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  • MALE SPEAKER: Good afternoon.

  • Welcome to Talks at Google in Cambridge, Massachusetts.

  • Today it's my great pleasure to introduce Robert Shiller.

  • Dr. Shiller is Sterling Professor of Economics at Yale

  • and winner of the 2013 Nobel Prize in economics.

  • He's the author of the New York Times best seller "Irrational

  • Exuberance," and with George Akerlof, also a Nobel winner,

  • he's coauthored a previous book in addition to today's.

  • Dr. Shiller joins us today to discuss

  • the provocatively titled "Phishing for Fools:

  • The Economics of Manipulation and Deception."

  • As he says in the book, "Competitive

  • markets by their very nature spawn deception and trickery

  • as a result of the same profit motives that

  • give us our prosperity."

  • I'll let him take it from there.

  • Please join me in welcoming Bob Shiller.

  • [APPLAUSE]

  • ROBERT SHILLER: Thank you.

  • Jonathan told me that you recently had

  • Dick Thaler in the same series.

  • That's interesting to me.

  • Dick is an old colleague of mine.

  • We've been running a behavioral economics workshop

  • at the NBER, which is right near here, for 25 years.

  • And he wrote a book called "Nudge" with Cass Sunstein

  • about government policy.

  • And the book I'm going to talk about

  • could be considered the anti "Nudge."

  • It's kind of the opposite.

  • The presumption was that nudges are used for good purposes,

  • and maybe they are.

  • Do you know what a nudge is?

  • This is a new-- I'm drifting from my prepared talk.

  • We're all critical of economists.

  • There aren't any economist here, probably, right?

  • So economists have adopted a canonical model

  • of an economy consisting of self interested, utility maximizing

  • individuals who take prices as a given

  • and maximize their utility individually.

  • And that leaves to some kind of optimality

  • ultimately in the equilibrium that follows.

  • So both Thaler and I are critical of that model

  • that underlies economics.

  • And our criticism has something to do

  • with the field of psychology, of neuroscience, sociology,

  • which have a different approach to studying human nature.

  • I feel a little uncomfortable talking at Google.

  • I don't think I prepared adequately for you.

  • That's because a lot of what we talk about is marketing,

  • and we have an uncomfortable relationship

  • to marketing as you'll see.

  • Not necessarily negative, but just uncomfortable.

  • And I don't know what Google, isn't Google,

  • there's different ways of looking at it.

  • By the way, you're Google not Alphabet, right?

  • AUDIENCE: There's some Alphabet here.

  • ROBERT SHILLER: I'm all confused.

  • I'm talking to an organization in transition.

  • I don't know how to.

  • But I was thinking, I think of you as a search engine company,

  • but that's very narrow.

  • But I think maybe it's better to think of you as a marketing

  • company.

  • Is that a good?

  • You're a big data company, and we have mixed feelings

  • about all of these things.

  • [LAUGHTER]

  • So I thought I should start by saying that I've already

  • thought of Google as an ethical company in this space.

  • So just did a test this morning.

  • I went on to news.google.com, and I just

  • looked at what came up.

  • And there was, the way my computer does it,

  • I saw a big news story about Hurricane Patrick,

  • which is the biggest hurricane ever that's

  • about to hit Mexico.

  • That was the Google story.

  • And then to compare that I went, can I say it here?

  • Bing.

  • [LAUGHTER]

  • Now their screen, the lead story in their screen

  • was lone gunman kills one person at Tennessee State University

  • after a dice game.

  • OK.

  • Now that's sort of all right as news, but I think,

  • that's what we're going to call phishing in my mind.

  • We use the word phishing in our title,

  • you see it there, as a metaphor for a broader

  • range of deception.

  • So think about Bing putting that story on as the lead story.

  • Is that really high minded news reporting?

  • Well, to me it seems not, especially

  • since there's now a new website, I

  • forget the name, that lists every mass shooting.

  • And it turns out if they define a mass shooting

  • as, this didn't qualify but, four people killed at least.

  • And there's one every day in the United States.

  • So it's like why, is this really news?

  • And then at the bottom left of the Bing screen,

  • there was a news story, and the title

  • was "Drunken man breaks in by mistake to a neighbor's house

  • and crawls into bed with two young girls."

  • Now that is definitely not a news story

  • for me in the sense that it's wasting my time.

  • So I've had this good feeling about Google, largely

  • from that, well, in many things.

  • So what this book is about is about what's really,

  • it's a certain kind of general problem with free market,

  • unregulated economies.

  • And by the way, the co-author, George Akerlof

  • is as you mentioned is my coauthor on another book,

  • he to me is a very independent thinking person.

  • I wanted to write a book with him not quite knowing where

  • it would go, because I like working with people

  • who think differently.

  • And both he and I have always felt

  • somewhat critical about what goes on in our profession.

  • The point is to bring that out.

  • Now, the problem-- or also, what is

  • a fool, that's our coined word.

  • That's someone who may be very intelligent,

  • but doesn't appreciate how much manipulation and deception is

  • being foisted on him.

  • So the idea of our book is that we

  • would talk about many different kinds of manipulation

  • and deception.

  • Talk about it from a behavioral, from

  • a psychological standpoint.

  • And another thing about our book is that we're different from,

  • there's a long history of books on this topic as you may know.

  • We wanted to take it from a more economic perspective.

  • With both George Akerlof and I, when we were teenagers,

  • we didn't know each other then, we read Vance Packard's book

  • "The Hidden Persuaders."

  • Do you know this book?

  • It was a bestseller in the 1950s.

  • It detailed how advertisers use psychology to trick you.

  • And you are already aware that they do that sometimes, but you

  • read Vance Packard's book, and it comes across looking

  • much more frequent.

  • The problem with Vance Packard's book,

  • though, is that it doesn't have any economics in it,

  • and it seems to portray the marketers

  • as an evil conspiracy.

  • And we didn't feel that that was the right way to look at it.

  • So our book is about what we call a "phishing equilibrium."

  • It's not that people are evil, it's

  • that we have a market system that allows,

  • that almost forces people to play the tricks

  • that we don't like, and it's called competitive pressures.

  • So the theory of competitive equilibrium

  • is sometimes connected to Darwin's theory of evolution,

  • constant pressure on businesses to make profits,

  • and that means then that they will

  • be very efficient, because they will be struggling hard

  • to succeed.

  • But the problem is that they might

  • have to be dishonest within subtle,

  • it has to be within the law, of course.

  • But this more subtle form of dishonesty

  • underlies problems that we see in free markets.

  • We're going to come around at the end

  • to a plea for civil society, or an argument

  • that civil society is what really

  • matters in a successful free market economy.

  • By the way, I should add since I'm here,

  • I believe in free markets, and in fact, I

  • have something of an entrepreneurial history.

  • I started with Case and Weiss, a company

  • called Case, Shiller, Weiss in 1991

  • that produced home price indices and valuations.

  • We were ahead of Zillow.

  • We had an online in the mid 1990s home valuation service.

  • And the outcome wasn't as successful as Zillow,

  • but we sold our company in 2002.

  • And now Core Logic is continuing our index production.

  • And we've established a futures market for single family homes

  • based on our indexes, and that's still

  • going, not hugely successful, but Standard and Poor's

  • publishes our indexes.

  • So that was our successful venture.

  • Then we had an unsuccessful one that I won't tell you about.

  • But it may not be unsuccessful, because I

  • think that what we tried, which was

  • to create markets for real estate

  • and oil and other maybe GDP is still being talked about.

  • I think the story is not over yet.

  • So I'm really pro free markets and pro entrepreneurship.

  • This is just a, what I'm talking about,

  • what we're talking about in this book is just a dent into that.

  • And it's don't go too far with the belief

  • in that just self interest will promote good economic outcomes.

  • So I think that one thing that economists don't recognize

  • is how the world is driven by social movements

  • and thought leaders.

  • And they tend to, one of the problems

  • is that, there's many problems that are,

  • but in terms of our thinking as academics,

  • there's a tendency to be affected by prevailing theory.

  • Something that Daniel Kahneman calls theory induced blindness.

  • A theory becomes established as part of a movement,

  • and then it gets tremendous prestige for a while,

  • and then it becomes overrated.

  • And I think what George and I want

  • to argue against in our book is the overratedness

  • of the free market capitalism idea.

  • So let me step back and think about, I

  • don't know if any of you had graduate training in economics.

  • Probably some of you have had undergraduate training.

  • There is one of the core elements

  • that you will be taught in a economic theory

  • course will be something called the fundamental theorem

  • of welfare economics.

  • Do you know this?

  • At least one of you doesn't.

  • Whether you've heard of the exact theorem is irrelevant.

  • I think you've heard of the general sense of conclusion

  • from it.

  • The fundamental theorem of welfare economics,

  • which you can find in micro theory textbooks,

  • is a mathematical theorem that describes

  • a competitive equilibrium.

  • You assume that each individual is completely selfish, only

  • interested in himself or herself,

  • and this person maximizes utilities

  • subject to a budget constraint.

  • They're also producers that produce the commodities,

  • and they maximize their profits subject to a budget constraint.

  • But there is no social feeling whatsoever.

  • Everyone does it for personal reward only.

  • The outcome, the theorem says, is in a competitive equilibrium

  • if there are no externalities, that the allocation of goods

  • and services will be Pareto optimal.

  • You ever heard of this term?

  • Some of you have.

  • Vilfredo Pareto was an economic theorist

  • who flourished around 1900.

  • And he actually anticipated the fundamental theorem

  • of welfare economics, but didn't prove it adequately.

  • The Pareto optimality means there is no way

  • to make everyone better off.

  • You can redistribute income, you can take from one to another,

  • and that will make one better off and the other worse off,

  • but there is no way in equilibrium

  • to make everyone better off.

  • Moreover, this became accepted by economics departments

  • who then thought, well, redistribution is not

  • our department.

  • Should we take from the rich and give to the poor, for example.

  • That's philosophy department stuff.

  • Economists redefine themselves in the 20th century

  • as technicians.

  • Right, they say, should we take from the rich

  • and give to the poor.

  • That's not science, that's philosophy.

  • That's ethics or morals.

  • We are called in to talk about is the economy functioning

  • well, and that functioning means Pareto efficiency.

  • So I think that the economics departments of the world

  • became less philosophical, less moral in their orientation,

  • less interested in how people behave.

  • They had this mathematical framework,

  • which had nothing about people except that there

  • are relentlessly selfish.

  • They then dragged out of Adam Smith, who in 1776 wrote

  • the classic of all time in economics, the book,

  • "The Wealth of Nations."

  • And there is a quote they pull out

  • one place in this book where Adam Smith seems

  • to think that completely selfish behavior within the limits

  • of a market economy that upholds property rights is optimal.

  • He said something like, I'm trying

  • to remember the exact quote, but he

  • said, "It's not to the beneficence of the providers

  • of food that I get my dinner.

  • The Baker, the brewer, and the butcher

  • provide my dinner, because of my paying them for what they do,

  • not out of any concern for me."

  • And then Adam Smith went on to say, you know,

  • I get more from those selfish people

  • than I get from all the social reformers of the world who

  • don't seem to make any difference.

  • That's all talk.

  • That was a very loose quote of Adam Smith.

  • But you know what?

  • These are extreme views.

  • And even Adam Smith didn't believe that,

  • because if you look in other parts of his work,

  • he wrote another book in 1759 called "The Theory of Moral

  • Sentiments."

  • And in that book, he said that people are not selfish.

  • They have some aspects of selfishness,

  • but they're inherently social creatures.

  • Very interesting book, his 1759 book, by the way.

  • Vilfredo Pareto who named Pareto optimality,

  • himself didn't believe it.

  • In fact, he dropped out of economics,

  • and he spent the last 30 years of his life

  • as a sociologist trying to understand society.

  • I think that there is something wrong with this theory.

  • In 1918-- you see I have a long time frame of history.

  • I read these old ideas, and I find it's useful to do that.

  • Go back 100 or 200 years, they have

  • ideas that we've forgotten.

  • Professor Irving Fisher at Yale University

  • said that this whole thing about utility

  • that economists talk about, it's not right.

  • People don't maximize their utility.

  • The word utility goes back to the philosopher Jeremy Bentham

  • who said all philosophy should be oriented toward,

  • all morality should be oriented toward utility.

  • But utility, he said, meant something like the human well

  • being, human fulfilment.

  • Irving Fisher said, that's not what people maximize.

  • They maximize, he said we need another word for it.

  • And he couldn't figure out a really good word for,

  • it's not in a language, so he coined one.

  • And he said it's wantability.

  • What you maximize is not your utility,

  • it's what you want at the moment that you make the purchase.

  • That term, by the way I love Google Trends,

  • Google Ngrams has changed my life, because I always

  • look up any idea.

  • So I looked up wantability on Google Ngrams,

  • and I find his word did not exist before 1918.

  • It exploded into usage for the next 20 years,

  • and then has exponentially decayed since then.

  • Now if you teach micro theory in a university,

  • it's kind of a difficult assignment,

  • because it's supposed to be some classical theory that everyone

  • should know.

  • And it's a little bit depressing to have

  • to teach this old stuff.

  • So nobody's really interested, oh, I'm exaggerating.

  • But you'll teach the fundamental theorem of welfare economics

  • with reverence and never come back to distortions in it.

  • Now here what we're talking about

  • is a phishing equilibrium.

  • I think the simplest example, because you've likely

  • already heard of it, but it's a very minor example,

  • but I'll start with this, is the candy bars at the checkout

  • counter.

  • Have you ever noticed at a grocery store

  • when you go to the checkout, you're

  • standing in line waiting to, now it

  • might be a computerized checkout,

  • but it would be still standing in line for a while,

  • they have candy bars right there.

  • So why is this?

  • Well, about 30 years ago some social reformers and thought

  • leaders decided to make a case about this.

  • You know why they put them there.

  • It's because you don't go to the grocery store intending

  • to buy candy bars, and in fact, you probably

  • have an idea that I'm not going to buy that.

  • But now they put them right in front of you at the worst time,

  • right at the end of your shopping trip

  • when you're standing there in line.

  • Moreover, many people go to the store with young children.

  • Now you've been shopping for 45 minutes, they're getting tired,

  • and now you're putting them in the experience

  • of standing in line.

  • It's a most unpleasant ending.

  • So they know that you're vulnerable,

  • and they put it there.

  • Several decades ago a number of stores

  • announced that they would not do that,

  • because there seemed to be a public reaction against it.

  • However, if you look now at stores,

  • it's all happening, it's all back, the candy bars are back.

  • And my colleague George points out

  • that the children's candy is put at children's eye

  • level in the store.

  • So this is just illustrating what I

  • mean by a phishing equilibrium.

  • Imagine that you took a job as a manager of a supermarket.

  • Do you think you would do this?

  • I've pointed out that you are in a sense

  • exploiting your customers by putting candy bars right there.

  • It's almost evil, but it's not.

  • The outrage has passed, it had its moment,

  • and now it's now it's faded.

  • And so, would you do it?

  • Well, the grocery store business happens

  • to be a highly competitive.

  • It's not a mostly innovative business.

  • There's a lot of competitors.

  • There's no organizational slack, which gives you freedom.

  • If you became a manager of a grocery store,

  • you would probably become very quickly conscious

  • that other grocery stores go out of business all the time.

  • Your profit margin is something like 2%.

  • You can't monkey around too much without risking

  • the whole enterprise.

  • So you probably would do it, too, right?

  • The other thing is that managers learn

  • that the best way to manage if in doubt, imitate

  • what other people are doing.

  • You assume that they've experimented.

  • It's costly for me to experiment.

  • Apparently, everyone puts candy bars at the checkout,

  • so I will do that too.

  • Now I've picked a very minor example about this.

  • What we did in our book is also somewhat similar to what

  • Vance Packard and others have done

  • is just give a lot of examples.

  • Our examples come from all different times in history.

  • Some of them-- let me just give you a couple of examples.

  • One of them is, there's a book by Natasha Schull called

  • "Addiction by Design," and it's about slot machines.

  • It's really about machine gambling.

  • She points out that gambling has changed in recent decades,

  • and it's become more machine oriented.

  • That is slot machines are rising as a share of total profits

  • for gambling enterprises.

  • And why is that?

  • Well, she presents an analysis saying

  • that people are more vulnerable toward addiction

  • when they are under the control of a machine.

  • So gambling is less and less.

  • I'm going to have some friends over, and we'll play cards,

  • we'll play a little poker, which would be a social environment.

  • When they first discovered slot machines in the 1890s,

  • slot machines were found to be addictive to a small percent

  • of the population.

  • They seemed to just keep doing it.

  • Have you ever noticed these people in a casino?

  • I think it has something to do with a brain bug.

  • Another book, I like books, so I'm mentioning,

  • there is a book by neuroscientists Dean Buonomano

  • called "Brain Bugs."

  • His premise is that the brain is a computer,

  • and it has a built in program as well as

  • adjustments that you add as a part of your education later.

  • But the built in program has bugs in it.

  • It's a product of Darwinian evolution, but only incomplete.

  • Evolution is much slower than computer programs

  • are and writing code, and so there are lots of bugs.

  • The book details all the bugs.

  • And I think it's interesting reading.

  • It's a funny perspective to take on yourself.

  • Well, apparently this slot machine addiction

  • has something to do with a bug in the reward

  • system in the brain that for some people encourages

  • repetitive behavior.

  • I used to code in Fortran, so I kind of think of it

  • as being stuck in a do loop.

  • [LAUGHTER]

  • So according to Natasha Schull, researchers on slot machines

  • have tried to figure out what makes for a successful slot

  • machine.

  • And they found out that I guess the optimal interval

  • between gambles is 3 and 1/2 seconds.

  • So they try to make it, that's because it's somehow

  • the reward neuroscientists have found

  • tends to come at the moment of anticipation.

  • The work of Wolfram Schultz, so the dopamine system sends out

  • signals the moment you think I've just

  • placed a bet I'm hopeful.

  • And then that dies out after a certain interval of time.

  • So if you want it to be optimally addicting,

  • you have to make it easy for the person

  • to keep playing bets at that interval.

  • So they've eliminated the crank that used to pull down.

  • That seemed to interfere with the optimal frequency.

  • And another thing they've learned

  • is that people are trying to stop.

  • They're sitting there thinking, you know I've lost $25 already,

  • maybe I should stop.

  • But they can't quite bring themselves to stop.

  • Well, they've discovered through research

  • that people who are gambling machine addicts

  • tend to stop if there's anything interrupting the flow of just

  • pushing, pushing, pushing.

  • It used to be that coins would come out when you won,

  • and they'd make a loud noise and a big spectacle and great.

  • But the problem is that it disrupted the flow,

  • and many people would pack up and leave at that point.

  • You don't want them to pack up and leave right

  • when they've won something.

  • So they now substitute a synthesised digital sound

  • of coins falling, so it won't break the rhythm

  • of your keeping on betting.

  • They've also discovered that people

  • are a little bit ashamed to be sitting at the slot machine,

  • so they try to find a nook where they are away from other people

  • observing them too much.

  • But they have a social component to the gambling still has that.

  • They like to see the excitement of the Casino.

  • So you optimize the structure, so

  • that they have the slight sense that they're hiding

  • in privacy with this machine.

  • Anyway, you get the idea.

  • I don't how you people, you're not doing anything like this

  • here, right?

  • I hope not.

  • But even so, if you can imagine taking a job designing

  • slot machines, you might be affected

  • to do the same sort of thing.

  • Let me give you another example.

  • Coca-Cola is the most famous beverage ever.

  • Why?

  • Now I've always wondered this, because I never particularly

  • liked it.

  • I don't dislike it either.

  • I mean, it's just, Yeah, it's fine.

  • But how did it get to be so big?

  • Well, it's a testimony to marketing.

  • And the people at Coca-Cola had a belief

  • that-- I'm relying this on a book "Salt, Sugar, Fat"

  • by Michael Moss.

  • It was a best seller a year ago.

  • According to his history of this,

  • the Coca-Cola people were acutely

  • aware of the importance of attaching

  • memories of good moments to their beverage.

  • And they would try to use advertising

  • to make a connection, so that later on you

  • would just think Coca-Cola, it's great, it's good.

  • Somehow, I feel good.

  • Now I think that what those people did was

  • they did something that was an anticipation

  • of modern neuroscience.

  • And that is that neuroscience now

  • says that the human mind as a computer

  • has a filing system for memories that attach emotions

  • to each memory.

  • So I think it's a good idea to put an emotion on every memory.

  • It's not a human idea, that's an evolutionary idea.

  • It's like having a file cabinet with different colored folders,

  • and important stuff you put in a red folder,

  • so it attaches an emotion.

  • Another is starting to see that the brain is really

  • structured that way.

  • So for example, you have the amygdala,

  • which is somewhere in here, that attaches emotions to memory.

  • The right amygdala specializes in fear, for example.

  • Did any of you see the new movie "Inside Out."

  • It's a children's movie, Disney Pixar.

  • I went with my wife to see it, because it's

  • supposed to be a children's movie,

  • but I thought it was far more interesting

  • than most adult movies, most that I've seen lately.

  • It features an 11 year old girl.

  • It gives you a peek inside her brain.

  • Now it's a little bit simplified.

  • It says there are five emotions, just

  • like there are five senses.

  • You know sight, hearing, touch, smell, and taste.

  • There are five emotions.

  • They're fear, anger, joy, disgust, and, I forget.

  • AUDIENCE: Anger.

  • ROBERT SHILLER: Anger, yes.

  • And so the idea is that these are already built in.

  • It's the same in every culture.

  • And it shows, the whole drama of this movie

  • is that the attachment of emotions to memories

  • and the concern that the people inside your brain

  • have about the dangers of attaching emotions

  • to core memories, because it can change your personality

  • afterward.

  • It's dangerous to have negative emotions attached

  • to important memories.

  • So I think Coca Cola people appreciated this right

  • from the beginning.

  • And it was that sort of thing.

  • Well, I'm giving you some examples.

  • We have many other examples.

  • We attribute the financial crisis recently to at least

  • partly to phishing.

  • People had the advantage of selling certain securities.

  • That a lot of emotional tension in life that people have

  • is running out of money and fearing

  • for their possible bankruptcy, and I

  • think that marketing helps them do that.

  • Anyway I'm supposed to wrap up.

  • What I wanted to do is get to what is our,

  • I don't know if I presented this well,

  • but I wanted to get to the idea that we

  • have about why we are as successful as we

  • seem to be in this country.

  • What is our core reason for success.

  • A view has enveloped that it is because of our free market

  • institutions that encourage entrepreneurs.

  • That's certainly partly right, but is that the only thing.

  • Or should we, it seems like we might be oversimplifying

  • to give quite so much.

  • So why is America a great country?

  • I have a couple of suggested readings on this, which

  • you can find on Google Books.

  • And I'm so thankful to Google, which gives me so much help.

  • In 1780, I think the year was, Benjamin Franklin wrote

  • a short article to be published in Europe.

  • And the title of the article was "Information

  • for People Contemplating Repairing to America."

  • It was a description of America in 1780 for Europeans.

  • And in that description he said, "Be warned.

  • Your erudition will do you nothing in America.

  • The Americans are very practical people,

  • and they want to see results.

  • If you are a skilled workman of some sort, fine,

  • come to America and you'll do well.

  • But if you're on an aristocrat or an artist or a philosopher,

  • don't come."

  • That's something about America.

  • It reflects the kind of people who came here

  • and the attitude that developed.

  • The other one you my read is Alexis de Tocqueville

  • who has a lot to say about American character.

  • The point is that this country is a success partly because

  • of free markets, but also because of civil society.

  • And it's actions that people have

  • taken to prevent the phishing equilibrium from dominating.

  • So it's not just individual acts of ethics or acts of concern.

  • We can exhibit, for example, the founder of Ogilvy and Mather,

  • the ad agency, Ogilvy in the 1940s

  • announced that his company would not take on any more cigarette

  • advertisements.

  • I think that if you read the medical literature

  • in the 20th century, it started to become

  • like I have a hunch cigarette smoking is bad for you by 1915.

  • By 1940 it still wasn't proven, but someone

  • who read the literature would probably say, this is it,

  • I'm not smoking.

  • It looked pretty bad.

  • So that's when Ogilvy pulled out of a cigarette advertising.

  • But it didn't have no effect on the outcome,

  • because somebody else just goes right back in.

  • There's a profit to be made.

  • And there was a profit to be made from phishing.

  • The cigarette companies tried a strategy of sowing confusion

  • about tobacco.

  • They found that the president of the University of Michigan,

  • Little, was a skeptic and a smoker.

  • He loved his smoking.

  • And they got him to say that no one has

  • proved at a statistically significant level

  • that smoking is harmful.

  • Maybe he was right, or maybe they

  • didn't understand causality well enough to prove it.

  • But basically, it was a feint to try to get people confused,

  • and it was for profit.

  • So what we really need is somebody

  • who will stand above the profit incentive

  • and will do something to try to limit profit opportunities

  • for things that we can't stand.

  • And I've been concluding my talks

  • by just giving a few examples of heroes who sort of started

  • social movements.

  • And there are a great many heroes.

  • What I've been doing as a game, I've done a book tour for this.

  • I'll try it here, too.

  • The game is I'll give you some names of famous people

  • who upheld morality in business and ask you

  • if there's anyone here who can tell me

  • who they are by their name.

  • Now, if you read our book, you'll know,

  • but that's cheating.

  • So let me start with Florence Kelley.

  • Anyone heard of her?

  • As anticipated, no one has.

  • Florence Kelley in 1899 set up the National Consumers League,

  • which tested products for safety and put a white label,

  • this was a nonprofit, a white label

  • on products that were safe.

  • William Henry Merrill, now this is not the Merrill Lynch

  • Merrill.

  • Again no one.

  • In 1893 he was an electrician who

  • was asked to inspect the electricity at the Chicago

  • World's Fair palace of electricity.

  • It was really an exciting display

  • of what things were going to come through electricity,

  • but it was unsafe.

  • Their wiring wasn't right, so he decided

  • to set up a nonprofit called United Laboratories or UL,

  • and they would put their mark on safe products.

  • This worked, because it made it impossible to phish.

  • The word got out, don't buy if it doesn't say UL,

  • and that stopped certain kinds of phishing.

  • By the way, UL made a corporate change

  • just as Google has in this month in 2012, it went for profit.

  • I believe it's still doing the same business,

  • and it's the same socially conscious business.

  • Another hero, Alice Lakey and Harvey Washington Wiley.

  • OK, 0.

  • I've done this before.

  • I hope I'm not offending you.

  • What these people did is made a public campaign about drugs.

  • They argued that as of 1900, most

  • drugs that you could buy in a drug store were fraudulent.

  • There was something like Swaim's Panacea.

  • What is that?

  • First of all, it claimed to cure any illness.

  • There's something wrong about that.

  • And then secondly, they tested what was in it.

  • And it was just ordinary household flavoring.

  • It was a complete fraud.

  • And they said, but what's to stop a business

  • from doing that?

  • When they advertised in magazines,

  • they're telling the magazine, don't criticize

  • us or we'll pull our ad.

  • So there's no incentive for the advertising.

  • Well, maybe there was some incentive.

  • But to do a testing lab and to do-- so anyway,

  • they got the government to create the Food and Drug

  • Administration in 1906.

  • Another hero, Stuart Chase and Frederick Schlink.

  • OK, Stuart, they wrote a book in the 1920s

  • called "Your Money's Worth."

  • And they said the FDA is not enough, because they're still

  • monkeying with you.

  • They said, take the example of toothpaste.

  • I'm quoting from their book.

  • "We go to a drug store, and there's

  • 10 different brands of toothpaste,

  • and they all make health claims.

  • Maybe they're all safe, the FDA has tested them,

  • but what about those health claims?

  • How does anyone know?"

  • So they said, "We need a regular publication

  • that tests products."

  • That was done in 1936.

  • That's Consumer Reports.

  • Finally, one more here, Ben Bernanke.

  • [LAUGHTER]

  • Well, I guess I don't have to tell.

  • But I think that he's a hero.

  • It's not a for profit operation that he led,

  • it was the Federal Reserve.

  • And he probably prevented another Great Depression,

  • which was based on a loss of confidence

  • and a tumult within the financial sector.

  • Controversial things that he did.

  • So anyway, that's my view, our view expressed in this book.

  • I say that our book is, I'm already controversial.

  • I may have offended some of you.

  • It's considered unpatriotic to, it seems considered unpatriotic

  • here in America especially to say anything

  • in favor of any kinds of regulation.

  • But I wanted to add that I'm not,

  • there's a tendency to think about free markets

  • versus government.

  • I'm not thinking so much about government.

  • Those heroes I gave you were outside of the government

  • except for Ben Bernanke.

  • The idea of civil society is a society

  • with people who have a sense of community,

  • a sense of responsibility for what goes on.

  • They tend to view the government as just people we hire to do

  • what we want as a community.

  • They don't allow themselves to be

  • captured by propaganda, because of their sense

  • of responsibility.

  • And they tend to be educated people,

  • and they take the effort to get knowledge.

  • So that's what this book is a plea for.

  • Now how this fits into Google with its big data

  • and its Cloud.

  • There's so many things you do here,

  • I find it hard to summarize what I would think.

  • But it seems to me that there is already

  • a moral spirit at Google as I was saying at the beginning.

  • And I think you have more organizational slack

  • than a grocery store does.

  • That means you can philosophize about the long run

  • future of this organization.

  • And you can take steps that are maybe costly in terms

  • of profits today, but in the long run are the right things

  • to do, and may not even be in the long run crossly.

  • I'll stop with that and open this up to questions.

  • [APPLAUSE]

  • Thank you.

  • AUDIENCE: How can behavioral economic theory influence

  • like what's taught in universities?

  • Will it take over?

  • Will rational actor eventually not be taught?

  • ROBERT SHILLER: Well, I think it will always

  • be taught, because it's actually a useful thing

  • to the rational actor, and the idea of Pareto

  • optimality is worth talking about.

  • But the problem with the economics profession

  • now is that it like other academic disciplines,

  • they get separated and isolated.

  • And it develops a sort of departmental inertia.

  • Here's what happens.

  • You become the economics department.

  • Now in your research.

  • Now you're a community.

  • There's a social tendency, tribal tendency.

  • You start to view the psychology department as arrival,

  • arrival for university funding.

  • And moreover, you start developing a brand.

  • So you attract PhD students, let's say,

  • who wanted to become mathematical economist.

  • So what do you do?

  • You can't say, well, we've changed our mind this year,

  • we're going to teach you psychology.

  • That's not what they want.

  • They want to get jobs.

  • It becomes all routinized.

  • They want to get jobs, so you have

  • to teach them what will get them a job

  • in a conventional economics department.

  • And also there's this pressure to be

  • at the frontier that means that you don't have time

  • to read other things.

  • So you're struggling so hard to get

  • at the pinnacle of some mathematical discourse.

  • You just run out of time.

  • By the way, there's another interesting book,

  • which just came out by Gillian Tett called "The Silo

  • Effect," which argues this more generally for corporations.

  • Maybe this is an argument against Alphabet, by the way.

  • They said, Larry Page said it would

  • be neater and more incentivizing or accountable or something

  • if we divide Google into a separate unit

  • with separate CEOs.

  • But what Gillian Tett says is that can produce

  • a bad outcome of too much specialization,

  • and then also a kind of culture developing

  • in each one of these units that's

  • kind of antagonistic to other cultures in a sense

  • that if you defy the norms of your tribe,

  • you will be unpatriotic in some sense.

  • So I haven't finished reading her book,

  • bu it sounds like it's a really important topic.

  • And it accounts for the kind of errors that are commonly

  • made in modern society.

  • AUDIENCE: So because of some of this momentum in economics

  • like forgetting graduate students

  • that want to do mathematical economics,

  • is there any math associated with some of these more

  • behavioral approaches?

  • ROBERT SHILLER: Oh, Yeah.

  • AUDIENCE: Can it?

  • ROBERT SHILLER: Yeah, behavioral economics

  • has some mathematics in it.

  • Right, I mean you can ask what is it that people do,

  • and there can be, there's mathematical psychology.

  • But the problem is it doesn't have

  • the elegance of general equilibrium economic theory.

  • And people who want to understand

  • how did this whole set of prices get set.

  • Where did they come from?

  • Free markets generate them, but where and how and why?

  • That incline, there's a sort of wishful thinking bias that

  • develops if you are a theorist.

  • You kind of hope this expected utility maximization

  • theory is right, because it makes for a nice modeling.

  • If you look at what psychologists say,

  • it's just too messy.

  • And you can't say whether we've-- parade or optimality is

  • a nice concept, because it gives you a clear conclusion.

  • But if people are psychological animals,

  • how do we know that we've made them better off?

  • I'll give you an example that Daniel Kahneman, who

  • wrote a nice book, "Thinking Fast and Slow."

  • He's a psychologist interested in economics.

  • But one thing he did is he questioned whether we even

  • know our own happiness.

  • You assume that people are making purchases

  • to make themselves happy.

  • Do people know what makes them happy?

  • So he did the following experiment.

  • He asked subjects to thrust their hand

  • into a bowl of ice water for 60 seconds.

  • By the way, try that.

  • You won't like it.

  • It gets really annoying.

  • That was condition A. Then condition B,

  • he asked them to do that again, but actually it's

  • for 90 seconds.

  • But he's got a little temperature raiser

  • in the bowl that raises the temperature for the last 30

  • seconds to something more comfortable.

  • And then later asks which did you like better A or B?

  • Most people like B better.

  • That's because, apparently their memory

  • is affected by the improvement.

  • It's been 70 seconds, now I'm starting to feel OK again.

  • But they were actually in ice water longer.

  • So by some objective criteria, they should have picked A,

  • but they didn't.

  • So the question is whether people even know

  • whether they're happy or not.

  • It's a different view.

  • It makes it harder to do economics, because yeah,

  • the human brain is this complicated interconnected

  • calculating machine.

  • What's good?

  • I don't know what's good for it.

  • And if people don't know, it just kind of leaves

  • you inconclusive.

  • So economists won't like that.

  • AUDIENCE: It's interesting that your heroes were not

  • government people.

  • And of course, the defenders of pure--

  • ROBERT SHILLER: Ben Bernanke was, but most weren't.

  • AUDIENCE: Your free market theory

  • would argue that the most extreme would

  • say, oh well, we don't need government regulation,

  • because the markets will pop up people like this

  • where there's demand for them.

  • I'm curious about your general views about that.

  • And even professional licensing, of course,

  • Milton Friedman famously argued that not even doctors

  • and lawyers should be licensed.

  • But I'm interested in the latest phenomenon

  • of this seems to be reviews.

  • So Amazon has reviews of products,

  • Uber, Airbnb both have reviews of both sides

  • of the transaction.

  • Google is trying to get more reviews.

  • I'm curious about your thoughts about the review phenomenon.

  • Obviously, it has lots of problems,

  • not just organized campaigns to do biased reviews,

  • but sort of the herd instinct with reviews

  • and lots of other things.

  • Are reviews really the latest of this heroic phenomenon

  • or is it all just self deception or what's going on

  • with the whole review thing?

  • ROBERT SHILLER: Well, you raise a lot of interesting points.

  • Let me start with Milton Friedman.

  • In 1962 he wrote a book called "Capitalism and Freedom" that

  • was actually an outgrowth of an earlier work he'd done with,

  • who was at, Kuznets on occupational licensing.

  • And in that book, he argued that occupational licensing

  • is merely an effort by the practitioners

  • to exclude competition.

  • So here's what happens.

  • The AMA goes to appear before a medical licensing board

  • and argues persuasively that something has to be,

  • a practice has to be prohibited unless it's licensed.

  • But that in fact is merely keeping others

  • out of practicing.

  • The outcome is that our medical services are excellent,

  • but there aren't enough of them, and they're too expensive.

  • He said that somehow the community doesn't understand

  • that, and so it's a doop.

  • He's really talking about it kind

  • of manipulation and deception.

  • But the problem is, what would we

  • do about not having any licensure for doctors?

  • The problem is we know that there

  • is a lot of quack medicine that could

  • be sold to ignorant people.

  • So maybe what he proposed has never been adopted

  • by any country, I think.

  • Any advanced country has licensing for doctors.

  • But another thing is I actually like Milton Friedman and admire

  • his works.

  • What he actually did with that book

  • was quite significant, because within a few years

  • of the publication of that book, the first nurse practitioner

  • program was started, or a physician's assistant.

  • What that did is it really increased

  • the supply of medical services.

  • The AMA back down and allowed that a physicians assistant

  • could practice in the office of a licensed MD.

  • The outcome of that was the reduction

  • in the cost of medical services and improved health.

  • So I think that the idea that regulators

  • can be captured by the regulator,

  • that the regulations don't always serve the public

  • is correct.

  • But that shouldn't be taken as a blanket

  • argument against regulation.

  • The other thing you've asked is about reviews on websites now

  • that allow people to see others comments.

  • I think that is a wonderful development.

  • It used to be that-- our ability to shop

  • has become so much better.

  • We get the right thing.

  • By the way, our GDP numbers don't reflect that.

  • If you were back in 1955 buying shoes that bothered you,

  • buying medicines that made you sick,

  • things like that, because you couldn't read those reviews,

  • you had a salesman who wasn't unbiased.

  • That's all you could get information from.

  • So I think our human welfare has gone up

  • much more than GDP has gone up.

  • So there's a real question about the productivity numbers

  • and the outcome numbers.

  • So what you talk about are wonderful things.

  • But offsetting that there are risks on the other side that

  • phishing that is malicious can be pursued more dramatically.

  • Well, that's why we use that word phishing and with a "ph."

  • It goes both ways.

  • I'm reminded that ISIS is a product of the internet.

  • Apparently, their ability-- the whole business model

  • of the Islamic State is to recruit fanatics

  • from all over the world.

  • And they have a way to do that now.

  • And it's creating a real problem.

  • So I don't know where all this is going net,

  • but I think it's important that people at Google

  • maintain a sort of philosophic and moral stance

  • about what they do.

  • And they already are doing that as I said at the beginning,

  • and it is important to keep that up.

  • Yeah.

  • AUDIENCE: So I have two comments.

  • One is about physicians and licensing.

  • I once proposed to a friend who's

  • a physician that that was a means of limiting

  • the number of doctors and keeping costs up.

  • And she told me that, well, actually it's the opposite.

  • In the cities where we have more doctors per capita,

  • the medical expenses are much higher.

  • And so the more doctors you have,

  • the more you spend on them.

  • ROBERT SHILLER: Yeah.

  • AUDIENCE: And so I have a question,

  • what you think of that.

  • And then I have another question follow up,

  • which is in the press we've seen a lot of articles

  • recently about the cost of drugs,

  • and how drug companies are buying up old generic drugs

  • and combining them in interesting ways,

  • and then charging essentially whatever

  • they want for them, because they are the only supplier.

  • They really have a monopoly.

  • And I'm curious how you think the government

  • or the population as a whole should deal with that issue.

  • ROBERT SHILLER: Yeah, OK, well, first thing there

  • is a natural moral hazard in the medical profession

  • that doctors will recommend surgery that's not necessary,

  • because they want to make the money.

  • And you as a client have no ability to judge.

  • That apparently goes on.

  • Similar things happen in now financial professions.

  • Financial advisors will steer you

  • to client the products that charge huge management fees

  • for questionable activities.

  • These are all part of the phishing equilibrium.

  • So what do we do about that?

  • Well, that's a big and long and complicated story.

  • One thing is I think that there is something

  • about appealing to ethics.

  • And also you're asking doctors to sign an oath of loyalty

  • to their client.

  • I was proposing in one of my books

  • that right now we have a tax subsidy for financial advice,

  • that is it's deductible, but I think

  • that we should make two changes in that deductibility.

  • One is it should be a tax credit rather than a deduction,

  • because the people who need financial advice the most

  • are low income who generally don't have any advantage

  • to itemizing.

  • The other thing is that I think financial advisors should

  • get a government subsidy of this form

  • only if they sign an oath of loyalty

  • to their client meaning that they will not steer them

  • toward products that are more lucrative for them.

  • So that would create, I think a financial advice profession

  • that resembles the medical profession.

  • I think most doctors don't schedule you for surgery

  • that you don't need.

  • And that's especially true, because they

  • have signed some kind of oath.

  • And they could be sued for malpractice.

  • So it's partly a fear, but I think it goes beyond that.

  • People do have some morals.

  • And if you said you would do something,

  • you probably would just, most people will just do it.

  • So buying up drugs and raising the price, that

  • is something that we, it was in the news

  • recently for an outrageous example.

  • I can think of free market justifications for that

  • if that additional profits would then eventually

  • go to more drug research that would help.

  • Maybe it's expensive to do the research,

  • and so maybe some drugs have to be high.

  • AUDIENCE: The government funds it.

  • ROBERT SHILLER: Well, anyway, you've

  • brought an example of a questionable activity

  • that I don't have answers to all of them.

  • This book is just a general thought piece

  • that's supposed to change people's deep assumptions

  • about the free market.

  • I think I'm out of time.

  • Is that right?

  • OK, well, thank you.

  • [APPLAUSE]

MALE SPEAKER: Good afternoon.

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ロバート・J・シラー:「フォルスのためのフィッシング」|Googleで講演 (Robert J. Shiller: "Phishing for Phools" | Talks at Google)

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    Charles Lee に公開 2021 年 01 月 14 日
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