences between people to individuals where in fact it's more about their environment then than individuals right we we have a tendency to to think that what whatever we do differently it's because we're men and women or Generation X or Generation Y or whatever and mostly it's not about individual difference is about different in in environments and I'll give you one one example for this there is something called depletion and depletion is the idea that as we exert a willpower we get exhausted so imagine in the realm of food you go to the office and there's muffins and then there's YouTube and Facebook and you know there's temptation after temptation after temptation and you you try to fight them taking you try to fight temptation like lifting a weight and at some point you just get exhausted in you and you give up it turns out that if you're poor every decision you make is consequential we said earlier what happened if I give you 50 dollars a day if you poor every decision you make come at an expense of something else if you take a bus you can't do this if you do this you can't do that and the poor get incredibly exhausted mentally very very quickly and they fall for temptation much more so you could say oh it's it's it's not about it you could say oh it's the personality of the individual it turns out you take University of Chicago undergrads and you put them in this mindset of depletion and very quickly they behave very badly so so I would I would think that everybody you know there might be some exception but I would say everybody would fail in thinking about credit cards differently then then cash and our ability to do something about it might be because of your mindset depletion or maybe some rules that you've adopted one of the one of the tools we have to fight with some of our irrational tendencies is not to let our computation our flawed computation take over and instead have a rule like I always pay my a credit card bill on time or I never go drinking with my credit card or you know things things like that those rules are very very helpful so I don't think I don't know exactly what you have in mind but I don't think in general to be individual differences it would probably be situational differences and maybe some personal rules more questions back here start with one there's there's opportunity costs - yeah quick good good good questions I think one may be a very personal question the question is did what did you learn Dan this year turned 50 yeah you made it and hence hence the interest in the colonoscopy yes exactly and the details about there's like a corner and stuff I don't know but I've never discernable December 19 that's the first one or the first so you're doing yeah yeah this is the real celebration so on December on December 20th our talk will be standing so the question is what did he Dan learn he's had a year of celebration and part of that was a month-long hike in Israel where you would think you wouldn't be doing stuff but there kept being emails and the second question was basically how can she save her relationship so so so I went on a month-long hike this was the Israel trailer I went from the north of the south of Israel and and I invited other people I knew people I didn't know to join me for for a day so every morning I met a two or three people and we had three rules for the trail the first one is known no phones from 7:00 a.m. to 7:00 p.m. the second was whatever is said on the trail stays on the trail very good and the third rule that everybody had to introduce himself with an embarrassing story when I got to both share in in tell a lot of embarrassing stories and it was really fantastic it's amazing it's amazing way to to get to meet people I'll tell you one one of my embarrassing stories I can't tell you other people's so so this was maybe two years after I was I was injured and I had a friend in the in the hospital who thought that maybe it's time for me to go on a date and she asked me if I'm interested and I said sure and she said she'll ask her friends if anybody would be willing to date me and you know at some point you came back and she said she has somebody who might be willing to date me and we agreed to go to Beach and have ice cream so my friend drove me I couldn't drive at a time we went to the beach we met this lovely woman we get ice cream we said looking at a little bit after sunset and this woman that I just met two minutes ago it asked me a question about hospital and I don't know why but I went into a really long painful discussion about a nurse I really hated I I don't know what exactly triggered that but this was a nurse I truly hated and I didn't talk about him for two years in office and kind of the gates open and I and I talked about what the awful human being he was and how he was cruel and he was unpleasant and he was enjoyed I think inflicting pain on the patients and I I would do everything I could to try and change my schedule around so he would never treat me and if he was in charge on the weekend I would try to get operate on Friday so that nobody would touch me it was really it was a terrible terrible human being and I I really hated him and I I went into this really long deep discussion and I talk and I talk and I talk and after 15 minutes or so I just feel like I've unloaded I kind of finished I don't know okay I clean myself up and I and I breathe deeply in and I look at her and she says and what's his name and I tell her his name and she stands up and she said it's my father and and I haven't seen her since maybe this is so so one of the many things I learned was that embarrassing stories are a great way to connect that when they happen it's a different story but later on it's a great way to connect and in terms in terms of the question of how to keep how to keep things interesting in the relationship using science this it really is it really is the question it it really is a question of adaptation right once once we get used to things and everything becomes less interesting right so so in the question is how do we how do we decrease decrease adaptation and so there's one one study I really loved by Eli Finkel and it's a study that basically shows that if you ask people four times a year to write something about the relationship in the last few months but not from their perspective but from a third party perspective right so whenever you're in a relationship you of your perspective the other person has their perspective as long as you stick with your perspective it's a little harder to understand the other person but if you try to write about this relationship from a third party like how you know God or somebody else would would look at it from a third party and people do understand each other eventually eventually better so that's one thing the second thing is that there is a really interesting analysis showing that the benefit of sex lasts about 50 hours so you know it's really you know we all know that that sex is gets people to be to be closer but but it really lasts for a very long time much more than we then we anticipate so having you know at least every 50 hours see we've all gotten some value out of this evening already all right sir yes here the question the questions about teaching kids financial responsibility how to how to think about money in a way but yet not be misers not be over further well I think just one thing that we already sort of brought up was this idea of like starting a savings account or a college savings or otherwise and having them be aware of that there's studies that show that if they have savings early on it just becomes a value to them that savings even if it's not about learning to save but it's about understanding that money isn't just something to frivolously spend is one thing that you can do yeah so so the literature on what's called asset building it's very important right it basically says that you take people and you just give them an asset if you're very poor for example and you have no assets like imagine that you had some debt the the common wisdom is to say if you have somebody paid down your debt but it turns out if you don't pay just to that but you create a small asset and you start thinking about yourself as having an asset your outlook changes in life so so one thing is you're saying is it's useful to to have to have an asset to feel that you have some some control over it and I will tell you that the area of trying to figure out how to get kids to think in reasonable ways about money is something there's basically no research on this and it's it's because it's hard to do it's hard to do a longitudinal research and it's really hard to do research on kids and the ethics of doing research on kid is very complex right we can say oh your kids will do this treatment then your kids will be this treatment it's very tough I'll tell you what what we do with with our kids is they do get an allowance and they don't get money for chores right the idea is that you're a part of a household we all have responsibilities just because you do the dishes or do something doesn't entitle you to something but but we do give our kids allowances but they have three containers and they have to divide their allowances equally between money for themselves for somebody they know and somebody they they don't know and and the logic is is to say yes you do have some money and you have some control and we wanted to understand decisions right if you get this you don't get this and you have to make some some trade-offs but it's also that you you want to give money away to people that you that you know and you want to give some some away to people to people you don't know and it's kind of creating a standard I'm not sure that this is the exact right allocation but it does say there is a paternity cost and there is a responsibility between you and other people in the world such as my my my personal advice but there's really no studies incredibly important don't want to volunteer your children first study more questions let's get this side of the room over here yes sir right here why we don't why it's a taboo subject that's a good question yeah so so there's a couple of there's a couple of places that are the terms that we write it's interesting that we use we use purchases as signaling of wealth right so you we all know that you know a Honda cost less than a BMW cost less than I don't know an Audi Ferrari I mean there's a there's a range of cars and we could we could probably all name what it is and what by buying a car you basically signal how much wealth do you have but if instead you went to your accountant and you said give me a certified letter of how much what what's my asset and you just worried on your on your shirt you know it will be much more direct signaling but not in good taste right now now now why is it it's because when you buy a car you're signaling money but you're also trying to signal taste you basically kind of or at least you pretend you're signaling taste is taste as well somehow they the signal for its own value just signaling for its own value it just seems like it's it's hollow in some important ways it's to intentional and so on there the other thing about about telling other people exactly how much you have is that you're creating a difference between you and them that is incredibly clear so so imagine that a how much money do you make just just an example give me a range like it could be in the waiting like ten dollars and all right here watch this do you use viagra hey they ever have you ever does not never have you there are is a study that men are more willing to admit whether or not they use Viagra than how much they've save for retirement think about what is what on one level seems like a more embarrassing fact but yet that is how tight we are about money and the thing about it is that it would create a difference between us right if you make a little bit more than me it would put you if you pop there's something there's something incredibly hierarchical about about that and one of us is going to be unhappy if we if we talked about this and not many things are like that that the moment you you have you express some attribute of your life that I would immediately feel either above or below and money has this and might be is that partly because money is so specific and measurable like having a car having a Ferrari even if you're driving a Toyota you can say well that's in poor taste well this is how how they choose money is both monotonic right more is better right where you say there's other things that are not better right if I said how many calories how many I don't know minutes a week do you spend exercising yeah I mean there's some there's some utility but you know maybe I say oh it's too much right where where money is it more is it's better we measure it we even small differences are are measurable and it's very precise so so it creates this very extreme social hierarchy the moment the moment you say it but by the way it's not just that we that we don't and this this fact that money because of its measurable tendency is creating a hierarchy is also true within a relationship right where you were and when you have two people in a relationship people contribute different things some people have better sense of humor some people have you know all kinds of skills some people make more money than than other people it's just one of many many attributes that come to a relationship but how much money you make is the only attribute from all of those that is so measurable and precise and because of that it gets too much way in the power question of relationship and and we can ask questions about how would we for example engineer bank accounts if we wanted to take away some of the exaggerated power in earning we often talk about how money becomes a substitute for the worth of an action or an accomplishment how when you know when you talked about visiting Israel and people and you just publish a book and it was well how much does it pay right or you know get on television well how much does it pay when we can't measure what's something we can measure money even if that isn't really ultimately what matters and so that just makes it that much more sensitive that's it let me say one other thing about this you said what happens in other cultures or people who are more poor yeah and they don't necessarily talk more in fact there's some evidence that they talk less and and did you lend to each other much more but but here's one interesting thing that happened in in poor African community in the u.s. is if you get your paycheck and you cash it and you get home and you have cash and somebody asks you for money you kind of have to give it like if you if you wonder why do you sometimes see poor people with new sneakers it's because you know they get a paycheck can they say if I go home with money somebody will ask me for this money that I'll have to give I might as well get new sneakers at least I'll get something from this so they're trying to figure out how to at least get something from the money not being forced to to give it away and we are not trying to think about mechanism that would allow them to say I wish I could give you but I don't have it right you could say if if for example some of your money was automatically deducted for savings or you would get it slowly over the next two weeks rather than a lump sum you could credibly say I'm sorry I wish I could give you but I just don't have some sometimes you you people want to be able to say and isn't that the promise turn to of technology Dan and I particularly I'm very skeptical of financial technology I think it's just designed to get to spend more more freely without thinking about it but the is that maybe you can great bank accounts to those that otherwise will not access maybe you can set up systems where every week they have a savings goal and so the hope is that more people invest in those sorts of technologies than the ones that get a suspend a few more questions over here sir in the sweater with the white shirt underneath don't forget to vote everybody tomorrow unless you're voting for the wrong people then so I think he'll answer that question because I'm not sure I've totally understood I think I think the question really is about what we call sacred values so when how do we value a life let's just talk about life which is it's incredibly painful and clear and for $10,000 we can improve roads in a way that would prevent the death that's about the cost of a life if you if you think about it this way it's not that expensive right but but we don't invest enough in roads to to make up for it there are other ways to to save to save lives and but but trading off money and things that we think is is sacred is it sometimes incredibly incredibly difficult for example think about health care you know when you think about health care and you say should everybody have health care opinions vary but if you say what percentage of mothers who have kids who die at birth how should those be distributed in the population between the very rich and the very poor people think it's awful that the pool would have lots of those and the rich will have very little but that's exactly correlated with wealth and with health insurance and there are some things that can be priced like life with roads but I don't think we necessarily want to want to price them now I don't mind pricing trees as long as we price them price them correctly and but but there are some things in life that I think we should treat as as human rights as basic human rights and and not try to price them in a cost-benefit analysis selling kidneys you know do we do we really want to you could say let's let we don't have enough kidneys in the US market let's create a market for kidneys we would start paying people for kidneys I don't think it's going in the right in the right there you in the book about how many times people add the idea of fairness to the price of something to decide whether or not they should buy it and we say you know that's something that we should be aware that we do sometimes we do it incorrectly like if a locksmith spends an hour fumbling around there that's not worth more than someone who opens it in a second but we think it is because it looks like more effort more fair but there are times when fairness matters like when what's-his-name shkreli raised the price of that cancer drug by a billion percent people were outraged and said it wasn't fair maybe economically it made sense but fairness matters and it brought down the price and I think that you know what Dan is getting at is economic considerations cost-benefit analysis you know I talked about you know my my book about cheating or we talked to this class and then a cost-benefit analysis you should cheat because you're never gonna get caught but then there's ethics and there's morality and there's fairness and those things do have a value even if you can't put a dollar figure on it now I think we have time for like two more unless they're long questions someone over here right here you're next Wow every 50 minutes they have an experience a dozen so they have they have experience that they don't mount too much what was the expression and this is you're saying your informal poll is that the men felt like this wasn't going anywhere this is crazy talk yeah oh so you're incorporating the fact that the men are paying because we still have that thing going on so so so couple of things so first of all when when I talked about experiences I didn't mean dating and no seriously because because dating dating is usually not a pleasant experience it's not something that you could say I really want to go on 17 dates with 17 different people that it's it's not an objective it's it's a necessary step to to something else it's not the experience that we're after so when I say we want experiences rather than things it's good experiences that we that we want like something that we want them there are lots of things to say about about about dating I think I think part of it is that we okay so so let me describe a study and then then I'll tell you what what it is so so in this study and people learn to develop to shoot pictures and develop them right so people take pictures think not digital pictures and then they pick one and we said we're going to send it to England to be enlarged and in two weeks you'll get a huge version of of the one picture you chose from the hundreds of that you took and some people are just told that and some people are told but when you get back your picture you can change your mind you'll get it you can change your mind and then if you change your mind we'll send it back and we'll you'll get your your other choice so one group gets their picture they're very happy the second group gets a picture do you say do you want to change your mind people don't want to change your mind but they're less happy why because for those two weeks they kept on saying did I make the right choice there is something about relationship where you commit to somebody and you don't keep on asking yourself is this the right choice so so imagine the relationship where you wake up every morning you look lovingly into your partner's eyes and you say what do you say honey should we do it for another day or or not and and you keep on and you keep on looking at other options and in other options you know you you see so opportunity cost does not apply to relationships and if you think the problem is that you have a bias because the the person that you with you see the pluses and the negatives the person you not with you see more pluses I mean I haven't I haven't done a lot of this online dating but but when I did many years ago people looked amazing it was just like you know you look online and you say the world is just full of wonderful people it's unbelievable so so I think the combination of this all these wonderful amazing things that are just one swipe away basically are decreasing your ability to enjoy to enjoy a relationship so if if you and I were going to redesign tinder and I think what we would do is we would basically automatically block people once they're in a relation once they've started a discussion because this idea that you can switch every time is actually decreasing our ability to enjoy to enjoy a relationship the real challenge I think when it comes to dating is that the two only two perfect women have already been taken and with that ass that is going to be all the time we have for questions and answers we're going to be outside signing books I'm not sure where they buy them but you can figure that out thank you to the 92nd [Music] [Applause] you

Channel: 92nd Street Y

Views: 28,447

Rating: 4.6697249 out of 5

Keywords: 92Y, 92nd Street Y, money, dan ariely, Jeff Kreisler, economist, saving money, retirement planning, happiness, consumerism

Id: T5iVQdkupVY

Length: 75min 55sec (4555 seconds)

Published: Tue Nov 07 2017