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>>Jon Snow: It seems to me that we have a perfect collision between the first and second
sessions we've had here this morning and that we're back in 1931 at the Austrian bank crash.
And I'm wondering, in fact, whether the first session was talking about aberrant human behavior
and that you have been talking about rational human behavior, and in that sense I am wondering
whether algorithmic activity in the back room, in the back office of a big bank in which
one absolutely epic mathematician comes up with a formula that nobody in the bank understands,
complies with your optimism. >>Matt Ridley: I think there's a very important
distinction that dawned on me only recently, and that's between asset markets and commercial
markets. We use this word market for two different things and I think it's now clear we have
had these bubbles and busts in asset markets since the south sea bubble and the Mississippi
Company in France and all that, and the tulips. It's been going on. Every sort of ten years
we have another one, and we don't seem to be able to stop it. And there's a wonderful
experiment that's very similar to the kind of things Laurie and Dan do by the father
of experimental economics, Vernon Smith, who -- basically he put undergraduates in a room
and he let them work out through trade, he gave them sort of a trading proposition and
they came up with very efficient solutions that gave everybody the best outcome if it
was things for consumption. If it was hamburgers or haircuts where you got the thing and you
consumed it. If, on the other hand, it was something you
were buying and selling in order to speculate on its future value, you all got these bubbles
and then you got these crashes. And I think that there's a fundamental distinction
there about sort of optimism about the resale value of things. Photograph so, for example,
the housing market is a market -- is a utility, it's a how do we house people. But it keeps
getting turned into a casino. >>Jon Snow: Well, I'm wondering what you make
of this because at the end of the day, the thread in this morning's activity, in the
end was bank crash. The thing that Niall wanted us to do was to bail out the Spanish banks.
That was his absolute fundamental building block towards a better tomorrow.
>>Dan Ariely: First of all, I think that the issue is deeper than bailing a bank. I think
if we bail a bank and we keep the rules the same way we are going to be in the same mess
a few years down the road. >>Jon Snow: But none of you talked about regulation
and regulation -- >>Dan Ariely: No, I think, for example, the
understanding -- Let's just kind of -- I like the optimism. It's kind of nice to be optimistic,
and there's lots of correct things about this optimism but let's think about something else
about irrationality. Raise of hands, how many people here have eaten in the last week more
than you think you should. Anybody? Okay. How many people in the last month have
exercised less than you think you should? How many people here have ever texted while
driving? Come on. How many people have ever had an unplanned,
unprotected sex? [ Laughter ]
>>Matt Ridley: A long time ago. >>Laurie Santos: Politicians.
>>> How far back? >>Dan Ariely: Now, if you think about all
of these problems, these are things that we don't just agree that we have done before.
These are things that we all recognize we will do again.
[ Laughter ] >>Dan Ariely: And it tells you that we have
this dramatic problem between short term and long term; right? And I think that left to
the human spirit, long term and short term is going to be a tremendous problem for us.
And technology is actually making it harder; right?
So I will be the counter optimist. Look, the next version of the smartphone,
is it going to be more tempting or less tempting to text while driving? It has to be more tempting;
right? They want us to do it more. The next version of the doughnut, doughnut
2.0, right in for tempting or less tempting? It has to be more tempting.
If we let banking system evolve as they want will they become more tempting or less tempting
to get people to do things in the short term? So I think when we design the world around
us, while I certainly agree there's lots of things to be optimistic about, we also need
to be cautious, because the bigger the world is, the more connected it is, the more is
the case that we could do small things that could be incredibly devastating. And I think
banking is one of those things that because they are so widespread, we have to think much
more carefully about how they fit with human skill in a very basic way. And to the extent
they don't fit with human skill, we should regulate those aspects away.
>>Jon Snow: So we have to remember how near we are to the human primate.
>>Laurie Santos: Yeah, I think that's right. One of the striking things in my primate head
from hearing about the Euro crisis this morning was that I was just at a field site where
I was watching monkeys from different groups interact and watching their kind of political
battles over dealing with scarce resources --
>>Jon Snow: Your hair is interacting with the microphone.
>>Laurie Santos: This is a problem if you get more women here. You're going to have
these kinds of technological -- [ Laughter ]
>>Laurie Santos: the gentlemen aren't having these problems.
[ Laughter ] >>Laurie Santos: But, yeah, I mean, the battles
between Germany and Greece I can see in the battles between different troupes of monkeys.
>>Jon Snow: Can you, therefore, see their resolution?
>>Laurie Santos: Some of it. And I think the power --
>>Jon Snow: What is the resolution? What happens? >>Laurie Santos: I don't know. I am no economist
so I shouldn't speak -- >>Jon Snow: Yes, but you are a behaviorist.
>>Laurie Santos: Yes, and I think one of the things you do is getting people on the same
page, thinking in terms of the -- getting rid of old nationalist distinctions is going
to be really important. Monkeys create groups and they create groups in ways that don't
have labels, like I am a German or I am a Greek. They don't have language and that means
they can't have different languages. And I think that humans both have the power to override
those things. You can talk about centralize Europe, start talking about people in the
Europe zone as opposed to Germans and Greeks. >>Jon Snow: One of the interesting things
I thought in your presentation is you didn't distinguish between male and female monkeys,
and we have already referred to the problems with your hair and the microphone, but there's
a serious point here. That is if you look at what's going on amongst, essentially -- not
in banking but certainly in politics, it is still essentially a male preserve and it is
a very male preserve bar one woman, one very key woman, in the Euro crisis.
Is there a distinction between male and female when it comes to resolving these kind of problems?
>>Laurie Santos: I think it's a big and open question, but there are definitely researchers
who make the claim that having males in politics is a dangerous business.
There is a primatologist, Richard Wrangham who has written a book called "Denomic Males,"
and his main claim is if you look at the evolution of primates and you look at societies in which
males are dominant, that comes along with warfare. So what are the only other species
that engage in large-scale war? How many other species of the millions and millions of species
out there? Two. Humans, and our closely living relatives, the chimpanzee. What do we have
in common? Well, we both, at least historically, have had groups where males have dominated
and males have been really related and males can set up coalitions. And this is the kind
of thing you don't see in the monkey species we work with. It tends to be the females are
very related. They are the ones who are setting up these coalitions. When you see males ganging
up together to gain power, Wrangham argues it's very dangerous. And the fact is if you
look at human history, there might be a move to sort of making these genderized claims.
>>Jon Snow: Well, it's a very interesting point because in this country there is a campaign
on at the moment to get more women experts onto television. And I am a news anchor and
we are constantly looking for women. So you ring up a woman and you say, "We want to talk
about the public sector borrowing deficit." And she will say, "Well, I am an economist
and I certainly deal with it, but it's not really my subject. I think I won't do it,
thanks very much." And you ring up the male counterpart and he
says, "Public sector borrowing deficit? Not really my subject but I can certainly talk
about it. What time do you want me?" [ Laughter ]
[ Applause ] >>Dan Ariely: There is actually a beautiful
experiment they ran at Stanford and they took men and women and they basically showed them
some interesting math problems and they sort what frequency they can solve them and so
on. And everybody knew how good they were in this particular math problem. And then
they asked them what would you rather do? Would you rather get paid based on your work,
$1 per question, or would you like to go into competition with three other people and then
if you're top, you would win $4 per question, but if you are not the top you would get nothing.
And then they looked at the quality of the skill and the function of how many of those
people wanted to enter the competition. And you would expect that the people with low
skill would not enter the competition and the people who were good would enter competition;
right? These are the people who should. And what they saw was basically men just entered
the competition regardless. [ Laughter ]
>>Dan Ariely: So there was slightly sensitive, like good men entered a bit more than the
bad, and the women just didn't enter the competition at all. So the good women who should have
gone to compete didn't go compete, and the bad women who shouldn't compete -- bad and
not good in this particular version of math -- didn't compete at all. But it looks like
there's a big gender difference in our preferences for competition, which of course if you think
about the system we are developing both in corporations and in government is working
against this tendency. >>Jon Snow: Matt.
>>Matt Ridley: Of course, this goes deeply back into the difference between males and
females. Right back, of course, to reproduction, because being a male is usually a high risk,
high reward strategy. In other words, in terms of the number of offspring you can leave behind.
Whereas being a woman is a much more predictable -- you know, you are likely to be able to
have kids but not so many, whereas men, you either end up with none or hundreds. Back
in the old days, I'm talking about. >>Jon Snow: One of the things I am interested
in is the fact that none of the three of you have asked the audience how many people in
here are optimists. Okay. Hands down. How many are pessimists?
There's a lot of candor, or not very much candor. Who knows? What do you make of that?
>>Dan Ariely: I think if you asked the question after the session --
>>Dan Ariely: I think if you asked the question after the first session -- if you asked the
question -- >>Matt Ridley: If you asked it Niall's talk
and then after mine. >>Jon Snow: So it's all about environment.
>>Dan Ariely: No, actually, I think people interested in technology have to be optimistic
because I think technology is the tool to basically figure out what we're doing wrong
and what we're doing right. So I very much -- So, look. Standard economics
-- >>Jon Snow: So technology is the rational.
It has to be. It's logical. >>Laurie Santos: -- with rational minds. Only
if it's doing what it's meant to do. And I think one of the scary lessons is it's often
not, and this is the kind of thing that Dan is finding; right? That the incentive structures
we set up we think people are going to make people cheat less, but in fact because since
they are dealing with slightly irrational minds, people cheat more.
>>Dan Ariely: Think about the technology. If the following -- If you think that everybody
is perfectly rational, what should technology do? It should just present people with information.
So think about New York City. New York City a couple of years ago decided to tell people
how much calories are in each fast food on the menu in each fast food place in New York;
right? Let's just provide people information and people would know how to use that information
and clearly we'd do better. What do you think happened with this experiment in new York
City? Absolutely nothing. There's a couple of papers showing a slight decrease in calorie
consumption and slight increase in consumption. It was not about information.
People basically -- nobody went into McDonald's shocked that this was not a health food place.
[ Laughter ] >>Dan Ariely: But if you think about it and
you say technology is not just about providing people with information. Technology is really
about trying to understand what it is that we're doing badly and trying to fix those
things that we don't -- do badly. It's kind of an augmentation of our brain in a way that
would be productive. Google is coming up with Google Wallet. So think about an electronic
wallet. Is an electronic wallet going to be good for us or is it going to be bad for us?
It could be either. It depends on how we build it.
I will give you one simple example. There is a concept called the pain of pain.
Imagine you go to dinner and you pay either with cash or with credit card. Do they feel
different? Of course they feel different. The cash feels
much worse than the credit card. Imagine I own the restaurant and I said, "You
know what? I figured out over a while that people" --
>>Jon Snow: I dispute that. I think actually when you pay with cash, you think, "Well,
I've paid it. That's it. I'm not going to get visited by something down the line."
>>Dan Ariely: Okay. >>Jon Snow: With a credit card, you're really
not quite sure when it's going to come and how big it will be when it gets there.
>>Dan Ariely: Well, you know how much the bill was, but -- so you can dispute it, but
the evidence doesn't support your particular version of it.
[ Laughter ] >>Dan Ariely: So let's talk about averages,
rather than the individual. [ Laughter ]
>>Dan Ariely: So let me just -- so imagine I own the restaurant and I said, "People eat
on average 50 bites and pay $50." And Peter was here. I said, "You know, you
look such a nice person. I'll tell you what, I'll charge you half price. Only 50 cents
per bite. And not only that, I'll only charge you for the bites you eat.
I'll serve you your meal and every bite you take, I'll mark a little 'V' on my notebook
and at the end of the meal, I'll charge you just for the bites you ate."
How much fun would that meal be? I mean, incredibly miserable.
Now, think about it. This idea of that when things are disconnected from money, we have
an easier time overspending, which is what credit cards do, if we design an electronic
wallet, do we want to have that or not have this feature? Do we want people to feel the
pain of paying and, therefore, be more stringent with their money or do we want them to feel
less pain of paying and, therefore, waste more?
It's our choice in terms of how we want to design technology and what aspects exactly
of human psychology do we want it to fit. >>Jon Snow: Laurie.
>>Laurie Santos: No. I was just going to say, this question about whether technology is
helpful or hurtful is funny because we only have this question, I think, when we're dealing
with our own psychological limitations, right? We use technology to fix our physical limitations
all the time, right? I flew here from New York. I didn't swim across
the Atlantic. Or I'm wearing contact lenses, as many of
you are wearing glasses, and so on. We're so fine to use technology to fix our
physical limitations but when someone like Dan says, you know, "If you have this Google
wallet, you're going to mess up and it's going to mess you up in X, Y, and Z ways," we want
to say, "Oh, no, no, no that's not the case." And so I think what we really need is just
sort of a paradigm shift in the way we think about rationality.
>>Jon Snow: I'd like to dispute that again because I'd like to go back to the ax and
the mouse, right? The ax was shaped in exactly the way he wanted
that ax to fit his hand. The mouse was fixed to fit, well, a general hand but it wasn't
my hand. And there's a big difference there.
In technology, even Google technology, they may do lots of research and audience research
and the rest of it, but in the end it's inflicted. I know it's not enforced on you, but it's
what's available and you take it. >>Matt Ridley: But it's easier and easier
to customize technology these days because of the long tail and -- you know, let's say,
for example, customize your reading list or whatever.
>>Jon Snow: Have you got a customized mouse? >>Matt Ridley: I haven't got a mouse anymore
because I've got one of these laptopy things. But, you know, you're right. I haven't got
a customized mouse. Just on whether technologies can be good or
bad, I mean, of course, you know, some technologies can be used for evil things and some lend
themselves to it. I mean, I think it's an unwritten part of
the story of the twentieth century -- or it's partly written -- that radio played a huge
role in the rise of dictators. If you go back and look at what Hitler concentrated
on, it was radio. What did Oslo Mosley want from Hitler when he sent his wife to see him?
It was money for a radio station. >>Jon Snow: That problem is, Churchill won
the war on radio. >>Matt Ridley: Well, exactly. But then again,
I mean I got a virus on my computer a few years ago and my wife said, "What you do -- calm
down -- is you go on the web and you find this Web site where they tell you how to solve
it." And on this Web site were up-to-date updates
from people about how to get round the latest versions of the virus.
The virus designers can't do that. They can't have an open wall in which they're saying,
"And by the way, we just thought of another way of making the virus more evil," because
then we then learn on it. So there is a tendency for the bad guys can't
use the open source system as much as the good guys.
Sure they can use it, but it -- but not as effectively.
>>Jon Snow: We've got three or four minutes left, and it seems to me that Niall Ferguson
established a very good start for this whole Zeitgeist, and that was to actually recommend
several ways in which we could get out of what it is that is bugging us at the moment.
So what's bugging is what bugged us this morning, which was set out very coherently, so let's
have a -- from optimism, from primates, and from behavioral activity, but let's have your
cures. >>Matt Ridley: Cut trade barriers. Get everybody
exchanging all around the world as much as you can.
Sure that's not tomorrow's problem, and I'll bow to Niall on the immediate problem, but
in the long run that's what's going to do the most good.
>>Jon Snow: Laurie. >>Laurie Santos: Similar. Get rid of groups.
Get rid of groupism. The most painful thing I see in primates is
how living in one group and not liking the other being --
>>Jon Snow: Is Google+ a group? >>Laurie Santos: I think Google+ does a lot
of things, right? We're all members of Google+, as opposed to our particular nationalities.
But you can see these things creeping in even here.
Like I was impressed to see, "Oh, we have this nice nametag that says what company we're
from and also our nationality." It's emblazoned in color, the only color thing on our nametag,
right? We like this stuff so much and if we could
find a way to harness our human power to get out of that, we'd be better off.
>>Dan Ariely: So I believe in capitalism, in a sense, that you could, you could produce
fantastic mouses and over time people could get all kinds of things that they're -- and
the market could tell you what kind of products are right and wrong, and -- but as Laurie
said, I think there's an amazing gap between what we can do in the physical world and what
we learn and what we do in the mental world. And this cycle of learning in the physical
world is much faster. You design a car. It doesn't go very well.
You learn about it. You design a laptop. The keyboard doesn't
work. You learn it. When you design a financial system, it's not
that good. It takes a while to learn how it works, and then after while when it fails,
you're in real trouble and it's really hard to figure it out.
And for me, the biggest lesson in behavioral economics has been humility.
You know, we have a lot of ideas about what works and what doesn't work and how the world
works, and I think we need to have a little bit of more humility that says, "We just don't
know." And if we don't know, it means we need to do experiments.
I think in Rome when people came victorious into the winners of all kind of battles, they
would have a parade for them but they also had a slave that would whisper in their ear,
"Memento mori, memento mori." Basically remind them "You're human," every few minutes.
And if I were in charge of any system, I would say data wins.
What would be an experiment that we could decide --
You know, Greece is a small country. Maybe we could experiment with them.
[ Laughter ] >>Dan Ariely: Is there a way to try to figure
out empirically what works and what doesn't work before we create this incredible system
that has a substantial chance of failing. >>Jon Snow: Well, ladies and gentlemen, I'd
like to thank on your behalf Dan Ariely, Laurie Santos, and Matt Ridley.
[ Applause ]