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Hi.

2
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You might have noticed
that I have half a beard.

3
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It's not because I lost a bet.

4
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Many years ago, I was badly burned.

5
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Most of my body is covered with scars,

6
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including the right side of my face.

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I just don't have hair.
That's just how it happened.

8
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It looks symmetrical, but almost.

9
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Anyway, now that we discussed facial hair,

10
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let's move to social science.

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And in particular, I want us to think
about where is the potential for humanity

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and where we are now.

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And if you think about it,
there's a big gap

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between where we think we could be
and where we are,

15
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and it's in all kinds of areas.

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So let me ask you:

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How many of you in the last month
have eaten more than you think you should?

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Just kind of general. OK.

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How many of you in the last month have
exercised less than you think you should?

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OK, and for how many of you
has raising your hands twice

21
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been the most exercise you got today?

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(Laughter)

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How many of you have ever
texted while driving?

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OK, we're getting honest.
Let's test your honesty.

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How many people here in the last month

26
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have not always washed your hands
when you left the bathroom?

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(Laughter)

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A little less honest.

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By the way, it's interesting how we're
willing to admit texting and driving

30
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but not washing our hands,
that's difficult.

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(Laughter)

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We can go on and on.

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The problem, the topic is
that there's lots of things

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when we know what we could do --

35
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we could be very, very different,
but we're acting in a very different way.

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And when we think
how do we bridge that gap,

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the usual answer is, "Just tell people."

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For example, just tell people
that texting and driving is dangerous.

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Did you know it's dangerous?
You should stop doing it.

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You tell people something
is dangerous, and they will stop.

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Texting and driving is one example.

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Another very sad example
is that in the US,

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we spend between seven
and eight hundred million dollars a year

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on what's called "financial literacy."

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And what do we get
as a consequence of that?

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There was recently a study that looked
at all the research ever to be conducted

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on financial literacy --
what's called a meta-analysis.

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And what they found is that
when you tell people,

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you teach them financial literacy,

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they learn and they remember.

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But do people execute? Not so much.

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The improvement is about
three or four percent

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immediately after the course,

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and then it goes down.

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And at the end of the day,

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the improvement is about 0.1 percent --

57
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not zero, but as humanly close
to zero as possible.

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(Laughter)

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So that's the sad news.

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The sad news is, giving
information to people

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is just not a good recipe
to change behavior.

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What is?

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Well, social science
has made lots of strides,

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and the basic insight is that
if we want to change behavior,

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we have to change the environment.

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The right way is not to change people,
it's to change the environment.

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And I want to present a very simpleminded
model of how to think about it:

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it's to think about behavioral change

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in the same way that we think about
sending a rocket to space.

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When we think about
sending a rocket to space,

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we want to do two main things.

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The first one is to reduce friction.

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We want to take the rocket
and have as little friction as possible

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so it's the most aerodynamic possible.

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And the second thing is we want
to load as much fuel as possible,

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to give it the most amount
of motivation, energy to do its task.

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And behavior change is the same thing.

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So let's first talk about friction.

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In this particular case study
I'll tell you about,

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there's a pharmacy, an online pharmacy.

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Imagine you go to your doctor.

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You have a long-term illness,

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your doctor prescribes
to you a medication,

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you sign up for this online pharmacy

85
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and you get your medication
in the mail every 90 days.

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Every 90 days, medication,
medication, medication.

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And this online pharmacy
wants to switch people

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from branded medication
to generic medication.

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So they send people letters, and they say,

90
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"Please, please, please,
switch to generics.

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You will save money, we will save money,
your employer will save money."

92
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And what do people do?

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Nothing.

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So they try all kinds of things
and nothing happens.

95
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So for one year, they give people
an amazing offer.

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They send people a letter, and they say,

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"If you switch to generics now,
it will be free for a whole year."

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Free for a whole year. Amazing!

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What percentage of people
do you think switched?

100
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Less than 10 percent.

101
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At this point, they show up to my office.

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And they come to complain.

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Why did they pick me?

104
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I wrote a couple of papers
on the "allure of free."

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In those papers, we showed
that if you reduce the price of something

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for, let's say, 10 cents to one cent,
nothing much happens.

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You reduce it from one cent to zero,
now people get excited.

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(Laughter)

109
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And they said, "Look, we read these
papers on 'free,' we gave 'free.'

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Not working as we expected.

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What's going on?"

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I said, "You know, maybe
it's a question of friction."

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They said, "What do you mean?"

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I said, "People are starting with branded.

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They can do nothing and end with branded.

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To move to generic, they have to choose
generic over branded,

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but they also have to do something.

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They have to return the letter."

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So this is what we call
a "confounded design."

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Two things are happening at the same time.

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It's branded versus generic,

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but it's doing nothing
versus doing something.

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So I said, "Why don't we switch it?

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Why don't we send people a letter
and say, 'We're switching you to generics.

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You don't need to do anything.

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If you want to stay with branded,
please return the letter.'"

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(Laughter)

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Right?

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What do you think happened?

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Lawyers, lawyers happened.

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(Laughter)

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It turns out, this is illegal.

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(Laughter)

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By the way, for brainstorming
and creativity,

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doing things that are illegal
and immoral, it's fine,

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as long as it's just
in the brainstorming phase.

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(Laughter)

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But this was the purity of the idea,

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because the initial design was
the branded had the no-action benefit.

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In my illegal, immoral design,
generic had the no-action benefit.

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But they agreed to give people
a T-intersection:

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send people a letter and say,

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"If you don't return this letter,

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we will be forced
to stop your medications.

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But when you return the letter,
you could choose branded at this price,

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generic at this price."

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Now people had to take an action.

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They were on even footing. Right?

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It wasn't that one had
the no-action benefit.

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What percentage do you think switched?

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The vast majority switched.

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So what does it tell us?

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Do people like generics,
or do we like branded?

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We hate returning letters.

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(Laughter)

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This is the story of friction:
small things really matter.

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And friction is about taking
the desired behavior

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and saying: Where do we have
too much friction

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so it's slowing people down
from acting on it?

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And every time you see
that the desired behavior

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and the easy behavior are not aligned,

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it means we want to try and realign them.

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That's the first part.
We talked about friction.

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Now let's talk about motivation.

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In this particular study,

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we were trying to get very poor people
in a slum called Kibera in Kenya

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to save a little bit of money
for a rainy day.

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You know, if you're very, very poor,
you have no extra money,

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you live hand to mouth,

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and from time to time, bad things happen.

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And when something bad happens,
you have nothing to draw on, you borrow.

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The Kibera people can borrow at sometimes
up to 10 percent interest a week.

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And then, of course,
it's really hard to get out of it.

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You live hand to mouth,
something bad happens,

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you borrow, things get worse
and worse and worse.

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So we wanted people to keep
a little bit of money for a rainy day.

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And we thought about
what is the motivation,

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what is the fuel that we need to add?

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And we tried all kinds of things.

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Some people, we texted them
once a week and said,

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"Please try to save 100 shillings" --
about a dollar -- "this week."

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Some people, we sent a text message
as if it came from their kids.

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So it said, "Hi Mom, hi Dad,
this is little Joey" --

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whatever the name of the kid was --

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"Try and save 100 shillings this week
for the future of our family."

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Right? I'm Jewish, a little bit
of guilt always works.

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(Laughter)

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Some people got 10 percent.

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"Save up to a hundred shillings,
we'll give you 10 percent."

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Some people got 20 percent.

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Some people got also
10 percent and 20 percent,

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but they got it with loss aversion.

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What is loss aversion?

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Loss aversion is the idea
that we hate losing

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more than we enjoy gaining.

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Now, think about somebody
who is in a 10-percent condition

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and they put 40 shillings in.

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They put 40 shillings,
we give them four more,

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they say thank you very much.

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That person gave up six.

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They could have gotten six more
if they gave a hundred,

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but they don't see it.

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So we created what we call pre-match.

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We put the 10 shillings in
at the beginning of the week.

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We said, "It's waiting for you!"

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And then if somebody puts 40 in,
we say, "Oh, you put 40 in,

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we're leaving four,
and we're taking six back."

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00:09:05,431 --> 00:09:08,434
So in both cases, pre-match or post-match,

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people get 10 percent.

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But in the pre-match,

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they see the money they did not match
leaving their account.

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So we have text, text from kids,
10 percent, 20 percent,

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pre-match, post-match.

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And we had one more condition.

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It was a coin about this size,

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with 24 numbers written on it.

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And we asked them to put the coin
somewhere in their hut,

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and every week, take a knife
and scratch the number for that week --

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week one, two, three, four --

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scratch it like a minus
if they didn't save

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and scratch it up and down if they saved.

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Now, think to yourself:

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Which one of those methods
do you think worked the best?

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Text, text from the kids,
10 percent, 20 percent,

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beginning of the week,
end of the week, and the coin?

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I'll tell you what
the average people think.

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We've done these studies of prediction,

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both in the US and in Kenya.

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People think that 20 percent
will get a lot of action,

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10 percent less,

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the rest of it will do nothing --

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kids, coin, doesn't matter.

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People think loss aversion
will have a small effect.

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What actually happened?

235
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Sending a text reminder once a week

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helps a lot.

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Good news!

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This program lasted six months.
People forget. Reminding people is great.

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Ten percent at the end
of the week helped some more.

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Financial incentives work.

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Twenty percent at the end of the week --
just like 10 percent, no difference.

242
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Ten percent in the beginning of the week

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helps some more.

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Loss aversion works.

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Twenty percent in
the beginning of the week,

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just like 10 percent in the beginning
of the week, no difference.

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And the text message from the kids
was just as effective

248
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as 20 percent plus loss aversion --

249
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which is amazing, right?

250
00:10:49,125 --> 00:10:52,453
It's amazing how motivating
messages from kids were.

251
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And one conclusion is
we don't use kids enough.

252
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(Laughter)

253
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And, of course, I don't mean
in a child labor sense.

254
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But if you think about
parents and their kids,

255
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we are the best that we can for our kids,

256
00:11:09,106 --> 00:11:10,597
and we think about the future,

257
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and I think we should think

258
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about how to use that amazing
source of motivation

259
00:11:15,260 --> 00:11:17,811
to get parents to behave in a better way.

260
00:11:18,847 --> 00:11:21,674
But the big surprise
of this study was the coin.

261
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The coin basically doubled savings
compared to everything else.

262
00:11:25,727 --> 00:11:28,409
And now the question is: Why?
What was it about the coin?

263
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So I'll tell you how I started
thinking about the coin,

264
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and then we'll come back to it.

265
00:11:33,254 --> 00:11:36,230
So you know, when I do research
on, let's say, buying coffee,

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I don't need to go anywhere.
I can sit in my office.

267
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I've bought enough coffee.
I know how it works.

268
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The details, I'm familiar with.

269
00:11:42,927 --> 00:11:46,034
When you do research in some
of the poorest places in the world,

270
00:11:46,058 --> 00:11:48,337
you have to go and visit
and see what's going on

271
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and get some insight
about how the system works.

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And on that particular day,

273
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I'm in a place called Soweto
in South Africa,

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and I'm sitting in a place
that sells funeral insurance.

275
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You know, in the US people spend
crazy amounts of money on weddings?

276
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In South Africa, it's funerals.

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People spend up to a year
or two years of income on funerals.

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And I sit in this place --

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by the way, before you judge the South
Africans as being irrational with this,

280
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I just want to remind you

281
00:12:20,954 --> 00:12:24,258
that spending a lot of money
on funerals compared to weddings,

282
00:12:24,282 --> 00:12:26,789
at least you know for sure
you only have one.

283
00:12:26,813 --> 00:12:29,856
(Laughter)

284
00:12:36,000 --> 00:12:41,045
OK, so I sit in this place
that sells funeral insurance.

285
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And this guy comes in with his son --
his son is about 12 --

286
00:12:45,064 --> 00:12:48,323
and he buys funeral insurance for a week.

287
00:12:48,821 --> 00:12:51,451
It will cover 90 percent
of his funeral expense

288
00:12:51,475 --> 00:12:53,631
only if he dies in the next seven days.

289
00:12:54,353 --> 00:12:57,658
Right? These are very poor people,
they buy small amounts of insurance

290
00:12:57,682 --> 00:12:59,343
and small amount of soap and such.

291
00:12:59,367 --> 00:13:01,170
And he gets that certificate,

292
00:13:01,194 --> 00:13:03,864
and in a very ceremonious way,
he gives it to his son.

293
00:13:04,456 --> 00:13:07,705
And as he gives it to his son,
I think to myself, why the ceremony?

294
00:13:07,729 --> 00:13:09,257
What is this father doing?

295
00:13:09,281 --> 00:13:13,316
Now, think about the breadwinner
that decides on that particular day

296
00:13:13,340 --> 00:13:15,760
to direct some money
into insurance or savings.

297
00:13:16,587 --> 00:13:18,928
What is the family going to see tonight?

298
00:13:19,939 --> 00:13:21,509
They're going to see less.

299
00:13:21,533 --> 00:13:25,591
Right? At that level of poverty, there'll
be less food, less kerosene, less water --

300
00:13:25,615 --> 00:13:27,470
something less tonight.

301
00:13:27,494 --> 00:13:30,757
And what his father was doing
and what our coin was trying to do

302
00:13:30,781 --> 00:13:33,349
is to say, yes, there's less
food on the table,

303
00:13:33,373 --> 00:13:35,020
but there's another activity.

304
00:13:35,728 --> 00:13:39,518
You see, what happened is, there are
many good, important economic activities,

305
00:13:39,542 --> 00:13:42,070
like savings and insurance,
that are invisible.

306
00:13:42,620 --> 00:13:45,499
And now the question is:
How do we make them visible?

307
00:13:46,105 --> 00:13:49,837
So let's go back to our rocket model.

308
00:13:50,373 --> 00:13:52,647
We have to, first of all,
look at the system

309
00:13:52,671 --> 00:13:56,370
and see where there's little things
we can fix, with friction,

310
00:13:56,394 --> 00:13:58,750
where is there
that we can remove friction?

311
00:13:58,774 --> 00:14:02,626
And then the next thing we want to do
is to think broadly about the system,

312
00:14:02,650 --> 00:14:06,033
and say: What other motivations
can we bring in?

313
00:14:06,057 --> 00:14:08,079
And that's a much more difficult exercise,

314
00:14:08,103 --> 00:14:10,625
and we don't always know
what would work best.

315
00:14:10,649 --> 00:14:13,341
Is it going to be money?
Is it going to be loss aversion?

316
00:14:13,365 --> 00:14:15,444
Is it going to be
something that is visible?

317
00:14:15,468 --> 00:14:18,094
We don't know, and we have
to try different things.

318
00:14:18,118 --> 00:14:21,184
We also have to realize that
our intuition sometimes misleads us.

319
00:14:21,208 --> 00:14:24,585
We don't always necessarily know
what would work the best.

320
00:14:25,099 --> 00:14:26,977
So if we think about this gap

321
00:14:27,001 --> 00:14:29,185
between where we could be
and where we are,

322
00:14:29,209 --> 00:14:32,938
it's a really sad thing to see this gap
and to think about it.

323
00:14:32,962 --> 00:14:35,363
But the good news is,
there's lots we can do.

324
00:14:35,904 --> 00:14:39,135
Some of the changes are easy,
some of the changes are more complex.

325
00:14:39,159 --> 00:14:41,816
But if we'll attack each problem directly,

326
00:14:41,840 --> 00:14:45,312
not by just providing
more information to people

327
00:14:45,336 --> 00:14:47,075
but trying to change the friction,

328
00:14:47,099 --> 00:14:48,369
add motivation,

329
00:14:48,393 --> 00:14:49,690
I think we can ...

330
00:14:49,714 --> 00:14:51,570
Can we close the gap? No.

331
00:14:51,594 --> 00:14:54,604
But can we get much better?
Absolutely, yes.

332
00:14:54,628 --> 00:14:55,844
Thank you very much.

333
00:14:55,868 --> 00:14:59,628
(Applause)