[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.30,0:00:01.79,Default,,0000,0000,0000,,What you have here
Dialogue: 0,0:00:01.79,0:00:04.42,Default,,0000,0000,0000,,is an electronic cigarette.
Dialogue: 0,0:00:04.42,0:00:09.26,Default,,0000,0000,0000,,It's something that's, since it was invented a year or two ago,
Dialogue: 0,0:00:09.26,0:00:10.96,Default,,0000,0000,0000,,has given me untold happiness.
Dialogue: 0,0:00:10.96,0:00:11.93,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:00:11.93,0:00:14.94,Default,,0000,0000,0000,,A little bit of it, I think, is the nicotine,
Dialogue: 0,0:00:14.94,0:00:16.83,Default,,0000,0000,0000,,but there's something much bigger than that.
Dialogue: 0,0:00:16.83,0:00:21.29,Default,,0000,0000,0000,,Which is ever since, in the U.K., they banned smoking in public places,
Dialogue: 0,0:00:21.29,0:00:25.85,Default,,0000,0000,0000,,I've never enjoyed a drinks party ever again.
Dialogue: 0,0:00:25.85,0:00:27.00,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:00:27.00,0:00:29.79,Default,,0000,0000,0000,,And the reason, I only worked out just the other day,
Dialogue: 0,0:00:29.79,0:00:31.83,Default,,0000,0000,0000,,which is when you go to a drinks party
Dialogue: 0,0:00:31.83,0:00:34.36,Default,,0000,0000,0000,,and you stand up and you hold a glass of red wine
Dialogue: 0,0:00:34.36,0:00:36.05,Default,,0000,0000,0000,,and you talk endlessly to people,
Dialogue: 0,0:00:36.05,0:00:38.61,Default,,0000,0000,0000,,you don't actually want to spend all the time talking.
Dialogue: 0,0:00:38.61,0:00:40.04,Default,,0000,0000,0000,,It's really, really tiring.
Dialogue: 0,0:00:40.04,0:00:43.54,Default,,0000,0000,0000,,Sometimes you just want to stand there silently, alone with your thoughts.
Dialogue: 0,0:00:43.54,0:00:47.58,Default,,0000,0000,0000,,sometimes you just want to stand in the corner and stare out of the window.
Dialogue: 0,0:00:47.58,0:00:51.99,Default,,0000,0000,0000,,Now the problem is, when you can't smoke,
Dialogue: 0,0:00:51.99,0:00:55.61,Default,,0000,0000,0000,,if you stand and stare out of the window on your own,
Dialogue: 0,0:00:55.61,0:00:58.70,Default,,0000,0000,0000,,you're an antisocial, friendless idiot.
Dialogue: 0,0:00:58.70,0:00:59.96,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:00:59.96,0:01:03.52,Default,,0000,0000,0000,,If you stand and stare out of the window on your own with a cigarette,
Dialogue: 0,0:01:03.52,0:01:05.84,Default,,0000,0000,0000,,you're a fucking philosopher.
Dialogue: 0,0:01:05.84,0:01:08.33,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:01:08.33,0:01:13.29,Default,,0000,0000,0000,,(Applause)
Dialogue: 0,0:01:13.29,0:01:17.50,Default,,0000,0000,0000,,So the power of reframing things
Dialogue: 0,0:01:17.50,0:01:21.61,Default,,0000,0000,0000,,cannot be overstated.
Dialogue: 0,0:01:21.61,0:01:25.16,Default,,0000,0000,0000,,What we have is exactly the same thing, the same activity,
Dialogue: 0,0:01:25.16,0:01:27.49,Default,,0000,0000,0000,,but one of them makes you feel great
Dialogue: 0,0:01:27.49,0:01:30.48,Default,,0000,0000,0000,,and the other one, with just a small change of posture,
Dialogue: 0,0:01:30.48,0:01:33.04,Default,,0000,0000,0000,,makes you feel terrible.
Dialogue: 0,0:01:33.04,0:01:35.92,Default,,0000,0000,0000,,And I think one of the problems with classical economics
Dialogue: 0,0:01:35.92,0:01:38.24,Default,,0000,0000,0000,,is it's absolutely preoccupied with reality.
Dialogue: 0,0:01:38.24,0:01:42.88,Default,,0000,0000,0000,,And reality isn't a particularly good guide to human happiness.
Dialogue: 0,0:01:42.88,0:01:44.62,Default,,0000,0000,0000,,Why, for example,
Dialogue: 0,0:01:44.62,0:01:48.09,Default,,0000,0000,0000,,are pensioners much happier
Dialogue: 0,0:01:48.09,0:01:50.15,Default,,0000,0000,0000,,than the young unemployed?
Dialogue: 0,0:01:50.15,0:01:54.26,Default,,0000,0000,0000,,Both of them, after all, are in exactly the same stage of life.
Dialogue: 0,0:01:54.26,0:01:57.12,Default,,0000,0000,0000,,You both have too much time on your hands and not much money.
Dialogue: 0,0:01:57.12,0:02:00.29,Default,,0000,0000,0000,,But pensioners are reportedly very, very happy,
Dialogue: 0,0:02:00.29,0:02:04.12,Default,,0000,0000,0000,,whereas the unemployed are extraordinarily unhappy and depressed.
Dialogue: 0,0:02:04.12,0:02:08.08,Default,,0000,0000,0000,,The reason, I think, is that the pensioners believe they've chosen to be pensioners,
Dialogue: 0,0:02:08.08,0:02:10.77,Default,,0000,0000,0000,,whereas the young unemployed
Dialogue: 0,0:02:10.77,0:02:12.55,Default,,0000,0000,0000,,feel it's been thrust upon them.
Dialogue: 0,0:02:12.55,0:02:17.74,Default,,0000,0000,0000,,In England the upper-middle-classes have actually solved this problem perfectly,
Dialogue: 0,0:02:17.74,0:02:20.46,Default,,0000,0000,0000,,because they've rebranded unemployment.
Dialogue: 0,0:02:20.46,0:02:23.05,Default,,0000,0000,0000,,If you're an upper-middle-class English person,
Dialogue: 0,0:02:23.05,0:02:25.33,Default,,0000,0000,0000,,you call unemployment "a year off."
Dialogue: 0,0:02:25.33,0:02:27.08,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:02:27.08,0:02:31.30,Default,,0000,0000,0000,,And that's because having a son who's unemployed in Manchester
Dialogue: 0,0:02:31.30,0:02:32.93,Default,,0000,0000,0000,,is really quite embarrassing,
Dialogue: 0,0:02:32.93,0:02:36.20,Default,,0000,0000,0000,,but having a son who's unemployed in Thailand
Dialogue: 0,0:02:36.20,0:02:38.74,Default,,0000,0000,0000,,is really viewed as quite an accomplishment.
Dialogue: 0,0:02:38.74,0:02:40.21,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:02:40.21,0:02:42.89,Default,,0000,0000,0000,,But actually the power to rebrand things,
Dialogue: 0,0:02:42.89,0:02:47.83,Default,,0000,0000,0000,,to understand that actually our experiences, costs, things
Dialogue: 0,0:02:47.83,0:02:50.79,Default,,0000,0000,0000,,don't actually much depend on what they really are,
Dialogue: 0,0:02:50.79,0:02:51.62,Default,,0000,0000,0000,,but on how we view them,
Dialogue: 0,0:02:51.62,0:02:55.00,Default,,0000,0000,0000,,I genuinely think can't be overstated.
Dialogue: 0,0:02:55.00,0:02:57.61,Default,,0000,0000,0000,,There's an experiment I think Daniel Pink refers to
Dialogue: 0,0:02:57.61,0:02:59.74,Default,,0000,0000,0000,,where you put two dogs in a box
Dialogue: 0,0:02:59.74,0:03:03.21,Default,,0000,0000,0000,,and the box has an electric floor.
Dialogue: 0,0:03:03.21,0:03:08.58,Default,,0000,0000,0000,,Every now and then an electric shock is applied to the floor,
Dialogue: 0,0:03:08.58,0:03:11.62,Default,,0000,0000,0000,,which pains the dogs.
Dialogue: 0,0:03:11.62,0:03:16.61,Default,,0000,0000,0000,,The only difference is one of the dogs has a small button in its half of the box.
Dialogue: 0,0:03:16.61,0:03:19.67,Default,,0000,0000,0000,,And when it nuzzles the button, the electric shock stops.
Dialogue: 0,0:03:19.67,0:03:23.21,Default,,0000,0000,0000,,The other dog doesn't have the button.
Dialogue: 0,0:03:23.21,0:03:27.90,Default,,0000,0000,0000,,It's exposed to exactly the same level of pain as the dog in the first box,
Dialogue: 0,0:03:27.90,0:03:29.92,Default,,0000,0000,0000,,but it has no control over the circumstances.
Dialogue: 0,0:03:29.92,0:03:34.00,Default,,0000,0000,0000,,Generally the first dog can be relatively content.
Dialogue: 0,0:03:34.00,0:03:37.71,Default,,0000,0000,0000,,The second dog lapses into complete depression.
Dialogue: 0,0:03:37.71,0:03:42.58,Default,,0000,0000,0000,,The circumstances of our lives may actually matter less to our happiness
Dialogue: 0,0:03:42.58,0:03:47.92,Default,,0000,0000,0000,,than the sense of control we feel over our lives.
Dialogue: 0,0:03:47.92,0:03:49.78,Default,,0000,0000,0000,,It's an interesting question.
Dialogue: 0,0:03:49.78,0:03:53.97,Default,,0000,0000,0000,,We ask the question -- the whole debate in the Western world
Dialogue: 0,0:03:53.97,0:03:55.63,Default,,0000,0000,0000,,is about the level of taxation.
Dialogue: 0,0:03:55.63,0:03:57.96,Default,,0000,0000,0000,,But I think there's another debate to be asked,
Dialogue: 0,0:03:57.96,0:04:00.95,Default,,0000,0000,0000,,which is the level of control we have over our tax money.
Dialogue: 0,0:04:00.95,0:04:05.64,Default,,0000,0000,0000,,That what costs us 10 pounds in one context can be a curse.
Dialogue: 0,0:04:05.64,0:04:11.21,Default,,0000,0000,0000,,What costs us 10 pounds in a different context we may actually welcome.
Dialogue: 0,0:04:11.21,0:04:15.71,Default,,0000,0000,0000,,And pay 20,000 pounds in tax toward health
Dialogue: 0,0:04:15.71,0:04:18.08,Default,,0000,0000,0000,,and you're merely feeling a mug.
Dialogue: 0,0:04:18.08,0:04:21.79,Default,,0000,0000,0000,,Pay 20,000 pounds to endow a hospital ward
Dialogue: 0,0:04:21.79,0:04:23.95,Default,,0000,0000,0000,,and you're called a philanthropist.
Dialogue: 0,0:04:23.95,0:04:27.19,Default,,0000,0000,0000,,I'm probably in the wrong country to talk about willingness to pay tax.
Dialogue: 0,0:04:27.19,0:04:29.90,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:04:29.90,0:04:35.08,Default,,0000,0000,0000,,So I'll give you one in return. How you frame things really matters.
Dialogue: 0,0:04:35.08,0:04:37.07,Default,,0000,0000,0000,,Do you call it the bailout of Greece
Dialogue: 0,0:04:37.07,0:04:40.45,Default,,0000,0000,0000,,or the bailout of a load of stupid banks which lent to Greece?
Dialogue: 0,0:04:40.45,0:04:43.67,Default,,0000,0000,0000,,Because they are actually the same thing.
Dialogue: 0,0:04:43.67,0:04:46.06,Default,,0000,0000,0000,,What you call them actually affects
Dialogue: 0,0:04:46.06,0:04:49.58,Default,,0000,0000,0000,,how you react to them, viscerally and morally.
Dialogue: 0,0:04:49.58,0:04:52.96,Default,,0000,0000,0000,,I think psychological value is great to be absolutely honest.
Dialogue: 0,0:04:52.96,0:04:56.09,Default,,0000,0000,0000,,One of my great friends, a professor called Nick Chater,
Dialogue: 0,0:04:56.09,0:04:58.71,Default,,0000,0000,0000,,who's the Professor of Decision Sciences in London,
Dialogue: 0,0:04:58.71,0:05:01.24,Default,,0000,0000,0000,,believes that we should spend far less time
Dialogue: 0,0:05:01.24,0:05:02.71,Default,,0000,0000,0000,,looking into humanity's hidden depths
Dialogue: 0,0:05:02.71,0:05:06.33,Default,,0000,0000,0000,,and spend much more time exploring the hidden shallows.
Dialogue: 0,0:05:06.33,0:05:08.08,Default,,0000,0000,0000,,I think that's true actually.
Dialogue: 0,0:05:08.08,0:05:10.90,Default,,0000,0000,0000,,I think impressions have an insane effect
Dialogue: 0,0:05:10.90,0:05:13.05,Default,,0000,0000,0000,,on what we think and what we do.
Dialogue: 0,0:05:13.05,0:05:17.40,Default,,0000,0000,0000,,But what we don't have is a really good model of human psychology.
Dialogue: 0,0:05:17.40,0:05:19.23,Default,,0000,0000,0000,,At least pre-Kahneman perhaps,
Dialogue: 0,0:05:19.23,0:05:22.31,Default,,0000,0000,0000,,we didn't have a really good model of human psychology
Dialogue: 0,0:05:22.31,0:05:26.71,Default,,0000,0000,0000,,to put alongside models of engineering, of neoclassical economics.
Dialogue: 0,0:05:26.71,0:05:31.07,Default,,0000,0000,0000,,So people who believed in psychological solutions didn't have a model.
Dialogue: 0,0:05:31.07,0:05:32.84,Default,,0000,0000,0000,,We didn't have a framework.
Dialogue: 0,0:05:32.84,0:05:35.68,Default,,0000,0000,0000,,This is what Warren Buffett's business partner Charlie Munger calls
Dialogue: 0,0:05:35.68,0:05:37.79,Default,,0000,0000,0000,,"A latticework on which to hang your ideas."
Dialogue: 0,0:05:37.79,0:05:42.58,Default,,0000,0000,0000,,Engineers, economists, classical economists
Dialogue: 0,0:05:42.58,0:05:44.33,Default,,0000,0000,0000,,all had a very, very robust existing latticework
Dialogue: 0,0:05:44.33,0:05:47.29,Default,,0000,0000,0000,,on which practically every idea could be hung.
Dialogue: 0,0:05:47.29,0:05:50.58,Default,,0000,0000,0000,,We merely have a collection of random individual insights
Dialogue: 0,0:05:50.58,0:05:53.58,Default,,0000,0000,0000,,without an overall model.
Dialogue: 0,0:05:53.58,0:05:57.58,Default,,0000,0000,0000,,And what that means is that in looking at solutions,
Dialogue: 0,0:05:57.58,0:06:00.21,Default,,0000,0000,0000,,we've probably given too much priority
Dialogue: 0,0:06:00.21,0:06:03.88,Default,,0000,0000,0000,,to what I call technical engineering solutions, Newtonian solutions,
Dialogue: 0,0:06:03.88,0:06:07.29,Default,,0000,0000,0000,,and not nearly enough to the psychological ones.
Dialogue: 0,0:06:07.29,0:06:09.34,Default,,0000,0000,0000,,You know my example of the Eurostar.
Dialogue: 0,0:06:09.34,0:06:11.92,Default,,0000,0000,0000,,Six million pounds spent to reduce the journey time
Dialogue: 0,0:06:11.92,0:06:15.42,Default,,0000,0000,0000,,between Paris and London by about 40 minutes.
Dialogue: 0,0:06:15.42,0:06:20.20,Default,,0000,0000,0000,,For 0.01 percent of this money you could have put WiFi on the trains,
Dialogue: 0,0:06:20.20,0:06:22.87,Default,,0000,0000,0000,,which wouldn't have reduced the duration of the journey,
Dialogue: 0,0:06:22.87,0:06:26.29,Default,,0000,0000,0000,,but would have improved its enjoyment and its usefullness far more.
Dialogue: 0,0:06:26.29,0:06:28.92,Default,,0000,0000,0000,,For maybe 10 percent of the money,
Dialogue: 0,0:06:28.92,0:06:32.24,Default,,0000,0000,0000,,you could have paid all of the world's top male and female supermodels
Dialogue: 0,0:06:32.24,0:06:36.60,Default,,0000,0000,0000,,to walk up and down the train handing out free Chateau Petrus to all the passengers.
Dialogue: 0,0:06:36.60,0:06:40.79,Default,,0000,0000,0000,,You'd still have five billion pounds in change,
Dialogue: 0,0:06:40.79,0:06:43.57,Default,,0000,0000,0000,,and people would ask for the trains to be slowed down.
Dialogue: 0,0:06:43.57,0:06:45.97,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:06:45.97,0:06:49.13,Default,,0000,0000,0000,,Why were we not given the chance
Dialogue: 0,0:06:49.13,0:06:51.33,Default,,0000,0000,0000,,to solve that problem psychologically?
Dialogue: 0,0:06:51.33,0:06:53.75,Default,,0000,0000,0000,,I think it's because there's an imbalance, an asymmetry,
Dialogue: 0,0:06:53.75,0:06:58.54,Default,,0000,0000,0000,,in the way we treat creative, emotionally-driven psychological ideas
Dialogue: 0,0:06:58.54,0:07:03.43,Default,,0000,0000,0000,,versus the way we treat rational, numerical, spreadsheet-driven ideas.
Dialogue: 0,0:07:03.43,0:07:06.52,Default,,0000,0000,0000,,If you're a creative person, I think quite rightly,
Dialogue: 0,0:07:06.52,0:07:08.86,Default,,0000,0000,0000,,you have to share all your ideas for approval
Dialogue: 0,0:07:08.86,0:07:10.96,Default,,0000,0000,0000,,with people much more rational than you.
Dialogue: 0,0:07:10.96,0:07:14.71,Default,,0000,0000,0000,,You have to go in and you have to have a cost-benefit analysis,
Dialogue: 0,0:07:14.71,0:07:17.59,Default,,0000,0000,0000,,a feasibility study, an ROI study and so forth.
Dialogue: 0,0:07:17.59,0:07:19.38,Default,,0000,0000,0000,,And I think that's probably right.
Dialogue: 0,0:07:19.38,0:07:21.70,Default,,0000,0000,0000,,But this does not apply the other way around.
Dialogue: 0,0:07:21.70,0:07:25.01,Default,,0000,0000,0000,,People who have an existing framework,
Dialogue: 0,0:07:25.01,0:07:27.54,Default,,0000,0000,0000,,an economic framework, an engineering framework,
Dialogue: 0,0:07:27.54,0:07:30.83,Default,,0000,0000,0000,,feel that actually logic is its own answer.
Dialogue: 0,0:07:30.83,0:07:33.84,Default,,0000,0000,0000,,What they don't say is, "Well the numbers all seem to add up,
Dialogue: 0,0:07:33.85,0:07:36.12,Default,,0000,0000,0000,,but before I present this idea, I'll go and show it to some really crazy people
Dialogue: 0,0:07:36.12,0:07:39.81,Default,,0000,0000,0000,,to see if they can come up with something better."
Dialogue: 0,0:07:39.81,0:07:42.58,Default,,0000,0000,0000,,And so we, artificially I think, prioritize
Dialogue: 0,0:07:42.58,0:07:46.87,Default,,0000,0000,0000,,what I'd call mechanistic ideas over psychological ideas.
Dialogue: 0,0:07:46.87,0:07:49.40,Default,,0000,0000,0000,,An example of a great psychological idea:
Dialogue: 0,0:07:49.40,0:07:54.38,Default,,0000,0000,0000,,The single best improvement in passenger satisfaction on the London Underground per pounds spent
Dialogue: 0,0:07:54.38,0:07:59.40,Default,,0000,0000,0000,,came when they didn't add any extra trains nor change the frequency of the trains,
Dialogue: 0,0:07:59.40,0:08:02.21,Default,,0000,0000,0000,,they put dot matrix display board on the platforms.
Dialogue: 0,0:08:02.21,0:08:05.46,Default,,0000,0000,0000,,Because the nature of a wait
Dialogue: 0,0:08:05.46,0:08:08.53,Default,,0000,0000,0000,,is not just dependent on its numerical quality, its duration,
Dialogue: 0,0:08:08.53,0:08:11.35,Default,,0000,0000,0000,,but on the level of uncertainty you experience during that wait.
Dialogue: 0,0:08:11.35,0:08:14.74,Default,,0000,0000,0000,,Waiting seven minutes for a train with a countdown clock
Dialogue: 0,0:08:14.74,0:08:16.95,Default,,0000,0000,0000,,is less frustrating and irritating
Dialogue: 0,0:08:16.95,0:08:18.98,Default,,0000,0000,0000,,than waiting four minutes, knuckle-biting
Dialogue: 0,0:08:18.98,0:08:22.17,Default,,0000,0000,0000,,going, "When's this train going to damn well arrive?"
Dialogue: 0,0:08:22.17,0:08:26.07,Default,,0000,0000,0000,,Here's a beautiful example of a psychological solution deployed in Korea.
Dialogue: 0,0:08:26.07,0:08:28.63,Default,,0000,0000,0000,,Red traffic lights have a countdown delay.
Dialogue: 0,0:08:28.63,0:08:31.87,Default,,0000,0000,0000,,It's proven to reduce the accident rate in experiments.
Dialogue: 0,0:08:31.87,0:08:34.75,Default,,0000,0000,0000,,Why? Because road rage, impatience and general irritation
Dialogue: 0,0:08:34.75,0:08:40.03,Default,,0000,0000,0000,,are massively reduced when you can actually see the time you have to wait.
Dialogue: 0,0:08:40.03,0:08:43.04,Default,,0000,0000,0000,,In China, not really understanding the principle behind this,
Dialogue: 0,0:08:43.04,0:08:45.78,Default,,0000,0000,0000,,they applied the same principle to green traffic lights.
Dialogue: 0,0:08:45.78,0:08:47.13,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:08:47.13,0:08:51.54,Default,,0000,0000,0000,,Which isn't a great idea.
Dialogue: 0,0:08:51.54,0:08:55.87,Default,,0000,0000,0000,,You're 200 yards away, you realize you've got five seconds to go, you floor it.
Dialogue: 0,0:08:55.87,0:08:57.46,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:08:57.46,0:09:01.29,Default,,0000,0000,0000,,The Koreans, very assiduously, did test both.
Dialogue: 0,0:09:01.29,0:09:05.12,Default,,0000,0000,0000,,The accident rate goes down when you apply this to red traffic lights;
Dialogue: 0,0:09:05.12,0:09:06.85,Default,,0000,0000,0000,,it goes up when you apply it to green traffic lights.
Dialogue: 0,0:09:06.85,0:09:10.44,Default,,0000,0000,0000,,This is all I'm asking for really in human decision making,
Dialogue: 0,0:09:10.44,0:09:12.40,Default,,0000,0000,0000,,is the consideration of these three things.
Dialogue: 0,0:09:12.40,0:09:15.45,Default,,0000,0000,0000,,I'm not asking for the complete primacy of one over the other.
Dialogue: 0,0:09:15.45,0:09:17.50,Default,,0000,0000,0000,,I'm merely saying that when you solve problems,
Dialogue: 0,0:09:17.50,0:09:19.81,Default,,0000,0000,0000,,you should look at all three of these equally
Dialogue: 0,0:09:19.81,0:09:22.33,Default,,0000,0000,0000,,and you should seek as far as possible
Dialogue: 0,0:09:22.33,0:09:25.17,Default,,0000,0000,0000,,to find solutions which sit in the sweet spot in the middle.
Dialogue: 0,0:09:25.17,0:09:27.38,Default,,0000,0000,0000,,If you actually look at a great business,
Dialogue: 0,0:09:27.38,0:09:30.83,Default,,0000,0000,0000,,you'll nearly always see all of these three things coming into play.
Dialogue: 0,0:09:30.83,0:09:33.28,Default,,0000,0000,0000,,Really, really successful businesses --
Dialogue: 0,0:09:33.28,0:09:35.79,Default,,0000,0000,0000,,Google is great, great technological success,
Dialogue: 0,0:09:35.79,0:09:38.52,Default,,0000,0000,0000,,but it's also based on a very good psychological insight:
Dialogue: 0,0:09:38.52,0:09:42.72,Default,,0000,0000,0000,,People believe something that only does one thing
Dialogue: 0,0:09:42.72,0:09:46.92,Default,,0000,0000,0000,,is better at that thing than something that does that thing and something else.
Dialogue: 0,0:09:46.92,0:09:49.88,Default,,0000,0000,0000,,It's an innate thing called goal dilution.
Dialogue: 0,0:09:49.88,0:09:51.87,Default,,0000,0000,0000,,Ayelet Fishbach has written a paper about this.
Dialogue: 0,0:09:51.87,0:09:54.19,Default,,0000,0000,0000,,Everybody else at the time of Google, more or less,
Dialogue: 0,0:09:54.19,0:09:55.55,Default,,0000,0000,0000,,was trying to be a portal.
Dialogue: 0,0:09:55.55,0:09:56.86,Default,,0000,0000,0000,,Yes, there's a search function,
Dialogue: 0,0:09:56.86,0:10:00.69,Default,,0000,0000,0000,,but you also have weather, sports scores, bits of news.
Dialogue: 0,0:10:00.69,0:10:03.21,Default,,0000,0000,0000,,Google understood that if you're just a search engine,
Dialogue: 0,0:10:03.21,0:10:06.87,Default,,0000,0000,0000,,people assume you're a very, very good search engine.
Dialogue: 0,0:10:06.87,0:10:08.45,Default,,0000,0000,0000,,All of you know this actually
Dialogue: 0,0:10:08.45,0:10:10.14,Default,,0000,0000,0000,,from when you go in to buy a television.
Dialogue: 0,0:10:10.14,0:10:13.70,Default,,0000,0000,0000,,And in the shabbier end of the row of flatscreen TV's
Dialogue: 0,0:10:13.70,0:10:19.00,Default,,0000,0000,0000,,you can see are these rather despised things called combined TV and DVD players.
Dialogue: 0,0:10:19.00,0:10:22.09,Default,,0000,0000,0000,,And we have no knowledge whatsoever of the quality of those things,
Dialogue: 0,0:10:22.09,0:10:26.04,Default,,0000,0000,0000,,but we look at a combined TV and DVD player and we go, "Uck.
Dialogue: 0,0:10:26.04,0:10:30.45,Default,,0000,0000,0000,,It's probably a bit of a crap telly and a bit rubbish as a DVD player."
Dialogue: 0,0:10:30.45,0:10:32.74,Default,,0000,0000,0000,,So we walk out of the shops with one of each.
Dialogue: 0,0:10:32.74,0:10:38.04,Default,,0000,0000,0000,,Google is as much a psychological success as it is a technological one.
Dialogue: 0,0:10:38.04,0:10:40.94,Default,,0000,0000,0000,,I propose that we can use psychology to solve problems
Dialogue: 0,0:10:40.94,0:10:43.73,Default,,0000,0000,0000,,that we didn't even realize were problems at all.
Dialogue: 0,0:10:43.73,0:10:46.83,Default,,0000,0000,0000,,This is my suggestion for getting people to finish their course of antibiotics.
Dialogue: 0,0:10:46.83,0:10:49.21,Default,,0000,0000,0000,,Don't give them 24 white pills.
Dialogue: 0,0:10:49.21,0:10:52.08,Default,,0000,0000,0000,,Give them 18 white pills and six blue ones
Dialogue: 0,0:10:52.08,0:10:55.70,Default,,0000,0000,0000,,and tell them to take the white pills first and then take the blue ones.
Dialogue: 0,0:10:55.70,0:10:57.75,Default,,0000,0000,0000,,It's called chunking.
Dialogue: 0,0:10:57.75,0:11:00.85,Default,,0000,0000,0000,,The likelihood that people will get to the end is much greater
Dialogue: 0,0:11:00.85,0:11:03.46,Default,,0000,0000,0000,,when there is a milestone somewhere in the middle.
Dialogue: 0,0:11:03.46,0:11:06.42,Default,,0000,0000,0000,,One of the great mistakes, I think, of economics
Dialogue: 0,0:11:06.42,0:11:08.84,Default,,0000,0000,0000,,is it fails to understand that what something is,
Dialogue: 0,0:11:08.84,0:11:11.16,Default,,0000,0000,0000,,whether it's retirement, unemployment, cost,
Dialogue: 0,0:11:11.16,0:11:16.42,Default,,0000,0000,0000,,is a function, not only of its amount, but also its meaning.
Dialogue: 0,0:11:16.42,0:11:20.33,Default,,0000,0000,0000,,This is a toll crossing in Britain.
Dialogue: 0,0:11:20.33,0:11:23.86,Default,,0000,0000,0000,,Quite often queues happen at the tolls.
Dialogue: 0,0:11:23.86,0:11:25.96,Default,,0000,0000,0000,,Sometimes you get very, very severe queues.
Dialogue: 0,0:11:25.96,0:11:27.96,Default,,0000,0000,0000,,You could apply the same principle actually, if you like,
Dialogue: 0,0:11:27.96,0:11:29.58,Default,,0000,0000,0000,,to the security lanes in airports.
Dialogue: 0,0:11:29.58,0:11:33.41,Default,,0000,0000,0000,,What would happen if you could actually pay twice as much money to cross the bridge,
Dialogue: 0,0:11:33.41,0:11:35.79,Default,,0000,0000,0000,,but go through a lane that's an express lane?
Dialogue: 0,0:11:35.79,0:11:39.53,Default,,0000,0000,0000,,It's not an unreasonable thing to do. It's an economically efficient thing to do.
Dialogue: 0,0:11:39.53,0:11:41.99,Default,,0000,0000,0000,,Time means more to some people than others.
Dialogue: 0,0:11:41.99,0:11:44.29,Default,,0000,0000,0000,,If you're waiting trying to get to a job interview,
Dialogue: 0,0:11:44.29,0:11:48.26,Default,,0000,0000,0000,,you'd patently pay a couple of pounds more to go through the fast lane.
Dialogue: 0,0:11:48.26,0:11:50.45,Default,,0000,0000,0000,,If you're on the way to visit your mother in-law,
Dialogue: 0,0:11:50.45,0:11:55.29,Default,,0000,0000,0000,,you'd probably prefer to stay on the left.
Dialogue: 0,0:11:55.29,0:11:59.72,Default,,0000,0000,0000,,The only problem is if you introduce this economically efficient solution,
Dialogue: 0,0:11:59.72,0:12:01.06,Default,,0000,0000,0000,,people hate it.
Dialogue: 0,0:12:01.06,0:12:04.25,Default,,0000,0000,0000,,Because they think you're deliberately creating delays at the bridge
Dialogue: 0,0:12:04.25,0:12:05.79,Default,,0000,0000,0000,,in order to maximize your revenue,
Dialogue: 0,0:12:05.79,0:12:09.28,Default,,0000,0000,0000,,and "Why on earth should I pay to subsidize your imcompetence?"
Dialogue: 0,0:12:09.28,0:12:11.89,Default,,0000,0000,0000,,On the other hand, change the frame slightly
Dialogue: 0,0:12:11.89,0:12:14.50,Default,,0000,0000,0000,,and create charitable yield management,
Dialogue: 0,0:12:14.50,0:12:19.57,Default,,0000,0000,0000,,so the extra money you get goes not to the bridge company, it goes to charity,
Dialogue: 0,0:12:19.57,0:12:22.12,Default,,0000,0000,0000,,and the mental willingness to pay completely changes.
Dialogue: 0,0:12:22.12,0:12:25.79,Default,,0000,0000,0000,,You have a relatively economically efficient solution,
Dialogue: 0,0:12:25.79,0:12:28.83,Default,,0000,0000,0000,,but one that actually meets with public approval
Dialogue: 0,0:12:28.83,0:12:31.02,Default,,0000,0000,0000,,and even a small degree of affection,
Dialogue: 0,0:12:31.02,0:12:33.27,Default,,0000,0000,0000,,rather than being seen as bastardy.
Dialogue: 0,0:12:33.27,0:12:36.98,Default,,0000,0000,0000,,So where economists make the fundamental mistake
Dialogue: 0,0:12:36.98,0:12:39.08,Default,,0000,0000,0000,,is they think that money is money.
Dialogue: 0,0:12:39.08,0:12:44.48,Default,,0000,0000,0000,,Actually my pain experienced in paying five pounds
Dialogue: 0,0:12:44.48,0:12:46.24,Default,,0000,0000,0000,,is not just proportionate to the amount,
Dialogue: 0,0:12:46.24,0:12:48.74,Default,,0000,0000,0000,,but where I think that money is going.
Dialogue: 0,0:12:48.74,0:12:51.76,Default,,0000,0000,0000,,And I think understanding that could revolutionize tax policy.
Dialogue: 0,0:12:51.76,0:12:54.15,Default,,0000,0000,0000,,It could revolutionize the public services.
Dialogue: 0,0:12:54.15,0:12:56.38,Default,,0000,0000,0000,,It could really change things quite significantly.
Dialogue: 0,0:12:56.38,0:12:59.18,Default,,0000,0000,0000,,Here's a guy you all need to study.
Dialogue: 0,0:12:59.18,0:13:01.08,Default,,0000,0000,0000,,He's an Austrian school economist
Dialogue: 0,0:13:01.08,0:13:06.29,Default,,0000,0000,0000,,who was first active in the first half of the 20th century in Vienna.
Dialogue: 0,0:13:06.29,0:13:08.14,Default,,0000,0000,0000,,What was interesting about the Austrian school
Dialogue: 0,0:13:08.14,0:13:11.20,Default,,0000,0000,0000,,is they actually grew up alongside Freud.
Dialogue: 0,0:13:11.20,0:13:13.88,Default,,0000,0000,0000,,And so they're predominantly interested in psychology.
Dialogue: 0,0:13:13.88,0:13:19.00,Default,,0000,0000,0000,,They believed that there was a discipline called praxeology,
Dialogue: 0,0:13:19.00,0:13:21.08,Default,,0000,0000,0000,,which is a prior discipline to the study of economics.
Dialogue: 0,0:13:21.08,0:13:25.86,Default,,0000,0000,0000,,Praxeology is the study of human choice, action and decision making.
Dialogue: 0,0:13:25.86,0:13:27.09,Default,,0000,0000,0000,,I think they're right.
Dialogue: 0,0:13:27.09,0:13:29.50,Default,,0000,0000,0000,,I think the danger we have in today's world
Dialogue: 0,0:13:29.50,0:13:31.36,Default,,0000,0000,0000,,is we have the study of economics
Dialogue: 0,0:13:31.36,0:13:35.82,Default,,0000,0000,0000,,considers itself to be a prior discipline to the study of human psychology.
Dialogue: 0,0:13:35.82,0:13:38.59,Default,,0000,0000,0000,,But as Charlie Munger says, "If economics isn't behavioral,
Dialogue: 0,0:13:38.59,0:13:40.83,Default,,0000,0000,0000,,I don't know what the hell is."
Dialogue: 0,0:13:40.83,0:13:47.37,Default,,0000,0000,0000,,Von Mises interestingly believes economics is just a subset of psychology.
Dialogue: 0,0:13:47.37,0:13:49.01,Default,,0000,0000,0000,,I think he just refers to economics as
Dialogue: 0,0:13:49.01,0:13:52.60,Default,,0000,0000,0000,,"The study of human praxeology under conditions of scarcity."
Dialogue: 0,0:13:52.60,0:13:55.66,Default,,0000,0000,0000,,But von Mises, among many other things,
Dialogue: 0,0:13:55.66,0:14:01.63,Default,,0000,0000,0000,,I think uses an analogy which is probably the best justification and explanation
Dialogue: 0,0:14:01.63,0:14:04.49,Default,,0000,0000,0000,,for the value of marketing, the value of perceived value
Dialogue: 0,0:14:04.49,0:14:08.90,Default,,0000,0000,0000,,and the fact that we should actually treat it as being absolutely equivalent
Dialogue: 0,0:14:08.90,0:14:10.42,Default,,0000,0000,0000,,to any other kind of value.
Dialogue: 0,0:14:10.42,0:14:13.06,Default,,0000,0000,0000,,We tend to, all of us -- even those of us who work in marketing --
Dialogue: 0,0:14:13.06,0:14:14.58,Default,,0000,0000,0000,,to think of value in two ways.
Dialogue: 0,0:14:14.60,0:14:15.73,Default,,0000,0000,0000,,There's the real value,
Dialogue: 0,0:14:15.73,0:14:17.12,Default,,0000,0000,0000,,which is when you make something in a factory and provide a service,
Dialogue: 0,0:14:17.12,0:14:19.75,Default,,0000,0000,0000,,and then there's a kind of dubious value,
Dialogue: 0,0:14:19.75,0:14:22.06,Default,,0000,0000,0000,,which you create by changing the way people look at things.
Dialogue: 0,0:14:22.06,0:14:25.22,Default,,0000,0000,0000,,Von Mises completely rejected this distinction.
Dialogue: 0,0:14:25.22,0:14:26.93,Default,,0000,0000,0000,,And he used this following analogy.
Dialogue: 0,0:14:26.93,0:14:32.15,Default,,0000,0000,0000,,He referred actually to strange economists called the French Physiocrats
Dialogue: 0,0:14:32.15,0:14:36.48,Default,,0000,0000,0000,,who believed that the only true value was what you extracted from the land.
Dialogue: 0,0:14:36.48,0:14:39.07,Default,,0000,0000,0000,,So if you're a shepherd or a quarryman or a farmer,
Dialogue: 0,0:14:39.07,0:14:40.84,Default,,0000,0000,0000,,you created true value.
Dialogue: 0,0:14:40.84,0:14:43.30,Default,,0000,0000,0000,,If however, you bought some wool from the shepherd
Dialogue: 0,0:14:43.32,0:14:46.46,Default,,0000,0000,0000,,and charged a premium for converting it into a hat,
Dialogue: 0,0:14:46.46,0:14:48.79,Default,,0000,0000,0000,,you weren't actually creating value,
Dialogue: 0,0:14:48.79,0:14:50.76,Default,,0000,0000,0000,,you were exploiting the shepherd.
Dialogue: 0,0:14:50.76,0:14:54.62,Default,,0000,0000,0000,,Now von Mises's said that modern economists make exactly the same mistake
Dialogue: 0,0:14:54.62,0:14:56.78,Default,,0000,0000,0000,,with regard to advertising and marketing.
Dialogue: 0,0:14:56.78,0:14:59.17,Default,,0000,0000,0000,,He says, "If you run a restaurant,
Dialogue: 0,0:14:59.17,0:15:01.38,Default,,0000,0000,0000,,there is no healthy distinction to be made
Dialogue: 0,0:15:01.38,0:15:03.83,Default,,0000,0000,0000,,between the value you create by cooking the food
Dialogue: 0,0:15:03.83,0:15:06.00,Default,,0000,0000,0000,,and the value you create by sweeping the floor."
Dialogue: 0,0:15:06.00,0:15:09.21,Default,,0000,0000,0000,,One of them creates, perhaps, the primary product --
Dialogue: 0,0:15:09.21,0:15:10.68,Default,,0000,0000,0000,,the thing we think we're paying for --
Dialogue: 0,0:15:10.68,0:15:11.92,Default,,0000,0000,0000,,the other one creates a context
Dialogue: 0,0:15:11.92,0:15:15.65,Default,,0000,0000,0000,,within which we can enjoy and appreciate that product.
Dialogue: 0,0:15:15.65,0:15:18.67,Default,,0000,0000,0000,,And the idea that one of them should actually have priority over the other
Dialogue: 0,0:15:18.67,0:15:20.83,Default,,0000,0000,0000,,is fundamentally wrong.
Dialogue: 0,0:15:20.83,0:15:22.09,Default,,0000,0000,0000,,Try this quick thought experiment.
Dialogue: 0,0:15:22.09,0:15:24.67,Default,,0000,0000,0000,,Imagine a restaurant that serves Michelin-starred food,
Dialogue: 0,0:15:24.70,0:15:26.96,Default,,0000,0000,0000,,but actually where the restaurant smells of sewage
Dialogue: 0,0:15:26.96,0:15:31.43,Default,,0000,0000,0000,,and there's human feces on the floor.
Dialogue: 0,0:15:31.43,0:15:33.53,Default,,0000,0000,0000,,The best thing you can do there to create value
Dialogue: 0,0:15:33.56,0:15:36.92,Default,,0000,0000,0000,,is not actually to improve the food still further,
Dialogue: 0,0:15:36.92,0:15:40.04,Default,,0000,0000,0000,,it's to get rid of the smell and clean up the floor.
Dialogue: 0,0:15:40.04,0:15:44.04,Default,,0000,0000,0000,,And it's vital we understand this.
Dialogue: 0,0:15:44.04,0:15:46.32,Default,,0000,0000,0000,,If that seems like some strange, abstruse thing,
Dialogue: 0,0:15:46.32,0:15:50.79,Default,,0000,0000,0000,,in the U.K., the post office had a 98 percent success rate
Dialogue: 0,0:15:50.79,0:15:53.12,Default,,0000,0000,0000,,at delivering first-class mail the next day.
Dialogue: 0,0:15:53.12,0:15:55.49,Default,,0000,0000,0000,,They decided this wasn't good enough
Dialogue: 0,0:15:55.49,0:15:57.45,Default,,0000,0000,0000,,and they wanted to get it up to 99.
Dialogue: 0,0:15:57.45,0:16:01.58,Default,,0000,0000,0000,,The effort to do that almost broke the organization.
Dialogue: 0,0:16:01.58,0:16:04.83,Default,,0000,0000,0000,,If at the same time you'd gone and asked people,
Dialogue: 0,0:16:04.83,0:16:08.12,Default,,0000,0000,0000,,"What percentage of first-class arrives the next day?"
Dialogue: 0,0:16:08.12,0:16:12.48,Default,,0000,0000,0000,,the average answer, or the modal answer would have been 50 to 60 percent.
Dialogue: 0,0:16:12.48,0:16:15.23,Default,,0000,0000,0000,,Now if your perception is much worse than your reality,
Dialogue: 0,0:16:15.23,0:16:18.73,Default,,0000,0000,0000,,what on earth are you doing trying to change the reality.
Dialogue: 0,0:16:18.73,0:16:22.75,Default,,0000,0000,0000,,That's like trying to improve the food in a restaurant that stinks.
Dialogue: 0,0:16:22.75,0:16:25.00,Default,,0000,0000,0000,,What you need to do
Dialogue: 0,0:16:25.00,0:16:26.66,Default,,0000,0000,0000,,is first of all tell people
Dialogue: 0,0:16:26.66,0:16:30.84,Default,,0000,0000,0000,,that 98 percent of mail gets there the next day, first-class mail.
Dialogue: 0,0:16:30.84,0:16:32.54,Default,,0000,0000,0000,,That's pretty good.
Dialogue: 0,0:16:32.54,0:16:35.17,Default,,0000,0000,0000,,I would argue, in Britain there's a much better frame of reference,
Dialogue: 0,0:16:35.17,0:16:36.76,Default,,0000,0000,0000,,which is to tell people
Dialogue: 0,0:16:36.76,0:16:38.79,Default,,0000,0000,0000,,that more first-class mail arrives the next day
Dialogue: 0,0:16:38.79,0:16:40.12,Default,,0000,0000,0000,,in the U.K. than in Germany.
Dialogue: 0,0:16:40.12,0:16:43.38,Default,,0000,0000,0000,,Because generally in Britain if you want to make us happy about something,
Dialogue: 0,0:16:43.38,0:16:45.12,Default,,0000,0000,0000,,just tell us we do it better than the Germans.
Dialogue: 0,0:16:45.12,0:16:47.50,Default,,0000,0000,0000,,(Laughter)
Dialogue: 0,0:16:47.50,0:16:48.38,Default,,0000,0000,0000,,(Applause)
Dialogue: 0,0:16:48.38,0:16:54.25,Default,,0000,0000,0000,,Choose your frame of reference and the perceived value
Dialogue: 0,0:16:54.25,0:16:57.00,Default,,0000,0000,0000,,and therefore the actual value is completely tranformed.
Dialogue: 0,0:16:57.00,0:16:59.23,Default,,0000,0000,0000,,It has to be said of the Germans
Dialogue: 0,0:16:59.23,0:17:01.20,Default,,0000,0000,0000,,that the Germans and the French are doing a brilliant job
Dialogue: 0,0:17:01.20,0:17:03.33,Default,,0000,0000,0000,,of creating a united Europe.
Dialogue: 0,0:17:03.33,0:17:05.76,Default,,0000,0000,0000,,The only thing they don't expect is their uniting Europe
Dialogue: 0,0:17:05.76,0:17:08.44,Default,,0000,0000,0000,,through a shared mild hatred of the French and Germans.
Dialogue: 0,0:17:08.46,0:17:10.75,Default,,0000,0000,0000,,But I'm British, that's the way we like it.
Dialogue: 0,0:17:10.75,0:17:16.83,Default,,0000,0000,0000,,What you also notice is that in any case our perception is leaky.
Dialogue: 0,0:17:16.83,0:17:19.17,Default,,0000,0000,0000,,We can't tell the difference between the quality of the food
Dialogue: 0,0:17:19.17,0:17:22.38,Default,,0000,0000,0000,,and the environment in which we consume it.
Dialogue: 0,0:17:22.38,0:17:23.25,Default,,0000,0000,0000,,All of you will have seen this phenomenon
Dialogue: 0,0:17:23.25,0:17:25.91,Default,,0000,0000,0000,,if you have your car washed or valeted.
Dialogue: 0,0:17:25.91,0:17:29.33,Default,,0000,0000,0000,,When you drive away, your car feels as if it drives better.
Dialogue: 0,0:17:29.33,0:17:32.54,Default,,0000,0000,0000,,And the reason for this,
Dialogue: 0,0:17:32.54,0:17:34.29,Default,,0000,0000,0000,,unless my car valet mysteriously is changing the oil
Dialogue: 0,0:17:34.29,0:17:37.54,Default,,0000,0000,0000,,and performing work which I'm not paying him for and I'm unaware of,
Dialogue: 0,0:17:37.54,0:17:39.96,Default,,0000,0000,0000,,is because perception is in any case leaky.
Dialogue: 0,0:17:39.96,0:17:44.08,Default,,0000,0000,0000,,Analgesics that are branded are more effective at reducing pain
Dialogue: 0,0:17:44.08,0:17:46.25,Default,,0000,0000,0000,,than analgesics that are not branded.
Dialogue: 0,0:17:46.25,0:17:48.56,Default,,0000,0000,0000,,I don't just mean through reported pain reduction,
Dialogue: 0,0:17:48.56,0:17:50.56,Default,,0000,0000,0000,,actual measured pain reduction.
Dialogue: 0,0:17:50.56,0:17:55.07,Default,,0000,0000,0000,,And so perception actually is leaky in any case.
Dialogue: 0,0:17:55.08,0:17:58.62,Default,,0000,0000,0000,,So if you do something that's perceptually bad in one respect,
Dialogue: 0,0:17:58.62,0:18:00.40,Default,,0000,0000,0000,,you can damage the other.
Dialogue: 0,0:18:00.40,0:18:00.90,Default,,0000,0000,0000,,Thank you very much.
Dialogue: 0,0:18:00.90,0:18:02.17,Default,,0000,0000,0000,,(Applause)