The Irrational Economy with Richard Thaler

This episode is brought to you by chat GPT. Hey, it's Bill Simmons from the Bill Simmons podcast. Have you guys heard about chat GPT work? It's the new way to use chat GPT for bigger multi-step projects. And when you need more than just answers, give chat GPT work access to your apps and files, and it can create real work documents like spreadsheets, slides, and structured reports. Get started at chatgpt.com by selecting work mode available on plus and pro plans. Hey everybody, welcome once again to the weekly show podcast with Jon Stewart. My name is Jon Stewart, and we're going to be talking, you know, this has been, I feel like the news of the world has so matched, uh, the, the climate here in the Northeast, which is dark and gray and apocalyptic. And this feeling that we are hurtling towards something just truly unimaginable and, and inexplicable. And it's why today I just don't even want to fucking deal with it right now. I, you know, in, in all these different ways, today's show is going to be, uh, slightly different. We're once again, every now and again, we'd love to bring on, uh, experts, uh, people of such regard and, and note, uh, to come and play with me, uh, like, uh, let's say a person with a cat and like a little string toy. Uh, me being, of course, uh, the cat, those, uh, individuals being the person. And, and today we want to talk about, you know, our ability as a country to fix the seemingly intractable systemic problems, more economic, and who better to do that with than an economist and an economist that, uh, has in some ways changed the way that, uh, economists talk about, uh, the incentives that go into our economy. Uh, he is a behavioral economist, which is something I didn't even know, uh, that there was, uh, but, uh, a brilliant thinker and another in our continuing series of, of, uh, brilliant thinkers. We obviously had Jeffrey Hinton on who explained to me in childlike terms, uh, what AI actually is. And I'm, I'm sure this guest will, will be no different. Uh, so I'm excited to get to it. Let's, let's jump in now. Richard Thaler. So ladies and gentlemen, uh, in our ongoing efforts to entertain and educate, uh, we once again are going to welcome someone to the program who is so, uh, accomplished and smart, uh, that it'll be entertaining to watch him play with me, uh, like a monkey with a small grape. That's right. Uh, our, our guest today, a professor from the university, uh, of Chicago and American economist, the founding father, one of the founding founders of behavioral economics and awarded a Nobel prize in econ in 2017, which I assume, uh, he will be giving to Donald Trump because that's where, uh, everybody has to give their, their Nobel prizes, but please Richard Thaler, thank you for joining us today. It's a pleasure, John. So most people think of economists as macro economists, micro economists, but there's this idea you, you sort of created this field called behavioral, uh, economics. So if you could just very briefly, and I apologize for the remedial nature of it, what, what is behavioral economics? How does it differ from what we consider to be kind of traditional economics and, and how did you even think of it? Yeah. So I'll, I'll use one fancy word. You may not know, which is pleonasm. Please. Pleonasm. Wait. What? Pleonasm. Wow. So there's a guy smarter than me named Herb Simon, who wrote a definition of behavioral economics and said, the phrase seems like a pleonasm. What is that? A redundant phrase, meaning what other kind of economics could there be? Presumably economics is about the behavior of people in markets. Right? Thank you. So why do we need that? Well, the reason we need that is standard economics leaves out the people. They're all about the markets. And then there are firms and workers and governments and countries and consumers. They're all people. You pick up a big economics textbook. You'll not see the word people. People. There are agents. And these agents are, they're kind of like Spock in the old Star Trek series. Logical. Very logical and maximizing. They're as smart as the smartest economist. So when economists make a model in terms of how a market is going to behave, the assumptions that they make are that the people that make up the model are logical, rational, and will behave in the manner that maximizes value in the model. Would that be right? Yes. And they do that in part because that's the easiest kind of model to write down. It works out simple. Right. I mean, suppose you tried to write down a model of John wandering through Costco, choosing the optimal stuff to put in a basket, right? I mean, no one can solve that problem. It's too hard. So you simplify the modeling task by saying, okay, he's going to choose the best bundle. And that, the math is easy. And then they add to that an assumption that people are selfish jerks. Because that- I mean- You know, I don't want to say anything, but that seems like a relatively simple assumption. Yeah. Okay. So the idea is, well, what if we introduce some people? Because there are people run firms, people interact in markets. In fact, more and more people are interacting in markets every which way you can- Sure. Right? You can bet on anything now. But how would that manifest? So if I'm- If I'm an economist and I want to make a model about, and I assume they model what would be the most efficient market for cereal, and they want to model how you would create that, how would introducing what you're suggesting change economic modeling, which I assume means you would be changing how policy is created, because policy, I would assume then, is downstream. Right. From economic modeling. Right. Good. Okay. So let's start with a simple experiment. Please. We go into a classroom. I actually brought a prop. What? A mug. What are you, carrot top? What are we doing here? Yeah. Yeah. I got a mug. And you're a professor. I got a mug here. All right. Now, so what we did was we go into a classroom and we put a mug. I was teaching at Cornell at the time, so it was a- Cornell and- Safety school. Let's just point out very quickly, safety school. All right. Go ahead. Yeah. Okay. William and- Sir? Sir? We don't have time for this. Okay. No slurs. So Cornell's a very fine school. Yes. So every other student has a mug sitting in front of them. Okay. And their neighbor doesn't get a mug. Okay. Okay. Now we have a market for the mugs. Okay. And we say, if you have a mug- If you have a mug, John, you can sell it. Here's a price list. If it's $10, will you sell it or keep it? $9.50. And then you go down until, okay, I'll sell at $8, but I won't at $7.50. Okay. All right. And then the guy sitting next to you doesn't have a mug. He has a price list. At each of the following prices, will you buy? Okay? So half the people are buyers. Half of them are potential sellers. Okay. So the mug's worth will be determined in this market. Okay. Now, what does economic theory say? It says the value you put on that mug should not depend on whether it's sitting right in front of you or on the desk next to you. Right? Mm-hmm. Well, it turns out, so the mugs are distributed at random. What we should see is, let's. Let's rank the people from highest to lowest on how much they like one of those mugs. The half that like mugs the most should end up with them. Yes. That's what traditional economics would tell you. Right. Okay. So about half the mugs should change hands. Oh, they're saying that, they're assuming that there is a rationality to people's affection for the mugs. Well, it's. Then it doesn't depend on- Or a randomized value. We did randomize. Randomize. Okay. Right? They were handed out at random. Yeah. And the assumption is that the value you put on that mug shouldn't depend on whether it's sitting directly in front of you or adjacent to you. Right. Or, in other words, whether you now own it. And that will be the key phrase. And we'll come back to that. Right. You do realize I am failing this class right now. No, no, no. John, you're asking. You're doing great. All right. All right. Here we go. At current grade levels. Yes, sir. A plus plus. Oh, that's very kind of you, sir. Do I have a mug? You know, you can buy one. All right. All right. I didn't get a mug. Fair enough. Okay. So what happens? The people who have the mugs really don't want to sell them. The people who don't have mugs aren't all that interested in buying one. There's no market. There is a market, but the people who have a mug demand about twice as much to give it up as the ones who don't have a mug are willing to buy it. Oh. So instead of half the mugs trading, we get about 20%. Okay. So what's the lesson? You know this old Steven Sills song, Love the One You're With? Sure. I call this the endowment effect. That if you're endowed with something, you want to keep it. You won't give it up. But you don't have it? Eh, you know, okay. If the price is right, I'll buy it. Right. This is a phenomenon we call loss aversion. That if you have something, you're going to fight like hell to keep it. Right. Right. Right. If you don't have it, eh, meh, it's a mug, you know. The mug experiment is the genesis of behavioral economics. If I can sum this up, because traditional economics would say half the mugs would change hands based on value and markets and how they should operate in terms of people that have something and people that don't and people that want it. But what you found is only 20%. 20% changed hands because of behavioral tendencies that were not included in the model. Correct. A plus. Come on, brother. 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But this stuff, magic spoon keeps you fueled, whether it's breakfast, late night snack, post-workout, whatever it is. Magic spoon. Look for magic spoon on Amazon or at your nearest grocery store. There are plant-based versions of the cereal as well. Even vegans get to feel like they had a challenge. You'll find vegan options. At whole foods or get $5 off your next order at magic spoon.com slash TWS. That's magic spoon.com slash TWS for $5 off. So this all sounds, if I may insane to me, because there could be somebody who is like, people have called me worse, a mug fetishist. But, uh, the idea that. The economics don't take into account because buy low, sell high takes into account greed. It takes into account. You're, you're trying to get value. It seems like basic economics does. Let me give you an example. Yeah. Suppose that your uncle, uh, gives you an inheritance. Sentimental. Is it a mug or is it something different? It's like a thousand shares of some stock. Okay. But my uncle gave it to me. Your uncle gave it to you. All right. So you send it over to your, uh, wealth manager or broker or whatever. All right. The thousand shares I got from my uncle. Yeah. And then the question is, do you keep them? Let's ignore taxes. Okay. Do I keep the shares or do I sell them? Or do you put them into a index fund? Okay. Well, economic theory would say. The fact that you, if there are no tax issues, the fact you got those shares from your uncle, you should, if you wouldn't have owned a thousand shares of that company before, you shouldn't now just put it in with all the other stuff. Don't do anything with it. Don't know. No, not just keep it. Oh, diversify the way you would everything else. So those thousand shares. So those thousand shares should be turned into some should be in higher risk. Some should be in, uh, medium risk. Some should be in fixed income. I should split that up in the manner that I would split up, uh, any asset that I have. Exactly. That's, that's what standard economic theory would say. Right. Standard economic theory says the best thing I would do is to do that. But behavioral economics says I won't do that for a variety of reasons. Uh, one being, maybe I'm lazy to. Being, maybe I have sentimental value to my uncle and therefore those thousand shares are the only thing I have to re to remember him by. Apparently I didn't take any pictures. I just have this thousand share inherited. So I'm, I'm not going to do that. And so the standard economics misses all those externalities that are part of the human condition and therefore their models suck. Uh, well, we'll not. Make a value judgment quite. Too pejorative, too pejorative. Too pejorative, uh, you can say that, but let, let me just add that. Notice one result of this experiment is people have a tendency to just stick with what they have. So if they got a mug, they're much more likely to end up with it than if they didn't get a mug. Okay. I see. Okay. Okay. Possession nine tenths of the law. So, and, and standard economics doesn't. Take in possession and, and how far would this possession theory skew economic models if they don't take it into account? For instance, I have a house. So the theory of economics would be, I will continue to try and get better, more valuable housing or a diverse rather than just holding it since I have it. Uh, yeah. And it's that particular house. So we call this status quo by. Bias. Okay. People have a tendency to just stick with what they have. Yes. A body at rest tends to stay at rest. Exactly. Do they really not take this into account in standard economics? That seems insane to me. Like, is that really something they don't, they don't consider? They would consider it if there's transaction costs, but in the stock example, there are none, the cost of changing a thousand shares of Google. Yes. And to, uh, put that money in to an index fund will cost you $10, right? So if it was an offer to buy your house, yes, then there would be costs to moving and pain in the ass, right? But for, for most things, the economist would assume that because the cost of switching things around is low, uh, we can ignore it. So how does this manifest in, in markets? Cause I want to, I want the, the reason why I want to talk about this and I'll, I'll give the broader example is, you know, things like climate policy or the ACA or those kinds of things, these are solutions to, because economics is in some ways, it's, it's the lubricant that we use to create solutions to problems or, uh, better conditions for people's lives and, and how that affects all that. And I think the premise here is that standard economics misses. And so the solutions that we design for the problems in our lives are ill-conceived. Great. So let's take climate change as an example. Great. All economists, including this one, think that the first thing we should have done when we figured out there was climate change is impose a carbon tax. Wait, most economists think that? Yes. May I suggest that that's incorrect? You may, but I'm included in those. Can I say why I think it's incorrect? Yeah, sure. So the minute you put a carbon tax on, people see their energy prices go up and you will no longer be serving in office politically. Okay, but all right, then we're in agreement. What I'm saying is if you're God or king or president and you could say, all right, what policy should we have, then the correct policy is the one that sets the prices to give people the incentive. So if we increase the cost of heating your home to reflect the externality, the cost you're imposing on other people, then you'll have the correct incentives to put in solar or insulate. Or switch to a heat pump or whatever. And so, yeah, we run a poll of expert economists every couple of weeks at the University of Chicago, and there is one on that. And yeah, everybody says, yeah, that would be the ideal policy. So they're saying a carbon tax would be the thing to solve the climate crisis because rather than changing the behavior, you have to make using fossil fuels, which are the driver of climate change, so much more expensive that it changes people's behaviors because they won't change behavior on their own. Is that standard economics or is that behavioral economics? No, that's standard economics. That's standard. That's standard. Feels behavioral, but that's standard. No, it's standard because it's just changed the price. And then the alternative is we say you're not allowed. We're not allowed to have, we can't have cars that get less than such and such gas mileage. Which we've done. We have, right. So we have lots of regulations. Okay. We essentially don't have a carbon tax. So the way we do it is, so standard economics, what they say is we have a series of either incentives or regulations. So it would sort of be a mix of subsidies. And regulations, and that is how we will manage the energy market while also keeping an eye on trying to reduce emissions. And that's how economists would design a program to solve it. So we've done that with, we subsidize solar, we subsidize electric vehicles, and we regulate the miles that they must get there. And they must have a catalytic. And they must have a catalytic converter, all that is what you would consider to be standard economic theory. No. No. So we're almost there. I am fucking this up. You are not. You're not. So what economists would say is we don't need all those rules and regulations. Just set the price right. But doesn't the market set the price? Isn't that free markets? No. The carbon tax will automatically raise. It will raise the price of a Hummer, of operating a Hummer, because it only gets eight miles to the gallon, compared to some EV. So we don't have to regulate. All we have to do is get the price right. That's standard economics. And then the market will change. Then the market will change. But isn't that just an intervention? How is that a market? That's just the government saying, if we set a price that is unreasonable, the market will behave. It's just setting the price so that you have the incentive to act in a way that's best for society. But that's not economics. Economics doesn't take into account what's best for society. It takes- Yes. Yes, it does. Yes, it does. What? Wait a minute. Wait a minute. Let me- Hold on here. Economists know about externalities. Now, here's the point I want to make. Yeah. We don't have carbon taxes. Why? Yeah. Because, and you started with this, so you got to the answer right away. You got to this because people hate taxes. They hate high prices. So what do we have? We have lots of subsidies. Yes. We have no taxes. Well, we have, and that's not exactly, I mean, we have gas taxes, like if you go to California, it's very different than buying gas in New York or very different than buying gas in Minnesota. That's right. All right. But even in high gasoline tax states, the taxes on emissions are still way too low compared to what they should be. Compared to what they should be if our goal is to reduce carbon emissions. Right. But that's not the goal of economics. The goal of economics in a capitalist system is to make the most amount of money for your shareholders. So my point is, since when is economics about improving the human condition and not just making money for the companies that are extracting the fossil fuels from the earth? Isn't that, everything else is interventionist. Okay. So I did not anticipate that my role here was going to be as the defender of the economy. My role here was going to be as the defender of neoclassical economics. But here I am. Oh, we're here, baby. I am here. All right. And you know, my economist friends will be proud that I'm defending them. All right. Beautiful. So look, there's an economist named Arthur Pigou. Oh, Pigou's work is, I'd never, I don't miss an essay. Yeah. So no, he's died a hundred years ago. Oh. So, but- That's what I meant. Anyway, there are Pigouvian taxes. So in any economics textbook, it will say that if you're causing some harm, then the way to fix it is to charge you for the harm you're causing so that you will decide just the right amount of harm. Does. Are you familiar with the 2008 financial crisis? Well. Because that is not what happens. Okay. Now, I'm not saying any economist thinks that we have these optimal policies. What I'm saying is- That's how it's supposed to work. That's the way any economist basically would have advised, you know, take any council of economic advisors before this one. Because they always had real economists. They would all be saying something similar to, well, what we really should do is this. But then they would say, but it's true, boss, that people hate taxes. And if they're Republicans, they really hate taxes, but we all hate paying taxes. And so we'll subsidize EVs. We won't tax Hummers. And we won't tax gas. And we won't tax. Right. So. And that all goes back to the mugs. That it's because we hate losing more than we like winning. So what we'll do is we'll have all these policies where we subsidize you to do the right thing as opposed to penalizing you via pricing. Right. So we'll have all these prices for doing the wrong thing. Folks, do you love coffee, but you think the names are lame? Sanka. Maxwell House. Lame. I don't want to drink. I don't want to drink somebody's house. 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That's $60 off the Ninja Luxe Cafe premiere series with code Stuart exclusively on sharkninja.com while supplies last. This is the problem. That we get to then with economics, because let's say we'll bring it back to climate policy. Yeah. What I'm suggesting is all. All markets are designed to some extent. We sort of have this fiction that we live in a free market where it's only the rules of supply and demand and that our policies have to, you know, basically give way to these market forces that if left to their own devices will solve these. What I'm getting at is government intervention in markets is seen as a negative and paternalistic, anti-capitalist movement where muckety mucks and elites design systems that are not as efficient and functioning as capitalist markets. But we all know that that's a fiction, that we intervene in markets all the, you know, the big thing. The government's not supposed to pick winners and losers, but they do it all the time and they've done it since time immemorial as governments. Okay. So there are two different issues here. Putting a tax on a bad like pollution isn't interfering with markets. It's making the market efficient in the sense that the price people are paying reflects the cost they amass. And it's not picking winners and losers. It's picking, there will be losers, people who like to drive gas guzzling cars will lose, but we're not aiming it at them. It's a free choice. No, they won't lose because let's say that's because they have the money to burn. It doesn't affect them. In other words, the downstream cost of. The pollution that they create won't affect them because they are buffeted either by geography or wealth so that the tax itself is. No, but look, let's think of what we did. What did we do? We subsidized EVs and who was the beneficiary of that? Mostly rich guys. But we also, the EPA regulated what you could put out into the environment. I mean, that's how we got cleaner air when the government regulated. What you could actually do. That's true, but the choice to have subsidies and regulations, it benefited some companies versus others. I mean, Tesla was a big beneficiary of this. No, I'm saying government always picks winners and losers and then pretends like that's something that they can't do. Right. Well, but Donald Trump's a great example. He's like government can't pick winners and losers. Oh, Nvidia, I'll let you sell chips to China if you give me or Intel. How about this? I'll take 10% of your company. Like, I guess what I'm saying is, aren't we all operating under a fiction? And if we were more, if we were more honest about the way economies worked, we could be more honest about the way we solve some of these larger scale problems. So, OK, you're skipping one step ahead. I don't want to do that. Take me back. Take me back. So, in a world where we don't know any of the people in any of the companies, so we're back in the world of inside an economist's head. We just have, there are firms and there are people and there's something people are doing that causes harm to others. The solution to that, that all economists agree to is put a price. Put a price on that bad and then let the market clear and the people who produce bads will suffer. And if they're poor, they'll suffer more. But that's true of all policies. And that part is uncontroversial. I'm not saying that's a world we live in. In fact, my point is. So, economists don't live in the world that we live in. No, no, they live. They would say this is. They would call this a first best, meaning if they could design everything, that's the way they would do it. They would try to make the prices reflect the harms that are people causing and then let the chips fall where they may. That's very different from giving contracts to your buddies. Which, you know, has been going on. At the local level. As long as there have been. Politicians and buddies. We've just taken it to new levels. Is the idea of behavioral economics to help economists get more grounded in what the actual externalities are? Is that the point? Because the way you're describing. Economists and the way that they talk about the economy seems utterly removed from from reality. To some extent. No, no. Okay. So. Here. Here's the worst student you have ever had. Oh, John, you are so far from that. These are very good questions. All right. Let's get to it. All right. So the point I want to start with is economists don't have a good answer to the question. Why do we have only subsidies? Rather than taxes, because as far as economists are concerned, they're the same. It's just a sign. If we subsidize the good thing or tax the bad thing, uh, you know, if there are red mugs and blue mugs and the red mugs in their model, they see no distinction between a subsidy and a tax. And what you're saying is a tax is actually much worse. Than a subsidy in real world economics, because people view losses as more damaging than wins, which is the subsidy. Perfect. You nailed it. All right. So if, if we're trying to understand the world, it's important to understand this thing about losses and about status quo bias. That the people tend to stick with what they have. And we can use that, uh, to help or hurt people. So how would you taking behavioral economics, staying with the, the, the climate model, if an economist would say it really makes no difference whether you do a tax or a subsidy, but very clearly we only do subsidies. So somebody must understand the political realities of all this. How would a behavioral economist stop? Because here's, here's what. I'm trying to get to we've understood since the seventies that, uh, the world is warming through our climate policies. They've had Kyoto treaties and, uh, they've had giant conferences every year where everybody flies private jets to discuss how we're going to change fossil fuels. And they all work through subsidies and caps and cap and trade and net neutrality and all these different goals and things. And nothing. Nothing has really changed. We've made certainly advances in solar and wind and batteries and EVs, but the energy needs of the world continue to spiral and AI. And my, my point is everything we've done has been utterly inadequate. And I guess I'm trying to figure out what are we misunderstanding about the solutions? And how can behavioral economics give us a better angle on it than the standard economics and the standard political realities, which have failed us? How would you change the way? Okay, good. Yeah. So what have we done? Some, um, almost God, almost 20 years ago, I wrote a book with Cass Sunstein called nudge. Yes. And I remember nudge. It was, uh, a book about. How we can help in this kind of situation. And so here's one, one example, all right, we're in this world where gas guzzling cars are too cheap and we'd like, we all would like to put a tax on that, but we can't. Well, one thing we can do is we can put labels on the cars telling you how much it's going to cost you to operate a car. And we can put labels on the cars telling you how much it's going to cost you to operate a car. Mm-hmm. Mm-hmm. Well, that will help a little. Right. Like a food labeling will help you with health. And if people see like, oh, this car is going to cost me $6,000 a year to buy gas for, this other car is going to cost me $3,000 a year to buy gas for, that's a piece of information that will help me make a decision. And that decision, we think, will also be better. It will be better for the environment. And so those are little things, nudges, that move us in the right direction. Right. Another example is you probably get a utility bill that I'm guessing you personally don't look at. Oh, I look at it. Every day that tells you how much energy you use compared to your neighbors with a similar house. Oh, you're going with shame, shame. You're going with better economic benefit and then also shame and no and patting on the back. Ah, right. Yeah. If you've put in solar or a heat pump. All right. Oh, John, most guys with McMansions like yours. You are misunderstanding my neighborhood, sir. They would in no way. They'd be like, what are you, a pussy? What are you doing over there? Okay. So in any case, my co-author, Cass Sunstein, was the so-called regulation czar for President Obama for a while. And his job was to make sure all the regulations. The regulations that were being passed did more good than bad. A series of nudges that would incentivize people through a variety of psychological, some would say, manipulations. But understanding that, that could drive our economy incrementally to a more positive climate future. Let me ask you a question. Yeah. Are we in a nudge economy or should you write a book called Shove? Because. Because, you know, it feels like the incentives and subsidy taxes are all inadequate to address the reality of people's behavior and the totality of what we face. Why aren't we redesigning the entire systems? So nudge has two sets of critics. Okay. One would, you could think of as complete free market guy. The other one is that saying, go away, let markets do it. But they live in La La Land. Yeah. Then there are the others saying, come on, we have to tell people what to do. My next book should be called Shove. Yes. Let me. Yeah. But you go ahead and then I'll explain why I think I'm different than those two. But go ahead. There's at least one of my colleagues has written such a book. And I will point out to that person. And you. Yeah. That if we're in that world, sometimes Trump is president. So if we want to design a system where the government just tells us what to do, as opposed to nudge us, wouldn't that be worse? Well, first of all, the government tells us what to do all the time. I mean, any regulation and all those kinds of things. No, no, but you're saying we should. Shove. Shove. We should shove. Let me explain what I'm saying. All right. So when I say shove, I don't mean the government saying to people, you are not allowed to use this much electricity or you are not allowed to use this much gas. When I say shove, it means understanding what the 10,000 years of human endeavor and progress on this earth really means. We are a species that if shit's easier. We will do it that way. Like the horse didn't go by the wayside of the car because, you know, of anything other than like, wait a minute, I can get there in half the time and not have the smell of horseshit done. Like we are incentivized to you've given me a product that makes my life easier. We don't care where the electricity comes from. When I say shove, it's this. It's stop thinking incrementally about the subsidies. And the thing people want the convenience that modern life has provided them, whether they live in the global South or whether they live in our thing. And shove means these incremental systems and with all its political peril and all those things aren't what's actually going to solve the problem. Shove means looking at mitigating the damage that human beings in all their greed and convenience. Uh, need. In other words, shove is not telling people what to do. It's getting scientists to help us clean up this mess, meaning, uh, carbon capture or other types of, uh, models, because what you won't be able to do through a series of nudges is make people not want the most efficient, convenient, cheapest thing that they can possibly get. And anything that doesn't take that into account is naive. So I'm not suggesting a paternalistic government that decides, oh my God, climate changes and we've got to be better people. And how do we incentivize everyone to be better people? I don't think you, I mean, my view is you can't, you actually need to think completely differently and create a model that creates. All the incentive to invent the new technologies to solve it. If the carbon prices are right, then people are going to pour all kinds of money into. That's only one way of doing it though. That's setting the carbon price is not necessarily the only way to do it. The other way to do it is create a market for mitigation. That's what I'm saying. It's not just about carbon. There will be a market. There's a market for mitigation, but if, if it doesn't cost you much to emit carbon, then people won't buy it. No, it's not that people will buy it. It's that you need, uh, you need to create a market for profit for, for companies, not people that, that John. Am I, am I nuts? Uh, yeah. Yeah. Yep. Yep. You know, what's interesting about the avocado, uh, and I've never really thought about this, but when you cut it open, you get that perfect little scoop with the little indentation. Have you ever thought to yourself, I bet that's comfortable to sleep in almost looks like a body shape where you could just lie there. And that's the genius of our, uh, uh, sponsors avocado green mattress. It is. They've taken the beauty of the. The restful beauty of the inside of an avocado and turned it into a mattress. It's not made of avocados. Obviously that thing would spoil and got 30 seconds, but it's called avocado green mattress. They sell mattresses, pillows, solid wood furniture. What more do you need? And no pits. It's all made from materials designed to support healthier living and more restorative sleep made without the harmful chemicals. Can actual avocados say that? Probably not. They only use certified organic, non-toxic materials. They even have sleep trials, you know, of up to a year to make sure you get the best mattress for you. Uh, avocado green mattress. It is, uh, it's brilliant. Avocado dream of better. And now they're having a great sale on mattresses. Go to avocado green mattress.com slash TWS to get up to 15% off avocado green mattress.com slash TWS for up to 15% off mattresses. Avocado green mattress.com slash TWS for up to 15% off mattresses. You want to have it both ways. When are your office hours, professor? I'm coming in there. This grade, C minus. Come on, man. Man, you know what? I've given you office hours at 8 a.m. California time. This is the first time I've ever had office hours at 8 o'clock in the morning, John. Sir, point taken. And I have a long career. Point taken. Objection sustained. You know, you have office hours any time you want, but it's going to be starting at 10 my time henceforth. Works better for me, too. So let me move to one direction. Yes, yes, yes. GPS. Okay. If you have to, you do leave home occasionally, I hear. Pretty occasionally, sir. Yeah. That's not a ton. Yeah. You know. Pretty comfortable. Before we get off the topic of status quo bias. Yes, yes. You know, some people have called me the first clinical economist that I feel. Because of the psychological aspect of what you do? Yeah, yeah, yeah. Okay. I think there is some danger you suffer from status quo bias syndrome. Oh. Tell me more. You know, I'm always up for. Having a new illness. Yeah. Doesn't like leaving home. Yeah. No questions asked, though. Starts every show with some left-handed scribbling. Yes, sir. It looks sort of panic. Oh, by the way, if anybody would see it, there is no artistry there. It is really. You know, Brittany and her team. Yes. Are producers. Yeah. Yeah. They tell. They tell me that there's a lot of status quo bias syndrome in our boss. You're saying inertia. There's a lot of inertia. Yeah. Yeah, yeah, yeah. I got you. I got you. And I would add continuing to root for the Mets for. Oh, sir. Yeah. No, I'm. If you're saying that I somehow seem to be in love with the type of pain, you know, yeah. Masochism runs in my family. I'm going to get in a lot of trouble for the following statement. And then I will move on. Yes, please. I don't think there's anything wrong with firing your team. Oh, sir. You're treading on very dangerous ground right now. I also grew up in New Jersey. This type of heresy, sir. Galileo. Galileo was killed for less, sir. Yeah, I know. I know. We could both. We may not want to air this episode, you know, but because I think we both could get burned at this. Not at all. Not at all. But I grew up in North Jersey. But so I grew up a Yankees fan. Yes. In the Mantle and Maris glory years. Sure. And then I grew to hate George Steinbrenner. And in my class on managerial decision making, I had one of my rules. Don't be like George Steinbrenner. Fair enough. Okay. You're saying don't go to jail for any violations of certain. No, I mean, don't hire and fire the same manager three times. Okay. But George Steinbrenner did win championships. He did, but not in a way that. You enjoyed. Or I approved of. Okay. And so I fired the Yankees. All right. And I'm just saying you should, you know. Yes. But after you fired the Yankees, they apparently still had a job. So what I'm saying is that firing has no impact. Look, my son suffers from this. When he was a kid, he fell in love with the Dolphins. Oh, great. Great uniform. Dan Marino. I'm assuming that was the Dan Marino era. Great uniform. His wife and two daughters. Yeah. You know, they live in San Francisco. They all adopted the Niners. And they have to put up with that turquoise and orange. Yeah. You know, the costs he's imposed. So is the point you're making here, if I may, is the point you're making that I am not giving humankind enough credit for an ability to adapt to understanding that the long-term harms that our short-term actions are taking are damaging us. And that if I'm just nudging them enough, we will understand that the short-term pleasure is not worth the long-term harm. No. I mean, what I was just doing is giving you a little shit. But let's get back to climate change. Yeah. GPS is my favorite kind of nudge. And I have geographical. I'm sort of geographically dyslexic. Right. And GPS has, like, saved me. I can wander around in a strange city and find my way back to my hotel all by myself. Normally, I need my wife leading me by the hand. Yes. Now, and my motto, my mantra is design policy, make it easy. Yes. That's my mantra. Make it easy. You and I are agreeing. Okay. And you can't tell people to go back to paper maps because – so let's say we found out that GPS emits something through the towers that they use and the satellites that is heating the environment. Nudging people back to maps isn't going to work. And so what I'm saying is you have to create shoves that create new avenues and new incentives. That allow people to still enjoy the benefits of that progress while mitigating the – you have to look at – We don't – nobody's required to use GPS. But it's better. It's – exactly. Right. That's my point. And oil and – like, energy is better. People need energy. And a lot of the suggestions from governments is let's use less. Okay. So bear with me, John. Yeah, please. Let's switch to a different problem. Let's do ACA. Let's do healthcare because that's another one that I think in terms of its incentives and subsidies. Yes. But it's nudging a broken system when we should be shoving. Okay. So let's go there by way of retirement saving because I – Yes. Okay. Let's do it. Because that one, we did a little thing. All right. So one of the problems economists ignore is that people have – People have self-control problems. You know, we're fat. We drink too much. We don't save enough. Dark vision. We, you know, look around. Open your eyes. Social security was kind of a way to mitigate that, no? Yeah. But it's – it works pretty well for one segment, which is people who have regular low-paying jobs. The replacement rate is kind of okay. But if you're in and out, not so much. And for the upper middle class, social security isn't enough really to live on. And the – we used to have these old-fashioned defined benefit pension plans that guaranteed you. You had to pay an annuity depending on how much you made and how long you worked. And they got replaced with these 401k things. Right. And those pensions were generally matched by employers. And they were part of the responsibility and compensation package that you would get from the old world of you went to work at a factory and you left it 45 years later. Right. And you just – you had no decisions to make. And with the new 401k, you had to join. And decide how much to save and how to invest. And that was hard. Mm-hmm. So – and a lot of people in the early days of these didn't even join. And the company was matching their contributions. It's the dumbest thing. It's turning down free money. Mm-hmm. So how did we – I'm not going to say fix this, but improve it? Mm-hmm. One thing we did was we said it used to be – if you wanted to be in the 401k, you had to fill out a form. We said, okay, let's change the default. People are good at doing nothing. So we – You're not a fan of people, sir. We go back, rewind the tape to the diagnosis of John, right? Yes. Okay. So you got – now get – Yeah. you now get a message saying, welcome to our firm. we're going to enroll you in the 401k plan unless you fill out this form. Right, right, right. So you made it so that the opt-out took an action, whereas the opt-in did not take an action, therefore incentivizing the opt-in, which is the better outcome for people in terms of money. Right. And incentivizing costs just by changing the box, right? So again, regular economists would assume it doesn't matter what box is ticked. Would they really? Like regular economists don't take into account pain in the ass, like that level of it? They would say the cost of ticking a box versus 6% of your salary? I mean, really? Here's what I would say. Businesses understand that. That's why your credit card bill is unintelligible. Like when you read all that fine print, you have no idea what you're reading. And that's purpose obfuscation. It's purposeful. They understand that people aren't going to wade through that. They're not going to understand that, wait a minute, after six months, this goes up to 21%. They understand how to manipulate us all the time. Absolutely. All right. We are exactly on the same page. Yes. The system is designed to exploit us, and people don't have an ability to understand that because of the way, the system is allowed to be designed. Right. And look, making it opt out is good for people. And we improved pension plans just by switching which boxes ticked. No, that sounds like a very smart move. But, of course, companies learn the same trick, not from us. Or at least I'm not taking the blame. Reverse engineering, of course. Nabisco makes chips that they design them so that they're almost impossible not to eat. You get fat, and then Big Pharma makes GLP-1s, and that makes it so that you control your appetite. So then Nabisco has to engineer that to get past. I mean, this is the cycle of exploitation. And, I mean, that's, again, that gets back to the incentive here is greed. That's what we're doing. And that's why I'm saying, nudges sometimes are inadequate, and shoves, yeah. Okay, I totally agree. So far, the only thing we disagree about. Mets, the Mets. Yeah, okay. The two things we disagree about. How long do you think it's going to take you to cook dinner tonight? What do you think it's going to take, 30 minutes, 60 minutes? It takes me about four hours, because I like to have it roasted by the sun's heat, and put the ingredients together and just lay it on a windowsill. And whatever happens, happens. That's why I'm always hungry. But Factor is bringing you deliciousness in two minutes. Two minutes. Factor meals are already made. Chefs designed by dieticians delivered to your door. You just heat it. Two minutes. Not by the sun. However you heat things. They got proteins. They got veggies, healthy fats, no refined sugars, no artificial sweeteners, no refined seed oils. Seed oils. Choose from 100 rotating meals every week. The meals are fresh. They're never frozen. There's no prep. There's no cleanup. There's no mental load involved in getting a healthy meal. Head to factormeals.com slash TWS50off. And use code TWS50off to get 50% off your first Factor box, plus free. free breakfast for a year. That offer's only valid for new Factor customers with code. Qualifying auto-renewing subscription purchase. Make healthier eating easy with Factor. The two things we disagree about are the Mets. Yeah. And whether getting the prices right would be sufficient. So let's look at the ACA. Because the whole idea there is if we create a market for insurance, we'll get the prices right and we'll subsidize for the people who can't because to get the market to be efficient, we need everybody to be in it. And to get the insurance companies to allow everybody to be in it, we're going to have to make sure that we subsidize them because the markets include people with pre-existing conditions or people who are not healthy and the insurance companies don't want to deal with that. So we do little nudges. You can check this box because it's a very complicated market. And I look at that and think we are papering over a broken system with nudges when we have to shove ourselves into what makes the most sense for health care, which every other developed country in the world has already realized, which is free market incentives don't work in a system with those kinds of externalities. Health care is not, will never be a function of health care. It's a functioning market and the system is designed to exploit people's need to not die. And by creating the ACA and all those other things, we're papering over what should be the reality of the system, which is centralizing it is the only way to create something that will efficiently help people not die. That's where I would crystallize my argument. In all of this. Right. And obviously, we're going to have no listeners left if we, if we, we don't have, yeah, all right. Yeah. If we go all the way down that path, here's what I will say. I was actually in the White House while the catastrophic website that was being designed for ACA, crashed on the opening day. Somebody was designing that. And I was talking to somebody. I said, could. Wait, you were in the White House while that was going on? While they were not, while it was crashing. Before that, when somebody was designing it. And I said, oh, can I go talk to that guy? And they said, oh, yeah, go, go see that guy. And they show me some screenshots. And, uh, so here's what in a behavioral economist thinks about, um, they had to, somebody had decided that the plans should be grouped into categories and the categories should get labels of metals, like platinum, gold, silver, bronze. Oh, sell like timeshares. And so. And so I said, what, what, um, why, why should we do this? And, uh, I never got an answer of what the theory was for why, uh, I think the theory is like credit cards. Like you get a platinum, you get a black card, you get a, you know, one is basic. One is got some frills. The other is free drinks and food. Right. Yeah. But then down at the bottom, there was another category and it didn't get a metal. It was gold. It was called catastrophic. Hmm. I said, wait a minute. So catastrophic policy is one with a high deductible. Hmm. It only helps you if you really, if the shit hits the fan. Yeah. But economists, a lot of economists would say that's probably the most efficient policy. But my, my comment to these guys was, wait, you're not calling one of the brands catastrophic. Right? We've got platinum, gold, bronze, catastrophic, and they say, yeah, well, that's what economists call those plans. But my comment would be catastrophic is how I would, uh, categorize the choice to treat healthcare like it's a product that companies like health insurers haven't already figured out how to exploit. Right. That's what they're trying to do. They're trying to do. They're trying to do it. And they're trying to do it. right that was good it's better no no no i'm not saying there isn't goods to be had okay through that but if all right that's point one let me say this are there still people who go bankrupt because they get sick have we fixed the problem no we have not no we have no people that that okay all right so here here's my don't let don't let perfect be the enemy of good is the point yes and if we're striving for perfect you you're absolutely right john that there are vested interests the hospitals the insurance companies the doctors that don't want nurses to be able to do a lot of stuff and pharmacists are the most over-trained people in the economy you because they end up working in some god-awful walgreens or right uh meanwhile it's the benefit managers that are making all the money because they're the middlemen setting the prices right if we but if we allow ourselves to be satisfied by these incremental positives and not let perfect be the enemy of good don't we lose sight of don't let insane be the enemy of of sane or don't let sane be the enemy of insane like if we have a system that is like blatantly insane aren't we yes you make all these improvements i'm not suggesting that there will ever be anything that's perfect but if we continue to accept such a broken and corrupted system as our only option is incremental improvements within that aren't aren't economists and policy makers and everyone else robbing us of an opportunity because sometimes you need to to to view it on not to go with the other terms of economics but the macro not the micro right so what i would say is you know mark cuban has a little company that sure it's very smart very smart but why doesn't the government do that well because all of the vested interests but that's my okay well but that's my point okay but look suppose you say medicare for all medicare for all that want it yes great well then right so language matters sure and having a system that people can buy into anybody that wants to join a system so that you remove the possibility of going bankrupt because you get sick to me is like the baseline of a healthy society well so i would i would go further yeah my plan would be if we're going to start with something i wouldn't start with that okay i would start with a catastrophic insurance for free for everyone okay now we're getting somewhere that's what i'm a behavioral economist i'm with you baby all right you've graduated let's go let's oh he was so close he was he was almost there you know so we you know we can't we can't ignore the the all all the vested interests no but they're the ones we should be nudging and shoving not consumers i think we're always shoving on the wrong end of the horse well but the problem is that there's all those vested interests have lots of money right and they support both parties and they they will uh make it difficult but that's the job of of governance i would say here's what i would love for economists and behavioral economists i think could play a big part in this is to help us understand that you know the founders looked at the system and said there's going to be a balance a power checks and balances between the executive and the judiciary and the legislative but there's another power and that's corporate power and it's really the fourth branch of government and maybe one of the most influential branches and the only thing that we have in this country that is powerful enough to in any way mitigate that is the government and if the government refuses to take a courageous stand in mitigating that damage the damage of green you know i remember alan greenspan was on my show in like 2008 2009. it must have been exciting oh it was tight he was only at that time i think he was nine he was 98 and he might have been 103 at that time and uh i asked him you know the financial crisis of 2008 like what the hell happened and he goes i think we overestimated the bank's ability to regulate themselves yeah and i was like do you mean you were idiots because that's insane well you know but we look we we look at it and we're like what the hell is going on in this country the fed the fed is probably the you could argue the best functioning branch of the government and uh certainly you can argue it's got the best uh at least right now the best trained people working for them and it's a well-functioning branch of the government and uh you know that may all change i think i think i believe the plan is already in place you know knock down the east wing of the fed and listen you know you know uh our our uh we have a mutual friend austin goolsby i love the goolsby you know and he's the president of the chicago fed uh come on i love goolsby yeah tell him i said hello tell him to come on this show well right now uh he's in the fed he's not allowed to talk much yeah and anyway it's tough on him he's funny you know he's actually really funny no he's very funny yeah uh no i like goolsby so where were we we were tearing down the fabric of uh capitalist institutions and reforming them the problem is we wouldn't know where to start and there there is just the you know if mark cuban can't do it i mean i don't know just any one step so like my version of free catastrophic for all i think is a good place to start but it wouldn't eliminate the power of the american medical association to limit what physicians assistants can do and the insurance companies and i understand all the benefits of the insurance companies and all the benefits of the insurance companies and the benefit managers and all the layers i i it's above my pay grade to think about and you know what it's it's a great place i think uh to and i've so appreciated your time and your office hours you've been so generous with them and uh you know i was taking this thing pass fail anyway so the idea that you gave me all this time no no i don't allow pass fail what no no i am i'm not going near you man but you know uh there's great non-disclosure that's where i'm at so let's do that let's do that yeah okay but i think the point that i think maybe i love coming to is this i love the idea of those really smart incentivized nudges and those things but not allowing that to remove our higher aspiration of actually looking at the logistics and the guts of something and and you know i think that's a great point and and getting systems that are not as exploitative that you know government has to have a larger role in mitigating the damage look capitalism is the operating system we have yeah but it's clearly not a free market it's intervened in by governments and all kinds of other corrupt actors and the crony capitalism that goes along with it and my point is let's continue to do those really smart things that you're talking about but we cannot lose sight of the larger goal which is to that a government has to be there to help mitigate the collateral damage that the operating system we've chosen to use often creates yeah and uh we'd need we need another show john to figure out how to get there oh but we will we we can yes we can the audacity of a hope baby yeah oh yeah you're a good man professor thank you for for joining us professor richard taylor university of chicago and uh one of the founding fathers behavioral economics the 2017 nobel prize in econ which is uh sitting on donald trump's uh fireplace mantle as we speak but it's up for sale up for sale up for sale for whoever wants it you know what and and you can get that and a cornell mug i'm assuming for just seven seven dollars more or a nudge mug there you go excellent product placement thank you so much professor thank you john pleasure to meet you pleasure to meet you too hey folks it's quince time today's sponsor quince helps you forget about all the fashion nightmares quince they bring together the premium materials the thoughtful design the quality you stay warm you look sharp you feel your best each piece made from premium materials by trusted factories that meet rigorous standards for craftsmanship and ethical production but they cut out the middleman oh i know i don't like middlemen do you like middlemen maybe you're a middleman maybe you do like middlemen but you cut out the middlemen and you cut out the traditional markups quince delivers the same quality as these luxury brands at a fraction of the price refresh your winter wardrobe with quince go to quince.com slash tws for free shipping your order and a 365 day returns now available in canada too that's quince q-u-i-n-c-e.com slash tws free shipping and 365 day returns quince.com slash tws man my favorite part of the interview if i may yes was how slowly he talked to try and i really felt like it was i think he was about like 10 minutes into it when he was like hmm i'm gonna have to change my tact here because little brain it's not no yeah i don't think he was expecting that conversation my favorite part was when he psychoanalyzed you i think that was the first time that's happened on the pod that is right i gotta tell you though he kind of fucking nailed it i mean they don't give out nobel prizes for nothing you know no i thought he i i thought he did an excellent job did any of that resonate though with you guys i think i i get where he's coming from with that idea of like don't let perfect be the enemy of good but i don't know that they if it's not to suggest that incrementalism isn't still a part of the equation of course but i don't know if they understand the general frustration within the public 100 i thought it was incredibly illuminating that a conversation that was so about health care his grievance or what his brain went to was the categorization of shitty plants like not having those categories explaining in really big print exactly what these plans do does not mean they don't all suck still yeah i think it's like so if economists argue that you should choose the catastrophic plan because that would be optimal and then behavioral economists argue we need to change the name because because people don't know what they're doing and they don't people aren't choosing the most optimal plan then we need to find someone that will argue that the problem is actually that the most optimal plan is a plan that you will go broke if you need to use like that's the real problem here that was trying to explain like aren't you just like polishing turds at that point but i i mean i i get his point that there is like you you did help some people but i think sometimes that gives you license to ignore the larger totality of climate change health care of but by by incrementalizing you also are forgetting that you all you have to maximalize as well big structural change thank you well i was thinking a little bit when you were bringing up the subsidies that's a shove right and if we just think about the subsidy itself this the shove is even small in comparison to what we should be doing we take into account the fact that you know we have a lot of money that we spend and we don't have a lot of money that we can spend and we don't have a lot of money that we can spend and we don't have a lot money that we can spend and we don't have a lot of money that we can spend and we don't have a lot of money that we can spend and we don't have a lot of money that we can spend and we don't have a lot on it hey it's a continuity issue behavioral economics status quo thinking nice i feel bad like i feel bad not bad but i mean he's a superstar but bad bunny like the shit this guy's he reaches the pinnacle of his uh professional career and a kind of global superstar to get the uh opportunity to do a halftime show the guy's clearly a fucking extraordinary musician and entertainer who's earned this place and the idea that he's facing a backlash my favorite backlash to it is see you know he's got to get a fucking american in there and you're like uh yeah read a fucking book right oh yeah yeah the jillian sigh tells us all we need to know it drives me crazy i love bad bunny like oh he's gonna kill it i can't wait that's why i'm tuning in the game's gonna be a blowout he's wonderful he just won two grand three grammys sunday night right um plus he's really hot so really he has kid rock beat in that element for sure yeah wait so the bad bunny also has a little bit of a machismo a little bit of a vibe going oh yeah interesting you know but to be a musician versus a comedian you know this this comedian it's never done about comedians it's always musicians people love the it's something with the the hips not lying uh well listen uh very very lovely guys uh thank you once again britney how do they how do they stay in touch with us for all this uh twitter we are weekly show pod instagram threads tiktok blue sky we are weekly show podcast and you can like subscribe and comment on our youtube channel the weekly show with joan stewart and instagram baby if you want to see all of my nasal pores join me on my page uh thank you guys so much lead producer lauren walker producer britney memedovic producer jillian spear video editor and engineer rob vittola audio editor and engineer nicole boys executive producers chris mcshane and katie gray we will see you guys next time the weekly show with john stewart is a comedy central podcast is produced by paramount audio and busboy productions this episode is brought to you by chat pt hey it's bill simmons from the bill simmons podcast have you guys heard about chat gpt work it's the new way to use chat gpt for bigger multi-step projects and when you need more than just answers give chat gpt work access to your apps and files and it can create real work documents like spreadsheets slides and structured reports get started at chat gpt.com by selecting work mode available on plus and pro plans Paramount Podcasts