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Cass Sunstein on Behavioral Finance and Wealth · Masters in Business

• 0:02
  Speaker 1: This is Master's in Business with Barry rid Holds on
• 0:06
  Speaker 1: Bloomberg Radio.
• 0:09
  Speaker 2: This week on the podcast What Can I Say? Cass
• 0:13
  Speaker 2: Sunstein is an intellectual force in American jurisprudence, law, behavioral finance,
• 0:21
  Speaker 2: public policy. I don't even know where else to go.
• 0:26
  Speaker 2: What a fascinating career and really incredibly interesting person. I
• 0:34
  Speaker 2: guess life is easy when you're co authors are all
• 0:37
  Speaker 2: Nobel laureates or George Lucas. He's just he's just done
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  Speaker 2: so many amazing things in a career that spans everywhere
• 0:47
  Speaker 2: from the Supreme Court to the Chicago School of Business
• 0:54
  Speaker 2: and the Chicago School of Law, Harvard Law School, and
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  Speaker 2: just multiple public policy positions, public service positions for the
• 1:06
  Speaker 2: White House, for the Attorney General's Office, for the Pentagon.
• 1:10
  Speaker 2: I mean, his influence is just so far reaching and
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  Speaker 2: fascinating you kind of forget that he also teaches law
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  Speaker 2: at Harvard. I found this conversation to be delightful, entrancing,
• 1:26
  Speaker 2: and fascinating, and I think you will also, with no
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  Speaker 2: further ado, my sit down with Harvard Laws Cass Sunstein.
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  Speaker 2: Cass Sunstein, Welcome to Bloomberg.
• 1:37
  Speaker 1: Thank you a great pleasure to be here.
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  Speaker 2: Thank you so much for joining us. So you co
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  Speaker 2: author two books with two Nobel laureates and you practically
• 1:46
  Speaker 2: write a third one with George Lucas. How much fun
• 1:49
  Speaker 2: is that?
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  Speaker 1: Well, I'd say it was amazing. Writing on Star Wars
• 1:54
  Speaker 1: was crazy fun, yeah, and also a very unlikely thing
• 1:58
  Speaker 1: for a law professor to do. Writing a book with
• 2:00
  Speaker 1: Dick Taylor was not crazy fun, but was really fun
• 2:04
  Speaker 1: because he's fun.
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  Speaker 2: There's nobody in the world of economics or behavioral finance
• 2:10
  Speaker 2: like Dick Taylor. He's one of my favorite people.
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  Speaker 1: Agreed, he's unique, and writing with him was a joy
• 2:16
  Speaker 1: and a laugh a minute. Writing with Danny Kahneman was astonishing.
• 2:21
  Speaker 1: He's the most creative person I've ever met. He's also
• 2:25
  Speaker 1: immensely self critical. He's almost as critical of his co
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  Speaker 1: authors as he is of himself. And it was a
• 2:32
  Speaker 1: roller coaster and an incredible learning experience, and his integrity
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  Speaker 1: and sense of we can do better kept me up
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  Speaker 1: most nights.
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  Speaker 2: He supposedly agonizes over every word, every sentence. There. Nothing
• 2:48
  Speaker 2: gets published without being looked over nine ways from something.
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  Speaker 1: That understates that. So you got an email maybe at
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  Speaker 1: four in the morning saying this chapter is horrible. I
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  Speaker 1: don't know how we could have written it. The whole
• 3:00
  Speaker 1: book is horrible. I don't know why we decided to
• 3:02
  Speaker 1: write it. And then two hours later he'd say, I
• 3:05
  Speaker 1: see the fundamental flaw and we have to give up.
• 3:08
  Speaker 1: And then an hour later, maybe four forty five in
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  Speaker 1: the morning, he'd say, I might have a way to
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  Speaker 1: correct the fundamental flaw, but I don't think so. And
• 3:15
  Speaker 1: then at five point fifteen in the morning, I'll send
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  Speaker 1: you a note saying I have a glimmer of an insight.
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  Speaker 1: It's probably going to fail, but I'm going to try it.
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  Speaker 1: And then at five point forty five in the morning
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  Speaker 1: he says, I have a new draft of the entire
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  Speaker 1: chapter which was a catastrophe, and I'm sure this is
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  Speaker 1: very bad too, but it's less catastrophic.
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  Speaker 2: That sounds like. Just skip to the last one and
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  Speaker 2: read that. So we'll get into a lot of your
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  Speaker 2: writings a little later, but before I want to dive
• 3:42
  Speaker 2: into your background. You graduate Harvard with a BA in
• 3:46
  Speaker 2: seventy five, Harvard Law School in seventy eight. I assume
• 3:50
  Speaker 2: the nineteen seventies were very different than the eighties and nineties,
• 3:54
  Speaker 2: when so many people at places like Harvard Law. I
• 3:56
  Speaker 2: wanted to go to Wall Street. What was that era
• 3:59
  Speaker 2: like at an Ivy League law school.
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  Speaker 1: It was the aftermath of the nineteen sixties, so it
• 4:07
  Speaker 1: was later than all the Civil rights and Vietnam stuff,
• 4:11
  Speaker 1: but it was like a wave that was starting to recede,
• 4:17
  Speaker 1: but extremely visible. So there were people who wanted to
• 4:20
  Speaker 1: have great careers and whatever they could find. There were
• 4:25
  Speaker 1: people who thought, I want to make the world better.
• 4:27
  Speaker 1: There are people who thought, I'm kind of sick of
• 4:29
  Speaker 1: people who want to make the world better. I don't
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  Speaker 1: want to be like that. And there were different categories
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  Speaker 1: of types. There was a lot of intensity. There was
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  Speaker 1: a sense that our country had been through something very
• 4:41
  Speaker 1: traumatic and thrilling, and the question is in what direction
• 4:45
  Speaker 1: were we going to go? It was pre Reagan era,
• 4:48
  Speaker 1: and you could kind of see the dawn of the
• 4:50
  Speaker 1: Reagan era and some of my classmates, and you could
• 4:53
  Speaker 1: see even the dawn of some of the woke stuff
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  Speaker 1: today and some of my classmates critical race theory kind
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  Speaker 1: of about to be born, and you could see the
• 5:03
  Speaker 1: origins of it there as well as you could see
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  Speaker 1: the Federal Society, which is the conservative movement that's had
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  Speaker 1: an amazing influence that the theoretical foundations were kind of
• 5:15
  Speaker 1: being laid by twenty somethings in the seventies.
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  Speaker 2: Interesting, So you clerk for Justice Benjamin Caplan on the
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  Speaker 2: Massachusetts Supreme Court and then clerk for Justice Thurgood Marshal
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  Speaker 2: at the Supreme Court of the United States, and this
• 5:31
  Speaker 2: is seventy nine eighty. Tell us a little bit about
• 5:34
  Speaker 2: what those experiences were like.
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  Speaker 1: Well, Justice Kaplan on the Massachusetts Supreme Court, he's not
• 5:41
  Speaker 1: in the history books, but he could be. He was
• 5:44
  Speaker 1: a person who was fair and rigorous, and it's almost
• 5:50
  Speaker 1: like there's one word for Caplin, fair and rigorous. And
• 5:54
  Speaker 1: he was a little like Daddy Kahneman in the sense
• 5:57
  Speaker 1: that he'd obsessed over every word. He also was very
• 6:00
  Speaker 1: critical of himself, and he could be very critical of
• 6:03
  Speaker 1: his clerks. At one point I was told before I started,
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  Speaker 1: he's going to take you in the equivalent of woodshed,
• 6:10
  Speaker 1: and kind of threatened to fire you. And sure enough
• 6:12
  Speaker 1: that happened, and I reacted with fire. I said to him,
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  Speaker 1: this is unfair. And it was quite an encounter. And
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  Speaker 1: the next day said are you still mad at me?
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  Speaker 1: Which was a recognition of my humanity, and I said,
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  Speaker 1: I still think you were unfair, and we became great friends,
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  Speaker 1: and I learned so much from him. He had been
• 6:32
  Speaker 1: a Harvard professor, maybe the best Harvard professor of his generation,
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  Speaker 1: and he was an extraordinary judge. Marshall was the historic
• 6:41
  Speaker 1: person and larger than life, and full of humor and
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  Speaker 1: wit and moral commitment that was never drawing attention to itself.
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  Speaker 1: It was more about the people. It was never about himself.
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  Speaker 1: And what I learned from Marshall is where lawyers typically
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  Speaker 1: at least of the supreme level, focus on paper and think,
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  Speaker 1: you know it was the argument solid is the other
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  Speaker 1: paper better papers, which lawyer has the better of, the
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  Speaker 1: argument on precedence, on statutes. Marshall, of course thought about
• 7:14
  Speaker 1: all of those things, but he saw behind the paper
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  Speaker 1: people and that was an enduring lesson for me, that
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  Speaker 1: there was someone vulnerable or not vulnerable, but who was
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  Speaker 1: a person who was at risk in a case. And
• 7:29
  Speaker 1: he always wanted to know who were those people and
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  Speaker 1: what were the actual stakes for them? And of the
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  Speaker 1: thousands or millions of similarly situated they might be investors,
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  Speaker 1: they might be workers, they might be companies, how would
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  Speaker 1: they be affected? And more than any justice at the time,
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  Speaker 1: and I think maybe more than any justice in history.
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  Speaker 1: That's what he put his finger on.
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  Speaker 2: So you finish up your clerkship and you go to
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  Speaker 2: the University of Chicago, where you end up staying as
• 7:56
  Speaker 2: a professor for twenty seven years. That's a heck of
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  Speaker 2: a good run. What made Chicago such a special place
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  Speaker 2: to teach at.
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  Speaker 1: I did have something in between, i should say, which
• 8:07
  Speaker 1: wasn't like a vacation in Paris or a time being
• 8:11
  Speaker 1: a shoplifter. I had at the Department of Justice, where
• 8:16
  Speaker 1: I worked for a year in an office called the
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  Speaker 1: Office of Legal Counsel under both Carter and Reagan, which
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  Speaker 1: advises the president on the legality of what he proposes
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  Speaker 1: to do.
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  Speaker 2: So not like the Solicitor General that's arguing in front
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  Speaker 2: of the Supreme Court. This is working directly with potus.
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  Speaker 1: Yes, and well, when you say directly, that's true. Except
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  Speaker 1: the number of meetings I had with President Reagan was zero.
• 8:44
  Speaker 1: The number of mediated interactions I had with President Reagan
• 8:49
  Speaker 1: was about five. And the amount of work that I
• 8:52
  Speaker 1: did for the President was basically every day. So the
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  Speaker 1: Solicitor General's office argues the cases in front of the
• 8:59
  Speaker 1: Supreme Court. The Officer of Legal Counsel resolves conflicts, eg.
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  Speaker 1: Between the State Department and the Defense Department, or if
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  Speaker 1: the president says, can I make a treaty? Or can
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  Speaker 1: I fire the air traffic controllers? Or can I do
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  Speaker 1: something about civil rights? The Office of Legal Counsel is
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  Speaker 1: the one that answers that question. And it's I think
• 9:19
  Speaker 1: it's at least as interesting as the Solicitor General's office
• 9:23
  Speaker 1: because you're not pleading to a court please agree with us.
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  Speaker 1: You're actually resolving a controversy. And it's kind of in
• 9:30
  Speaker 1: between being a judge. You write opinions, kind of like
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  Speaker 1: a judge, and you are part of a political operation
• 9:37
  Speaker 1: that is the executive branch. And if the president wants
• 9:40
  Speaker 1: to do something, you're not indifferent to the fact that
• 9:43
  Speaker 1: the president wants to do that. But saying no is
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  Speaker 1: a very honorable tradition in that office. And we said
• 9:50
  Speaker 1: no plenty. And one reason you say no is the
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  Speaker 1: president has an obligation to take care of the laws
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  Speaker 1: be faithfully executed, right, and that's solemn.
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  Speaker 2: Do we still do that anymore? If we kind of
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  Speaker 2: waved that.
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  Speaker 1: Off, No, that still happens. So under recent presidents, all
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  Speaker 1: of them, the Office of Legal Consul has occasionally said no. Now,
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  Speaker 1: in some times, the Office of Legal Console is more
• 10:14
  Speaker 1: politically let's say, what's the right word compromise. I want
• 10:20
  Speaker 1: to use a softer word, but that's not I don't
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  Speaker 1: have to.
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  Speaker 2: I have no ties to the unity, so I could
• 10:27
  Speaker 2: drop whatever bombs I want. I know, you need to
• 10:29
  Speaker 2: be a touchpec.
• 10:31
  Speaker 1: I think it is correct to say that the legal
• 10:34
  Speaker 1: independence of the Office of Legal Console varies over time. Okay,
• 10:38
  Speaker 1: but by tradition it is not just a lackey. And then,
• 10:44
  Speaker 1: as you say, went to the University of Chicago. I
• 10:47
  Speaker 1: went there because I was fearful that being a professor
• 10:50
  Speaker 1: would be like retiring in your twenties. And I thought,
• 10:53
  Speaker 1: that's not what I want to do.
• 10:55
  Speaker 2: The last landed gentry in America are tenured professors.
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  Speaker 1: That's what I was fearful of. So I thought, you know,
• 11:03
  Speaker 1: I was in the Justice Department. I had clerked for
• 11:05
  Speaker 1: the Supreme Court. I had uh uh career plans and
• 11:10
  Speaker 1: the idea of just uh sitting in an office and
• 11:13
  Speaker 1: thinking what ideas do I have? That didn't feel really
• 11:17
  Speaker 1: like living. It felt more like celtifying. But at the
• 11:20
  Speaker 1: University of Chicago, the faculty was full of dynamism and energy,
• 11:26
  Speaker 1: and whether they were producing new ideas about the economic
• 11:30
  Speaker 1: analysis of law or new ideas about what freedom means,
• 11:34
  Speaker 1: or new ideas about the securities law, it was like
• 11:37
  Speaker 1: uh uh, it was electric. It was like Paris. And
• 11:42
  Speaker 1: the University of Chicago Law School at that time was,
• 11:46
  Speaker 1: you know, as lively an intellectual community as you know,
• 11:49
  Speaker 1: they say, Vienna at one point was like that, and
• 11:52
  Speaker 1: Berlin at one point was like that, and uh, Cambridge
• 11:56
  Speaker 1: and Oxford at some points have been like that. Chicago
• 11:58
  Speaker 1: was like that.
• 11:59
  Speaker 2: Are you still a quote Chicago person? Through and through?
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  Speaker 1: I wouldn't say that. I think that everyone is themselves
• 12:09
  Speaker 1: rather than the Chicago person or you know, new Yorker.
• 12:14
  Speaker 1: Forgive me for those who consider themselves New Yorkers. There yourself.
• 12:19
  Speaker 1: But I was certainly inspired by and influenced by the
• 12:26
  Speaker 1: fact that at Chicago there was in his intense curiosity
• 12:31
  Speaker 1: and a sense that trying to figure out what's true
• 12:36
  Speaker 1: is thrilling and.
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  Speaker 2: Noble.
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  Speaker 1: So I saw Gary Becker, who won the Nobel and
• 12:47
  Speaker 1: the great Chicago economists, who was almost a law professor,
• 12:50
  Speaker 1: who was around all the time, man did he think
• 12:53
  Speaker 1: I was full of nonsense? And when he would ask
• 12:56
  Speaker 1: me questions in his workshop, the feeling of you are
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  Speaker 1: wrong was combined with a feeling of respect that I'll
• 13:07
  Speaker 1: never forget. He was, you know, a giant, and I
• 13:12
  Speaker 1: was a nothing.
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  Speaker 2: Wait wait, wait, I have to interrupt you here. So
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  Speaker 2: you come out of clerking not for one Supreme Court,
• 13:19
  Speaker 2: but a state and the Supreme Court. Then you are
• 13:22
  Speaker 2: serving the White House in the Office General Counsel, and
• 13:26
  Speaker 2: suddenly you're a one l being pulled on again, feeling
• 13:30
  Speaker 2: that like panic, rise, am I going to get this wrong?
• 13:32
  Speaker 1: And being massed in front of everybody, Well, a little
• 13:35
  Speaker 1: like that. So I was in my twenties, mind you,
• 13:39
  Speaker 1: and I remember a dinner that Dick Posner had for
• 13:42
  Speaker 1: me as a newcomer of the University of Chicago, and
• 13:44
  Speaker 1: George Stigler, who was also a Nobel Prize guy, was
• 13:47
  Speaker 1: there and he asked me what I taught. And I
• 13:49
  Speaker 1: was teaching welfare law, and that was when I courses
• 13:52
  Speaker 1: in Chicago in Chicago, and it was about the social
• 13:55
  Speaker 1: security law and anti poveri law. George Stigler said that
• 13:59
  Speaker 1: why would you teach that? There aren't any poor people
• 14:01
  Speaker 1: in America. And he had written a paper showing that
• 14:04
  Speaker 1: if you earn six dollars a week, or something purporting
• 14:06
  Speaker 1: to show I should say, if you have six dollars
• 14:09
  Speaker 1: a week, you're going to be fine. And my reaction
• 14:12
  Speaker 1: to that was, your name may be Stigler, and you
• 14:15
  Speaker 1: may have a Nobell, but I don't believe a second
• 14:19
  Speaker 1: that that paper is correct. And he was much smarter
• 14:23
  Speaker 1: and more learned than I was, and it was a
• 14:25
  Speaker 1: terrible dinner. But I did have, back then maybe now
• 14:34
  Speaker 1: a sense that, you know, I'm going to give him
• 14:36
  Speaker 1: a best shot, and I didn't have a sense that
• 14:38
  Speaker 1: I was necessarily wrong. And I remember Stigler's fierceness, and
• 14:43
  Speaker 1: he was Becker was a great man who was respectful
• 14:47
  Speaker 1: as well as skeptical. Stigler was contemptuous as well as curious.
• 14:54
  Speaker 1: Who was this young fool who was at our dinner party.
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  Speaker 1: But Tick Posner, who was there, who was also a giant,
• 15:00
  Speaker 1: was at that dinner. He was kind, so he saw
• 15:06
  Speaker 1: I was in trouble because Stigler was so amazingly smart
• 15:11
  Speaker 1: and quick. And Posner, who agreed with Stiegler, came to
• 15:15
  Speaker 1: my defense and that was the start of a great friendship.
• 15:19
  Speaker 2: That's really really quite interesting. And thank goodness there are
• 15:23
  Speaker 2: no poor people in America, because just think about how
• 15:26
  Speaker 2: uncomfortable would be to see homeless in big cities and
• 15:29
  Speaker 2: people unable to pay for medical care. I mean, what
• 15:33
  Speaker 2: sort of a country as that sort of thing? Yeah,
• 15:36
  Speaker 2: I mean, thank goodness, he was right.
• 15:38
  Speaker 1: Yeah, we probably need a progressive income tax or something,
• 15:41
  Speaker 1: and jobs programs and educational opportunity.
• 15:44
  Speaker 2: So here is the fascinating irony about your career starting
• 15:48
  Speaker 2: in Chicago and now you've been at Harvard for quite
• 15:52
  Speaker 2: a while, back and forth to public service, but still
• 15:54
  Speaker 2: at Harvard Law School for quite a while. It seems
• 15:57
  Speaker 2: like those are the endpoints on the intellectual spectrum, at
• 16:02
  Speaker 2: least in terms of legal thought. Am I overstating that
• 16:06
  Speaker 2: or is that fair?
• 16:07
  Speaker 1: It's a great question. So Chicago, when I was there,
• 16:11
  Speaker 1: was the center of right of center legal thought. It
• 16:16
  Speaker 1: had a very large percentage of the most influential right
• 16:20
  Speaker 1: of center people, and they were fantastic and they continue
• 16:24
  Speaker 1: to be great friends. Harvard was the place where critical
• 16:29
  Speaker 1: legal studies was born. It's kind of not a thing anymore,
• 16:33
  Speaker 1: but that was the left of center to law and economics,
• 16:37
  Speaker 1: which was the right of center, I thought. Even when
• 16:39
  Speaker 1: I was at Chicago, though I wasn't right of center,
• 16:41
  Speaker 1: I thought law and economics was extremely important and kind
• 16:46
  Speaker 1: of on the right track. And I thought critical legal
• 16:49
  Speaker 1: studies was a bunch of adjectives and nouns and not
• 16:54
  Speaker 1: really adding up to much. But I admired at Harvard
• 16:59
  Speaker 1: the contraditional law of people who were fantastically clear headed
• 17:03
  Speaker 1: about the law, for sure. And I admired the students
• 17:07
  Speaker 1: at Harvard who were so diverse in terms of intellectual
• 17:15
  Speaker 1: interests and intellectual background and politics and everything. Chicago has
• 17:23
  Speaker 1: intellectual diversity too, but it's just smaller. So I felt
• 17:26
  Speaker 1: that Harvard was a little like New York City and
• 17:30
  Speaker 1: Chicago was a little like Boston, smaller, more tightly connected
• 17:37
  Speaker 1: everyone to everyone else.
• 17:38
  Speaker 2: And I love them both. So you work at Harvard
• 17:42
  Speaker 2: with some just legendary professors. Did you overlap with Guido
• 17:49
  Speaker 2: Calabrisi when he was I think dean of you.
• 17:52
  Speaker 1: You know, he was at Yale, and I know him
• 17:54
  Speaker 1: very well and I love him dearly, and he's ninety
• 17:58
  Speaker 1: something now, and he was a great influence on me
• 18:03
  Speaker 1: and Harvard and Yale often have intellectual interactions that are
• 18:10
  Speaker 1: breeding a friendship and Chicago and Yale also, and Calibrazy
• 18:14
  Speaker 1: was a founder of economic analysis of law and a
• 18:19
  Speaker 1: little more, let's say, focused on poor people and people
• 18:24
  Speaker 1: are struggling than Chicago economics. So there's a Yale school
• 18:27
  Speaker 1: in Chicago school and Calibrazy. I can't quite say he
• 18:32
  Speaker 1: was a mentor, but he feels like that to me.
• 18:35
  Speaker 2: And Lawrence Tribe probably the pre eminent constitutional law scholar
• 18:40
  Speaker 2: in the country. Is am I again, am I overstating that?
• 18:43
  Speaker 2: Or is that a fair I.
• 18:44
  Speaker 1: Think it's a little like basketball, and some people like
• 18:47
  Speaker 1: Michael Jordan and some people like Lebron James and something.
• 18:51
  Speaker 1: And Bill Russell, of course was the greatest winner of
• 18:53
  Speaker 1: all time. Tribe was my teacher and oh really, and
• 18:57
  Speaker 1: he was maybe of the three the most like Michael Jordan.
• 19:01
  Speaker 1: His intellectual athleticism was and is next level, next level.
• 19:08
  Speaker 1: And he was when when he was my teacher, he
• 19:11
  Speaker 1: was charismatic, he was clear, he was bursting with ideas.
• 19:18
  Speaker 1: He was writing his great treatise at the time, and
• 19:22
  Speaker 1: it was a bonfire of thinking in a constructive bonfires destroyed.
• 19:29
  Speaker 1: Tribe didn't destroy anything, and I thought he was dazzling,
• 19:34
  Speaker 1: And he wrote a letter for me, actually for my
• 19:36
  Speaker 1: Supreme Court clerkship with Justice Marshall, which I'm very grateful for.
• 19:40
  Speaker 1: He's he's still a great friend, and you know he's
• 19:44
  Speaker 1: he's in many ways he's different from me in the
• 19:47
  Speaker 1: last years. Particularly he's more politically engaged in a way
• 19:52
  Speaker 1: that is not my typical style. But I'm full of
• 19:57
  Speaker 1: admiration for him.
• 19:58
  Speaker 2: Really really quite interesting. So let's talk a little bit
• 20:01
  Speaker 2: about this program. What leads to something like this coming about.
• 20:05
  Speaker 2: It doesn't sound like your typical law school sort of
• 20:09
  Speaker 2: class completely.
• 20:11
  Speaker 1: So there has been, as I think everyone's aware now,
• 20:15
  Speaker 1: an explosion of work in behavioral economics and behavioral science
• 20:19
  Speaker 1: about human behavior. So we know how people depart from
• 20:23
  Speaker 1: perfect rationality. So people are often focused on short term,
• 20:28
  Speaker 1: not the long term. They're often unrealistically optimistic, their attention
• 20:33
  Speaker 1: is limited. They can be manipulated because they'll focus on
• 20:36
  Speaker 1: one or two features of let's say a product, rather
• 20:39
  Speaker 1: than seven, and that means they'll get two features they
• 20:42
  Speaker 1: like and five that they in the long run will despise.
• 20:46
  Speaker 1: So we know a lot about that. This has major
• 20:49
  Speaker 1: implications for law So with respect to fiduciary obligations, let's
• 20:55
  Speaker 1: say a fiduciary, what do they have to tell people
• 20:59
  Speaker 1: and what do they have to make clear to people
• 21:04
  Speaker 1: and not just tell people? And behavioral science tells us
• 21:07
  Speaker 1: a lot about that. If we're thinking about free speech
• 21:10
  Speaker 1: law and we're thinking about the marketplace of ideas, behavioral
• 21:14
  Speaker 1: science behavioral economics might tell us something about how people
• 21:18
  Speaker 1: get confused or fooled. If we're talking about property law,
• 21:23
  Speaker 1: toward law or contract law, there has to be a
• 21:26
  Speaker 1: sense of how people are going to react to what
• 21:28
  Speaker 1: the law is doing. So if the law has a
• 21:30
  Speaker 1: default term, let's say that you have to perform in
• 21:33
  Speaker 1: a reasonable time, and let's say the company that's doing
• 21:37
  Speaker 1: the performance thinks a reasonable time means maybe next year.
• 21:41
  Speaker 1: What does the law do about that? And so there
• 21:43
  Speaker 1: are are zillion questions. Algorithms in AI are kind of
• 21:47
  Speaker 1: top of mind now for the law to try to
• 21:50
  Speaker 1: figure out that have a behavioral feature, and that's that's
• 21:54
  Speaker 1: kind of what we're doing with our program.
• 21:57
  Speaker 2: That sounds really interesting, assuming since you co authored Nudge
• 22:02
  Speaker 2: with Dick Thaylor, which came first working with Sailor or
• 22:07
  Speaker 2: the program on behavioral economics and public policy.
• 22:11
  Speaker 1: I'll tell you a story. Before I met Faylor, I
• 22:15
  Speaker 1: was overwhelmed the best way by the work of conomin University,
• 22:21
  Speaker 1: a failure. So I thought, this is the thing, and
• 22:24
  Speaker 1: I started to work on some papers, one of which
• 22:27
  Speaker 1: was called behavioral analysis of law. And then Taylor came
• 22:31
  Speaker 1: to the University of Chicago and we started having lunch together,
• 22:35
  Speaker 1: and I started working with him when he was working
• 22:38
  Speaker 1: on a paper with a law professor named Christine Joels
• 22:41
  Speaker 1: that I thought was going too slowly, and I said,
• 22:43
  Speaker 1: if you don't write that paper, I'm going to write
• 22:46
  Speaker 1: my paper and it might steal your thunder. It won't
• 22:49
  Speaker 1: be as good as yours, but it'll be earlier. And
• 22:53
  Speaker 1: Dick said, you know, this was a fantastic moment for me.
• 22:56
  Speaker 1: He said, why don't you join us? And we wrote
• 22:58
  Speaker 1: it together. So I was intrigued by the behavioral stuff
• 23:03
  Speaker 1: before I met fayalor after I met Faylor, I had
• 23:06
  Speaker 1: a the world's best partner on this stuff. And then
• 23:10
  Speaker 1: when I went to Harvard our program that followed, and
• 23:15
  Speaker 1: some of it involves nudges, some of it has nothing
• 23:18
  Speaker 1: to do with nudges, but all of it has to
• 23:20
  Speaker 1: do with behavioral science.
• 23:22
  Speaker 2: So you also co wrote Noise with with Danny Kahneman.
• 23:27
  Speaker 2: It seems that there's a theme in all your books, nudge, noise, sludge.
• 23:33
  Speaker 2: You're constantly looking at the decision making process, and not
• 23:39
  Speaker 2: just from an academic perspective, but how it affects people
• 23:42
  Speaker 2: in the real world, how it affects organizations, how it
• 23:45
  Speaker 2: affects individuals. Tell us a little bit about the integration
• 23:49
  Speaker 2: of behavioral finance and behavioral economics with law.
• 23:54
  Speaker 1: Okay, well, let's talk a little bit about groups, shall we.
• 24:00
  Speaker 1: If you get a group of like minded people together,
• 24:04
  Speaker 1: they typically end up thinking a more extreme version of
• 24:07
  Speaker 1: what they thought before they started to talk. So if
• 24:10
  Speaker 1: you get a group of people who tend to think,
• 24:12
  Speaker 1: you know, we ought to invest in X. Take your pick, soap,
• 24:18
  Speaker 1: there's new kind of soap, we ought to invest in X.
• 24:20
  Speaker 1: That's the average view soap. Everyone needs to be clean
• 24:24
  Speaker 1: and with climate change, soap it's going to be crazy
• 24:27
  Speaker 1: soap companies. If that's the average view, I'm starting to
• 24:31
  Speaker 1: convince myself by the way to invest in soap companies,
• 24:34
  Speaker 1: which is probably not necessarily right. Let's put it that way.
• 24:39
  Speaker 1: If people talk with one another, and they start with
• 24:41
  Speaker 1: an initial disposition, they tend to think an extreme version
• 24:44
  Speaker 1: of what they thought. They become more confident, more unified,
• 24:47
  Speaker 1: and more extreme. This is a real problem for companies,
• 24:52
  Speaker 1: it's a real problem for law. We have data suggesting
• 24:56
  Speaker 1: if you get three judges who are let's say, Democratic
• 24:59
  Speaker 1: appointees on Court of Appeals, not two Democratic appointees and
• 25:03
  Speaker 1: one Republican three Democratic appointees, the likelihood of a left
• 25:08
  Speaker 1: of center opinion shoots up really dramatically. That's a crazy
• 25:12
  Speaker 1: finding because if you have two Democratic appointees on a
• 25:15
  Speaker 1: three judge panel, they have the votes, they don't need
• 25:17
  Speaker 1: that Republican appointee, but they are much more moderate, and
• 25:21
  Speaker 1: it's symmetrical. Three Republican appointees are much more right wing
• 25:26
  Speaker 1: in their voting patterns then two Republican appointees on a
• 25:29
  Speaker 1: panel with one Democratic appointee.
• 25:32
  Speaker 2: So group think even amongst judges is worse if there's
• 25:37
  Speaker 2: three of them in no countering voices versus, hey, we
• 25:40
  Speaker 2: have a majority and we're going to sign how we want,
• 25:43
  Speaker 2: but everybody kind of wants to be rational and cooperative.
• 25:46
  Speaker 1: Is that the suggest And here's the really cool thing.
• 25:48
  Speaker 1: There is a book called group think a few decades ago.
• 25:53
  Speaker 1: It's a fantastic term. It's not clear what group think is,
• 25:57
  Speaker 1: and if we clear clarify what is, it's not clear
• 26:00
  Speaker 1: whether it exists. So the rigorous efforts to test group
• 26:05
  Speaker 1: think have a bunch of question marks. But there's something
• 26:08
  Speaker 1: like groupthink which does exist, which is a testable hypothesis,
• 26:13
  Speaker 1: which is, if you've got a group of people, it
• 26:15
  Speaker 1: will end up after deliberation in a more extreme point,
• 26:19
  Speaker 1: in line with its pre deliberation tendencies. So that's a mouthful.
• 26:23
  Speaker 1: But let's suppose you have a group of six people
• 26:25
  Speaker 1: deciding whether to invest in soap or instead electric cars.
• 26:28
  Speaker 1: Those are the options. Let's say four of them think
• 26:31
  Speaker 1: soap and two of them think electric cars, and they
• 26:33
  Speaker 1: think the same thing. They think what they do with
• 26:36
  Speaker 1: equal intensity. At the end of the discussion, the prediction
• 26:40
  Speaker 1: is the group is going to go soap, soap, soap, soap, soap,
• 26:43
  Speaker 1: and it's going to do that with a considerable confidence
• 26:47
  Speaker 1: as well as unanimity. That will be the statistical regularity.
• 26:51
  Speaker 1: And I've done work on political issues, climate change, affirmative action,
• 26:56
  Speaker 1: same sex stuff, where if you've get a group that
• 26:58
  Speaker 1: has a conservative disposition, they go whish to the right
• 27:01
  Speaker 1: after they talk with one another. If they have a
• 27:03
  Speaker 1: left of center disposition, they go whish to the left
• 27:06
  Speaker 1: after they talk with one another. And Conneman and I
• 27:09
  Speaker 1: did this a study with this on punitive damages jury awards,
• 27:13
  Speaker 1: where for jury's mad at a company, they're going to
• 27:16
  Speaker 1: be super mad at a company after they talk with
• 27:19
  Speaker 1: one another, which helps explain why punitive damages are both
• 27:23
  Speaker 1: unpredictable and often really really high.
• 27:25
  Speaker 2: So that's so let's take that basic concept and apply
• 27:30
  Speaker 2: it to online where you have social media and all
• 27:35
  Speaker 2: sorts of trolling activities, and you end up with conspiracy
• 27:39
  Speaker 2: theories like QAnon. How should public policy deal with these
• 27:44
  Speaker 2: sort of things between anti vaxxers and anti democratic election deniers.
• 27:51
  Speaker 2: This is a genuine threat to the health and safety
• 27:54
  Speaker 2: of the country.
• 27:55
  Speaker 1: So back in two thousand, I agreed to write a
• 27:59
  Speaker 1: book for Princeton University Press called Republic dot Com. And
• 28:05
  Speaker 1: I had a title, but I didn't have a book,
• 28:08
  Speaker 1: and I had six months of failure, like unbelievable failure,
• 28:15
  Speaker 1: like either nothing or it was terrible. You I was
• 28:20
  Speaker 1: worse than common. And because what he didn't like in
• 28:23
  Speaker 1: his own work. His work is actually good. What I
• 28:26
  Speaker 1: produced in those six months was in fact horrible. I
• 28:29
  Speaker 1: still have it somewhere. But then I thought, okay, the
• 28:32
  Speaker 1: real problem is echo chambers and the absence of shared
• 28:38
  Speaker 1: exposure to things. And then when I thought echo chambers,
• 28:42
  Speaker 1: shared exposures, I sketched out nine chapters, and I wrote
• 28:46
  Speaker 1: a chapter a day, and I had a book after
• 28:49
  Speaker 1: nine days. I've never had anything like that. It was
• 28:51
  Speaker 1: like a frenzy, a happy frenzy of book writing. And
• 28:57
  Speaker 1: that book has now gone through three editions. It was
• 29:00
  Speaker 1: first called republic dot.
• 29:03
  Speaker 2: Com hashtag republic divided democracy in the age of social media.
• 29:07
  Speaker 1: That one, that's the very recent one, and it's exactly
• 29:10
  Speaker 1: on your point. So what should be done by various actors,
• 29:14
  Speaker 1: I think is a really hard question. But the existence
• 29:17
  Speaker 1: of the problem is palpable. If you're thinking about yourself
• 29:23
  Speaker 1: just as an individual, to try to be exposed to
• 29:26
  Speaker 1: diverse ideas is a really good idea. They're apps. There's
• 29:31
  Speaker 1: one I don't know if it still is working. I hope.
• 29:33
  Speaker 1: So it's called read across the aisle, where you where
• 29:36
  Speaker 1: you can tell whether you're just reading one kind of
• 29:38
  Speaker 1: thing or another kind of thing, so there's self monitoring.
• 29:42
  Speaker 1: I know that some social media platforms have thought hard
• 29:46
  Speaker 1: about how to handle the echo chamber phenomenon, and hard
• 29:50
  Speaker 1: also about how to think about the the misinformation problem.
• 29:57
  Speaker 1: And there are various things that behavioral scientis would counsel
• 30:02
  Speaker 1: consideration of, including warnings, including reduced circulation levels, including in
• 30:11
  Speaker 1: extreme cases, very extreme cases, taking things down. Not through
• 30:16
  Speaker 1: government because that then there's a First Amendment issue, but
• 30:19
  Speaker 1: through voluntary action. And one size doesn't fit all, but
• 30:25
  Speaker 1: I agree this is a very serious challenge.
• 30:28
  Speaker 2: So a different book, I assume, is on rumors, how
• 30:31
  Speaker 2: falsehood spread, why we believe them, and what can be done.
• 30:36
  Speaker 2: It seems like we are very predisposed to believe nonsense
• 30:41
  Speaker 2: if it confirms our prior beliefs. We believe what we
• 30:44
  Speaker 2: want to believe in. Who cares about the facts.
• 30:46
  Speaker 1: Okay, so here let's talk about three things might we
• 30:51
  Speaker 1: The first is if I tell you that it's raining
• 30:56
  Speaker 1: outside right now, you aren't going to think think he's
• 31:01
  Speaker 1: fooling me. It's sunny and beautiful outside. You're probably going
• 31:06
  Speaker 1: to think, maybe I should get an umbrella. So when
• 31:09
  Speaker 1: people hear something and there's probably a good evolutionary explanation
• 31:13
  Speaker 1: for this. Under ordinary circumstances, they think it's true, and
• 31:17
  Speaker 1: that truth bias is it's sometimes called is essential. If
• 31:21
  Speaker 1: we try to live in a world in which we
• 31:23
  Speaker 1: thought everything people said was false, we couldn't get through
• 31:27
  Speaker 1: a day.
• 31:28
  Speaker 2: Cooperative primates in a social group provided a survival advantage,
• 31:33
  Speaker 2: so you're not inclined to disbelieve someone looking eye and
• 31:37
  Speaker 2: telling you something completely.
• 31:38
  Speaker 1: But truth bias can lead us in really terrible directions,
• 31:43
  Speaker 1: and that's independent of motive. So I don't need to
• 31:47
  Speaker 1: want to think it's raining to think if someone tells
• 31:49
  Speaker 1: me it's raining, it's umbrella time. That's one truth bias.
• 31:53
  Speaker 1: The other thing is confirmation bias, where if we're told
• 31:58
  Speaker 1: things that fit with what we think, we tend to
• 32:01
  Speaker 1: like that and we tend to believe it because it
• 32:04
  Speaker 1: fits with what we think, and that can aggravate the
• 32:09
  Speaker 1: problem of echo chambers where people it's confirmation bias is
• 32:13
  Speaker 1: being catered to. So if you think the thing is
• 32:16
  Speaker 1: your investment in X is really going great, even though
• 32:20
  Speaker 1: all the indication is that it's risky. The confirmation, the
• 32:25
  Speaker 1: confirmatory material will have credibility. We have recent data suggesting.
• 32:30
  Speaker 1: There's a third thing, which is I think cooler than
• 32:32
  Speaker 1: truth bias or confirmation bias. Its name is desirability bias,
• 32:38
  Speaker 1: and it's like confirmation bias, except it's different. And maybe
• 32:44
  Speaker 1: I like it because of the phenomenon it draws attention
• 32:47
  Speaker 1: to because I find it desirable in a way that
• 32:51
  Speaker 1: it indicates it's fun.
• 32:52
  Speaker 2: So the desirability bias appeals to your own desirability.
• 32:56
  Speaker 1: Yeah, it does, because it fits with my conception of
• 32:58
  Speaker 1: human nature. Confirmation both, but let's pull them apart a bit.
• 33:03
  Speaker 1: So desirability bias means that people believe things if they
• 33:08
  Speaker 1: find it enjoyable to believe them. Where enjoyable is a
• 33:12
  Speaker 1: big concept. So it might mean it makes them smile,
• 33:15
  Speaker 1: It might make me makes them feel secure. It might
• 33:17
  Speaker 1: mean it makes them feel pleased. It could make feel
• 33:22
  Speaker 1: them make them feel grateful. It can be any number
• 33:25
  Speaker 1: of things, but desirability bias and confirmation bias are emphatically
• 33:30
  Speaker 1: not the same thing. You might hear something that fits
• 33:34
  Speaker 1: with your belief that is, like, you're really sick, but
• 33:40
  Speaker 1: you don't want to believe that because you don't want
• 33:42
  Speaker 1: to believe you're really sick. And so if something is
• 33:45
  Speaker 1: disconfirming but desirable. The data we have suggests that the
• 33:49
  Speaker 1: desirable will beat the confirmatory. So if you think the
• 33:54
  Speaker 1: economy is going to go sour and then you learn
• 33:58
  Speaker 1: that's not true, you might well be extremely credulous, meaning
• 34:04
  Speaker 1: willing to believe the happy thing even though it's disconfirming
• 34:08
  Speaker 1: of your belief. So desirability bias means things that please us,
• 34:13
  Speaker 1: we will tend to believe, even if they are disconfirming
• 34:17
  Speaker 1: of what we start believing.
• 34:20
  Speaker 2: That's really intriguing. What I find so fascinating about confirmation
• 34:25
  Speaker 2: bias is the underlying investment in the model of the
• 34:30
  Speaker 2: world our brains create. I think our brains consume twenty
• 34:33
  Speaker 2: five percent of our daily energy, and so the models
• 34:38
  Speaker 2: we create over time we are so reluctant to challenge.
• 34:44
  Speaker 2: We don't want to look for disconfirming evidence because hey,
• 34:48
  Speaker 2: we have all these sunk costs over here to bring
• 34:51
  Speaker 2: up another fallacy. Tell us a little more about how
• 34:55
  Speaker 2: you test for desirability bias and how it manifests in
• 34:59
  Speaker 2: things like public policy.
• 35:01
  Speaker 1: Okay, so let's talk a little bit about confirmation bias.
• 35:05
  Speaker 1: If I believe that the Holocaust happened, if I read
• 35:11
  Speaker 1: something think saying it didn't happen. I will dismiss that,
• 35:16
  Speaker 1: not because please that the Holocaust happened, but because I
• 35:23
  Speaker 1: am so clear that the Holocaust happened that the information
• 35:27
  Speaker 1: that's inconsistent with my belief has no credibility. So it's basian.
• 35:32
  Speaker 1: It's not about motivation. So I believe that dropped objects fall.
• 35:36
  Speaker 1: If a magician comes to me and says, you know,
• 35:39
  Speaker 1: you're not quite right on that, I will think, magician,
• 35:42
  Speaker 1: you're pretty good at your job. But I really believe
• 35:46
  Speaker 1: dropped objects fall. It's not about my motivations. It's what
• 35:49
  Speaker 1: I start with. So a lot of what we call
• 35:52
  Speaker 1: confirmation bias is basian updating. Given our priors, we dismiss
• 35:57
  Speaker 1: what is disconfirming on the ground that how can it
• 35:59
  Speaker 1: be true that dropped objects don't fall? Or how can
• 36:02
  Speaker 1: it be true that Bill Russell isn't the greatest winner
• 36:05
  Speaker 1: in the history of organized sports. I have actually an
• 36:08
  Speaker 1: emotional investment as well as.
• 36:11
  Speaker 2: One sports opinion, which is emotion. The other is physics.
• 36:14
  Speaker 2: But all that aside, So desirability bias is even if
• 36:20
  Speaker 2: disconfirming seems to have a great resonance within ourselves. Yeah,
• 36:25
  Speaker 2: why do we think that is okay.
• 36:27
  Speaker 1: So that's about motivation. Desirability bias isn't about rational updating.
• 36:32
  Speaker 1: It's only about motivation. Here's something that pulls them apart.
• 36:35
  Speaker 1: I'm going to give a simplified version of the best
• 36:38
  Speaker 1: date i'm aware of on this, where people in the
• 36:41
  Speaker 1: twenty sixteen election who favored Trump or Clinton also had
• 36:46
  Speaker 1: predictions about whether Trump or Clinton would win before the election.
• 36:51
  Speaker 1: Let's take Clinton voters. If they thought that Trump would
• 36:55
  Speaker 1: win and then they were given information that suggested Clinton
• 36:59
  Speaker 1: would win, they found it particularly credible. Now that was
• 37:04
  Speaker 1: disconfirming information. It suggested what they believed would happen was false,
• 37:09
  Speaker 1: but it was pleasing information. It suggested that the information
• 37:13
  Speaker 1: they were receiving would make them smile rather than suffer.
• 37:17
  Speaker 1: And it worked exactly the same for Trump voters who
• 37:21
  Speaker 1: thought that Trump would lose, but then when they got
• 37:24
  Speaker 1: information suggesting that Trump would win, they thought, I'll believe that.
• 37:28
  Speaker 1: And it's because it was desirable. So we're just learning
• 37:32
  Speaker 1: about desirability bias. It has an overlap with optimism bias.
• 37:36
  Speaker 1: It has implications for law. So in law and among
• 37:40
  Speaker 1: real lawyers, you can create something pretty funny instantly which
• 37:45
  Speaker 1: is you tell them, you know, imagine you're representing the
• 37:48
  Speaker 1: plaintiff in a lawsuit, what are the chances the person
• 37:51
  Speaker 1: will win? They say really high. If you ask the
• 37:53
  Speaker 1: same kind of people, you're representing the defendant, what's the
• 37:56
  Speaker 1: chance the defendant will win, they say the chances urge
• 37:59
  Speaker 1: are really high. So you can instantly put people in
• 38:01
  Speaker 1: the role of plane off lawyer or defense consul and
• 38:04
  Speaker 1: that their predictions about outcomes will fit with what they
• 38:08
  Speaker 1: think is desirable given the role they assumed thirty seconds ago.
• 38:13
  Speaker 2: So that's kind of interesting. Let's relate this to another book,
• 38:17
  Speaker 2: How change happens. When we look at things sexual harassment, smoking,
• 38:23
  Speaker 2: white supremacy, gay riots, climate change, seems like there's been
• 38:27
  Speaker 2: an ongoing evolution. Some of these things are very gradual,
• 38:32
  Speaker 2: even things like seat belts. So suddenly, I think the
• 38:36
  Speaker 2: number today is something like ten or fifteen percent of
• 38:39
  Speaker 2: people don't use seat belts, But the number was forty
• 38:42
  Speaker 2: to fifty percent for long, long periods of time until
• 38:46
  Speaker 2: we started with the beeping to nudge them to do that.
• 38:50
  Speaker 2: So tell us a little bit. How does social change happen?
• 38:54
  Speaker 2: Is this Hemingway esk or is it continually gradual, and
• 38:59
  Speaker 2: not all at once.
• 39:00
  Speaker 1: Well, okay, So to understand this we need to have
• 39:05
  Speaker 1: some moving parts. One thing is that people have in
• 39:10
  Speaker 1: their heads beliefs and desires that they don't tell anyone about.
• 39:16
  Speaker 1: So you might think, I think that violence against people
• 39:21
  Speaker 1: of color is pervasive and horrible, or you might think
• 39:26
  Speaker 1: I think meat eating is a really bad idea, or
• 39:29
  Speaker 1: you might think I think gun rights are very important
• 39:33
  Speaker 1: and it's terrible that there are people in the United
• 39:37
  Speaker 1: States who are seeking to disarm the American public. Okay,
• 39:41
  Speaker 1: people who think all of those three things, at some
• 39:43
  Speaker 1: point over the last fifty years have shut up thinking
• 39:48
  Speaker 1: if they say any of those things, they will be
• 39:51
  Speaker 1: ostracized or disliked or something I think of political correctness
• 39:56
  Speaker 1: rit large. Sometimes what happens, and this is the first
• 40:00
  Speaker 1: moving part, is that people are given a permission slip.
• 40:04
  Speaker 1: So it might be that a political candidate says black
• 40:08
  Speaker 1: lives matter, or it might be that a prominent female
• 40:12
  Speaker 1: actor says I was sexually harassed and if you were
• 40:16
  Speaker 1: to say, hashtag me too on Twitter. Or it might
• 40:20
  Speaker 1: be that someone says, I think people should be allowed
• 40:25
  Speaker 1: to get married, regardless of whether I want to marry
• 40:27
  Speaker 1: a man or a woman, regardless of their gender, and
• 40:31
  Speaker 1: it's a free country. Go for it, and then people
• 40:34
  Speaker 1: will feel licensed to say what they had shut up about.
• 40:40
  Speaker 1: And for many social movements, the fall of communism is
• 40:44
  Speaker 1: an example. The rise of the federalist Socie in the
• 40:46
  Speaker 1: United States is another example. I saw that in real
• 40:49
  Speaker 1: time the success of President Trump the success of President Obama,
• 40:53
  Speaker 1: for all their differences, those all involved, in significant part
• 40:58
  Speaker 1: people being given a permission slip that they never had before.
• 41:02
  Speaker 1: The second thing that matters is that whether we want
• 41:05
  Speaker 1: to participate or endorse a social change depends on what
• 41:09
  Speaker 1: our threshold is for doing that. Now. It might be
• 41:12
  Speaker 1: a threshold for becoming active, It might be a threshold
• 41:16
  Speaker 1: for just voting for someone. It might be a threshold
• 41:18
  Speaker 1: for saying something. And we all have different thresholds and
• 41:21
  Speaker 1: we probably don't know what they are. So if you
• 41:24
  Speaker 1: think of some movement for something, a lot of people
• 41:28
  Speaker 1: participated in it, maybe the civil rights movement that Martin
• 41:32
  Speaker 1: Luther King helped lead, and there were people who had
• 41:36
  Speaker 1: a very low threshold. They were just going to go
• 41:38
  Speaker 1: for it. And there are others who would join if
• 41:40
  Speaker 1: a certain number of people joined and the thresholds really matter,
• 41:44
  Speaker 1: and we don't know what their distribution is in advance,
• 41:47
  Speaker 1: and it has to play itself out. So that happened
• 41:50
  Speaker 1: with seatwelt buckling. And the third thing, which is maybe
• 41:53
  Speaker 1: most important, is social influences. So you might buckle your
• 41:57
  Speaker 1: belt if everyone else is buckling their belt. There are
• 42:01
  Speaker 1: other people who won't buckle their belt if no one's
• 42:04
  Speaker 1: buckling their belt. I remember a time when if you
• 42:06
  Speaker 1: buckled your belt, you were saying that the driver is
• 42:10
  Speaker 1: extremely dangerous, or you were saying that you were yourself
• 42:13
  Speaker 1: really cowardly and timid. And who wants to buckle their
• 42:17
  Speaker 1: belt and accuse a friend of being an unsafe driver
• 42:20
  Speaker 1: or disclosed that you're a terrified, scared rabbit. And now
• 42:23
  Speaker 1: buckling a seat belt doesn't accuse the driver and doesn't
• 42:27
  Speaker 1: confess timidity. And did the social norm changed?
• 42:31
  Speaker 2: And can I share a quick story. I had Bob
• 42:34
  Speaker 2: Schiller on the show a couple of times, and once
• 42:37
  Speaker 2: he had to go someone from here, and we took
• 42:40
  Speaker 2: a cab together to I think was to the New
• 42:42
  Speaker 2: York Times building and we got into the back of
• 42:44
  Speaker 2: the cab and Bob buckles his safety belt in the
• 42:49
  Speaker 2: back of the cab. I'm like, well, here's a guy
• 42:51
  Speaker 2: who studies behavioral finance, and as an economist, I hadn't
• 42:56
  Speaker 2: really I always wear my seat belt when I'm driving
• 42:59
  Speaker 2: or in the front seat. You get into the back,
• 43:01
  Speaker 2: you don't even think about it. Maybe I've been overlooking
• 43:04
  Speaker 2: this because of who he was and all the social
• 43:08
  Speaker 2: proof involved. It changed my perspective on wearing a seat
• 43:13
  Speaker 2: buckle seat belt in the back of a car. It
• 43:15
  Speaker 2: was just like, exactly what you're describing. Suddenly the whole
• 43:20
  Speaker 2: framework completely shifted.
• 43:22
  Speaker 1: That's fantastic. That's a great example. And something like that
• 43:25
  Speaker 1: is happening, you know, for non political issues, for economic choices,
• 43:30
  Speaker 1: for investment decisions, and it happens really fast. So you
• 43:35
  Speaker 1: can see a flood of movement towards something or away
• 43:39
  Speaker 1: from something, just because people think that other people are
• 43:42
  Speaker 1: joining that flood.
• 43:44
  Speaker 2: Let's talk a little bit about this book. I'm kind
• 43:45
  Speaker 2: of intrigued by the idea that you started writing this
• 43:49
  Speaker 2: in the nineteen nineties. Is that possibly correct? That it
• 43:52
  Speaker 2: is correct thirty years? I thought you were so prolific,
• 43:56
  Speaker 2: Why so long?
• 43:57
  Speaker 1: It's a slow burn. This book is a slow burn.
• 44:00
  Speaker 1: So I thought the idea of how we decide, how
• 44:03
  Speaker 1: we decide. It's one of the most fundamental things of
• 44:06
  Speaker 1: all and I thought there should be a book on this,
• 44:09
  Speaker 1: and I co authored a paper on it in the
• 44:11
  Speaker 1: nineteen nineties, but I never figured it out until yesterday.
• 44:17
  Speaker 2: So how has your thinking about decision making evolved over
• 44:22
  Speaker 2: that time.
• 44:24
  Speaker 1: I think the fundamental idea, which was developed in a
• 44:28
  Speaker 1: paper with a philosopher omen Marglie, is that we have
• 44:34
  Speaker 1: an identifiable set of strategies. It's going to be very
• 44:37
  Speaker 1: intuitive when we're stuck. So we might flip a coin.
• 44:42
  Speaker 1: We might decide who's an expert. I'll trust the expert.
• 44:46
  Speaker 1: We might decide I'm not going to marry her, I'm
• 44:49
  Speaker 1: going to live with her. That's like a really small step.
• 44:52
  Speaker 1: We might decide that, you know, I'm just going to
• 44:56
  Speaker 1: opt where it's not about flipping a coin. It's not
• 44:58
  Speaker 1: like picking flipping a coin. It's like I'm going to
• 45:01
  Speaker 1: do something really big, like jump over a chasm.
• 45:05
  Speaker 2: Or it might mean moved.
• 45:06
  Speaker 1: We might think that we're going to adopt a rule
• 45:09
  Speaker 1: no liquor ever except maybe Saturday night. And if you
• 45:13
  Speaker 1: think about business decisions, each of these strategies is used
• 45:18
  Speaker 1: all the time, sometimes deliberately. The head of a company
• 45:22
  Speaker 1: will say, here's our rule, or we'll say, if we're stuck,
• 45:25
  Speaker 1: we're going to go to this person, or we'll say,
• 45:27
  Speaker 1: you know, it's a coin flip. And we're not as
• 45:30
  Speaker 1: disciplined sometimes as we should be in thinking about these
• 45:33
  Speaker 1: But that's the basic framework. What I hadn't thought through
• 45:37
  Speaker 1: was how do we decide whether to acquire information? How
• 45:40
  Speaker 1: did we decide what to believe? How do we think
• 45:44
  Speaker 1: about algorithms? How do we think about freedom? And these
• 45:49
  Speaker 1: questions which are all basically part of the same thing
• 45:53
  Speaker 1: we're stirring around in the head. And I kind of
• 45:57
  Speaker 1: figured out at least provisional responses to the question students
• 46:00
  Speaker 1: in the course of the book.
• 46:01
  Speaker 2: So, opt, delegate, no believe are the four big frameworks.
• 46:07
  Speaker 2: But given your background in behavioral finance, let's talk a
• 46:11
  Speaker 2: bit about biases. How should we contextualize heuristics that can
• 46:16
  Speaker 2: derail our cognitive processes when someone is trying to make
• 46:20
  Speaker 2: a rational decision. Maybe they do, maybe they don't.
• 46:23
  Speaker 1: Okay, So one bias is present bias where today really
• 46:30
  Speaker 1: matters and the future is a foreign country called later Land,
• 46:35
  Speaker 1: and we're not sure, we're ever going to visit, and
• 46:37
  Speaker 1: that actually has roots in the brain present bias. And
• 46:41
  Speaker 1: we know if we're baking investment choices, if we think
• 46:45
  Speaker 1: what we want to really maximize is wealth this week,
• 46:50
  Speaker 1: that's probably dumb. It's going to produce a lot of problems.
• 46:53
  Speaker 1: This is your field, of course, and we might decide
• 46:57
  Speaker 1: we're just going to adopt rule for investments which will
• 47:01
  Speaker 1: counteract our own present bias. Or we might think in
• 47:05
  Speaker 1: state government, let's say that unrealistic optimism is part of
• 47:09
  Speaker 1: the human species. Thank goodness for that. If you're being
• 47:13
  Speaker 1: chased by a lion, you ought not to think the
• 47:15
  Speaker 1: lines faster than I am, I'm going to die soon.
• 47:19
  Speaker 1: You ought to think I can really run. That's optimistic,
• 47:22
  Speaker 1: it's probably unrealistically optimistic.
• 47:24
  Speaker 2: Or just run faster than the guy you w Yeah.
• 47:26
  Speaker 1: Completely completely, and then the line will eat That other person,
• 47:30
  Speaker 1: who is profoundly to be hoped is not a dear friend.
• 47:33
  Speaker 1: So optimistic bias can create problems. So we might think
• 47:37
  Speaker 1: that given unrealistic optimism with respect to medical decisions, we're
• 47:43
  Speaker 1: just going to rely on the doctor. That's one thing
• 47:46
  Speaker 1: you might do. Or we might think, if you're a judge.
• 47:50
  Speaker 1: You might think I'm prone to mistakes with respect this
• 47:53
  Speaker 1: might be the future. I'm prone to mistakes with respect
• 47:56
  Speaker 1: to dealing with certain kinds of people what's call the
• 47:59
  Speaker 1: criminal defendants, and sentencing might be biased against one group
• 48:03
  Speaker 1: or another. I don't even know. I'm going to rely
• 48:05
  Speaker 1: on the algorithm.
• 48:07
  Speaker 2: I'm always fascinated by the sentencing studies that show the
• 48:12
  Speaker 2: longer judge is sitting on the bench that day, the
• 48:14
  Speaker 2: closer we are to lunch, the worse the sentences are.
• 48:19
  Speaker 2: It seems almost as if they're not algorithms, they're fallible
• 48:24
  Speaker 2: humans making decisions, some of which are not great.
• 48:28
  Speaker 1: Yeah, the most fun of these kinds of studies is
• 48:31
  Speaker 1: if the judges football team won over the weekend, the
• 48:35
  Speaker 1: judge is more lenient on the next day, and then
• 48:38
  Speaker 1: it's the favor of football team lost.
• 48:41
  Speaker 2: Amazing. So let's talk about some other influences. We've talked
• 48:46
  Speaker 2: about social media and mass media, and there's misinformation is ripe,
• 48:51
  Speaker 2: there's even propaganda and social networks. How does that impact
• 48:55
  Speaker 2: our decision making process, especially if it seems the peace
• 49:00
  Speaker 2: people most affected are the least aware of these these
• 49:04
  Speaker 2: you know, very very below the radar. Or not so
• 49:07
  Speaker 2: below the radar influences.
• 49:11
  Speaker 1: This is a fantastic question. And here's something over the
• 49:16
  Speaker 1: last maybe fifteen years, when Dick Taylor and I started
• 49:20
  Speaker 1: working on nudges, we were and we remain very upbeat
• 49:26
  Speaker 1: about the potential use of GPS like things to help
• 49:32
  Speaker 1: overcome people's biases. When I say GPS like things, I
• 49:36
  Speaker 1: mean a GPS device. It's a nudge. It helps you
• 49:40
  Speaker 1: get you where you want to go. It gives you
• 49:42
  Speaker 1: the best route. If you don't like what it says,
• 49:45
  Speaker 1: you can ignore it. So it's completely freedom producing or
• 49:49
  Speaker 1: freedom maintaining. And then there are other things like a
• 49:53
  Speaker 1: package that says this has shrimp in it. Personally I am
• 49:57
  Speaker 1: allergic to shrimp, so hooray for that disclosure. Or you
• 50:00
  Speaker 1: can have something that tells you a warning about side
• 50:04
  Speaker 1: effects and they might be relevant to your choices. These
• 50:07
  Speaker 1: are all nudges, okay, and they are designed to help
• 50:12
  Speaker 1: people deal with their cognitive limits. They might involve a bias,
• 50:17
  Speaker 1: they might involve an absence of information, but we know
• 50:21
  Speaker 1: and this is what at least I wasn't sufficiently alert
• 50:24
  Speaker 1: to in two thousand and eight that self interested or
• 50:28
  Speaker 1: malevolent types can use behavioral biases to manipulate people. So
• 50:35
  Speaker 1: you might use present bias to try to get people
• 50:39
  Speaker 1: to buy some product where the long term economic effects
• 50:43
  Speaker 1: are horrifying though the first week is going to be
• 50:45
  Speaker 1: pretty good. Or you might get people to buy some
• 50:50
  Speaker 1: product where you'd have to be crazy optimistic to think
• 50:53
  Speaker 1: it's a sensible thing to do because the risk associated
• 50:56
  Speaker 1: with it or horrible, or and I think this is
• 50:59
  Speaker 1: the most of all, you might use people's limited attention
• 51:03
  Speaker 1: to get them, let's say, to opt into something which
• 51:06
  Speaker 1: is going to be really hard to opt out of,
• 51:09
  Speaker 1: and once they've opted into it, they're stuck with something
• 51:13
  Speaker 1: that's going to be very expensive and not beneficial. So
• 51:18
  Speaker 1: the manipulation of people, we're just talking about the economic
• 51:23
  Speaker 1: sphere right now poses a very serious challenge, and social media, etc.
• 51:30
  Speaker 1: Make this unprecedentedly doable. I've worked with private sector entities
• 51:35
  Speaker 1: which are trying to use behavioral stuff to improve outcomes
• 51:40
  Speaker 1: for their customers and their investors, and that's fantastic. But
• 51:45
  Speaker 1: there are others who were trying to improve outcomes for themselves,
• 51:49
  Speaker 1: which is also fantastic, but not if it's at the
• 51:52
  Speaker 1: expense of the most vulnerable.
• 51:54
  Speaker 2: So you mentioned present bias. I love this Danny Kahneman quote,
• 51:59
  Speaker 2: nothing in life life is as important as you think
• 52:01
  Speaker 2: it is when you're thinking about it. That really says everything.
• 52:06
  Speaker 2: Talk about present bias. In the moment, it's very hard
• 52:11
  Speaker 2: to let anything else come into the picture. How should
• 52:16
  Speaker 2: we act around that and how should public policy be
• 52:20
  Speaker 2: set up to not let people's wetwear be taken advantage?
• 52:25
  Speaker 1: That's fantastic. So the only exception to Connomon's phrase nothing
• 52:29
  Speaker 1: in life is as important as you think it is
• 52:31
  Speaker 1: when you're thinking about it is that statement. That statement
• 52:35
  Speaker 1: is as important as it is when you're thinking about it.
• 52:39
  Speaker 1: So it might be that policy makers can put on
• 52:45
  Speaker 1: people's viewscreens things that they're not thinking about. So let's
• 52:51
  Speaker 1: say you're buying some product and that there are add
• 52:54
  Speaker 1: on fees of various kinds that are findable but not
• 52:59
  Speaker 1: really there aren't thinking about them. To put those add
• 53:03
  Speaker 1: on prices on people's viewscreens is a really good idea
• 53:07
  Speaker 1: for companies actually to do that and use competition to
• 53:12
  Speaker 1: promote fuller clarity on the part of consumers. That's a
• 53:16
  Speaker 1: really good idea. I think for securities, the securities laws,
• 53:21
  Speaker 1: there's a lot to say about them, but in so
• 53:24
  Speaker 1: far as they're trying to prevent people from falling victim
• 53:28
  Speaker 1: to present bias or limited attention or on realistic optimism,
• 53:34
  Speaker 1: that's an extremely worthy.
• 53:35
  Speaker 2: Goal, really quite intriguing. So I love this line in
• 53:40
  Speaker 2: the book get drunk on wine poetry or virtue in
• 53:46
  Speaker 2: Decisions about decisions. Tell us what that means, wine poetry
• 53:50
  Speaker 2: or virtue.
• 53:50
  Speaker 1: Okay, So that's from a poem by Bodelaire, which is
• 53:54
  Speaker 1: the improbable spirit guide of the book, And the title
• 54:01
  Speaker 1: of Bodelayer's poem is get Drunk, and that for a
• 54:05
  Speaker 1: law professor to celebrate a poem with that title is
• 54:08
  Speaker 1: a little unlikely, but I'm going to own it. Where
• 54:13
  Speaker 1: what bodal Layer says by get Drunk is basically, you know,
• 54:18
  Speaker 1: take life by the horns and be thrilled by it.
• 54:23
  Speaker 1: And there's also something about human diversity that what makes
• 54:28
  Speaker 1: you get thrilled. Maybe wine good. Don't over use it,
• 54:34
  Speaker 1: but go for it if that's what it gets you thrilled,
• 54:37
  Speaker 1: or if it's poetry, go for that, or if it's
• 54:41
  Speaker 1: virtue good works, that's admirable, of course, and if it
• 54:47
  Speaker 1: also is for you like wine, hooray. Now, of course
• 54:51
  Speaker 1: we want to say I think that maybe a little
• 54:54
  Speaker 1: more in the way of good works and a little
• 54:55
  Speaker 1: less in the way of wine is a good thing.
• 54:58
  Speaker 1: But that's a buzz kill on my part. And the
• 55:02
  Speaker 1: point of this part of the book is when we're
• 55:04
  Speaker 1: making about decisions, about decisions, think about what makes life fabulous.
• 55:11
  Speaker 1: That's really important. And I think the behavioral types, including yours,
• 55:15
  Speaker 1: truly often maybe overweight a little bit what makes life long,
• 55:21
  Speaker 1: and underweight a little bit what makes life fabulous. So
• 55:25
  Speaker 1: the first generation of behavioral work is really healthier, wealthier, safer,
• 55:33
  Speaker 1: more prosperous, and those are really important, but also kind
• 55:38
  Speaker 1: of better days. And Baudelaire get drunk. He's all over that.
• 55:44
  Speaker 2: So I interpreted Baudelaire as consumption, art, and intellect. Those
• 55:52
  Speaker 2: are the three broad topics which seem to cover a
• 55:55
  Speaker 2: lot of human behavior. But let's stick with happiness. You
• 56:00
  Speaker 2: reference some surveys that show people are less happy than ever,
• 56:05
  Speaker 2: even though by any objective measure, whether you're looking at
• 56:08
  Speaker 2: crime or healthcare or longevity except for the past couple
• 56:13
  Speaker 2: of years post pandemic, or poverty, or literacy, or just
• 56:20
  Speaker 2: go down the list by just about any measure, Americans
• 56:25
  Speaker 2: and humanity as a whole are better off than they
• 56:27
  Speaker 2: were twenty forty sixty years ago. Why do surveys say
• 56:32
  Speaker 2: people are unhappy? Is there a problem with this survey?
• 56:36
  Speaker 2: Is it twenty four to seven social media? Or do
• 56:39
  Speaker 2: we just not know how good it is?
• 56:42
  Speaker 1: It's a fantastic question. So let's think about two things. First,
• 56:49
  Speaker 1: day to day experience. Are people thinking that was a
• 56:53
  Speaker 1: great day, Monday was terrific, Tuesday was good, Wednesday not
• 56:58
  Speaker 1: so much. That's one thing. The other is not day
• 57:02
  Speaker 1: to day experience, but what kind of lives are people having?
• 57:05
  Speaker 1: Are they going to the doctor a lot? Are they learning?
• 57:09
  Speaker 1: Are they being treated with respect? People care about two
• 57:14
  Speaker 1: things that happiness doesn't capture. One is how meaningful their
• 57:17
  Speaker 1: life is, and the other is how much psychological richness
• 57:21
  Speaker 1: or let's call it diversity in their life they have.
• 57:24
  Speaker 1: So they might have a meaningful, happy life, but they
• 57:26
  Speaker 1: might be doing the same thing over and over again.
• 57:29
  Speaker 1: People don't like that. A lot of people don't like
• 57:31
  Speaker 1: that so much. They want to do something else. So
• 57:35
  Speaker 1: happiness meaning psychological richness, and it's important to say that
• 57:41
  Speaker 1: day to day happiness is really important. But it isn't
• 57:44
  Speaker 1: everything now with the surveys suggesting that some people and
• 57:49
  Speaker 1: some populations, maybe America is less happy now than it
• 57:53
  Speaker 1: was a certain point. I don't know whether it's an
• 57:57
  Speaker 1: expressive statement that pandemic time terrible or political polarization I'm
• 58:04
  Speaker 1: not liking that, or whether instead it's actually my life
• 58:09
  Speaker 1: isn't so good. So I don't think we've gotten to
• 58:11
  Speaker 1: the bottom of what the data actually shows about the
• 58:15
  Speaker 1: happiness part. If it is the case that people actually
• 58:19
  Speaker 1: are less happy, if that's true, that's a very serious,
• 58:26
  Speaker 1: not good thing, and we want to figure out why.
• 58:29
  Speaker 1: When I was in the White House under President Obama,
• 58:32
  Speaker 1: we did as the government always does, do cost benefit reports,
• 58:36
  Speaker 1: cost and benefits of regulations, and we added stuff on
• 58:41
  Speaker 1: happiness unsubjective well being. In the UK government, they're very
• 58:46
  Speaker 1: concerned about this, and I do think it's an important
• 58:50
  Speaker 1: field of endeavor to try to figure out are people
• 58:54
  Speaker 1: thinking life is great or is not so great? And
• 58:57
  Speaker 1: is that translated into depression and anxiety, etc.
• 59:03
  Speaker 2: So let me push back a little bit on the
• 59:06
  Speaker 2: use of surveys and Amazon's mechanical turk and all these things.
• 59:10
  Speaker 2: So the granddaddy of this in my field is when
• 59:15
  Speaker 2: you are setting up a portfolio for an investor, Hey
• 59:18
  Speaker 2: tell us about your risk tolerance. So you conservative, are
• 59:21
  Speaker 2: you moderate? Are you aggressive? What's your investment posture? And
• 59:26
  Speaker 2: whatever they tell you is a lie because all they're
• 59:30
  Speaker 2: really telling you is here's how the market has done
• 59:33
  Speaker 2: over the past ninety days. And if it's gone down,
• 59:36
  Speaker 2: I'm very risk averse, and if it's gone up, I'm
• 59:39
  Speaker 2: very aggressive. Every time I see a survey, I can't
• 59:43
  Speaker 2: help but think how much you're going to spend on
• 59:45
  Speaker 2: Christmas gifts this year? What is the direction of the economy?
• 59:49
  Speaker 2: Are we on the right track or on the wrong track.
• 59:51
  Speaker 2: I love the surveys right after the presidential election, where
• 59:55
  Speaker 2: what's the city of the economy? Suddenly the Democrats were here,
• 59:59
  Speaker 2: the Republicans where there, their guy loses it flips and
• 1:00:01
  Speaker 2: then the next election the same thing happens. So what
• 1:00:05
  Speaker 2: is the value of surveys when people really don't know
• 1:00:09
  Speaker 2: what they think, hardly know what they feel, and have
• 1:00:13
  Speaker 2: no idea what's going to happen in the future.
• 1:00:15
  Speaker 1: That's also a fantastic question. I'm doing surveys right now
• 1:00:19
  Speaker 1: that is right now on whether people like algorithms, And
• 1:00:23
  Speaker 1: so I'm asking people, would you choose an algorithm or
• 1:00:26
  Speaker 1: a person with respect to an investment decision, or an
• 1:00:30
  Speaker 1: algorithm or a person with respect to a vacation where
• 1:00:33
  Speaker 1: you're going to go, or algorithm or a person with
• 1:00:35
  Speaker 1: respect to health decisions? And I'll tell you what makes
• 1:00:38
  Speaker 1: me think that the very preliminary results you're gonna be
• 1:00:42
  Speaker 1: the first person to hear it are not useless. That
• 1:00:46
  Speaker 1: if you tell people things about the algorithm which give
• 1:00:51
  Speaker 1: people clarity on the data on which the algorithm is
• 1:00:54
  Speaker 1: relying and like there's a lot of it.
• 1:00:56
  Speaker 2: Like the MRI or cat skins that the algos clearly
• 1:00:59
  Speaker 2: do better than the humans.
• 1:01:00
  Speaker 1: Yeah, it's in the direction of that what I did.
• 1:01:03
  Speaker 1: Then the percentage of people who embrace the algorithm jumps dramatically.
• 1:01:08
  Speaker 1: And if you tell people things about the human alternative,
• 1:01:11
  Speaker 1: like this is a doctor who's been a specialist in
• 1:01:13
  Speaker 1: this for thirty years, then the interest in the human
• 1:01:17
  Speaker 1: being increases significantly. So the direction of the results in
• 1:01:22
  Speaker 1: the survey about which you would rely is consistent with
• 1:01:26
  Speaker 1: thinking people are attentive to whether the algorithm is just
• 1:01:31
  Speaker 1: a thing or whether it's got a terrific data set,
• 1:01:34
  Speaker 1: and whether the person is just a person or someone
• 1:01:37
  Speaker 1: who has thirty years of experience in the vacation sector.
• 1:01:40
  Speaker 1: Let's say, so that survey and stop of mind for
• 1:01:43
  Speaker 1: me because I'm working on it now, seems instructive and TBD.
• 1:01:49
  Speaker 1: This might be a book in the fullness of time.
• 1:01:52
  Speaker 2: I would expect nothing less that.
• 1:01:54
  Speaker 1: With respect to happiness, let's consider three things, shall we
• 1:01:59
  Speaker 1: efforts to measure people's experience in real time, So, like,
• 1:02:03
  Speaker 1: on a scale of one to ten, right now, I'm
• 1:02:06
  Speaker 1: approximately ten because I'm really enjoying talking to this, talking
• 1:02:10
  Speaker 1: about this. I find that ten, of course I would.
• 1:02:13
  Speaker 1: But I find people's answers how happy are you right now?
• 1:02:17
  Speaker 1: How anxious are you? How stressed I are you? How
• 1:02:20
  Speaker 1: angry are you? Angry? Zero, stressed me right now? Two,
• 1:02:25
  Speaker 1: anxious me right now?
• 1:02:26
  Speaker 2: One?
• 1:02:27
  Speaker 1: And these are all credible in real time. That's one
• 1:02:31
  Speaker 1: way of doing it that seems pretty good at getting
• 1:02:34
  Speaker 1: how people are. If people are in the midst of
• 1:02:36
  Speaker 1: dealing with a really angry and difficult young child, people
• 1:02:41
  Speaker 1: give answers, I'm really not having a great time right now,
• 1:02:45
  Speaker 1: and that's credible about their emotional state. Then there's at
• 1:02:49
  Speaker 1: the opposite spectrum, how satisfied are you with your life?
• 1:02:53
  Speaker 1: And these are crude because it might be that if
• 1:02:56
  Speaker 1: people had like a really good date the night before,
• 1:02:59
  Speaker 1: they'll say and so. But there is stability on these things,
• 1:03:05
  Speaker 1: and they're within nation differences that are interesting and seems
• 1:03:09
  Speaker 1: to be telling us something. So there's a lot of
• 1:03:12
  Speaker 1: work on whether life satisfaction is kind of crude but
• 1:03:16
  Speaker 1: directionally informative. I tend to think yes. And then there
• 1:03:20
  Speaker 1: are things in between where you ask people at the
• 1:03:24
  Speaker 1: end of the day, and Danny Konneman is pioneered this
• 1:03:27
  Speaker 1: called the day reconstruction method. You ask people how were you?
• 1:03:31
  Speaker 1: This is less demanding for the experimenter than trying to
• 1:03:34
  Speaker 1: ask people every second how are you? And if you
• 1:03:37
  Speaker 1: ask people that enough, they're going to say, I'm really
• 1:03:39
  Speaker 1: irritated because you keep asking me how I am? So
• 1:03:43
  Speaker 1: condom an asked at the end of the day, how
• 1:03:45
  Speaker 1: were you when you were taking care of your kids?
• 1:03:47
  Speaker 1: How were you when you were on social media? How
• 1:03:50
  Speaker 1: were you when you were at work? How were you
• 1:03:52
  Speaker 1: when you were commuting? And the results are pretty credible.
• 1:03:56
  Speaker 1: People really don't like commuting, and they really do like
• 1:03:59
  Speaker 1: let's intimate relations.
• 1:04:02
  Speaker 2: To say the very least.
• 1:04:03
  Speaker 1: That people are very, very positive about that.
• 1:04:07
  Speaker 2: That's quite fascinating, Which leads us to talk about the
• 1:04:10
  Speaker 2: book you wrote on Star Wars, The World according to
• 1:04:14
  Speaker 2: Star Wars. This became a New York Times bestseller, great reviews.
• 1:04:20
  Speaker 2: What led Harvard law professor to write a book on
• 1:04:23
  Speaker 2: Star Wars?
• 1:04:24
  Speaker 1: My son, who was six or seven, got obsessed with
• 1:04:29
  Speaker 1: Star Wars and we watched it together, and I thought,
• 1:04:33
  Speaker 1: you know, I like Star Wars. At that point, I
• 1:04:35
  Speaker 1: wasn't crazy about Star Wars, and I thought, what is
• 1:04:38
  Speaker 1: it about Star Wars so that my young boy would
• 1:04:43
  Speaker 1: go nuts for it? When it's a long time ago?
• 1:04:47
  Speaker 1: And so I got focused on its enduring appeal, and
• 1:04:53
  Speaker 1: then I thought the idea of writing a book about
• 1:04:55
  Speaker 1: it was too crazy not to go forth with No
• 1:05:00
  Speaker 1: publisher for a long time had even a little bit
• 1:05:03
  Speaker 1: interested at really, so I almost thought I was going
• 1:05:06
  Speaker 1: to publish it myself as something. I talked to my
• 1:05:10
  Speaker 1: literary agent about publishing myself, which I've never done before,
• 1:05:13
  Speaker 1: because I enjoyed it so much. And then at the
• 1:05:16
  Speaker 1: last minute, a prominent publisher thought, we'll give this one
• 1:05:20
  Speaker 1: a try.
• 1:05:21
  Speaker 2: We'll circle back to that concept of people in industries
• 1:05:26
  Speaker 2: not knowing what works. But right in the beginning of
• 1:05:29
  Speaker 2: the book you drop a number that is mind blowing.
• 1:05:32
  Speaker 2: The Star Wars franchise has earned forty two billion dollars worldwide.
• 1:05:38
  Speaker 2: That's an insane number. How has a movie earned that
• 1:05:41
  Speaker 2: much money?
• 1:05:43
  Speaker 1: It's probably a lot higher now.
• 1:05:45
  Speaker 2: And the well you have the Mandalorian and Boba Fett
• 1:05:47
  Speaker 2: and all of the streaming versions and countless countless animated things,
• 1:05:53
  Speaker 2: plus the Disney rides. It really is its own industry completely.
• 1:06:00
  Speaker 1: And one thing is that success breeds success. The other
• 1:06:05
  Speaker 1: thing is that it's amazing. So the George Lucaswans especially,
• 1:06:10
  Speaker 1: I say, apologies, Disney.
• 1:06:13
  Speaker 2: People, You're okay, You're right with that, You're okay with that,
• 1:06:16
  Speaker 2: and thank you for that.
• 1:06:17
  Speaker 1: And you know, he did something incredible, so it had
• 1:06:21
  Speaker 1: a foundation, but he also benefited from a lot of
• 1:06:27
  Speaker 1: serendipity that helped.
• 1:06:30
  Speaker 2: So let's talk a little bit about a concept I
• 1:06:33
  Speaker 2: love from William Goldman, who wrote Princess Bride and he
• 1:06:37
  Speaker 2: was the script doctor on All the President's Men and
• 1:06:40
  Speaker 2: Butch casting a Sundance Kid. He just a legend in
• 1:06:43
  Speaker 2: Star Wars and his concept is nobody knows anything, certainly
• 1:06:48
  Speaker 2: not about the future, about what might resonate with the public.
• 1:06:52
  Speaker 2: All the studios originally passed on Star Wars, they passed
• 1:06:55
  Speaker 2: on Raiders of the Lost Arc, almost all the publishers
• 1:06:59
  Speaker 2: rejected Rowling. You referenced the Sugarman documentary, which was really
• 1:07:04
  Speaker 2: quite fascinating. So it really leads the question what makes
• 1:07:08
  Speaker 2: a form of entertainment have this sort of cultural resonance.
• 1:07:12
  Speaker 2: You mentioned Lucas got lucky. Still, it's more than just
• 1:07:17
  Speaker 2: dumb luck. There's got to be some level of quality.
• 1:07:20
  Speaker 2: There has to be great.
• 1:07:21
  Speaker 1: So another example, I'm writing a book right now called
• 1:07:24
  Speaker 1: How to Become Famous, and it's about exactly this, and
• 1:07:28
  Speaker 1: it was inspired by The Beatles, where the Beatles. Everybody
• 1:07:31
  Speaker 1: turned down to the Beatles. They wrote letters to Brian Epstein,
• 1:07:35
  Speaker 1: the Beatles guy agents, saying the boys.
• 1:07:38
  Speaker 2: Won't go Guitar music is over.
• 1:07:40
  Speaker 1: Yeah, and the Beatles themselves said, you know, we're in
• 1:07:45
  Speaker 1: big trouble. We can't get a record deal. They became
• 1:07:48
  Speaker 1: the Beatles. Did they come close to failing? Maybe? Okay,
• 1:07:53
  Speaker 1: So clearly you're right you need quality. But consider the
• 1:07:57
  Speaker 1: following fact that John Keats often thought to be the
• 1:08:01
  Speaker 1: most beautiful poet when the English language died at the
• 1:08:05
  Speaker 1: age of twenty five. He was very ambitious. He thought
• 1:08:07
  Speaker 1: he failed, and he put on his grave something like
• 1:08:11
  Speaker 1: he whose life was written in water. And Jane Austen,
• 1:08:15
  Speaker 1: maybe the most beloved novelist, was not thought to be
• 1:08:18
  Speaker 1: the greatest novelist of her time. She wasn't thought to
• 1:08:20
  Speaker 1: be the greatest female novelist of her time. How she
• 1:08:24
  Speaker 1: became Jane Austen is very complicated. The story, the story
• 1:08:29
  Speaker 1: of John Keats and Jane Austen is across generations. I
• 1:08:34
  Speaker 1: think the story of the Beatles and Star Wars within
• 1:08:39
  Speaker 1: a compressed period where something catches a wave. Now it
• 1:08:44
  Speaker 1: has to be great to catch a wave. If it's
• 1:08:47
  Speaker 1: just someone who doesn't know how to serve, they're going
• 1:08:49
  Speaker 1: to fall, so it has to be great. But what
• 1:08:53
  Speaker 1: happened with Star Wars. We can talk a bit about
• 1:08:56
  Speaker 1: the merits, but I think what really happened was social
• 1:08:59
  Speaker 1: infa luences, which is not to diminish the amazingness of
• 1:09:03
  Speaker 1: the Star Wars movies. But people wanted to go see
• 1:09:07
  Speaker 1: Star Wars because everyone was going to see Star Wars,
• 1:09:10
  Speaker 1: and that happened early on so that people thought not
• 1:09:14
  Speaker 1: to see Star Wars is to miss out. It's like,
• 1:09:18
  Speaker 1: who do I think I am on this earth not
• 1:09:20
  Speaker 1: to go see Star Wars. I remember that, by the way,
• 1:09:24
  Speaker 1: And that wasn't because it was fantastic, though it was fantastic.
• 1:09:29
  Speaker 1: It was because other people thought it was fantastic. Taylor
• 1:09:32
  Speaker 1: Swift is a correct example. I think Taylor Swift is
• 1:09:35
  Speaker 1: completely amazing, but her amazingness does not account for the
• 1:09:40
  Speaker 1: fact that she's so famous. It's that people love her,
• 1:09:44
  Speaker 1: and even people who don't love her are interested in
• 1:09:47
  Speaker 1: her or pretend to love her. I'm here to say
• 1:09:50
  Speaker 1: I'm not pretending to love her. I really loved her.
• 1:09:53
  Speaker 1: I thought her music was great even before she was
• 1:09:56
  Speaker 1: quite what she is now, because Neil Young, who's one
• 1:09:59
  Speaker 1: of my hero said, Taylor Swift is the real deal,
• 1:10:02
  Speaker 1: and I thought, I have to listen to Taylor Swift.
• 1:10:05
  Speaker 1: So this is all around us, and there are people
• 1:10:09
  Speaker 1: who are not like George Lucas, or not like Taylor Swift,
• 1:10:14
  Speaker 1: or not like the Beatles, who maybe were about as amazing,
• 1:10:18
  Speaker 1: but something didn't happen for them, and we've never heard
• 1:10:22
  Speaker 1: of them, or we will hear of them after Tomorrow.
• 1:10:27
  Speaker 2: There's a fascinating section in Derek Thompson's book How It's
• 1:10:31
  Speaker 2: Happened about how the Impressionists were essentially more or less ignored.
• 1:10:37
  Speaker 2: I think vango and never sold a painting in his lifetime,
• 1:10:39
  Speaker 2: but one of their members, who came from wealthy family,
• 1:10:45
  Speaker 2: left a whole run of these Impressionist paintings with the
• 1:10:48
  Speaker 2: edict that left it to the French government and this
• 1:10:52
  Speaker 2: has to be displayed on the museum and if not,
• 1:10:54
  Speaker 2: you can't have them, And very unhappily the French government did,
• 1:10:58
  Speaker 2: and suddenly it became a sensation. But for that who
• 1:11:03
  Speaker 2: knows money man a Picero go down. The whole list
• 1:11:06
  Speaker 2: may not be part of the pantheon that we look
• 1:11:09
  Speaker 2: at today completely.
• 1:11:10
  Speaker 1: I love Derek Thompson's book and I think that's a
• 1:11:13
  Speaker 1: fantastic example. So one way to think about it is
• 1:11:17
  Speaker 1: that the phenomenon of power laws is highly relevant to
• 1:11:23
  Speaker 1: success and failure, where we tend to think of things
• 1:11:28
  Speaker 1: as linear with respect to growth. But that's not true
• 1:11:31
  Speaker 1: for video games, it's not true for films, it's not
• 1:11:33
  Speaker 1: true for novels, it's not true for art. It's a
• 1:11:36
  Speaker 1: power law. This is very slightly technical for yours truly
• 1:11:39
  Speaker 1: the English major, not technical for you, the Bath guy.
• 1:11:43
  Speaker 1: But if we understand the phenomenon of power laws on
• 1:11:46
  Speaker 1: how they work, then we'll get real clarity on spectacular success,
• 1:11:51
  Speaker 1: including that of Star Wars.
• 1:11:53
  Speaker 2: Very much. I want to take all sort of phenomena,
• 1:11:56
  Speaker 2: So let's talk bring Star Wars back to behavioral economics.
• 1:12:03
  Speaker 2: You note in the book whenever people find themselves at
• 1:12:05
  Speaker 2: some sort of a crossroad within Star Wars, the series
• 1:12:10
  Speaker 2: proclaims you are free to choose. This is the deepest
• 1:12:14
  Speaker 2: lesson of Star Wars, which kind of reminds me of
• 1:12:18
  Speaker 2: you and Thaylor's work in Nudge in terms of setting
• 1:12:21
  Speaker 2: up choice architecture. Was that a conscious explanation?
• 1:12:26
  Speaker 1: Well, Taylor and I were very focused on preservation of
• 1:12:31
  Speaker 1: freedom and continue to be, And some of our friends
• 1:12:34
  Speaker 1: on the left are mad at us because we're pro freedom.
• 1:12:39
  Speaker 1: That's probably a self serving way to describe it, but
• 1:12:44
  Speaker 1: I'm sticking with it. The thought of some of our
• 1:12:47
  Speaker 1: friends on the left is that we need much more
• 1:12:49
  Speaker 1: in the way of corrosion and mandates, and of course
• 1:12:52
  Speaker 1: they have a role, But Taylor and I are very
• 1:12:55
  Speaker 1: big on investor freedom, consumer freedom, America, exclamation Point, Star
• 1:13:04
  Speaker 1: Wars is similar. It's art, it's not, you know, social science.
• 1:13:10
  Speaker 1: And as between art and social science, at least my
• 1:13:14
  Speaker 1: current mood, I go for art and I love them both.
• 1:13:18
  Speaker 1: But Lucas is an artist and it's his soul that's speaking.
• 1:13:22
  Speaker 1: And I don't know how conscious he was about this, though.
• 1:13:25
  Speaker 1: I can tell you a little story if you want, okay.
• 1:13:29
  Speaker 1: So freedom is the theme. Darth Vader, who's the worst
• 1:13:34
  Speaker 1: person in the universe, maybe the second worst at the
• 1:13:38
  Speaker 1: crucial moment, exercises his freedom because he believes that saving
• 1:13:44
  Speaker 1: his son is more important than fidelity to the Emperor,
• 1:13:48
  Speaker 1: and he sacrifices everything that's his choice, and that saves him.
• 1:13:52
  Speaker 1: So it's in some ways a spiritual, even a Christian
• 1:13:55
  Speaker 1: book about freedom, and this is what makes it, I think, transcendent.
• 1:14:00
  Speaker 1: The story is that after I did the book, the
• 1:14:02
  Speaker 1: one person who I was most terrified to see was
• 1:14:04
  Speaker 1: George Lucas, whom I knew a tiny, tiny, tiny bit.
• 1:14:08
  Speaker 1: And I was at a big event with maybe three
• 1:14:10
  Speaker 1: hundred people, and there in the distance was George Lucas,
• 1:14:13
  Speaker 1: and he started walking toward me.
• 1:14:15
  Speaker 2: Line you see him coming towards you.
• 1:14:17
  Speaker 1: Yeah, and I thought he was walking fast but suadenly,
• 1:14:21
  Speaker 1: and I thought, please God, let Harrison Ford be right
• 1:14:24
  Speaker 1: in back of me. Please God, let someone whom he
• 1:14:27
  Speaker 1: knows me in back of me. Please God, let him
• 1:14:29
  Speaker 1: not will be walking toward me. But he's continuing to
• 1:14:32
  Speaker 1: walk toward me. And it's about two hundred yards and
• 1:14:34
  Speaker 1: now he's one hundred and fifty yards away. Now he's
• 1:14:36
  Speaker 1: one hundred yards away. And I thought, maybe I can
• 1:14:38
  Speaker 1: be like some character in Star Wars where I can
• 1:14:41
  Speaker 1: make myself meld into the floor.
• 1:14:45
  Speaker 2: This is not the law professor you're looking at.
• 1:14:48
  Speaker 1: I thought, can I do a mind trick so he
• 1:14:50
  Speaker 1: doesn't know it's me? Or can I make myself really tiny?
• 1:14:54
  Speaker 1: Or can I make myself pure liquid? But he's walking
• 1:14:56
  Speaker 1: toward me. And then he said the most terrifying words
• 1:14:59
  Speaker 1: I've ever heard from a human being, which is he said,
• 1:15:04
  Speaker 1: I read your book. And I thought, oh my gosh,
• 1:15:07
  Speaker 1: that's going to happen. And then he paused, and he said,
• 1:15:10
  Speaker 1: without any sense of pleasure, he said I liked it.
• 1:15:15
  Speaker 1: And then he said, without any sense of pleasure, no smile,
• 1:15:18
  Speaker 1: he said it's good. Then he paused and said, with
• 1:15:22
  Speaker 1: no smile at all, he said, you got what I
• 1:15:25
  Speaker 1: was trying to do. And then he paused, and he said,
• 1:15:28
  Speaker 1: start a smile, and he said, but the other books
• 1:15:31
  Speaker 1: on Star Wars, they're terrible. And then he got a
• 1:15:34
  Speaker 1: big smile and got really happy, and he said, and
• 1:15:36
  Speaker 1: you made mistakes. I loved him so much that he
• 1:15:40
  Speaker 1: wasn't going to flatter me. I wasn't going to say anything.
• 1:15:42
  Speaker 1: You know, you read a good book. But he was
• 1:15:45
  Speaker 1: as nice as he could be, and he has become
• 1:15:48
  Speaker 1: a friend. And we talked a bit about the book,
• 1:15:51
  Speaker 1: and he said, at one point, you have no idea
• 1:15:54
  Speaker 1: how much work I put into the prequels. And I said,
• 1:15:58
  Speaker 1: do you know you're talking to I wrote a book
• 1:16:01
  Speaker 1: on this. I know how much work you put on
• 1:16:03
  Speaker 1: the prequels. In the prequels, and he smiled. And then
• 1:16:06
  Speaker 1: he described one of my alleged mistakes. And I'm not
• 1:16:10
  Speaker 1: going to disclose what it was because that would be
• 1:16:12
  Speaker 1: violating a confidence. But I don't believe it was a
• 1:16:15
  Speaker 1: mistake at all. I think he was retrofitting something in
• 1:16:19
  Speaker 1: the genesis of the Star Wars, which.
• 1:16:21
  Speaker 2: He has been known to do, which a lot of
• 1:16:23
  Speaker 2: Very often he engages a little revisionist literary history.
• 1:16:27
  Speaker 1: And I think that's great for a great artist writer.
• 1:16:32
  Speaker 1: This was a private conversation where he had no stake
• 1:16:34
  Speaker 1: in anything, but we argued a little bit. I thought,
• 1:16:39
  Speaker 1: this is pretty surreal that I'm telling George Lucas about
• 1:16:43
  Speaker 1: the genesis of the Star Wars movies. That I'm believing
• 1:16:47
  Speaker 1: myself rather than George Lucas, and that might have been
• 1:16:50
  Speaker 1: motivated recently.
• 1:16:51
  Speaker 2: Hey, if George Lucas said your book on Star Wars
• 1:16:54
  Speaker 2: was good and the rest of him or not, that's
• 1:16:57
  Speaker 2: a giant win. Can't do much better than that.
• 1:17:00
  Speaker 1: I think what he I like to think it's.
• 1:17:03
  Speaker 2: Pretty clear that the book, so this is a Your
• 1:17:07
  Speaker 2: regular books are academic and deeply researched, and they're not lightweight. This,
• 1:17:13
  Speaker 2: on the other hand, is a fun I don't want
• 1:17:16
  Speaker 2: to say it's a lightweight read, but it's an easy read,
• 1:17:19
  Speaker 2: and it's clear a lot of thought and depth went
• 1:17:22
  Speaker 2: into it to say, what is the genesis of Star Wars?
• 1:17:27
  Speaker 2: Not just the Joseph Campbell Man of a Thousand Faces,
• 1:17:29
  Speaker 2: but what are the philosophical motivations of Lucas? What is
• 1:17:33
  Speaker 2: he trying? You know, the relevance about Nixon moving to
• 1:17:37
  Speaker 2: authoritarian and the freedom like it's clear thought went into
• 1:17:41
  Speaker 2: this and he picked that up.
• 1:17:43
  Speaker 1: Yeah, thank you for that. Thank you.
• 1:17:44
  Speaker 2: So I only have you for a few minutes. Let
• 1:17:47
  Speaker 2: me ask throw you a couple of curveball questions and
• 1:17:50
  Speaker 2: then we'll quickly do our speed round our favorite questions.
• 1:17:53
  Speaker 2: So you were a professor at University of Chicago, where
• 1:17:58
  Speaker 2: Richard Posner was also a professor. He once was the
• 1:18:03
  Speaker 2: most cited law professor in the US until you came along.
• 1:18:08
  Speaker 2: Tell us a little bit about your relationship with Bosner.
• 1:18:11
  Speaker 1: It was very good so early on. He was a giant,
• 1:18:16
  Speaker 1: and he was very skeptical of some of the things
• 1:18:21
  Speaker 1: I thought, but he was very engaged and very collegial,
• 1:18:27
  Speaker 1: so it was all substance, not personal, and I just
• 1:18:31
  Speaker 1: learned so much from him. His comments on my papers,
• 1:18:35
  Speaker 1: which he thought were bad papers, were instructive comments, and
• 1:18:39
  Speaker 1: they made them less bad papers. Engaging with his thinking
• 1:18:44
  Speaker 1: was a gift to me. And I think as skeptical
• 1:18:51
  Speaker 1: as I was of maybe ninety percent of what he thought,
• 1:18:55
  Speaker 1: I ended up agreeing with maybe forty percent of what
• 1:18:58
  Speaker 1: he thought. It was he was I think he wouldn't
• 1:19:03
  Speaker 1: want to think of himself as a mentor of mine.
• 1:19:06
  Speaker 2: But he was, So let's address some of the things
• 1:19:10
  Speaker 2: he thought of law and economics. Initially was considered fairly
• 1:19:16
  Speaker 2: radical and an extra legislative back door to affect the
• 1:19:21
  Speaker 2: judicial process. Tell us a little bit about his philosophy,
• 1:19:25
  Speaker 2: which in small measure he recanted after the financial crisis.
• 1:19:31
  Speaker 2: He said, my core belief is the company's own desire
• 1:19:37
  Speaker 2: to preserve their reputations should have prevented them from doing
• 1:19:41
  Speaker 2: what took place during the financial crisis. I don't know
• 1:19:43
  Speaker 2: how much of a if that's a full recant or
• 1:19:46
  Speaker 2: just a post financial crisis without happened. But tell us
• 1:19:51
  Speaker 2: about his theories.
• 1:19:52
  Speaker 1: So, I think the largest contribution Posner made was to think,
• 1:19:58
  Speaker 1: what are the consequences of law for people? And how
• 1:20:02
  Speaker 1: can we be empirical about that? So is the law
• 1:20:05
  Speaker 1: contributing to well being? Is it leading to economic growth?
• 1:20:09
  Speaker 1: Is it destroying wealth? Is it helping consumers and investors?
• 1:20:14
  Speaker 1: Or is it hurting them? And that insistent focus on
• 1:20:17
  Speaker 1: one of the consequences of law that was for me
• 1:20:21
  Speaker 1: then and I'm smiling now, it was like a breath
• 1:20:24
  Speaker 1: of fresh air. When I was in law school. We
• 1:20:26
  Speaker 1: never asked about that as what was analogous to what?
• 1:20:29
  Speaker 1: And Poser just said, what does this mean for people?
• 1:20:33
  Speaker 1: In a way that had no sentimentality to it. It
• 1:20:35
  Speaker 1: had numbers, and that's amazing. Then there was the idea
• 1:20:41
  Speaker 1: that the common law is efficient. So we thought the
• 1:20:44
  Speaker 1: law of private property, contract and tour it in England
• 1:20:46
  Speaker 1: and America just is efficient. That's how he made his reputation.
• 1:20:50
  Speaker 1: I don't think that survived, but it's not crazy false,
• 1:20:55
  Speaker 1: It's not wildly inefficient, and it's pretty efficient. So I
• 1:21:01
  Speaker 1: think that that was a fundamental contribution. His kind of
• 1:21:06
  Speaker 1: Chicago is skepticism about a role for government regulation and such.
• 1:21:12
  Speaker 1: I think that was really a third order idea. The
• 1:21:14
  Speaker 1: more fundamental is think about the consequences. I don't know
• 1:21:20
  Speaker 1: what to think about recantation by him. It may be
• 1:21:24
  Speaker 1: that just under the spell of a horrible economic downturn,
• 1:21:28
  Speaker 1: he thought there were some things I thought that weren't right.
• 1:21:31
  Speaker 1: But more fundamental was his focus on evidence and data
• 1:21:35
  Speaker 1: than is thinking that I am a Chicago school person
• 1:21:39
  Speaker 1: and on behavioral economics my own focus. He really did shift,
• 1:21:43
  Speaker 1: and he wrote me a note saying he shifted in
• 1:21:45
  Speaker 1: the early days Taylor and I gave a talk at
• 1:21:48
  Speaker 1: Chicago in which he was fiercely skeptical, and he wrote
• 1:21:52
  Speaker 1: about behavioral economics in a way that was full of dismissiveness,
• 1:21:56
  Speaker 1: and he ended up being I think the word a
• 1:21:59
  Speaker 1: convert is is accurate, and that's because he thought the
• 1:22:03
  Speaker 1: evidence supported it. Well.
• 1:22:04
  Speaker 2: When you look at the original pre behavioral model of economics,
• 1:22:10
  Speaker 2: the fundamental premise is false. Humans are rational profit mocktimizers.
• 1:22:15
  Speaker 2: We're not. And if your foundation is false, well how
• 1:22:19
  Speaker 2: I can that building on top of it go? All right,
• 1:22:21
  Speaker 2: so I only have you for a few minutes, Let's
• 1:22:23
  Speaker 2: jump to our favorite questions, our speed round that we
• 1:22:26
  Speaker 2: ask all of our guests, And let's start with what's
• 1:22:29
  Speaker 2: been keeping you entertained? What are you either listening to
• 1:22:32
  Speaker 2: or watching these days?
• 1:22:33
  Speaker 1: The show on Netflix called Vortex, which I love, love,
• 1:22:37
  Speaker 1: love love. It's French. It's about time travel and it's
• 1:22:41
  Speaker 1: about romance, and it's about the economy, and it's about heroism,
• 1:22:45
  Speaker 1: and it's about the future in the past, and it's
• 1:22:48
  Speaker 1: not to be missed. Vortex.
• 1:22:50
  Speaker 2: We'll definitely check it out. Do you speak French or
• 1:22:53
  Speaker 2: are you just a Francophile or is your pro Trepity Pompo.
• 1:22:58
  Speaker 2: If you haven't seen cole my agent strong recommend it's
• 1:23:02
  Speaker 2: absolutely delightful. So you've mentioned several mentors who helped guide
• 1:23:08
  Speaker 2: your career.
• 1:23:10
  Speaker 1: I would single out a recently deceased law professor named
• 1:23:15
  Speaker 1: Lloyd wine Reb, who taught a course at Harvard on
• 1:23:21
  Speaker 1: law and philosophy, and undergraduate course which I took on
• 1:23:24
  Speaker 1: a kind of flyer, and it alerted me to a
• 1:23:28
  Speaker 1: world I had no idea it existed. So I would
• 1:23:31
  Speaker 1: single out Lloyd Winereb.
• 1:23:35
  Speaker 2: What are some of your favorite books? What are you
• 1:23:36
  Speaker 2: reading right now?
• 1:23:38
  Speaker 1: My favorite book of all time is Possession by as
• 1:23:42
  Speaker 1: By It it's the greatest work of fiction in the
• 1:23:47
  Speaker 1: English language. Wow, And I reread it every few years
• 1:23:51
  Speaker 1: and it's completely great. I'm reading right now John's Stuart
• 1:24:00
  Speaker 1: Mills The Subjection of Women, which because I'm writing about
• 1:24:04
  Speaker 1: liberalism as a political theory and where it came from,
• 1:24:08
  Speaker 1: and Mill on equality and liberty is relevant.
• 1:24:13
  Speaker 2: Let's say, to say the very least, what sort of
• 1:24:17
  Speaker 2: advice would you give to a recent college grad interest
• 1:24:21
  Speaker 2: in a career in either law or behavioral finance.
• 1:24:26
  Speaker 1: Find things you love and focus on them, because even
• 1:24:32
  Speaker 1: if you don't succeed spectacularly, at least you will have
• 1:24:35
  Speaker 1: loved not succeeding spectacularly. And if you focus on the
• 1:24:40
  Speaker 1: things you really enjoy and love, the chance that you'll
• 1:24:43
  Speaker 1: succeed skyrockets.
• 1:24:46
  Speaker 2: And our final question, what do you know about the
• 1:24:48
  Speaker 2: world of law, constitution, nudges, sludges, noise, behavioral finance today
• 1:24:58
  Speaker 2: that you wish you knew forty or so years ago
• 1:25:00
  Speaker 2: when you were first getting started.
• 1:25:02
  Speaker 1: Well, I wish I'd known about the horror of sludge
• 1:25:08
  Speaker 1: understood as administrative burdens, waiting time, long forms, in person
• 1:25:16
  Speaker 1: interview requirements, things that make it so that if you're
• 1:25:21
  Speaker 1: kind of doing well in life, but you need help
• 1:25:23
  Speaker 1: in one kind of one kind or another, it's really
• 1:25:25
  Speaker 1: hard to get it. Or if you're struggling in life,
• 1:25:28
  Speaker 1: let's say you're old, or you're sick, or you're poor,
• 1:25:32
  Speaker 1: or you're struggling, you're lonely. The various administrative burdens we
• 1:25:39
  Speaker 1: impose on people, they are like a wall that's our
• 1:25:43
  Speaker 1: society erects often inadvertently take down that wall.
• 1:25:49
  Speaker 2: Mister whomever, quite fascinating cask, thank you for being so
• 1:25:53
  Speaker 2: generous with your time. We have been speaking with Cass Sunstein,
• 1:26:00
  Speaker 2: whose career is just legendary in the fields of law
• 1:26:04
  Speaker 2: and publishing and behavioral finance and public service. I don't
• 1:26:09
  Speaker 2: know what else to say other than thank you. If
• 1:26:12
  Speaker 2: you enjoyed this conversation, be sure and check out any
• 1:26:15
  Speaker 2: of the five hundred previous discussions we've had over the
• 1:26:19
  Speaker 2: past eight years. You can find those at iTunes, Spotify, YouTube,
• 1:26:24
  Speaker 2: wherever you find your favorite podcasts. Sign up from my
• 1:26:28
  Speaker 2: daily reading list at rid Halts dot com. Follow me
• 1:26:31
  Speaker 2: on Twitter at rid Halts, although that account was hacked
• 1:26:35
  Speaker 2: and in the meantime I'm using at Barry Underscore rit
• 1:26:38
  Speaker 2: Halts until I get it back. Follow all of the
• 1:26:41
  Speaker 2: Bloomberg family of podcasts on Twitter at podcasts. I would
• 1:26:46
  Speaker 2: be remiss if I did not thank the crack team
• 1:26:48
  Speaker 2: that helps with these conversations together. My audio engineer is
• 1:26:52
  Speaker 2: Justin Milner, My producer is Paris Walld, My project manager
• 1:26:56
  Speaker 2: is Atika val Bron. My researcher is Sean Russo. I'm
• 1:27:00
  Speaker 2: Barry Retoltz. You've been listening to Masters in Business on
• 1:27:04
  Speaker 2: Bloomberg Radio