We always go to vacations when it's crowded and it costs much more because that's when the kids are off school. So parents took their kids away from school the week before, the week after it was much cheaper and much nicer vacation. Schools didn't like it. What did they do?
Put a fine of 60 pounds of parents coming back. That mistake because now people are instead saying, look, it's bad to do it. Now they're saying 60 pounds, I'm going to save a thousand pounds by not going during the crowded time. What are incentives for the people that are not indoctrinated into understanding what that is?
Incentives is something that will make you do a thing that you wouldn't do otherwise. To try to push you in this direction. A common mistake is that incentive is only money. It's definitely not.
There are many other things that could be, it could be status. It could be playing computer games, not teaching with class, many other things. But in general, it's something that will make you do a thing that otherwise you wouldn't. What do you think the economists get most wrong about incentives?
It's a long list. But basically if you read about incentives in economics, you see a formula as if it's physics. As if you're talking about particles or atoms moving around the world. And that's not the case.
We're talking about people. Incentives work, that part, the economy's got very much right. But we don't always know how they work. Simplifying assumptions that people just give them more money, it's better.
You give them more incentives. You're going to get more of what you want. That's just wrong. The main thing that economists miss, I think, is that incentive send a signal.
When I give you incentive, when I tell you, if you do excel, pay you $10. Then you get the $10 plus, you get the signal that that's what I want you to do. And then you start thinking, why does all we want you to do this? Is that bad for me?
Is that good for me? What there is more to do? So you start interpreting this. Incentives is basically complete a story.
You have a story in your mind. You look at the world. And once you get incentives, it helps you to create one sort of a story. And it's kind of like a feedback loop because for every incentive that I'm given, there is a story about that incentive.
What does it mean? What do I know about Uri? What has Uri incentivized me to do previously? What can I infer about his desires for me moving forward?
Ongoing story that never ends. Okay. So if that's what economists get wrong, what's the missing addition? What gets folded into the economic view of this, which starts to flesh it out a little bit more?
So after trashing my economist friends, now I can trash my psychologist friends. Basically, psychologists, when they talk about incentives, so you can take the same class, the same title of class in my business school. One would be taught by economists that will be completely mapped completely out of... It's not people.
It's about machinery. And you can take the same class with psychologists and other writers say that you go to work just because you want fulfillment and all the good stuff that you get from work. That's also a mistake, right? So it's also not the case.
It's the combination of the two is what you should think about. They go to work because I need to make money and they go to work because they want to feel better about myself. And the secret is how you get these signals to work together. Right?
So that's what I'm trying to do in this. So how to get the money that I give you and you need money when you come to work, you go because you need the money. But how do I make the payments that I give you such that you actually feel better about yourself, feel better about going to work or do whatever the activity I'm interested in? How common is it to have this more integrated view?
It's not common at all. So like I said, if you take a class in the business school, you'll take either of the versions. There are very few that gives you both versions I think and that's basically the gap that I'm trying to feel over here. Fascinating.
Okay. So break down social signaling and self signaling for me. What's the difference? So when we're talking about signaling, the first one is quite clear.
It's what I want you to think about me. I do things. I dress up. I decide to contribute.
I decide to do good things or bad things because I care about the signals that they send to you. I care what you think about me, what you, your listeners, my bosses, my kids, what they think about me. That's the social signaling. And the self signaling is also surprisingly about myself.
So I don't really know how good I am. When I say good, by the way, I don't mean good in the philosophical version of it. Good could be. I could be a mess murderer and good from you would be that I killed 10 people today.
Right. So what I don't know how good I am, whatever my goals are, and I look at my actions and I, I learn from it about myself. I can give you a story from the book, an example from the book, imagine that you live in a cold place, you see your neighbor walks in the morning and a cold morning to the recycle center with a large bag filled with hundred sort of cans. What are you going to think about her?
She's very altruistic. Oh my God. I can't believe that she's trudging through the snow purely to save the planet. Perfect.
That's what she will probably think about herself as well, right? Because she's good. Now imagine same story, but you live in a place where she gets five cents per soda candy cheese recycling. Now she's a ruthless capitalist.
Exactly. Or just cheap for five dollars, really. So that's the social signaling, what you're going to think about there. And there's also self signaling before that in the first version, she was, I'm a good person.
I care about the environment. I'm recycling. I'm good. The second version, I'm cheap.
I really want to do it. So this, this tells us an awful lot more about folding in status and those signals into the pure economics of the situation and also explains about how incentives can be conserved. Absolutely. So you learn a lot to think from just this simple example because first of all, there are a few things you get a signal by the amount in this case.
So because it's only five cents, you did that. That's not probably not that important to do. If you would get five dollars per soda can, then you'll start buying soda cans and just recycle them, right? So we felt that you enough.
You think, well, that's really important. It's good for the world, right? I want to do it. So the size sense of your signal.
Many of the things are sending you signals and all this. Imagine that I'll go through for a skivication and ask my assistant to stay over and work on something that they need to finish over the weekend. I'll come back on Monday and give him $10 as a thank you gift. He'll be insulted by that, right?
That's forgive him a chocolate that costs $10. That's less insulting. If I'll give him $10,000, he'll be very happy. Right.
It's not just a fact that I'm paying you. So I'm actually paying you. If I pay you $10,000, if I pay my assistant $10,000 for staying over the weekend, he'll be extremely happy. Right.
So the amount is important. In other cases that you can think about, imagine that I offer to pay you for sex, then no matter how much I'm going to offer you, it's going to be insulting, right? Because that means... Well, come on, Yuri.
I didn't say that you wouldn't do it, right? I can't say you wouldn't do it, but you might be insulted that it's not just your look the time after. Tell me what chocolate bar it was and then I'll reconsider. Right, exactly.
What's the difference between the $10 and the chocolate bar? The all world of gifts is really exciting. It's... We're wasting huge amounts of time and money on trying to buy gifts that will send the right signal.
There is an amazing episode in Seinfeld that shows this when Jerry has to buy the gift. So he and George go to the store and he says, no, this is... This is too sexual. This is too...
Whatever, too domestic. He really needs to find because it sends signals to the gift that I'm sending. The end gives her cash and she screams at the end, what you might uncall, why are you doing right? So gifts are really sending signals.
And if I give you a $10 chocolate bar, it's still, I'm sending you a signal that I cared about you. I went to this place, I thought about you, I bought you a chocolate. Now, imagine going to a friend's tonight for dinner and you can bring a bottle of wine, you can be nice and buy a $50 bottle of wine and give them, everyone will be happy. Imagine that you'll go and say, well, I got stuck at work, I had this very boring podcast with Yuri and I didn't have time to buy it, but here's $50.
That's going to be very awkward, right? So what you give is really signaling something about you. This is why online card sending websites, to me, have always seen a little bit odd, that part of the purpose of a card, I mean, what, even if you get the most insane pop up 3D, sings a pre-recorded message to you cards, what are you looking at? $15?
Maybe $20, absolutely top, top end and it'll fly itself there. The reason that you get a card is because everyone knows how much of a mess on it is to do. And oh, you've had to pick up a pen for the first time in six months since somebody else's been about. And I get to see your terrible handwriting and you scretching, you know, that's part of the process.
Saying that, now I live abroad, I actually do see the value of this because it's not so nice to ship stuff across the Atlantic. That being said, did you watch the Netflix series Pepsi Where's My Jet? No, but it's a great title. So in the 1980s, 1990s, Pepsi started releasing Pepsi Points and if you bought a can, maybe you got a sticker of some kind, I think, and you peeled that off and if you collected enough, you could exchange it for a pair of sunglasses or a leather jacket and it had a sending hierarchy of how many points go with thing.
And in the advert, at the very end, this kid that the advert is about turns up at school outside of his classroom in a Harrier Jump Chat and it says at the bottom, Harrier Jump Chat, 1 million points. No asterisk, no small print, no subject, terms and conditions. No, this doesn't exist. This is obviously a joke.
None of that. And this kid watched it, looked at it a hundred times, realized that it wasn't in there, recruited his rich friend, his father's rich friend, who was a founder and had way more money than he needed, started working out how he could can purchase in bulk all of these Pepsi cans, employ people in different warehouses distributed around the US in order to be able to do this. They basically worked out that they were getting a Harrier Jump Chat, 95% discounted, pro rata, and then began this massive litigation between this kid and Pepsi. And I thought it's a really good documentary.
If anyone hasn't watched it on Netflix, I highly recommend that you watch it. I will. Okay, so we've looked at signals, we've looked at what it says about ourselves, what it says socially, what's the problem when it comes to mixed signals? So I can tell you what's important for me, but then I give you signals that say something very different, so remember incentive sends signal and I can tell you to take care about, for example, I care about quality, I really want you to do it this well, but then I pay you for quality, for quantity.
You're not going to invest that much in quality, you're going to think about the quantity, how much you can do, can you do more than this and you'll neglect the quality. So here's a few examples, right? So think about drivers, bus drivers. So in Israel, we have this route in which you have bus drivers that are paid by the hour, you go on them, they drive very nicely, they're very polite, everything is great.
They take their time. On the other hand, we have these mini buses that are paid per passenger, the drivers paid per passenger. They drive like crazy, right, because they need to be there on time to pick up people, they start grabbing before you seat, right? It's really inconvenient, they are less safe, all of the bad stuff, so the quality really suffers, but they produce more.
Now there are lots of stories like that about small, unimportant thing, but if you think about healthcare in the US, that's a great example where it becomes much better. So imagine two doctors, you go to the doctor and you need the, you have back pain. Now the doctor looks at you and there are three options. Either the doctor says, she looks at you and she says, that's fine, just rest of it, it's going to be okay.
Or she looks at you and said, sorry, you really need the surgery. Those are two extreme cases, you'll get what you deserve, what you need. In the middle in the gray area, you'll have lots of places where you're going to want to have to say that you need the surgery, not enough. Now imagine that you live in a place like most of the world in which the physician is not paid for surgery, her procedure that she's making, she's going to look at it and make a call decision based on science, how she understands science.
Now imagine that on top of that, she's paid a few thousand dollars for operating on you. If you think that that's not going to affect her judgment, you are very naive. Like she might even not know that's what she's doing, but she's going to look at it and say, look, you clearly need a surgery where if you compare hospitals in which the physician is or is not paid for surgery, you see a big difference in this in back surgeries, in C sections, in many other things. Think about the said example, someone goes to the doctor, the doctor tells that person, look, I'm sorry, you're not going to see next Christmas.
You're dying from cancer, we did the best we can. That's it. I can give you another round of chemo, it will prolong your life by three months, but that's not the quality of life is not going to be high, you're going to suffer. Or I can send you on with relative care and make sure that you die in a nice way, right?
That's one way of saying it. Now imagine that this same physician, this same oncologist, this paid $10,000 if you choose to take this round, another round of chemo. Now we doubt it's not it's not that this doctor is doing something wrong or immoral, but this doctor might not even know, but it's going to be much more likely to recommend another round of chemo. Right.
So that's all of it is about the quality versus quantity. In my example, I'm a I'm judged by publications, how many papers I publish, research papers I publish. My dean can decide to pay me per paper and then the signal that I hear is that I need to publish as many papers as I can, but then the quality is going to suffer and going to publish a lot of papers, but they're not going to be very good. Right.
So all of this is the quantity versus quality, which is I always tell you, does it always tell the surgeon, look, you care about the patient, that's number of one priority. That's what I mean, I will never tell you. Look, your goal is to maximize the profits per patient. But when they give incentives, that's a single incentive sense.
So that's the mixed signal. And it's not as you said, it's not as if the surgeon is really even capable of removing that signal from their own mind or that incentive, sorry, from their own mind. So you go, okay, even if you were fully aware, even if it's the surgeon who works in America, who's listening to this podcast right now, who gets incentivized to be the oncologist that gets another round of chemo, how on earth are you supposed to do the expected value calculation of, well, I understand that deep down, there is an amount of me that will lean towards wanting to be paid and I'll have to discount appropriately. And you know, it's impossible.
It's impossible. And we have research showing this. So we have, it's not with surgeons. We don't play around with people's life, but we do play around with money.
So we get people to the lab. We tell them, there is option A, option B, you need to recommend it to someone else. Most of them choose to recommend option A in this case. We bring them out a group.
We tell them, here's option A, here's option B, you need to recommend one of them. By the way, if you recommend option B, you'll get a dollar. Now most of them recommend option B. Now I can say either they're cynical and they just lie.
Or they convince them, like themselves, like the surgeon or don't call it just that you just mentioned. That's actually better for that person. So we have a third group in which we tell them, here's option A, here's option B, choose one of them, don't tell me which one do you think is better. After they choose, oh, by the way, if you recommend option B, we'll give you a dollar.
Same incentive as before, but first these people like to make their judgment and only then they learn about incentives. Now most of them again recommend A, right? Which shows that in the second option, the one in which they learned about incentives as they learned about the option, they really changed the way they think about it. They self-decive themselves and think that B is better.
I think that very much of that is going on in the mind of physicians or financial advisors, many people, mechanics maybe. Yeah, that's the, was it fiduciary agreement that a lot of accountants and investment advisors have that the fiduciary, whatever it is, consent forces them to at least try and have the clients issues in mind. Speaking of, you mentioned buses and mini buses, didn't you look at something to do with incentives for Uber drivers? Yes, so you mentioned, we talked about the buses and mini buses, right?
So how do you get incentives that will give you money for passengers? So you'll actually have reason not to sit and drink coffee and back rather to think about where am I going to have more passengers? Am I going to make more money? While not making you reduce the quality, drive very fast, dirty car and all this.
And I think that the ride sharing like Uber lived, found a very smart way of doing this by giving the rating system. So now after a ride, if you drive too fast, too aggressively, your car will be dirty or something like that, I will give you one star. That's going to be bad for you. So you really care about your ratings.
So now on top of the incentive to be fast, they also give incentives to be good. And that actually works. And interestingly, it doesn't cost the company anything to create this incentive scheme, right? So you really create something that costs you nothing and was really important.
And my experience, I don't know about yours, whenever I still use DEX, which is not a lot, it's always less pleasant than the Uber experience. Right? Uber is always cleaner. The driver is more polite.
Everything is nicer. It's incentivized. Yes. We don't have any cost.
Yes. Yes. One thing that I learned that was interesting about Uber is the drivers do not get paid more if the journey ends up being detoured, if it takes longer, if it gets stuck in traffic. And I thought it's a little bit brutal for the drivers, but it's very good for the rider.
But if you do hit a unrealized challenge of some kind, that it is still, you're not going to be paid, you're going to be charged anymore. And it's not as if the old will take you around the house is the long route in order to ramp up the extra amount of money. It stops that from happening. So this part is clearly great.
So they really have the incentive to get you from where they pick you up to the drop place as fast as possible. I actually think that they're underpaid. I mean, how do I know that? Apart from the fact that I know how much detail I'm actually making, they worked a bit with Uber.
Apart from that, I know that it takes too long to get to Uber where I live. So pre-pandemic, it used to be five minutes. Now it's often 15 minutes. 15 minutes means that they're not paid enough.
They would have been paid more. I would prefer it. I have the money. So that's true.
It's not my daughter would not prefer it. But still, I think that just from the quality of service, how long it takes, I would prefer that they will make 20% more and they'll get them within five minutes instead of 15 minutes. Right? So and sometimes, for example, it takes them 10 minutes to get here.
So they drive for 10 minutes and then they take me from my home to the university, which they get $8. That's kind of I think that that's bad. I really, I feel good when I pay a fair wage to the people. I need to.
I use Uber. I don't have a car in America. So I've been since I moved here about a year ago. I've been absolutely hammering you.
I must have done hundreds and hundreds of journeys just in the last year. And yeah, I would agree. It'll be interesting to see what happens with Uber over the next few years. Okay.
So one of the other mixed signals that you talk about is encouraging innovation but punishing failure. What would be an example of that? Right, right. So I always tell people, you know, you tell your worker, you don't tell them, look, do exactly the same.
Don't innovate. Just do small changes. Think about my world, right? I can write lots of papers by changing a small parameter in something that someone else did.
Those are going to be really boring bed papers. Or I can take a risk. I can think about something completely different. And by taking the risk, basically what I'm saying is that I'm increasing the variance, right?
So there is a chance that it will be much better, but there's also a chance that it will be much worse. Now, if I work for you and you look at me, you see that I tried something and they failed and as a result, you fire me or don't give me a bonus or whatever way you punish me, why would I take this risk? Why would I go and try something new if I know that it has risk? So the right thing to do it, to encourage innovation is to tell you, look, go ahead, try it.
If it doesn't work, tell me fast. Don't drag it because if I know that you're going to punch me, I'm going to steal, you know, do good money after the bad money and try to make it work, force it to work. No, just whenever I see that it doesn't work, just kill it, that's fine. And then do this debrief, you know, what happened?
Why did it happen? Now, if you find out it happened because I slept until noon and then drank lots of coffee, then fire me, then punish me. But if you say, look, it was a good idea. The intuition was solid.
You tried it, turns out it didn't work. Let's learn from it from the future. I'll know to make the same mistake in the future and move on to the next thing. That's the right way to do.
I run experiments for leaving, right? That's my research. Doing incentives for 25, 30 years. Very often I have an idea.
I have to explain it, I test it and the students do something else than what I expect. So I get mad at the students, but I try to learn from it, right? Why didn't it work? Sometimes it's more interesting.
If your intuition didn't work, you learn something much more interesting. Sometimes it's not. But the point is to incentivize really failure as well. Because if the failure happened because your intuition was wrong, but still was solid, just don't punish with it.
Rory Sutherland has a story where he always talks about the fact that nobody ever got fired for hiring Accenture. And his point being that if you have a reliable, boring pursuit, no one ever gets in trouble to that. This is something we're not going to use the blueprint. We're going to actually try and go out there and do something that may have an upside of 100x, but a slightly greater downside.
It's supposed to just iterate on what we've done before. And he says that this is one of the reasons why the consultancy model a lot of advertising is very safe, very boring. It's handled by accountants and economists rather than by creators and artists. Right.
I think that is absolutely right. Now you can think about the world in which you cannot allow for the downside risk. So imagine that I don't want my physician to take risks on me. In some cases, but then your message should be, look, I want you to play it safe.
Creativity is important in other places. Be going the paint in your garage after that, after work. But here it's really important. That's fine.
That's a message and then we go with it. But what I'm saying is don't tell them be creative, but then like I said, if it doesn't work, punish them. That's a mixed signal. Right.
So if you want creativity, don't punish. If you don't want creativity, which is also fine, tell them that that's not what you're looking for in this job. What was that story about the Coke vending machine thermometer? I love this story.
So the CEO of Coca-Cola, another probably either engineer or economist without social skills. He had the, he learned that he can put a thermometer, the resist thermometer, the vending machine that can tell them whether, let's say, let's divide it to hot and cold days. He took probably equal one to one. He talks about crisis discrimination and said, look, on a cold day, we'll charge them a dollar and a hot day will charge them $50 because they're willing to pay more.
That's what airlines do. That's what hotels do. It's fine. Right.
So if it's busy, you take more people of course that piece of them. Is that why you're trying to take advantage of us when it's hot? That's, you know, that's not nice. And the right way to do it would have been making the regular price $50 and on a cold day, it will give you a discount.
It's on your dollar. Right. So that way, you know, you're nice to me actually. When you can, you're nice to me.
MC last month, MC came up with a similar program. They decided that MC theaters, they decided that they're going to charge different prices for different seats. Right. If you want to sit in the middle of the theater, you'll pay extra.
They call it premium seats and you'll pay extra. Again, lots of pushbacks. It's not enough that we pay so much for the tickets, that we pay so much for the popcorn. Now you also want to pay much more for the middle six, you know, a few.
The way they should have said it is, and then they try to say, well, inflation, whatever. They should have started with inflation. Look, it costs us more. We have to pay more for labor.
Everything costs us more. We have to raise prices. That's not what we want. We want everyone to be able to go.
And because of that, we're going to give discount for the first row and for the site so everyone can still come over and use it. Right. So that's exactly the same incentives, but very different story. Think about coming back from the pandemic.
A friend of mine told me a story a couple of days ago. They went, they worked remotely and then they decided to go back to three days a week in the office and their employees were really upset with them. They looked at the theater's punishment. And what you said is that the right thing to do after listening to this, to exactly what you said, the right thing to do was to say, oh, look, sorry, or not sorry, the pandemic is over.
We are back to five days a week. However, because you were so good. And so responsible, we're going to let you work from home for two days. Right.
So that's exactly the same story, but it's not really punishing you by bringing you to the office for three days, but rewarding you by giving you two days to work from home. Right. So this, there is a story out there. Our brain concludes the story.
And the incentives can really change the way we look at the story. This feels like anchoring bias is playing a massive role here. Anchoring bias and expectations are doing a lot of the heavy lifting. Anchoring framing all of the good stuff that we know from the other economics and the other science in general works over here.
The twist is that now it's done by incentives. Right. It's not just a story. So it's done by the incentive.
You give it as an incentive to people. That's important to understand that incentive tell a story. And if you control it, you're going to do better. If that's the case, how is it that Peloton saw an increase in sales when they put the price up?
So Peloton is a great example. So the CEO wrote that when they started, they charged $1,000 for the bike. And I wanted to buy because they decided that it's probably not too good. They concluded it is probably not a great bike if it cost so little.
Again, there's something about the people that think that $1,000 per bike is little. But that's what he said. Double the price, $2,000 a bit more than that if I remember correctly. Everyone said, wow, that must be a great bike and moved in.
Imagine back to the wine example, you go to usually buy $20 wine. Now you're celebrating something. You're celebrating birthday. Tonight you're going to the store and say, tonight I'm going to buy $50.
Why? Because we have this price equals quality in our brain, which is true in many cases. If you want to buy a laptop with more memory, it's going to cost you more. You want to buy a Tesla with longer range, you're going to pay more.
But in some cases, this is just in your brain and you need to know where to. I'll never forget one of the first ever times I started an AS level business when I was 16 or 17. And they were explaining about the fact that Nike's shoe range and you have the lowest one, which is 30 pounds and then 50 pounds and then 70 pounds and all the way up to 250 pounds. And this is all of the fanciest pieces of kit.
But if you look at the difference in terms of the tech that goes into 250 and goes into 150, which might be the next closest, you're not looking at very much. It's apart from signaling I've got the most expensive pair of shoes, always going to look different. You're always going to be able to tell that they're looking different, especially at the bottom end and at the top end. Maybe you'll be able to tell I want, right?
So you have your people that you really care about them being able to tell, right? So there is a group of people that look at the shoe and say, look, this is my wife's. It's a 50 pound pair. I wear a $50 sneakers, right?
And my wife sometimes tells me, look at this white tennis shoe. Those are 250,000 times a thousand dollars. So absolutely. Yeah.
And the reason is that for the right people. Precisely, that's the first part. And I remember thinking, well, look, if we just take a utilitarian amount of shoe per pound spent equation and try and equate that back, why does anybody, including myself, why am I seduced by the shoes at the top? And there is this sort of signaling thing that goes on.
But the other reason is that if you look at the area under the curve under the price curve, there are people out there who either simply want the absolute best because that's what they want or have $250 or $300 or $500 a thousand bucks to spend on a pair of shoes. And if there is one that is within that bracket, that's a pair of shoes that they're going to get. Now, if the best pair of shoes happens to be $150, don't go in it by that pair. So why not just continue ratcheting up the scene features?
These shoes are Bluetooth enabled. These shoes will correct your gluten intolerance. These shoes will do whatever. We'll rat your papers.
Precisely correct. Well, that would be great for you. Yeah, you just might as well continue to ratchet it up. Capture as much area under the curve of that.
So think about wine. You go to a wine store, you can buy wine from $5 bottle up to $50,000. Right? And I drank some of the more expensive wines because someone else was buying it.
I couldn't tell the difference. I love wine. I drink a lot. Give me a good $20 bottle of wine.
I'm extremely happy with that. But what you said about having very expensive ones, in many restaurants, you have, you go to a restaurant, not a very fancy restaurant and you look at the wine menu, there is a $5,000 bottle of wine over there. And then you ask the waiter, did anyone ever ordered it? They probably don't even have the wine.
But that gives you that sent you a single look. This is this is a serious restaurant because they have this very expensive wine. Probably the same goes with the sneakers. Right?
So if this company can actually manufacture a $1,000 pair of shoes, they might be doing something really good. They must be really high quality, even if no one buys them. That's sent a single that they're really good. And some people will actually buy them for the reasons that you mentioned.
Also, by pushing the top end price further up, what you're doing is relatively making the mid range product seem cheaper, right? We're looking anchoring anchoring again at the top. OK, so you've got long term goals and short term results as another mixed signal that often happens. What's going on there?
So there is this saying that we all know by a politician, we all know what's the right thing to do. We just don't know how to get elected with it. Right? So think about politicians.
Think about I live in California. Think about my governor that understands that building a train from San Diego to San Francisco is really important. So if I want to go from San Diego to even to LA, it's like a three hour trip. It's just impossible.
It's not a viable option. And say that our governor will decide, I'm going to invest in this. It's not to cost it now. Fifty billion dollars, but we're going to put the money in it and we're going to do.
He'll have to invest a lot now. And the benefit will be 20 years in the future. It'll be long gone. He will probably not get reelected because he diverted funds from roads today, can fix the breach next to my house.
I'll say, wow, it's a good governor. If you invest in something that I don't see, I will not understand it. So why would they invest in the long run with the short run? Is so so much more rewarding in terms of getting reelected.
Think about the CEO that the board tells them, look, we care about the long run. We want to be successful in the long run. This company, please, you know, but then judge the CEO based on the quarterly earnings, quarterly performance. What is the CEO going to do?
Imagine that the computer system, whatever, the network really needs upgrading. So the CEO can decide to invest a lot in it in the coming two quarters. And then it's going to get huge benefits in the future. But the next two quarters are going to look really bad, really poorly in terms of profits.
And that's the CEO, we probably be fired or we will not get the bonus or whatever. Right. So we tell them, we tell the people that work for us, like the governor or the CEO, that look, we really want you to think about the long run. But then we give them incentives to do the short run.
And that's a big problem. Now, there's not always a good solution. So the solution for the governor would be a dictatorship. Right.
But I don't want to live in a dictatorship. Right. So I kind of like the democratic system in which they need to report that. So you don't always have a solution for that, but we should try it least.
First, you're saying if I had a company and they needed to let us see, I would tell their person, look, I really care about the long run. I'm going to let you do this for two years and just run with it. I'm going to sit and watch you. Hopefully you'll do well.
I'll try to find a person that I can really trust and just let them run with it. I would not look at the short run performance. I wonder whether 10 year professors have the same sort of sense. Now, one of the problems that you have, obviously, if you lock somebody in and you guarantee them an amount of time to go to say, employed or supported by you, that means that they can drag their feet.
That then creates another challenge that you have, which is. Completely disagree. Tanner is the best thing that God ever created. You sound like you might have some incentives here.
Maybe, maybe, maybe. So it's a look, we first of all, we are tortured for many years until we get tenure. Right. So that's that part is there.
And you try to really, when we decide whether to give someone tenure, we really try to figure out, did we get this person addicted to doing research, to doing his or her job? Right. If we didn't get them addicted, then the second will tenure them. They can just go, I need to teach three weekends a year.
I can be in the Caribbean for the rest of the time. No one can do anything unless I do, you know, something horrible. I'd say the, you know, racist things or something like that. I will keep my job.
Yet I'm working very hard, right? Because I really enjoy it. That's part of what I said at the beginning, that I'm doing it because I'm getting paid, but I could have worked much less and still get the same amount of money. I enjoy it.
I want to convince people to buy my book. I'm here trying to do that. Right. So we are intrinsically motivated.
So that's the, but that's not always working. Right. Sometimes you tend your people and they just quit. See lots of them.
And that would end up in the, in the, in our faculty and you see this and it's very hard to do. Now, I think that the main reason for tenureing with, you know, academic faculty was the freedom of speech because now I can really say whatever I think again, with the in reason I cannot say racist things, I cannot say some other stuff, but I can, I can say radical opinions that maybe my university doesn't like it, but and many other people will not like it, but I can still express it. And that seems to be really important. And you can pursue innovation.
You can focus on the long term, et cetera, et cetera. Yeah. I don't, I don't disagree. It's very interesting.
I didn't really know what tenure was until I started the show. I haven't involved myself in the inner workings of how employment of professors at universities actually goes on a lot more. So given what we're trying to do there is incentivize good behavior, why is it that finds so ineffective at incentivizing against unwanted behavior? Just to finish the previous one, exactly what you said, the longer I can invest in the book, I talk about a female genital mutilation project that we're trying to do.
We're working on it for six years, going to take many years until it's ready. I can do it because I don't have to worry about the short term. Let's talk more about that. I want to talk about this female genital mutilation thing.
How are you trying to change the incentives of these places where it's a common practice? When you go to Africa, there are many places. So tens of millions, if not more than that, of young women that go through this female genital mutilation, which is a horrible, horrible procedure. We focus on the Maasai tribe because over there, as far as we know, the data is not clear, but the vast majority of girls around the age of 10 to 12 go through this procedure.
Now we might say that, oh, again, these Americans come and try to change the behavior of the culture of the people, et cetera, et cetera. All the good stuff that was done way too often in the past, this case is not the same because people understand what they're talking about, say that it's worse than rape, what happens over there, right? So it's not something that if it was raping 10-year-old girls, no one would say, well, it's part of the culture, we should allow it, right? FGM is worse than that, by the means.
So the question is, why does it happen? So we looked at it and tried to understand why does it happen? It turns out that to a great extent, it happens for economic reasons. Because the girl, after she goes through this FGM, her value in the marriage market is much higher.
And that's, you know, it's a very particular society. Basically, the value of a woman is measured in the number of cows. How many cows are you going to get for her? Is it 10 cows or 15 cows or whatever?
And the value of the girl for her family is going to be higher if she's going through this procedure and should be able to find a better husband. So that's why it happens. Why? Because she can be part of the group of women over there.
If she's not cut and everyone, all the other girls are, then women later on, they still treat her like a baby. They should be outcast to the great extent. Have you considered the motives, the culturally adaptive reasons why this would have first come about? I'm going to throw my Bro-Science evolutionary psychologist hat on here and guess that maybe one of the reasons why, you know, speaking as a Westerner, who quite enjoys it when the girls that you have sex with, most of my friends want their partner to enjoy it, I'm going to guess that this is because if the incentive for individual women to have sex gets dropped through the floor, chastity is something that you can expect much more highly.
Is that what it seems to be? Everything you said, it has few layers, but first of all, according to people who understand I'm not an anthropologist, I'm not an historian, but apparently the men used to go for a year to fight, to come back, find their wife pregnant. They wanted to prevent this. Now, interestingly, what you said about sex, you ask the young man that needs to decide what they're going to marry.
We want your wife to enjoy sex. They all say, yes, we want it's exactly like you said. We want her to enjoy sex as much as we do. But then what are you going to marry?
Well, I'm going to marry a woman that went through this procedure because then she'll be a better wife in a sense. Their values are white, right? So it's really complicated, right? But it's all about the economics of it.
Now, what we came up with is how can we create an alternative economic institution that will compensate for this, for the loss of value of the woman in the marriage market? What we find is that they really want the girls to go to high school. High school is far away, cost a lot of money, think about college for us. It's really it's a boarding school that costs lots of money.
If the girl goes there for high school, comes back when she is 18, then her value is much, much higher already. She doesn't need to go through FGM. She's already an independent woman. She can be a teacher or nurse or whatever.
She's really going to do well. But the parents don't have money to send her out. But we said, look, we're going to have nurses check, validate that they didn't perform this horrible procedure in time. If you didn't, we're going to pay for high school.
As long as she is uncut, we're going to pay for high school. And we think that that's going to be a very strong motivation for the parents, again, because of the economic aspects of this. And hopefully, you won't have to pay forever because once you have enough women that will not be cut, the peer pressure will switch from, oh, you're not cut, you're a baby. We don't have to consider it all to, oh, you're cut, that's unfortunate.
But the police will change that. Also, that would mean that the women who are cut are also most likely to be uneducated, which is a signal that women would not want to be associated with. This is something, again, neither of us educated, fully educated anthropologists or evolutionary psychologists. But the knife edge that different cultural technologies, the way that the status of different types of behavior are viewed in society to me seems, I mean, we're talking about here, a relatively small intervention to stop an incredibly heavily ingrained piece of culture.
And it's just, I find it so interesting how fine the line is between those two things. And they have lots of other problems. I can see the problem with people with us changing the culture, because a girl is getting married at 14 with their 30-year-old man. They start having kids and they have lots and lots of kids.
Now, pre-entabiotics, about half of the kids died. So it was manageable. Now they have too many kids in the sense that the resources that they have cannot support them. So in terms of planning, it's much harder to do.
And they have serious problems with that as well. So like I said, very simple thing, very simple incentive, very simple change in what you do can really have a huge impact on society. Given that you're not quite the fully robotic behavioral economics professor, but probably are not used to having such a fundamentally benevolent impact on a culture with the work that you do, how does it feel personally crossing into a pretty much universal good, being able to utilize what you've learned in your theory to really make a pretty important change to the world here. How does that feel for you?
So that's what happens with age, I think. So as a young man, I wanted to publish as many papers, become famous, be successful, whatever. Now, when you get older, you start to think about, again, how can I use it to really impact the world? So I work with companies, but that's usually not doing good to the world.
So I help companies make more money. That's not creating value to the world. That's creating value to the company. And to me, and then you can think about a few things that are like this, that if I can help these girls, if I can save one girl from going through this, that's already, I'll die much happier, right?
And clearly, if we can have more. And you can think about other things that we try to do. So I mentioned the oncologist, we try to do end of life kind of planning to help people plan better to the end of life. And these kind of things, I find it much more exciting than running another lab experiment about some negotiation game that is still fine, interesting.
But that's exciting, like you said. You've become an ascended individual, a patriarch who is trying to bestow his insights on the world. Right. I think that you could grow it out.
I think it will look like that. What about the fines in terms of stopping and wanting behavior? What's the problem, sir? The problem is with your perception.
I think you're wrong. So fines, all we know about fines comes from really silly experiments in which, now, first of all, you cannot come to my lab and live with less money than you came in. So I can't really give you a fine in my lab. And much of what we say, exactly what you said is the perception in psychology.
And I think that it's wrong. That fines don't work. Well, small fine don't work. So I have this study about the daycars.
So our girls used to go to a daycare in my wife and I have lived in a suburb of Tel Aviv. And we needed to pick them up by 4 p.m. in the afternoon. We used to go to Tel Aviv to have lunch.
Then one day, it was traffic. I drove like crazy in order to be there by 4 p.m. Because you don't pick up your kids too late. Then the principal decided that you put a $3 fine if you come more than 10 minutes late.
Again, we were in Tel Aviv again traffic. This time I didn't drive like crazy because I'm not going to risk my life for $3. That's my concern. Right.
So the small fine over here did change the perception. And by the way, we found when we ran the experiment, we found that indeed many people came late. More people came, right? And it's not because they thought about it as babysitting system way, you know, I'm paying for babysitter.
Because when we removed the fine after a while, they kept coming late. So what happens, what happens, what happens, it's otherwise to get in and die. What we think is that before that you didn't know our baddies to come late. Now we told you that it's $3 bad.
Right. If it's only if it's that, it cannot be important. Now you can never remove that anchor. Exactly.
There's knowledge. Once I run it, you can take it. Now, if in some places in the US it's $10 per minute, then then you'll think about it. A thread of my tummy that in Paris, there is a place where if you're late, they take your kid to the police station and you have to pick up your kid from the police station.
That's big. Wow. Yeah. And you've got the social impact of that.
You've got increased inconvenience. So I remember. It's not defined. It's smart fines that don't work.
Interesting. Okay. Now I remember learning about Estonian speed traps. Have you heard of these?
No. So in Estonia, they have police by the side of the road. And what they do is they'll ping you. If you're going over the speed limit, they'll catch up.
They'll take you to the side of the road. And you'll have the choice between, I think it's a really, really high fine. I think it's 350 euros maybe. Or you can stay by the side of the road for 30 minutes.
Yeah, nice. And I thought that that was a really interesting way. You know, most people that are going to be pulled over by the Estonian police are not making 700 euros an hour. Right.
But there are people for whom I'm on my way to pick my kids up from nursery. We have a wedding we're getting to. We're making a flight. We're doing whatever.
And it just really makes people, I think, question the time and the money element in them. It's much more interlinked. I thought that was a very smart way to do it. I would put both.
So why not pay 350 and wait 30 minutes? Some people are reaching out. Some people are reaching out that you don't care about the money. Some people do care about being right.
Well, let's think about it this way. If you do do that, what you are optimizing for are people who are both time rich and money rich. Exactly. Exactly.
So that's equalizing, you know, everyone is going to suffer. One way that they did it in many places is this preventive graduate. So if you, if you take care of the ticket, you have to go to this school, right? That's just that's pure punishment.
You don't really learn anything over there. But it's very effective punishment. So now I think you can do it online. But in the past, you really had to go there.
I was fortunate enough not to go there, but my friends who did said that it was like three afternoons real punishment. So there is a everybody in the UK will be aware of the speed awareness course, which is what you're talking about. In the UK, you're allowed a 10% over the speed limit. That was originally introduced because analog speedometers had a 10% tolerance where the car may be sufficiently inaccurate.
The fact that that's been legacy grandfathered in in a world with digital speedometers that are probably accurate to, you know, 0.1% of a mile per hour, et cetera, is still hilarious. But and then I think it's the next 10% over that if you are in that bracket, you have the choice between 100 pounds fine and three points on your license. If you hit 12, then you lose your license or you can go into a speed awareness course. The speed awareness course is a morning or afternoon with incredibly grumpy gentlemen stood at the front asking you, I've been, so this is personally relevant to me, the most banal boring questions wagging his finger saying, you are driving down the street.
How can you tell if you're going too quickly? Like just, oh my God, it's towards you. However, you're only allowed even one of those, I think once per two year period. So you don't even get one of those grace periods.
So there's this sort of ascending punishment ladder that you can go through. And if you use that, you lose one of your lives. But honestly, I think that the, you know, I have a number of friends who regularly in and out of points on their license. I've only ever got pinged by this once either through my driving or through fortune or whatever.
However, how the speed awareness course stuck in my mind, I can remember the classroom that we sat in, I can remember how boring the tapes were, I can remember the effort of having to drive there on the moi, I can remember everything about it. Right. It's a very, very strong, disincentive. So you see, fines do work.
You just need to find the right fine. What, whatever will make you drive carefully after that? Whatever hurts the most. Talking about cars.
What was that online car shop? Edmonds. Edmonds, yes. So that's actually interesting.
Edmonds is a great company. I work with them there from LA. And what they do is give information about cars. So you want to buy a car, you go there, you check it out, Toyota Corolla from, you know, a new Toyota Corolla and you learn about it.
And then when you want to buy, when you're ready to buy, they have ads from local dealerships. So you put in your Z-code and they know where you are. They offer you bills. Now, if you buy through them, so if you click on the link over there and you end up buying the car, they, that's of course good for them because then the dealerships are going to pay them more for advertising.
Now, what it did is gave you say, say that you bought a $20,000 car, they gave you $500 discount. If you, if you clicked on Edmonds and went over there. Now $500 is a lot of money, but not when you compare it to $20,000. So from previous research, all research from the 70s and 80s that imagine that you're going to buy a mouse for your computer, right?
You'll go to the store and the guy will tell you it's $50, but if you walk 10 minutes, there is another store, they have 50% off, you get $25 off. Most of us will go. Many of us will go. I imagine that you buy a computer and then you also buy this, you know, pay $2,000 for the computer and you also want, as one of the accessories, the mouse.