>>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 --
>>Matt Ridley: If different if it's after Niall's talk and then after mine.
>>Jon Snow: So it's all about environment, which is --
>>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 ]