>> Hello, welcome to this week's Office Hours.
Thank you Dan for joining me again. I'm glad I did not scare you off last
time. >> You did not, and it's a pleasure to
be back. >> Excellent.
And thank you guys for submitting such awesome questions.
I have one of the best problems in the world now, which is I'm faced with far
too many to choose from. And, it's been very difficult.
So, keep submitting them, and I will keep asking Dan questions.
so Dan, let's start out with, a conversation about free.
You talk about the price of free in your lectures.
And, the students, not surprisingly, have made this connection with Coursera,
itself being free. So I have a bunch of questions about
that. first, how does that fact that this class
is free affect the number of people who take it seriously?
>> So free's a very interesting numbers, a very interesting number, and
lots of things happened when, when free's kind of introduced.
So, sometimes there's something that we know the quality of, a particular piece
of chocolate, a particular book, something that you know what the quality
is in advance. And then the free doesn't necessarily
have an effect on our perceived quality, but it does make us want it much more.
So if you think about your favorite. Brand of ice cream, let's say Ben and
Jerry's, you can ask yourself how long will you stand in line to get the free
ice cream from that particular make? And most people say for quite a long
time. The moment something is free, a known
quality, we really drive toward it. With Coursera there's another thing,
which is Coursera was introduced at the free price.
And most people have no idea what the quality is, what to expect.
And now free is not only an attractive price, we can also draw an inference
about what is the expected quality. And what we know is that the moment you
give people something for free, there's a chance, something they don't know about.
There's a chance that they will perceive the quality to be, to be low.
So, I think that this is something that Coursera really needs to think about is,
how do we not create this expectation of flow low quality?
Actually, if I was advising Coursera and of course, they're not asking me for my
advice but if you were asking me for my advice I would say, this is not free.
This is something that has a substantial cost, but for the first year, we're going
to reduce the cost. Or for the first year, if you the
students will give us feedback and participate and so on, we will waive this
back. So I would have tried not to come out
with, kind of, take advantage of a real free, no price.
But not give the perception of free. And then finally there's the question of,
what is a free to barrier of entry? So if you think about money, monies also
can be used as a gauge of seriousness. Now it's all not only a gauge of
seriousness but that's part of it. So let's say this class was $10,000.
Few people would say that this is a reasonable price because they're so
interested in that. And then as you lower the price, more and
more people would, would enter. But there's a kind of a, a question about
what causes people to enter the course. And in this case, free would get the much
bigger group of people. And then there's the question of, once
people have paid something. What will they keep on doing.
And from this perspective I think there's a, there's a bad cycle where if you pay
nothing for something, your level of seriousness is likely to be lower.
And there's this beautiful paper by Hal Arkes.
And what they did was they this was in Athens, Ohio.
Nothing bad about Athens, Ohio, but the winters there are kind of gray and
miserable. And local theater, which is quite good,
is selling seasonal tickets. And some people pay the full price for
the seasonal tickets and some people pay a vastly discount amount for the seasonal
tickets. And the question was, how long, you know,
how long will people still go to the theater?
And what happened was that in the beginning of the season, the people who
paid more were more likely to go, the people who paid less, were less likely to
go. Basically the payment, when people paid
in advance, they looked at the weather, they say it's a miserable weather, but I
paid for it, I might as well, go. Where as the people who paid small
amounts, were much less likely to go. If you paid nothing, probably nobody
would have gone on those miserable days. But what also happened is that over time,
this gap decreased. And at the end of the season it didn't
really matter how much you paid, nobody went on these, on these miserable nights.
So, guilt of payment causes us to behave a certain way, but over time guilt
diminishes. So I'm answering, it's a long answer
isn't it? >> Yeah, but so do you think that if
students paid for this course they would be more motivated and actually perform at
a higher level? >> I think if people paid two things
would happen. We would lose some of the people who
would, who joined but not really interested.
So there will be some self selection process and that could of even happened
if it was $1 or $10 and so on. And some people just say hey, you know,
it's free to join. Let me, let me just join, what, what's
the negative part and, have you joined any Coursera classes and never took a
class? >> At least 20.
[LAUGH] >> so, so I think that's, that's one,
that's one thing. So we would have, from a self selection
perspective there's a, a group of people who were never really serious.
And signed up, but don't really intend to and if we had a price for doing it.
But then, the people who paid, I think the payment would have caused them to
become more serious. And if I, again, were designing this, the
system, and I was going to try to maximize that, I would have reminded them
every, every time. So imagine every time.
Before a lecture comes up, we will say you paid for that lecture.
It's your money, if you want to get your money's worth go and watch it.
Maybe I would have taken their payment, not all up front but I would have
committed them to the class for six weeks.
I would have committed them to six installements.
One two coming out of their bank account two hours before each lecture.
Then they would have reminded, being reminded about it, and there's a good
chance they would try to get their money's worth.
But, you know, it's, it's also an interesting kind of educational question
of what is really our, our goal. Is our goal to provide the resource for
everybody that wants to? Is our goal to help people do things in
the way that we think is better for themselves.
Kind of fighting through procrastination and decision.
It's our goal to just you know push the information down peoples throat's.
I, I'm not sure about that one yet. >> Alright, now it, it's definitely a
complex question that we're still still thinking about.
so, in terms of the, the whole Coursera process and creating this free product.
It is not free in terms of what we are doing and you know, Duke and you are
swallowing a lot of the. >> And you.
>> Well, yes. >> Sure, I was trying to be humble.
we're swallowing the, the cost of production.
so how sustainable is this kind of model when students expect it to be free?
>> So I don't think it's sustainable. So we did the calculation and we kind of
tried to estimate how many hours we put into this and our estimate so far is
about 3,000 hours. So, we put 3,000 hours into this.
It's, it's our time, Duke's money, I mean all kind of things.
Coursera, I don't know how many hours they put into developing the system and
so on. And I think lots of people are doing it
because it's exciting and interesting and new.
And one of the reasons we decide to spend so much effort into is when we decide to
try it out for real. We felt that if we were going to do
something that is just me talking in front of a camera, that might excite my
mother and maybe my sisters but that's about it.
but if we try to edit and create a animations and try to explain the
concepts and shoot some skits and so on. We felt that you know, TV is successful
partially because they spend a ton of time and thought about how things are.
And online education is partially hard to make online education fun.
But partially the production value is very low, and, and we decided to try you
know, we don't go all the way to what TV does.
But we try to do as much as we could to give it a real, a real go.
but if we thought about kind of a 3,000 hour investment in a class.
And a continuous desire to keep on changing it and improving it, learn what
works, what doesn't work and so on so. Maybe every year we would not need 3,000
maybe we could settle for 1,000. I'm, I'm not sure what it is.
It, it's hard to imagine that something could sustain 10 years of that.
volunteering is a wonderful thing but, but at some point somebody will have to
get paid. At some point Coursera will have to get
paid. At some point universities have to
supports the mission, you know, the, the online part is given for free.
The people who actually attend university and pay for the buildings and the
equipment and so on, that's, that's important.
So I, I don't know how it would look at the end.
I think there would be some people who would keep on producing stuff on the,
from the kindness of their hearts and I don't know how sustainable this is.
So the question is, whether ten years from now we'll have lots of classes that
were new ten years ago and then nobody is working to maintaining them.
Or will we have this reinvigorated approach?
Now I. we've done this Beginner's Guide to
Irrational Behavior. Would we do Advanced Guide to[LAUGH]
Irrational Behavior, you know? can we, can we afford to spend another
chunk of time like this on, on the next version?
Not, not clear to us because we have all kinds of other things to do including
having to pay the bills for the research center and so, and so.
I worry about this. I think that online education is a
fantastic endeavor. It's a fantastic gift for the world, but
I think that starting it from this free perspective and creating the expectations
that this should be free. And people would start getting used to it
as their right to get education for free. is going to be a substantial challenge,
and I'm not sure Coursera could ever get out of this.
I mean, once, once you start charging nothing.
How, how do you switch the amount of organizations that have been able to have
transitioned. It's not very high and it's not good to
mean there's a good path for, that's how I truly were.
I think we should give it a go. We should try and develop the community,
become better at it and so on. But can, can Coursera find this useful
financially it is to return their investment and can universities who are
participating find this useful? I'm not sure yet.
>> Right. And, it, may, maybe is there another
solution that doesn't depend on the students paying?
But maybe crowd funding from other people who want to donate money so that less
privileged people can have this same access to education?
>> Yes, so I think one, one model is of course the subsidy model, where you
charge the students who can't pay and subsidize the people who don't, who don't
pay. >> Pay what you want, pay what you can,
that sort of model. >> Pay what you want, pay what you can.
>> there's another of, philanthropy. would somebody like The Gates Foundation
fund some, some classes that they're interested in.
Would, would particular philanthropies pay for it in, in that, in that regard.
You know would, would Coursera keep on operating because somebody would pay to
keep the lights and the engineers and so on.
there's another question of whether we want classes to be paid in advance or
after the fact. So payment is often a function of what we
feel is right and moral. so when we ask ourself, you know, if you
go to a restaurant and at the end of the meal, the waiter said, you know what,
just pay what you want. Most people would feel really bad paying
nothing. They'd say, I've eaten this pasta and
this fish, and I've eaten this dessert and.
I know that I cost people money. It was their time and they cooked and so
on. You see the time invested and you would
feel really bad paying nothing. But if it was an online experience, you
sat in some Internet cafe and all you did is to consume information.
You read the New York Times and you watched some Coursera videos and you
listened to some music and so on. And then they said, pay as much as you
want. I don't think anybody would feel guilty
about not paying, because all of this information has a zero marginal cost.
Once it's been produced, the cost of distributing it is very low.
And Coursera is the same thing, once we finish these 3000 hours, well.
>> By the way, 3000[CROSSTALK] hours are just the video lectures.
[LAUGH] >> That's right.
>> That's a lot more. >> Yep, but wh-, it's true, Coursera
has some ongoing costs our talking, responding to the students and so on.
but, but the, the basic perception is that once you've finished the outside
investment. the pro-, the, the distribution cost is
zero and another student joining us doesn't take any of our cost.
So, the marginal cost is zero. So, so, when marginal cost is zero.
People don't feel guilty about not paying.
So imagine two models. One is that we go to the students.
And we say hey, we're going to do this class.
But we need x amount of money to cover the cost.
Only if you pay us up front we will do it.
So if they kick start a model in which you pay up front.
I think that way actually people would understand what the contribution would be
translated. Whereas if it was after the fact and the
class has been created I don't think people would feel the same way.
So one version for Coursera is to do a up front investment for Coursera to come to
the community, and say look, we're giving this platform, here the real cost of
class. If you're willing to support it in
advanced. Good we'll do it, if you're not we're
not. And this way I think people will
contribute more. I think the model in which people
contribute after, pay what you want, is going to be a bit, a bit tougher.
Philanthropy is possible and then there's advertising.
And, you know we can ask our self whether we want.
The classes to be supported by advertising.
I saw a few classes already. >> Really?
>> Are sponsored by, they have sponsors.
On the sign up for. >> On Coursera.
Yeah, and these are some of the classes
I've registered for and haven't taken yet.
>> [LAUGH] Which you shouldn't do, by the way.
>> [LAUGH] Don't do it. [LAUGH] But, but I think this is a, you
know, we need to ask ourselves what, do we want it?
Do we want that model? Do we want the site of the videos to be
for? At, at the end of the day, some money has
to change hands. >> Someone has to pay for it, yes.
>> Somebody has to pay for something and the question is how do we want it?
And, I think it's kind of a precious social commodity that we have that you
know not we or I have created. But, people have created this amazing
space for professors and students to get together and, and create material for
education have discussion learn something.
And we need to think about, how do we want to think of it as a, as a social
good. And if we each just shirk from our
responsibility, the odds are that things like advertising will have to happen.
But is that really how we want this to work?
I don't think so. So I would like us to be a bit more
proactive in figuring out another approach for payment.
>> Yeah. And what about after the fact?
If you made the costs more salient. How could we do that now since we have
already created this thing? >> Yeah so, so if we have tried to, to
create it I think if we basically took your salary eh.
And we made it salient for the students that unless they pay you're not going to
get it. So said here's Aline, here's how much
work she's put into it. And by the way, you know, she hasn't been
eaten I think for, for a while >> I haven't been eating.
That's true. >> If you wanted to eat here is, here
is the cost. I think, you know, the chances that the
students would have kind of overall emotional connection with Coursera is a
little lower. I think the chances the students will
have an emotional connection with the particular people who are helping them
out is a little higher. So I think that if we put, and, and I
don't think people want to pay for things like overheads and cameras and buildings
of Duke. But I think paying for salaries of the
individuals who are putting their time and effort and so on, those will be more
palatable. So maybe we can --[LAUGH] we can try --
>> Pay for my dinner, guys. >> If you do a particular job, maybe
you'll get a drink as well. >> Oh, excellent!
Look forward to that! OK.
So, you talked a little bit about why you're doing this but it seems unlikely
that it's just pure altruism. Yeah I know.
>> Unlikely why? Because you know me to well?
>> So this is from the students, not me.
yeah, why, why are you investing so much time and resources into this thing?
Why is this important? >> So, just, I spent a ton of time
trying to, spread the world, the word out.
I do we do lots of research on irrationality and I want people to know
about it. I want people to make better decisions.
I want organizations to make better decisions.
I want government to make better decisions.
And this is just one other way to try and get the word.
The word out and you can think of it as altruistic but also you can think about
it as selfish. I spend so much time doing the research I
wanted to have some outcome. I think about each research papers like a
kids. Something I spend lots of time and
thought and consideration and there's a particular finding in an inside and I
want that. Kids it's paper to have, to have a life.
This finding to have a, an existence. And, you know, maybe, maybe it's
altruistic. Maybe it's selfish.
you could, you could do both. the second thing is that I, I'm an
experimentalist in both eh, prac-, in, kind of what I do in for life.
But also in my, in my nature. And this was kind of a new opportunity to
try and learn something new in a new way. and I'm just curious about the answer.
So, part of it is that this, this for me is an experiment.
it's, it's a new experience. It's trying to figure out how will it
work for me, and how would it look like, and how would people react?
And what are some of the unexpected things that would come out of it and
there's a lot of unexpected things coming out of it.
>> [LAUGH] Right. Right.
It's not a very controlled experiment but[LAUGH] Yeah.
>> It's not. It's, it's a controlled, it's a
non-controlled experience. Maybe experiment is not right.
It's a colloquial world in way of using experiment.
But it's a, it's a new experience that i'm learning a lot from.
And learning some of the challenges, and some of the great things about it.
>> Cool. Yes, I agree.
so, in terms of opportunity cost, since we're talking about online education
versus you know, a, a Duke education or some other higher education.
Do you think that spending $50,000 or around that much a year is actually worth
it to students? >> So first of all, I mean, worth it
depends on what your opportunity cost is. So, so if you have no money for anything
that wouldn't be. Number one priority.
And so I grew up in Israel and I did my BA, my first degree, in Isreal.
And Isreal is very different in terms of education from the US.
First of all, people go to the army for two or three years first so everybody's a
little older and there's also no, almost no dorms.
So people are older, everybody lives in town, and people come to, to the
university a little bit like work. They come for the classes and then
everybody because also their older, they have a job.
So there's a real job that you make money on and then there's your part-time job
where you're being a student. And, coming to the the US, there's some
incredibly interesting about, being in an academic environment, all the time.
living with your fellow students. Being with it all the time.
Living in this, in this world. And I believe it is a incredibly
precious. institution that have been created mostly
in the originally in, I think, mostly I mean the British in, in the US have the
some of the best. Structured around this where life is
really all about academia. And if I think back on my BA, when I had
to juggle working and University. And how much time do they really have for
discussions around things. And meeting the people I studied with and
so on. I, I feel I kind of gotten eh, the short
stick of it. And if you think about 4 years in a life
that lasts maybe 80, and most of it is after school.
And I, I think it's an amazing investment.
Now, is it an investment that everybody will know what they got from it?
No. is it an investment that you would be
able to, will be useful for everybody? Probably not for everybody.
But what is the value of one good idea, what is the value of delving a little
deeper into something? I, I think it has tremendous value I, I
remember taking my fourth class in statistics in, in grad school, and it
was, so I took a few classes as an undergrad.
And then I, I took a lot of classes in, in gradschool.
And there were lots of material that we went over before, and there was lots of
material I knew. But never the less every time the
professor said like one sentence, that stayed with me for now 20 some, some
years now. I think of this as the difference between
being an amateur and a professional. And you know, I sat in these three hour
lectures of statistics and maybe two hours and forty minutes were not very
useful and twenty minutes I learned something incredibly important.
But some of those stayed with me for 20 years and shaped my understanding about
statistics. so i think being kind of immersed in
academic environment, gives you more chances for that to happen.
Now can you count on it, can you plan on it?
I think I think that's tough, but if you try to juggle work, like I imagine
somebody watched the Coursera videos and just fast forward things.
>> [LAUGH]. >> Just to make it as fast as possible
as efficient as possible. I think the chances of having a real
insight, and a real moment that will change what you do is much lower.
You really need the time and space and the camaraderie to think, stop, reflect
and so on. So, all our education is a great one
step. But I think that what people can get from
being immersed from four years in a good academic environment all the time.
Sleeping, eating, talking, going to classes, complaining.
I mean whatever it is I, I wish I got I got, I got a chance.
I get a little bit of it, 'cuz I get to be a professor and I get to talk to the
students and so on, but I would have loved to live on campus.
I would have loved to have the rest of my life around this for at least a few
years. >> And what if we could build real-life
communities sort of around this class, all around the world?
it's not in the university itself, but it's, it's about the class.
>> I, I think something where the class doesn't end, but carries over to the rest
of life would have been incredibly useful, particularly for topics like
this. So if you think about it, you're learning
a little bit about human psychology and there's the question of where does it
benefit you life or what can it benefit other people in life.
How do you understand things better? And so I can imagine some classes where
it's about the class itself and you're learning and it might have little less to
do with your regular life. But to the extent that it can carry over.
I think it would be incredibly useful to have the way to experience the class in
other places. So, you go to work, and you get to
reflect about how some of the notions about labor and how the notions about
altruism reflect on what you're doing right now.
And basically you stop, and you say, so how is that concept related to what I'm
experiencing. Something here, is there something I
could improve, understand better and so on.
I, I, particularly for classes like this I think it would be incredibly use I just
don't know how to do it. >> [LAUGH] Yeah, well we can try.
We can definitely keep trying. so you mentioned a little bit that
opportunity cost is going to depend on how much money you have in your wallet.
How, how is there any research showing whether people with less wealth think
differently about opportunity cost? >> Yeah.
So, so this is perhaps one of the the saddest papers I know that came in the
last year. And this is a paper that combined two
things. It combines the notion of depletion and
the notion of opportunity cost. [UNKNOWN] gives this very nice metaphor
of a suitcase. He says if you're a wealthy person it's
as if you have a big suitcase. You pack for the weekend you can throw
things in you can take things out no problem.
If you're poor you have a small suitcase to start with you don't have space for
everything you need. And then every time you change your mind,
something has to come out. And maybe you have to rearrange
everything in the suitcase. So in that particular research project,
what they've done is they got people to have lots of tradeoffs between their
decisions. And what they saw was that the more
tradeoffs you have, the more difficult it is to make the right decision.
People basically become tired, exhausted, depleted, and it's harder and harder to
make the right decisions. And sadly, they show that even if you
give people the opportunity to borrow money, what do you think that does?
Ideally if you can borrow money it increases your flexibility, allow you to
make better decisions. But it actually makes people work, make
worse decisions. Why?
Because if you're thinking about the tradeoffs you're making.
But now you also have tradeoffs between now and later, because you could borrow
money to have interest rates and so on. That actually increased the cognitive
load. So, so the finding is, that people who
are poor are much more aware of their opportunity costs.
Because if you take the bus you can't buy coffee.
If you buy sandwich you can't buy something else.
These trade offs are much more clear but those trade offs are much more exhausting
for them mentally. And as they make more and more of these
decisions it's harder for them to resist temptation and to fall for all kinds of
mistake. So, realizing opportunity cost sadly has
this element of burden of choice. Which means that you have to make these
trade-offs and then all decisions just become that much more difficult.
So, so, I think that's a very sad thing. on.
There's another kind of positive side, and this is just kind of personal
observation, is that when I talk to people who make money by the hour but can
also control how many hours they work. For example, imagine that you're, a
carpenter and can decide how many hours to work and you charge by the hour.
And those people have a different way to think about opportunity cost.
You can say to yourself should I work another three hours in order to go for
dinner? Or should I work another 30 hours to get
a new bicycle or something like that. Those people don't use money as
opportunity cost, they use hours of labor.
And that seems to help them make more rational tradeoffs between, between
things. >> Very interesting.
All right, let's switch topics. Enough of that.
a few people have asked about animals and, their similarities or differences to
us. Do we find irrational behavior, in
animals? Yes, so[COUGH] so animals do show some
irrational behaviors. For example, there's some research on,
Context effect, both in some birds and also in bees.
and if you remember this story about the asymmetric dominance, the question is,
how do you make choices between two options?
And what happens when one option has a similar dominated option next to it.
Making the contrast between them seems more salient animals make sim-, similar
mistakes. So, you add the decoy option in animal
show off with that. animals don't make all mistakes that we,
that we make. For example, if you think about
dishonesty we all have a tendency to fib a little bit, to tell white lies and so.
Animals don't have white lies they also don't have guilt in the same, in the same
way that we, that we do. Lori Santos has actually shown very
nicely that even monkeys are influenced by advertising.
she basically created advertising in which she paired particular foods with
advertisment. And she showed it after awhile of
advertising exposed, being exposed to this advertising the animals were willing
to exert more effort to get that. in very, very general terms there's lot
of different nuances. I would say that decisions that are based
on emotion, very primitive basic and so on, are irrationalities are similar.
To the irrationalities of the animals. But things that depend on the neural
cortex, things that depend on our incredible ability to think, as some of
those will make more decisions, mistakes, and some of those will make less
mistakes. For example, the fact that we have really
good memory to things that happened in the past.
Mean that if we made one wrong decision in the past, we could remember that.
Let's say we don't think of it as wrong. We just remember making a decision and we
can reply time after time after time. But if we didn't have such a good memory
we would not remember the decision. We would have a follow up effect on our
behavior. So, it's a mixed blessing.
I think there's some things we're more rational.
Some things we're less rational. In animals I think there's a great, set
of topics there. Maybe we'll explore it more, in more
depth one day. >> Sounds good, sounds good.
Now, I have another animal-related question to you.
>> Animal-related, okay. >> Animal-related, yeah.
No peeking. [LAUGH] Would you rather fight a hundred
duck-sized horses or one horse-sized duck.
>> A hundred little horses? >> Little mini horses.
>> Well not that many, but the size of
a duck. >> OK the size of a duck.
>> Or one huge. >> One huge horse-sized duck.
>> So. >> It's a really big topic these days.
>> A big topic, really? >> Yeah, actually a couple students
submitted this same questions. >> Wow.
So, so I think I would go for the one big one.
And in my, my reason is that I, I think that my skills are not really in my
technical ability, like I think cordination, like fighting lots of things
that coming around. I think I would get confused.
I think my attention, my ability to spread attention around, all kinds of
option is not a tie. So I think if I would be attacked by all
kinds of[UNKNOWN] I don't think that's my strength.
I think I would be better, just me personally, I think I would be better
thinking about one particular enemy and try to outsmart them.
So I think that given my. With your co-coordination, but my general
overconfidence about my intellectual ability may be one big duck is better
approach fighting one things. also I think, you know, given my
attention isssues, I think 100 little things running around, that would be
really tough. >> Do you have attention issues?
>> What did you say? >> Oh God.
Next question. Let's talk about anchoring.
one person is wondering how discounts work in terms of anchoring.
So let's say you see something that's on sale it's severely discounted do you
anchor to that sale price. And the next time you go to purchase the
same thing you are not willing to pay full price when it's no longer in sale or
how does that work? >> So this calls generally work on, on
this principle so you logic is to anchor on the original price and you see that
discount is something beneficial you know.
From a rational perspective, why would you care that somebody, something is on a
sale. Right?
When something is on sale, it tells you it used to cost a different amount in the
past. Why could you possibly care, the only
reason you care, it gives you a relative price.
You say, oh, I don't know if this is a good price or not, but relative to this
price that happened to be in the past, irrelevant as it is, this is a good, this
is a good price. and in general, people keep on having the
old price as an anchor and the new price is just a deviation from that.
And if you get people to believe that this discount is temporary due to their
particular skill, due to some coupon due to something else.
That doesn't make the new discounted price the anchor.
But if you keep on doing it all the time, then there's a chance that this will
happen. And people would expect at least that
discount. And that's actually a lot of what happens
in the fashion industry. During the financial crisis, so a lot of
the people in the fashion industry discounted heavily and kept those
discounts just to keep people coming in the stores.
And now it's really hard for them to get over that.
So if you want to have a discount, the discount can't be permanent.
For, for the anchoring. And you have to, you want to try to give
people a reason why this discount is just for them or just temporary.
And therefore you could actually delay the condition will become permanent.
But at some point it can become permanent.
And cars in the US, for a long time American cars used to give people a
rebate. the Japanese car never, never did, and
what happened was that people just stopped buying cars unless they had
rebates, just the American companies. It was not a discount anymore.
This was the price. You expected a particular rebate, people
just be, became the standard, and I think it's, it's importnat when people think
about pricing to say, okay, is this a new price I want to establish for a long time
or just something for the short time. And if it's for the short term think
about this anchoring very differently. >> Right, okay.
Now let's talk bout the pain of paying. So how do you think that using a,
different country, a different country that you're not from.
Like when you're traveling for example, a cash currency there might affect your
pain of paying. So does it matter whether the exchange
rate is high or low? Or is it the fact that it almost feels
like token because it's a, it's a different form.
>> So, so I think both of them are true.
So I think the moment you change your money to something that looks funny, like
Monopoly money ,it feels very different. In fact, that's, that's how casinos work,
right? So when you come to a casino what they
want you to do is to take a big pile of cash.
Give it to them, or credit card even better, and then you get tokens.
Why, why with tokens? Because it separates you from the money.
You basically said, I've decided to lose all of that money that I'm giving you.
Now all this money has been allocated to this category of losing, and now let me,
let me do that. So I think when foreign countries are
basically like casinos. And if you use the same procedures in
casinos if you come in and you give them a lot of money you get back funny colored
money and then you use it. And then if it has crazy numbers and you
don't think about the conversion like you know, 100,000 viewers or something like
that. If you don't think about the conversion
or it's difficult mentally to think about it just feel like you're spending and
spending and spending and you don't feel the pain of pain.
And again this is just subjective, but my students when I ask them tell me that as
well. When you get back to the airport, flying
to the US, for example, to your country of origin.
And you have some of the local currency left, people feel very comfortable just
spending it, buying all kinds of things that they wouldn't buy.
Otherwise, and of course you can go back to your home country you can change it
back to whatever your currency so dollars in our case.
But, but you don't feel like that's needed because that money is a social
with that country is connected to that and spending it feels, feels much easier.
Now one thing you could try to counteract it by using a credit card which keeps you
connected to your regular procedure or translate everything to current money.
But, you know, you can ask yourself whether this is one of those cases where
you want to feel the pain of paying or not.
If you want to feel the pain of paying then do those things.
You'll feel worse and you woldn't spend as much.
But if you want from time to time to let loose and relax and just send money and
enjoy your vacation maybe you. Should use the casino approach.
>> [LAUGH] Sounds good. How do you feel about greed?
Is greed good? >> Is greed good?
No. so.
>> Elaborate. >> Elaborate.
Okay, so, so I think when people say greed is good I think what they mean is
motivation is good. They mean that you want people to work
hard they want people to strive. And they think that the motivation toward
money is the perfect motivation to optimize the social goods.
So, this a I a very simplistic way of fly if it says.
>> If I design your incentive structure such that you wanting to make the most
amount of money would align your efforts to being the best with what I want to do
then greed is good. So imagine I took your salary and
imagine... >> There's a lot of focus on my salary.
>> [INAUDIBLE] But imagine if we took your salary and we basically connected it
to all kinds of outcomes. How do the Coursera class look like and
how is our research going and how is the lab being managed and so on.
The idea of greed is good is that you will now be motivated to maximize your
money and because moeny is connected to all those things that are part of your,
your, your job. You will maximize that, and, and that's
really what people mean. What people mean is that ideally we would
want you to be motivated to do those things because they give you intrinsic
pleasure and so on. They don't but if you want money and we
can align your goals with money everything would be good.
I think the problem is that we have never found a contract.
We're maximizing the financial[UNKNOWN], maximizes what people actually want from
you. So, if I wanted to write a contract that
would maximize you're contribution to our research in the university and Coursera
and so on. I don't even know how we would write
that. I don't even know how we'd do it.
And the problem is that every time I would write a particular contract, you
might be able to maximize the terms of the contract without maximizing the
actual goal. So let's just take Coursera for example.
If I paid you based on how many students took the class, you would probably find
lots of tricks to get more people to sign in the class but in no way improve their
education. So, so, I think that when people say
greed is good, I, I think they stick to a very simplistic notion of economic
behavior. For example, if you're had a very, very
simple job, like layering bricks, and I say, I can pay you by the hour and by the
structure and so on and I could define exactly the work.
You wanting to get the most money could actually get you to lay more bricks
correctly. But when you deal in the complex work
setting when people have complex difficult questions and what exactly
needs to be maximized is hard to write in a contract.
I think what he does Is it focuses people on the part of the contract that
maximizes their money but not necessarily the, the benefits.
And there's, there's this example that Barry Schwartz gave, which I love, he
said, if you wrote a job description for a janitor, what would those things have?
And what he basically says is that you would try things like taking out the
trash and cleaning rooms and so on. You will never find something that says
if you found something that the light bulb is broken you would get somebody to
fix it. Or if you found a, a patient who's
screaming for, screaming from pain you would tell the nurse.
Or if you found somebody who fell from their bed you would help them.
And this I think is, is one of the things that when we think about labor, we have
this incredible simplistic notion of people in the labor, in the marketplace.
But when we stop and we think, what do we really want?
So, so again, taking you, if you thought about a research lab and you say, what is
the mission of the lab, and how do I maximize it, and how do I help the
initiative. You would probably be able to say both in
advance and every day what would be the things that would actually help the lab.
But if I try to create a contract for that, and you adjust for the contract, I
have a very hard imagining that that would in any way improve the functioning
of the lab or improve our reseach output, educational output and so on.
So I, anyway, did I answer this more or less?
>> Yeah, no, I. >> Multiple times?
>> Over and over. No, it makes a lot of sense.
Who's going to go above and beyond when you're being measured by doing the
basics. >> One particular thing.
>> Exactly. >> So thank you for that response Mr
Dan. Now
>> Professor. >>
[LAUGH] No. [LAUGH] Technically.
When does delaying an experience bring more or less satisfaction?
So, someone provided the example of I am really looking forward to eating this ice
cream cone. And, and I'm also getting some pleasure
out of the expectation of that >> Yup.
>> Ice cream cone. and how is that different between things
that we're not looking forward to? Things we want to get out of the way.
>> Yup. So this is about eh, dread.
And anticipation. And actual experience.
So, so imagine experience. Eh, usually we think about, you know, how
much pleasure do we get from that experience?
But we actually need to think about three parts.
We just say, what happens before the experience?
Either anticipation or dread. What happens during the experience, and
what happens after the experience? And to try to think about what kind of
things would actually maximize our happiness with life, we really have to
think about these three periods. So George Lawthorne gives his example of
a kiss from a movie star. And he says, imagine if you have your
favorite star and you can get a kiss from them right now or in 2 weeks.
The kiss is the kiss, the kiss is probably going to be a kiss just like a
kiss that you would get from anybody else that you don't know.
But in one case you get to have anticipation, in the other one you don't.
Which one is better? And I think this illustrates quite
clearly that there are some things we should actually pay to delay because the
anticipation will be higher. >> So people do prefer to wait?
>> People do prefer to wait. They recognize it.
What's also interesting is that people have a hard time paying for it.
They just don't think it's right to pay for a delay even though it would increase
your enjoyment. And then there's the period of time after
the offense. And when you think about it, we all have
experiences that we didn't enjoy at the moment but we reflect back on them and
say these were defnining moments of my life.
Some vacations are like that. At the moment they were not that much fun
but you've learned a lot or you reflected on things and so on.
and those, and those are great great moments.
So, so as we plan our lives it's actually important to think about both of those
elements and perhaps even the least about the actual experience.
'Cuz imagine you get to anticipate something for two months.
You get to experience it for two or three days and then you get to think about for
the rest of your life, maybe thirty years afterwards.
What, which is more important? From a time perspective, you should
probably think about the time after first because it's the longest, the
anticipation next, and the experience the least.
>[LAUGH] So if we could just wipe out our memories and replace them with better
ones? >> Well that's, but, but, but if you
have, the better memory you have, the more you should think about that, that
period. [CROSSTALK] The period.
The memory afterwards. And the better imagination you have, you
probably should think about anticipation, >> [LAUGH] up front.
by the way, one of the problems with anticipation is that reality doesn't
always confront to our anticipation. And then you could create exaggerated
expectations. So we need to worry about that because if
you create very high expectations and reality is not fitting, that reality is
actually going to be very, very disappointing.
The good news is that even if reality is disappointing later on when you remember
it you might reconstruct it, not to remember how disappointing reality was.
>> That's nice. Some of us are very good at that too.
[LAUGH] >> [LAUGH] Yeah.
>> so Dan, what do you think about library book fines?
Are, is this an effective way of getting people to return library books?
>> Yes, so library books are kind of very good from their pain of paying
perspective. You pay by the day.
that you're late. It think it's very, very painful.
in the olden days when there were video stores.
lots of people would tell me and I did the same, that sometimes we could rent a
video for two nights or sometimes for one night depending on the video store.
And sometimes people, me too, would rent the video and didn't watch it.
And then we would return the next day unwatched.
[LAUGH] >> [LAUGH] You know, just not to pay
the fine. Now at the end of the day, we would take
it again. At some point.
but, but kind of paying the fine. It seems unjust.
And it seems our fault. So the pain of paying that is very, very
high. So I, I think it's actually an effective
mechanism. I think the size of the penalty doesn't
have to be very high. Also on the days when Netflix had lots of
DVD's Netflix would send DVDs and you could keep the DVD for a long, long time.
Part of it was that you didn't see the opportunity cost so if you rented a video
from a video store. And you rent for two nights.
If you kept it for three days, you would know, well, my goodness, I'm wasting
money for every day. But with the Netflix model, you pay a
monthly fee. Now every day you kept a DVD, you gave up
an opportunity cost of not watching another DVD, or not sending it back.
But it was just not as salient, so people, people kept DVDs for a long time.
Now, some people again, told me that after a while when they kept the DVD for
so long. They would just mail it back unseen just
because it just felt like this DVD was sitting here for three weeks.
Watching it is just going to remind me of the wasted money I had.
I don't want to see it. Maybe I'll get it another, another time.
So there's lots of tricks like that, and If I would create the ultimate library.
I think I would create, low penalties, that would come frequently, and people
would, could not avoid paying attention to those.
I think that would probably maximize. the return of library books.
I met recently, by the way, the, the head of the library for Canada and I, I, had
all kinds of suggestions of what to do with libraries.
But among them, I told, I want to encourage people to write in the book,
and she just thought that was, evil and stupid at the same time.
but, but I think, you know, electronic books and, and physical books are very
different in terms of the physical reaction.
I'm not sure I want people to, you know, highlight and do stuff in the book, but I
think as an artifact a book is an interesting thing, right.
You say, who else have touched and how is it passed through the community.
And we have actually with physical books we have a chance to be connected to other
people in the community. Every time we borrow a book from the
library it's a public good. It's not us against the library, it's
something that the whole community. Is related, and I think that if people
left some of their own marks in, in the book, and other people could reflect on
that, that could have been quite, quite nice.
So, the kindle, for example, you know every time you mark something in the, in
the kindle, you can see what other people have marked.
You can't see how, what individuals have marked, but you can see the collective.
Group. And, and sometimes I go back and look at
my books, and I'm really interested, like what have people marked?
What have people underlined? What is the, the common wisdom?
So in the same way I, I think that if we got people to write at the end of the
book, like you know, you had, you had four pages at the end of the book.
And you ask people to write what's the, an important point they got or something
interesting or an observation. I think it would connect people to the
other people who've read the book, and I think it might make the book reading a
more interesting experience. But I don't think the Canadian library
system is going to try this out. >> Yeah, maybe not.
[LAUGH] So that idea of a social good is a perfect transition to my next question,
which is about taxes and pro-social spending.
Which you talked about and Mike Norton also gave a lecture on in this last
week's guest lectures. So how do taxes fit into this whole idea
of spending money on other people making you happy.
Yeah, so I think taxes are interesting because, in principal taxes are just like
charity. You're giving money, actually you know
what? It's a kind of charity you get to benefit
from. but, so it's, it's both you're helping
other people, you're also helping yourself.
It is also a collective action. There's lots of wonderful things about
taxes. but I think there's a couple of things
that make taxes different. One of them is that taxes feel like a
fight between you and the government. So it's it's an adversarial relationship
inherently. Which, which I think kind of diminishes
from the value of taxes. the second thing is that you, at least in
the US, you never know if you're doing things right or wrong.
The tax laws are so obscure and difficult and so on.
So when I, I sit there with the taxes, my, my concern is what's right, what's
wrong and, and so on. And, that, that kind of changes the, the
spirit of what, what taxes are all about and what contributions.
I also think that over time the word, taxes has taken lots of negative
connotation. And then there's also the, the issue of
social coordination, that if, if other people are paylng less taxes, I don't
think this is fair. So I want to pay the less, the same taxes
they're paying as well. So I think taxes have the opportunity to
actually get people to feel altruistic and contributing to society, contributing
themselves, working togehter towards some goal.
Sadly the way that we have done taxes in most countries has been kind of freely
missing the mark. It's been about following very complex
rules, not knowing what's right, worrying about relative social justice.
Worrying about other people getting away with it and kind of hiding the true
spirit of contributing to society. So Mike has one interesting, he has many
interesting findings, but one of them is that the moment you let people decide
about where some of their money would go. All of a sudden it gets people to
remember, at least partially, what taxes are about, and they feel better about it.
I think that simplifying the code, getting people to reflect on the
government, getting people to reflect on society.
Getting people to decide about some of the taxes.
I think all of those would help a great deal.
>> Like remembering where the money is going.
How it benefits you. >> Yeah.
So we did, we did a little funny study a long time ago.
We went to a public library here in Chapel Hill.
And we asked people when was the last time you benefited for tax pur, papers,
pe, taxpayers money, and nobody remembered when was the last time.
Now they were sitting in a public library which is funded by taxpayers money.
But you know, you, you look at life and you say, where, where are things coming
from taxes, really hard to recognize. Like imagine everything you do has a
sign, that says paid by your, your taxes. By the way when there was the[COUGH],
the, the, the Iraq war every year my father would send me a, a note telling me
what my taxes what they paid for in terms of how many missiles and bullets and so
on. That's, that was tough.
you know, the other thing that is, that's with taxes is that there's no question
that governments waste money. You know, the, that's not, it's not news
and it's, it's probably unavoidable in, in some ways.
and, and there are kind of two forces that work against each other.
There's the force of waste, which is a terrible force.
And there's the force of economy's of scale, which as things become bigger you
can achieve much more and for some reason we focus on the waste.
And I understand why, it is a terrible, terrible thing.
And we don't focus enough on the magnitude, and the ability of the
government to do things in scale that we couldn't do as individuals and we
couldn't even do as, as companies. And so how do we kind of think about the
positive aspect of the economies of scale.
Every time a company acquires another company Wall Street rewards it.
Because it's, you know, gets more economies of scale, bigger company and so
on. We don't think, seem to be thinking like
this about the government. But I think we, we should.
>> Alright. And we will return to that topic on April
15th with hang out with Dan. >> Okay, just taxes.
>> And taxes. On taxes.
>> Okay. >> So, get some questions ready.
[LAUGH] >> On taxes and that's an important
day, because it's tax day in the US. >> Yeah.
>> By the way. [LAUGH] I guess that's worth mentioning.
>> It is worth mentioning. Yeah, so we, we'll talk just about taxes?
>> Just about taxes. >> Well, it's great.
>> I mean, there's enough to say, right?
>> we'll see. >> Okay, so.
that's it for today. Thank you.
see you later.
[NOISE]