>>Dan Ariely: I want to share a few words about kind of money and happiness and to think
a little bit about the psychology of money.
So money is all about opportunity cost, right?
Every time you buy something, you are giving something up.
So if you buy a cup of coffee, what you should be thinking is: What am I giving up?
What am I giving now?
And what am I giving in the future for this particular pleasure?
The problem is that it is very hard to think about the opportunity cost.
So we went, for example, to a car dealership.
And we asked people, they were about to buy a car, we say, If you go ahead and buy this
car today, what are you giving up?
And people had no answer.
And then we pushed them.
We said, if you are going to buy this car, something will give.
What?
This was a Toyota dealership.
And people said, If I buy a Toyota, I can't buy a Honda.
So people were making a substitution in the same time frame, in the same product category.
Now, what people should have said is this is 700 lattes and 30 books and two weeks of
vacation and so on.
But the substitution across domains and across time is very, very tough.
So money is something that we use all the time.
And we think we're experts about money.
But the reality is that thinking correctly about money is just something very, very tough.
So one thing both Mike and Paul showed is we just don't know how to think about it.
But the interesting thing is that we're about design new electronic payments.
And as we design those electronic payments, there is the question of what kind of payments
are we going to design and how are they going to work.
I want to talk about two principles to think about how money should look like.
One mistake people do, because we can't do the right thing for the right reason, we do
things for the wrong reason, is that we think about relativity.
Rather than think about absolute amounts, we think about relative amounts.
So here are a few examples.
Imagine you are going to buy a pen, and the pen is $15.
As you are about to check out, the cashier says, You know what?
You look like you have a really nice face.
I have to tell you, there is another store selling the same exact pen five blocks down
the street for $8 less.
Instead of for 15, it is for 7.
How many of you would walk five blocks to save this $8?
Okay, a few people.
Case Number 2, you are buying an Armani suit.
It is $1,015.
As you check out, the salesperson says, Just to tell you the truth, there is another store
four blocks down the street selling the exact same suit, instead for $1,015, for $1,007,
$8 less.
How many of you would now walk to save the money?
No.
Your bank account, of course, doesn't care where the money is coming from, $8 is $8.
But we think about money in relative terms.
How many of you have ever renovated an apartment or a house?
Okay.
And under those conditions, how many of you got your contractor to come to you and say,
For only $5,000 more you could get something Italian?
[ Laughter ] >>Dan Ariely: And how many of you in those
moments, very quickly, made a decision this was worthwhile and then went to the supermarket
and considered whether you should buy the expensive tomatoes or cheap tomatoes?
[ Laughter ] >>Dan Ariely: In a one-moment decision, you
could have spent more money than the rest of your life making decisions about tomatoes.
If you are spending so much money because we think about percentage, you can make decisions
about thousands of dollars in a moment without really thinking very much.
And here is the last example.
Imagine you are buying a car.
It is 30,000 euros.
The salesperson tells you that for $2,000 -- or 2000 euros more you could get the seat
in leather.
I don't know what the benefits are but let's versus you buying a chair for your office.
It is 500 euros.
And the salesperson tells you for 2,000 euros more, you could get it in leather.
Presumably, you sit more on your office chair than in the car.
Whatever utility leather has, it will have more utility.
But that's not how we think about it.
You say 40,000 euros, 2,000 looks cheap.
500, 2,000, looks incredibly expensive.
We don't think about the utility of what we are getting.
We are thinking about relative prices.
And one other example is something we call the pain of paying.
Imagine I owned a restaurant and you came to eat in my restaurant.
And I figured out that people eat on average 50 bites and pay $50.
And I came to you and I said, Because you are such a nice person, I will give you a
discount.
It will only be 50 cents per bite, half price.
And not only that, but I will only charge you for the bites you eat.
The bites you don't eat, no need to pay.
You will sit down and I will serve your dish.
And I stand back and take my pen down and every bite you make, I will mark a little
note in my notebook.
At the end, you will be charged only 50 cents only for the bites you eat.
How much fun will that meal be?
[ Laughter ] >>Dan Ariely: When I teach my Ph.D. seminar,
on the day when I teach them on the psychology of money, I bring pizza and I charge them
25 cents per bite.
And they eat such big pieces that they suffer.
They just try to maximize.
[ Laughter ] >>Dan Ariely: But in the process, of course,
nobody enjoys themselves.
Imagine you go -- another example.
Imagine you go on a cruise.
It is an expensive cruise to Alaska.
You can pay in one of two ways.
You can pay either the moment you get off the boat, or you can pay six months in advance.
Which one of those is the rationale thing to do?
The rationale thing to do is to pay the moment you get off the boat.
You get to keep the money for six more months.
You could get some interest maybe and so on.
But if you paid the moment you get off the boat, how much fun will the last day of the
cruise be?
You would probably spend the whole day in the buffet trying to amortize your investment.
[ Laughter ] >>Dan Ariely: Now, if you think about this
notion, this is really a notion about saliency of payment.
The idea is that every time you pay something and you are aware of your payment, your enjoyment
drops.
But if you pay in advance or you pay after the fact, somehow this association between
payment and consumption changes and, therefore, happiness changes.
Credit cards, by the way, are an amazing way to alleviate this association, to change it.
What happened?
You go to a restaurant.
How many of you -- imagine you went to a restaurant and you could pay with cash and with credit
card.
How many of you would feel slightly worse -- slightly more pain at the end of the meal
paying with cash?
Right?
Why is it?
It is because you know the price.
It is the same thing.
But when you pay and consume at the same time, your enjoyment drops.
If you just now are just signing and paying somewhere in the future, that's easier.
You disassociate the timing.
If you got a gift certificate, then, of course, it is really easy to spend because the money
is completely disassociated from the payment.
It is disassociated from the experience.
So as we build electronic payments, we need to ask ourselves, which ones do we want to
build?
Do we want to build things that would disassociate money from payment to a high degree and, therefore,
give people no guilt of spending?
Or do we want to associate?
The answer is actually quite complex because there is some things we might think that people
don't buy enough off and, therefore, we might want them to buy more of.
And there are some things we think people spend too much money on.
Imagine, for example, what happened with energy consumption.
Right now we have no feeling about how much energy we're spending, how much is it costing
us.
Imagine we went back to the old British system in which you had to put coins to operate your
heater.
How comfortable will your homes be?
Probably much less in the winter.
The moment we start associating payment and experiences, we start to think about things
in a very different way.
The issue of pain of paying also tells you something about what is a good gift.
Think about it.
What's a good gift to give somebody?
Mike talks about all kinds of gift.
What characterized good gifts?
One of the things that characterized them is something that somebody wouldn't buy for
themselves, which is a very strange category but it exists.
Imagine you walk down the street and you see a beautiful cashmere sweater.
And you go in the store and you put it on and it is a beautiful color and shape and
it's the right size.
And you look at the price tag and you say, I can't possibly justify this.
It is not that you don't have the money; it just seems exorbitant.
You leave it at the store.
You walk home only to discover that your significant other bought you that exact same sweatshirt
-- sweater from your joint checking account.
[ Laughter ] >>Dan Ariely: How would you feel, right?
Would you say, Honey, thank you very much for thinking about me.
I thought about it myself.
I decided this was not worth the price, please return it, and put the money back into our
checking account?
Of course not.
You would appreciate the fact that they bought -- they took away the guilt out of this purchase.
So if you think about this, money is really very complex when we think about it generally.
We think it is a really simple thing.
Because we deal with it all the time, we think we know how to deal with it.
It is actually quite complex.
And as we invent new technologies, electronic payment, mobile payments and so one, it is
really interesting to say what kind of future are we going to create.
Are we going to create one that gets us to give more money way?
Are we going to create one to gets us to think about our purchases, think about the pleasure,
have less pain of paying, more pain of paying.
I think it is an interesting question.
So that's for that.
[ Applause ] >>Dan Ariely: I do want to make one public
announcement.
We have a little confession booth, not in the main room, but the room behind it.
We are asking people to come and confess to some lies you've told.
We all tell some lies at some point.
And we ask you to come and share some lie that you have told before.
Something interesting, you have learned something from it, and so on.
And we also know a lot about public commitment.
So who here is willing to go later and tell a lie?
Come on.
Oh, in the back.
More.
Very good.
I have prizes for people who are willing to do it.
Anybody?
No?
I can't tempt you.
Okay.
I will tell you one little story about lying.
Maybe that will encourage you later to come check it out.
A guy goes to confession and he says, Forgive me, Father, for I have sinned.
And the Father said, What have you done, my son?
And he says, I'm 72 years old and I just had sex with two 25-year-old twins.
And the priest is appalled.
He says, 75 years old.
Just sex with two 25-year-old twins.
I want you to walk around the church 70 times and say 700 times Hail Mary and give $1,000
to charity.
And how long has it been since your last confession?
The guys said, I have never been to confession.
This is my first time.
He said, You're 75 years old.
You have never been to confession.
How can that be?
He says, I'm Jewish.
[ Laughter ] >>Dan Ariely: So if you are Jewish, what are
you doing here?
Why are you telling me?
He says, I'm telling everybody.
[ Laughter ]