0:00:00.301,0:00:02.361
What you have here

0:00:02.361,0:00:05.263
is an electronic cigarette.

0:00:05.263,0:00:09.258
It's something that's, since it was invented a year or two ago,

0:00:09.258,0:00:11.210
has given me untold happiness.

0:00:11.210,0:00:12.485
(Laughter)

0:00:12.485,0:00:14.943
A little bit of it, I think, is the nicotine,

0:00:14.943,0:00:16.831
but there's something much bigger than that.

0:00:16.831,0:00:21.644
Which is ever since, in the U.K., they banned smoking in public places,

0:00:21.644,0:00:25.823
I've never enjoyed a drinks party ever again.

0:00:25.823,0:00:27.046
(Laughter)

0:00:27.046,0:00:30.515
And the reason, I only worked out just the other day,

0:00:30.515,0:00:32.243
which is when you go to a drinks party

0:00:32.243,0:00:34.365
and you stand up and you hold a glass of red wine

0:00:34.365,0:00:36.050
and you talk endlessly to people,

0:00:36.050,0:00:38.610
you don't actually want to spend all the time talking.

0:00:38.610,0:00:40.252
It's really, really tiring.

0:00:40.252,0:00:44.127
Sometimes you just want to stand there silently, alone with your thoughts.

0:00:44.127,0:00:48.983
Sometimes you just want to stand in the corner and stare out of the window.

0:00:48.983,0:00:51.991
Now the problem is, when you can't smoke,

0:00:51.991,0:00:55.609
if you stand and stare out of the window on your own,

0:00:55.609,0:00:58.705
you're an antisocial, friendless idiot.

0:00:58.705,0:01:00.097
(Laughter)

0:01:00.097,0:01:04.011
If you stand and stare out of the window on your own with a cigarette,

0:01:04.011,0:01:06.630
you're a fucking philosopher.

0:01:06.630,0:01:08.333
(Laughter)

0:01:08.333,0:01:13.661
(Applause)

0:01:13.661,0:01:18.254
So the power of reframing things

0:01:18.254,0:01:21.606
cannot be overstated.

0:01:21.606,0:01:25.156
What we have is exactly the same thing, the same activity,

0:01:25.156,0:01:27.488
but one of them makes you feel great

0:01:27.488,0:01:30.661
and the other one, with just a small change of posture,

0:01:30.661,0:01:33.365
makes you feel terrible.

0:01:33.365,0:01:35.923
And I think one of the problems with classical economics

0:01:35.923,0:01:38.855
is it's absolutely preoccupied with reality.

0:01:38.855,0:01:43.167
And reality isn't a particularly good guide to human happiness.

0:01:43.167,0:01:45.302
Why, for example,

0:01:45.302,0:01:48.444
are pensioners much happier

0:01:48.444,0:01:50.796
than the young unemployed?

0:01:50.796,0:01:54.259
Both of them, after all, are in exactly the same stage of life.

0:01:54.259,0:01:57.556
You both have too much time on your hands and not much money.

0:01:57.556,0:02:00.600
But pensioners are reportedly very, very happy,

0:02:00.600,0:02:04.479
whereas the unemployed are extraordinarily unhappy and depressed.

0:02:04.479,0:02:08.652
The reason, I think, is that the pensioners believe they've chosen to be pensioners,

0:02:08.652,0:02:10.971
whereas the young unemployed

0:02:10.971,0:02:14.077
feel it's been thrust upon them.

0:02:14.077,0:02:17.737
In England the upper middle classes have actually solved this problem perfectly,

0:02:17.737,0:02:20.458
because they've re-branded unemployment.

0:02:20.458,0:02:23.054
If you're an upper-middle-class English person,

0:02:23.054,0:02:25.748
you call unemployment "a year off."

0:02:25.748,0:02:27.498
(Laughter)

0:02:27.498,0:02:31.300
And that's because having a son who's unemployed in Manchester

0:02:31.300,0:02:33.239
is really quite embarrassing,

0:02:33.239,0:02:36.202
but having a son who's unemployed in Thailand

0:02:36.202,0:02:38.745
is really viewed as quite an accomplishment.

0:02:38.745,0:02:40.208
(Laughter)

0:02:40.208,0:02:42.894
But actually the power to re-brand things --

0:02:42.894,0:02:47.830
to understand that actually our experiences, costs, things

0:02:47.830,0:02:50.786
don't actually much depend on what they really are,

0:02:50.786,0:02:52.517
but on how we view them --

0:02:52.517,0:02:55.000
I genuinely think can't be overstated.

0:02:55.000,0:02:57.612
There's an experiment I think Daniel Pink refers to

0:02:57.612,0:03:00.452
where you put two dogs in a box

0:03:00.452,0:03:04.731
and the box has an electric floor.

0:03:04.731,0:03:09.183
Every now and then an electric shock is applied to the floor,

0:03:09.183,0:03:11.764
which pains the dogs.

0:03:11.764,0:03:16.614
The only difference is one of the dogs has a small button in its half of the box.

0:03:16.614,0:03:20.223
And when it nuzzles the button, the electric shock stops.

0:03:20.223,0:03:23.346
The other dog doesn't have the button.

0:03:23.346,0:03:27.902
It's exposed to exactly the same level of pain as the dog in the first box,

0:03:27.902,0:03:30.488
but it has no control over the circumstances.

0:03:30.488,0:03:34.677
Generally the first dog can be relatively content.

0:03:34.677,0:03:38.170
The second dog lapses into complete depression.

0:03:38.170,0:03:43.321
The circumstances of our lives may actually matter less to our happiness

0:03:43.321,0:03:47.917
than the sense of control we feel over our lives.

0:03:47.917,0:03:50.469
It's an interesting question.

0:03:50.469,0:03:53.973
We ask the question -- the whole debate in the Western world

0:03:53.973,0:03:55.739
is about the level of taxation.

0:03:55.739,0:03:57.958
But I think there's another debate to be asked,

0:03:57.958,0:04:01.350
which is the level of control we have over our tax money.

0:04:01.350,0:04:05.639
That what costs us 10 pounds in one context can be a curse.

0:04:05.639,0:04:11.504
What costs us 10 pounds in a different context we may actually welcome.

0:04:11.504,0:04:15.708
You know, pay 20,000 pounds in tax toward health

0:04:15.708,0:04:18.085
and you're merely feeling a mug.

0:04:18.085,0:04:21.787
Pay 20,000 pounds to endow a hospital ward

0:04:21.787,0:04:23.950
and you're called a philanthropist.

0:04:23.950,0:04:27.986
I'm probably in the wrong country to talk about willingness to pay tax.

0:04:27.986,0:04:29.896
(Laughter)

0:04:29.896,0:04:35.077
So I'll give you one in return. How you frame things really matters.

0:04:35.077,0:04:37.165
Do you call it the bailout of Greece

0:04:37.165,0:04:40.946
or the bailout of a load of stupid banks which lent to Greece?

0:04:40.946,0:04:43.667
Because they are actually the same thing.

0:04:43.667,0:04:46.065
What you call them actually affects

0:04:46.065,0:04:49.579
how you react to them, viscerally and morally.

0:04:49.579,0:04:52.956
I think psychological value is great to be absolutely honest.

0:04:52.956,0:04:56.086
One of my great friends, a professor called Nick Chater,

0:04:56.086,0:04:58.713
who's the Professor of Decision Sciences in London,

0:04:58.713,0:05:01.235
believes that we should spend far less time

0:05:01.235,0:05:03.200
looking into humanity's hidden depths

0:05:03.200,0:05:06.333
and spend much more time exploring the hidden shallows.

0:05:06.333,0:05:08.083
I think that's true actually.

0:05:08.083,0:05:10.895
I think impressions have an insane effect

0:05:10.895,0:05:13.050
on what we think and what we do.

0:05:13.050,0:05:17.395
But what we don't have is a really good model of human psychology.

0:05:17.395,0:05:19.233
At least pre-Kahneman perhaps,

0:05:19.233,0:05:22.307
we didn't have a really good model of human psychology

0:05:22.307,0:05:27.046
to put alongside models of engineering, of neoclassical economics.

0:05:27.046,0:05:31.070
So people who believed in psychological solutions didn't have a model.

0:05:31.070,0:05:32.840
We didn't have a framework.

0:05:32.840,0:05:35.684
This is what Warren Buffett's business partner Charlie Munger calls

0:05:35.684,0:05:37.792
"a latticework on which to hang your ideas."

0:05:37.792,0:05:41.691
Engineers, economists, classical economists

0:05:41.691,0:05:44.856
all had a very, very robust existing latticework

0:05:44.856,0:05:47.830
on which practically every idea could be hung.

0:05:47.830,0:05:51.091
We merely have a collection of random individual insights

0:05:51.091,0:05:53.583
without an overall model.

0:05:53.583,0:05:57.577
And what that means is that in looking at solutions,

0:05:57.577,0:06:00.208
we've probably given too much priority

0:06:00.208,0:06:04.644
to what I call technical engineering solutions, Newtonian solutions,

0:06:04.644,0:06:07.292
and not nearly enough to the psychological ones.

0:06:07.292,0:06:09.336
You know my example of the Eurostar.

0:06:09.336,0:06:11.917
Six million pounds spent to reduce the journey time

0:06:11.917,0:06:16.040
between Paris and London by about 40 minutes.

0:06:16.040,0:06:20.196
For 0.01 percent of this money you could have put WiFi on the trains,

0:06:20.196,0:06:22.867
which wouldn't have reduced the duration of the journey,

0:06:22.867,0:06:26.830
but would have improved its enjoyment and its usefullness far more.

0:06:26.830,0:06:28.917
For maybe 10 percent of the money,

0:06:28.917,0:06:32.236
you could have paid all of the world's top male and female supermodels

0:06:32.236,0:06:37.598
to walk up and down the train handing out free Chateau Petrus to all the passengers.

0:06:37.598,0:06:40.791
You'd still have five billion pounds in change,

0:06:40.791,0:06:43.569
and people would ask for the trains to be slowed down.

0:06:43.569,0:06:46.321
(Laughter)

0:06:46.321,0:06:49.132
Why were we not given the chance

0:06:49.132,0:06:51.333
to solve that problem psychologically?

0:06:51.333,0:06:54.119
I think it's because there's an imbalance, an asymmetry,

0:06:54.119,0:06:59.065
in the way we treat creative, emotionally-driven psychological ideas

0:06:59.065,0:07:04.216
versus the way we treat rational, numerical, spreadsheet-driven ideas.

0:07:04.216,0:07:06.738
If you're a creative person, I think quite rightly,

0:07:06.738,0:07:08.858
you have to share all your ideas for approval

0:07:08.858,0:07:10.958
with people much more rational than you.

0:07:10.958,0:07:14.708
You have to go in and you have to have a cost-benefit analysis,

0:07:14.708,0:07:17.587
a feasibility study, an ROI study and so forth.

0:07:17.587,0:07:19.843
And I think that's probably right.

0:07:19.843,0:07:22.423
But this does not apply the other way around.

0:07:22.423,0:07:25.010
People who have an existing framework,

0:07:25.010,0:07:27.545
an economic framework, an engineering framework,

0:07:27.545,0:07:30.831
feel that actually logic is its own answer.

0:07:30.831,0:07:33.838
What they don't say is, "Well the numbers all seem to add up,

0:07:33.854,0:07:36.956
but before I present this idea, I'll go and show it to some really crazy people

0:07:36.956,0:07:39.809
to see if they can come up with something better."

0:07:39.809,0:07:42.577
And so we, artificially I think, prioritize

0:07:42.577,0:07:46.873
what I'd call mechanistic ideas over psychological ideas.

0:07:46.873,0:07:49.402
An example of a great psychological idea:

0:07:49.402,0:07:54.375
The single best improvement in passenger satisfaction on the London Underground per pound spent

0:07:54.375,0:07:59.404
came when they didn't add any extra trains nor change the frequency of the trains,

0:07:59.404,0:08:03.008
they put dot matrix display board on the platforms.

0:08:03.008,0:08:05.458
Because the nature of a wait

0:08:05.458,0:08:08.531
is not just dependent on its numerical quality, its duration,

0:08:08.531,0:08:11.454
but on the level of uncertainty you experience during that wait.

0:08:11.454,0:08:14.738
Waiting seven minutes for a train with a countdown clock

0:08:14.738,0:08:16.952
is less frustrating and irritating

0:08:16.952,0:08:18.979
than waiting four minutes, knuckle-biting

0:08:18.979,0:08:22.167
going, "When's this train going to damn well arrive?"

0:08:22.167,0:08:26.069
Here's a beautiful example of a psychological solution deployed in Korea.

0:08:26.069,0:08:28.632
Red traffic lights have a countdown delay.

0:08:28.632,0:08:31.871
It's proven to reduce the accident rate in experiments.

0:08:31.871,0:08:34.873
Why? Because road rage, impatience and general irritation

0:08:34.873,0:08:40.032
are massively reduced when you can actually see the time you have to wait.

0:08:40.032,0:08:43.042
In China, not really understanding the principle behind this,

0:08:43.042,0:08:45.776
they applied the same principle to green traffic lights.

0:08:45.776,0:08:48.650
(Laughter)

0:08:48.650,0:08:51.542
Which isn't a great idea.

0:08:51.542,0:08:55.870
You're 200 yards away, you realize you've got five seconds to go, you floor it.

0:08:55.870,0:08:57.889
(Laughter)

0:08:57.889,0:09:01.292
The Koreans, very assiduously, did test both.

0:09:01.292,0:09:04.413
The accident rate goes down when you apply this to red traffic lights;

0:09:04.413,0:09:07.481
it goes up when you apply it to green traffic lights.

0:09:07.481,0:09:10.442
This is all I'm asking for really in human decision making,

0:09:10.442,0:09:12.398
is the consideration of these three things.

0:09:12.398,0:09:15.454
I'm not asking for the complete primacy of one over the other.

0:09:15.454,0:09:17.505
I'm merely saying that when you solve problems,

0:09:17.505,0:09:19.807
you should look at all three of these equally

0:09:19.807,0:09:22.333
and you should seek as far as possible

0:09:22.333,0:09:25.167
to find solutions which sit in the sweet spot in the middle.

0:09:25.167,0:09:27.375
If you actually look at a great business,

0:09:27.375,0:09:30.987
you'll nearly always see all of these three things coming into play.

0:09:30.987,0:09:33.281
Really, really successful businesses --

0:09:33.281,0:09:35.787
Google is great, great technological success,

0:09:35.787,0:09:38.521
but it's also based on a very good psychological insight:

0:09:38.521,0:09:42.721
People believe something that only does one thing

0:09:42.721,0:09:46.923
is better at that thing than something that does that thing and something else.

0:09:46.923,0:09:49.875
It's an innate thing called goal dilution.

0:09:49.875,0:09:51.873
Ayelet Fishbach has written a paper about this.

0:09:51.873,0:09:54.192
Everybody else at the time of Google, more or less,

0:09:54.192,0:09:55.548
was trying to be a portal.

0:09:55.548,0:09:56.864
Yes, there's a search function,

0:09:56.864,0:10:00.690
but you also have weather, sports scores, bits of news.

0:10:00.690,0:10:03.208
Google understood that if you're just a search engine,

0:10:03.208,0:10:06.871
people assume you're a very, very good search engine.

0:10:06.871,0:10:08.452
All of you know this actually

0:10:08.452,0:10:10.137
from when you go in to buy a television.

0:10:10.137,0:10:13.700
And in the shabbier end of the row of flat screen TVs

0:10:13.700,0:10:19.002
you can see are these rather despised things called combined TV and DVD players.

0:10:19.002,0:10:22.094
And we have no knowledge whatsoever of the quality of those things,

0:10:22.094,0:10:26.042
but we look at a combined TV and DVD player and we go, "Uck.

0:10:26.042,0:10:30.448
It's probably a bit of a crap telly and a bit rubbish as a DVD player."

0:10:30.448,0:10:32.738
So we walk out of the shops with one of each.

0:10:32.738,0:10:38.042
Google is as much a psychological success as it is a technological one.

0:10:38.042,0:10:40.944
I propose that we can use psychology to solve problems

0:10:40.944,0:10:43.727
that we didn't even realize were problems at all.

0:10:43.727,0:10:46.827
This is my suggestion for getting people to finish their course of antibiotics.

0:10:46.827,0:10:49.210
Don't give them 24 white pills.

0:10:49.210,0:10:52.081
Give them 18 white pills and six blue ones

0:10:52.081,0:10:55.883
and tell them to take the white pills first and then take the blue ones.

0:10:55.883,0:10:57.750
It's called chunking.

0:10:57.750,0:11:00.854
The likelihood that people will get to the end is much greater

0:11:00.854,0:11:03.458
when there is a milestone somewhere in the middle.

0:11:03.458,0:11:06.417
One of the great mistakes, I think, of economics

0:11:06.417,0:11:08.844
is it fails to understand that what something is,

0:11:08.844,0:11:12.871
whether it's retirement, unemployment, cost,

0:11:12.871,0:11:17.171
is a function, not only of its amount, but also its meaning.

0:11:17.171,0:11:20.333
This is a toll crossing in Britain.

0:11:20.333,0:11:23.858
Quite often queues happen at the tolls.

0:11:23.858,0:11:25.960
Sometimes you get very, very severe queues.

0:11:25.960,0:11:27.958
You could apply the same principle actually, if you like,

0:11:27.958,0:11:29.583
to the security lanes in airports.

0:11:29.583,0:11:33.408
What would happen if you could actually pay twice as much money to cross the bridge,

0:11:33.408,0:11:35.792
but go through a lane that's an express lane?

0:11:35.792,0:11:39.527
It's not an unreasonable thing to do. It's an economically efficient thing to do.

0:11:39.527,0:11:41.992
Time means more to some people than others.

0:11:41.992,0:11:44.292
If you're waiting trying to get to a job interview,

0:11:44.292,0:11:48.259
you'd patently pay a couple of pounds more to go through the fast lane.

0:11:48.259,0:11:51.230
If you're on the way to visit your mother in-law,

0:11:51.230,0:11:55.287
you'd probably prefer to stay on the left.

0:11:55.287,0:11:59.715
The only problem is if you introduce this economically efficient solution,

0:11:59.715,0:12:01.400
people hate it.

0:12:01.400,0:12:04.250
Because they think you're deliberately creating delays at the bridge

0:12:04.250,0:12:05.787
in order to maximize your revenue,

0:12:05.787,0:12:09.760
and "Why on earth should I pay to subsidize your imcompetence?"

0:12:09.760,0:12:12.092
On the other hand, change the frame slightly

0:12:12.092,0:12:14.500
and create charitable yield management,

0:12:14.500,0:12:19.571
so the extra money you get goes not to the bridge company, it goes to charity,

0:12:19.571,0:12:22.787
and the mental willingness to pay completely changes.

0:12:22.787,0:12:26.115
You have a relatively economically efficient solution,

0:12:26.115,0:12:28.834
but one that actually meets with public approval

0:12:28.834,0:12:31.023
and even a small degree of affection,

0:12:31.023,0:12:33.744
rather than being seen as bastardy.

0:12:33.744,0:12:36.977
So where economists make the fundamental mistake

0:12:36.977,0:12:39.345
is they think that money is money.

0:12:39.345,0:12:44.475
Actually my pain experienced in paying five pounds

0:12:44.475,0:12:46.575
is not just proportionate to the amount,

0:12:46.575,0:12:48.737
but where I think that money is going.

0:12:48.737,0:12:51.756
And I think understanding that could revolutionize tax policy.

0:12:51.756,0:12:54.152
It could revolutionize the public services.

0:12:54.152,0:12:56.779
It could really change things quite significantly.

0:12:56.779,0:12:59.175
Here's a guy you all need to study.

0:12:59.175,0:13:01.079
He's an Austrian school economist

0:13:01.079,0:13:06.290
who was first active in the first half of the 20th century in Vienna.

0:13:06.290,0:13:08.135
What was interesting about the Austrian school

0:13:08.135,0:13:11.204
is they actually grew up alongside Freud.

0:13:11.204,0:13:13.880
And so they're predominantly interested in psychology.

0:13:13.880,0:13:19.000
They believed that there was a discipline called praxeology,

0:13:19.000,0:13:21.083
which is a prior discipline to the study of economics.

0:13:21.083,0:13:25.860
Praxeology is the study of human choice, action and decision making.

0:13:25.860,0:13:27.412
I think they're right.

0:13:27.412,0:13:29.496
I think the danger we have in today's world

0:13:29.496,0:13:31.365
is we have the study of economics

0:13:31.365,0:13:35.823
considers itself to be a prior discipline to the study of human psychology.

0:13:35.823,0:13:38.588
But as Charlie Munger says, "If economics isn't behavioral,

0:13:38.588,0:13:40.833
I don't know what the hell is."

0:13:40.833,0:13:47.371
Von Mises, interestingly, believes economics is just a subset of psychology.

0:13:47.371,0:13:49.195
I think he just refers to economics as

0:13:49.195,0:13:52.602
"the study of human praxeology under conditions of scarcity."

0:13:52.602,0:13:55.665
But von Mises, among many other things,

0:13:55.665,0:14:01.633
I think uses an analogy which is probably the best justification and explanation

0:14:01.633,0:14:04.813
for the value of marketing, the value of perceived value

0:14:04.813,0:14:08.902
and the fact that we should actually treat it as being absolutely equivalent

0:14:08.902,0:14:10.525
to any other kind of value.

0:14:10.525,0:14:13.059
We tend to, all of us -- even those of us who work in marketing --

0:14:13.059,0:14:14.575
to think of value in two ways.

0:14:14.575,0:14:15.727
There's the real value,

0:14:15.727,0:14:17.587
which is when you make something in a factory and provide a service,

0:14:17.587,0:14:19.750
and then there's a kind of dubious value,

0:14:19.750,0:14:22.271
which you create by changing the way people look at things.

0:14:22.271,0:14:25.217
Von Mises completely rejected this distinction.

0:14:25.217,0:14:26.933
And he used this following analogy.

0:14:26.933,0:14:32.148
He referred actually to strange economists called the French Physiocrats,

0:14:32.148,0:14:36.475
who believed that the only true value was what you extracted from the land.

0:14:36.475,0:14:39.071
So if you're a shepherd or a quarryman or a farmer,

0:14:39.071,0:14:40.836
you created true value.

0:14:40.836,0:14:43.304
If however, you bought some wool from the shepherd

0:14:43.319,0:14:46.458
and charged a premium for converting it into a hat,

0:14:46.458,0:14:48.792
you weren't actually creating value,

0:14:48.792,0:14:50.759
you were exploiting the shepherd.

0:14:50.759,0:14:54.625
Now von Mises said that modern economists make exactly the same mistake

0:14:54.625,0:14:56.777
with regard to advertising and marketing.

0:14:56.777,0:14:59.167
He says, if you run a restaurant,

0:14:59.167,0:15:01.375
there is no healthy distinction to be made

0:15:01.375,0:15:03.833
between the value you create by cooking the food

0:15:03.833,0:15:06.000
and the value you create by sweeping the floor.

0:15:06.000,0:15:09.212
One of them creates, perhaps, the primary product --

0:15:09.212,0:15:10.681
the thing we think we're paying for --

0:15:10.681,0:15:12.335
the other one creates a context

0:15:12.335,0:15:15.652
within which we can enjoy and appreciate that product.

0:15:15.652,0:15:18.667
And the idea that one of them should actually have priority over the other

0:15:18.667,0:15:20.833
is fundamentally wrong.

0:15:20.833,0:15:22.093
Try this quick thought experiment.

0:15:22.093,0:15:24.700
Imagine a restaurant that serves Michelin-starred food,

0:15:24.700,0:15:27.358
but actually where the restaurant smells of sewage

0:15:27.358,0:15:31.434
and there's human feces on the floor.

0:15:31.434,0:15:33.734
The best thing you can do there to create value

0:15:33.734,0:15:36.925
is not actually to improve the food still further,

0:15:36.925,0:15:40.919
it's to get rid of the smell and clean up the floor.

0:15:40.919,0:15:44.098
And it's vital we understand this.

0:15:44.098,0:15:46.321
If that seems like some strange, abstruse thing,

0:15:46.321,0:15:50.787
in the U.K., the post office had a 98 percent success rate

0:15:50.787,0:15:53.125
at delivering first-class mail the next day.

0:15:53.125,0:15:55.492
They decided this wasn't good enough

0:15:55.492,0:15:57.454
and they wanted to get it up to 99.

0:15:57.454,0:16:01.768
The effort to do that almost broke the organization.

0:16:01.768,0:16:04.833
If at the same time you'd gone and asked people,

0:16:04.833,0:16:08.125
"What percentage of first-class mail arrives the next day?"

0:16:08.125,0:16:12.630
the average answer, or the modal answer would have been 50 to 60 percent.

0:16:12.630,0:16:15.233
Now if your perception is much worse than your reality,

0:16:15.233,0:16:18.733
what on earth are you doing trying to change the reality?

0:16:18.733,0:16:22.935
That's like trying to improve the food in a restaurant that stinks.

0:16:22.935,0:16:25.000
What you need to do

0:16:25.000,0:16:26.660
is first of all tell people

0:16:26.660,0:16:30.835
that 98 percent of mail gets there the next day, first-class mail.

0:16:30.835,0:16:32.542
That's pretty good.

0:16:32.542,0:16:35.167
I would argue, in Britain there's a much better frame of reference,

0:16:35.167,0:16:36.765
which is to tell people

0:16:36.765,0:16:38.790
that more first-class mail arrives the next day

0:16:38.790,0:16:40.848
in the U.K. than in Germany.

0:16:40.848,0:16:43.375
Because generally in Britain if you want to make us happy about something,

0:16:43.375,0:16:45.771
just tell us we do it better than the Germans.

0:16:45.771,0:16:47.346
(Laughter)

0:16:47.346,0:16:49.621
(Applause)

0:16:49.621,0:16:54.250
Choose your frame of reference and the perceived value

0:16:54.250,0:16:57.123
and therefore the actual value is completely tranformed.

0:16:57.123,0:16:59.229
It has to be said of the Germans

0:16:59.229,0:17:01.196
that the Germans and the French are doing a brilliant job

0:17:01.196,0:17:03.327
of creating a united Europe.

0:17:03.327,0:17:05.765
The only thing they don't expect is they're uniting Europe

0:17:05.765,0:17:08.445
through a shared mild hatred of the French and Germans.

0:17:08.460,0:17:11.150
But I'm British, that's the way we like it.

0:17:11.150,0:17:16.833
What you also notice is that in any case our perception is leaky.

0:17:16.833,0:17:19.166
We can't tell the difference between the quality of the food

0:17:19.166,0:17:21.652
and the environment in which we consume it.

0:17:21.652,0:17:23.481
All of you will have seen this phenomenon

0:17:23.481,0:17:25.908
if you have your car washed or valeted.

0:17:25.908,0:17:29.333
When you drive away, your car feels as if it drives better.

0:17:29.333,0:17:31.511
And the reason for this,

0:17:31.511,0:17:34.292
unless my car valet mysteriously is changing the oil

0:17:34.292,0:17:37.542
and performing work which I'm not paying him for and I'm unaware of,

0:17:37.542,0:17:39.958
is because perception is in any case leaky.

0:17:39.958,0:17:44.083
Analgesics that are branded are more effective at reducing pain

0:17:44.083,0:17:46.250
than analgesics that are not branded.

0:17:46.250,0:17:48.558
I don't just mean through reported pain reduction,

0:17:48.558,0:17:50.556
actual measured pain reduction.

0:17:50.556,0:17:55.067
And so perception actually is leaky in any case.

0:17:55.082,0:17:58.621
So if you do something that's perceptually bad in one respect,

0:17:58.621,0:18:00.398
you can damage the other.

0:18:00.398,0:18:02.005
Thank you very much.

0:18:02.005,0:18:03.859
(Applause)