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Hi.
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You might have noticed
that I have half a beard.
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It's not because I lost a bet.
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Many years ago, I was badly burned.
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Most of my body is covered with scars,
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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.
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It looks symmetrical, but almost.
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Anyway, now that we discussed facial hair,
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let's move to social science,
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and in particularly 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,
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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
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have exercised less than
you think you should?
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OK, and for how many of you have
raising your hands twice
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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
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have not always washed your hands
when you left the bathroom?
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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,
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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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and the problem in the topic is
that there's lots of things
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when we know what we could do.
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We could be very, very different
by reacting 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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And 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, we spend
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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,
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not zero but as humanely 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 simple-minded
model of how to think about it,
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and it's to think about behavior change
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in the same way that we think about
sending a rocket to space.
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And 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,
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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
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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
please, please, please switch to generics.
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You will save money, we will save money,
your employer will save money.
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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.
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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,
if you switch to generics now,
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it will be free for a a whole year.
Free for a whole year. Amazing!
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What percentage of people
do you think switched?
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Less than 10 percent.
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At this point, they show up to my office
and they come to complain.
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Why did they pick me?
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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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And they said, look,
we read these papers on free,
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we gave free, 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 an 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 a 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 a brainstorming phase.
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(Laughter)
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But this was the purity of the idea,
because the initial design
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was the brand that had
the no action benefit,
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in my illegal, immoral design
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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
we will be forced
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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 foot. 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,
we were trying to get very poor people
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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,
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 draw at sometimes,
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borrow sometimes at
up to 10 percent interest a week,
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and then of course
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
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and said, 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 a hundred 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 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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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 point
somewhere in their hat,
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and every week we'd 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:
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sending a text reminder once a week
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helps a lot.
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Good news! This program lasted six months.
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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 worked.
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Twenty percent at the end of the week,
just like 10 percent, no different.
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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
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as 20 percent plus loss aversion,
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which is amazing, right?
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It's amazing how motivating
messages from kids work.
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And one conclusion is
we don't use kids enough.
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(Laughter)
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And of course I don't mean
in a child labor sense.
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But if you think about
parents and their kids,
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we are the best that we can for our kids,
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and we think about the future,
and I think we should think
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about how to use that amazing
source of motivation
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to get parents to behave in a better way.
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But the big surprise
of this study was the coin.
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The coin basically doubled savings
compared to everything else.
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And now the question is why.
What was it about the coin?
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So I'll tell you how I started
thinking about the coin,
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and then we'll come back to it.
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So you know, when I do research
on, let's say, buying coffee,
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I don't need to go anywhere.
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I can sit in my office.
I bought enough coffee.
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I know how it works.
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The details I'm familiar with.
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When you do research in some of
the poorest places in the world,
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you have to go and visit and see
what's going on and get some insight
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about how the system works.
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And on that particular day,
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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.
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You know, in the US people spend
crazy amounts of money on weddings?
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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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oh, by the way, before you judge
the South Africans
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as being irrational with this,
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I just want to remind you that spending
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a lot of money on funerals
compared to weddings,
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at least you know for sure
you only have one.
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(Laughter)
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OK, so I sit in this place
that sells funeral insurance,
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and this guy comes in with his son,
his son is about 12,
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and he buys funeral insurance for a week.
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It will cover 90 percent
of his funeral expense
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only if he dies in the next seven days.
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Right? These are very poor people,
they buy small amounts of insurance
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and small amount of ??
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And he gets that certificate,
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and in a very ceremonious way
he gives it to his son,
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and as he gives it to his son,
I think to myself, why the ceremony?
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What is this father doing?
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Now think about the breadwinner
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that decides on that particular day
to direct some money
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into insurance or savings.
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What is the family going to see tonight?
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They're going to see less.
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Right? At that level of poverty, there'll
be less food, less kerosene, less water,
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some less tonight.
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And what his father was doing
and what our coin was trying to do
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is to say, yes, there's less
food on the table,
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but there's another activity.
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You see what happened is there are
many good, important economic activities,
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like savings and insurance,
that are invisible.
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And now the question is,
how do we make them visible?
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So let's go back to our rocket model.
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We have to first of all look at the system
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and see where there's
little things we can fix.
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With friction, where is there
can we remove friction?
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And then the next thing we want to do
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is we want to think
broadly about the system,
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and say what other motivations
can we bring in?
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And that's a much more difficult exercise,
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and we don't always know
what would work best.
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Is it going to be money?
Is it going to be loss aversion?
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Is it going to be
something that is visible?
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We don't know, and we have
to try different things.
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We also have to realize that
our intuition sometimes misleads us.
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We don't always necessarily know
what would work the best.
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So if we think about this gap
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between where we could be
and where we are,
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it's a really sad thing to see this gap
and to think about it,
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but the good news is
there's lots we can do.
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Some of the changes are easy,
some of the changes are more complex,
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but if we'll attack each problem directly,
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not by just providing
more information to people
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but trying to change the friction,
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add motivation,
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I think we can,
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can we close the gap? No.
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But can we get much better?
Absolutely yes.
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Thank you very much.
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(Applause)