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  • What you have here

  • is an electronic cigarette.

  • It's something that's, since it was invented a year or two ago,

  • has given me untold happiness.

  • (Laughter)

  • A little bit of it, I think, is the nicotine,

  • but there's something much bigger than that.

  • Which is ever since, in the U.K., they banned smoking in public places,

  • I've never enjoyed a drinks party ever again.

  • (Laughter)

  • And the reason, I only worked out just the other day,

  • which is when you go to a drinks party

  • and you stand up and you hold a glass of red wine

  • and you talk endlessly to people,

  • you don't actually want to spend all the time talking.

  • It's really, really tiring.

  • Sometimes you just want to stand there silently, alone with your thoughts.

  • Sometimes you just want to stand in the corner and stare out of the window.

  • Now the problem is, when you can't smoke,

  • if you stand and stare out of the window on your own,

  • you're an antisocial, friendless idiot.

  • (Laughter)

  • If you stand and stare out of the window on your own with a cigarette,

  • you're a fucking philosopher.

  • (Laughter)

  • (Applause)

  • So the power of reframing things

  • cannot be overstated.

  • What we have is exactly the same thing, the same activity,

  • but one of them makes you feel great

  • and the other one, with just a small change of posture,

  • makes you feel terrible.

  • And I think one of the problems with classical economics

  • is it's absolutely preoccupied with reality.

  • And reality isn't a particularly good guide to human happiness.

  • Why, for example,

  • are pensioners much happier

  • than the young unemployed?

  • Both of them, after all, are in exactly the same stage of life.

  • You both have too much time on your hands and not much money.

  • But pensioners are reportedly very, very happy,

  • whereas the unemployed are extraordinarily unhappy and depressed.

  • The reason, I think, is that the pensioners believe they've chosen to be pensioners,

  • whereas the young unemployed

  • feel it's been thrust upon them.

  • In England the upper middle classes have actually solved this problem perfectly,

  • because they've re-branded unemployment.

  • If you're an upper-middle-class English person,

  • you call unemployment "a year off."

  • (Laughter)

  • And that's because having a son who's unemployed in Manchester

  • is really quite embarrassing,

  • but having a son who's unemployed in Thailand

  • is really viewed as quite an accomplishment.

  • (Laughter)

  • But actually the power to re-brand things --

  • to understand that actually our experiences, costs, things

  • don't actually much depend on what they really are,

  • but on how we view them --

  • I genuinely think can't be overstated.

  • There's an experiment I think Daniel Pink refers to

  • where you put two dogs in a box

  • and the box has an electric floor.

  • Every now and then an electric shock is applied to the floor,

  • which pains the dogs.

  • The only difference is one of the dogs has a small button in its half of the box.

  • And when it nuzzles the button, the electric shock stops.

  • The other dog doesn't have the button.

  • It's exposed to exactly the same level of pain as the dog in the first box,

  • but it has no control over the circumstances.

  • Generally the first dog can be relatively content.

  • The second dog lapses into complete depression.

  • The circumstances of our lives may actually matter less to our happiness

  • than the sense of control we feel over our lives.

  • It's an interesting question.

  • We ask the question -- the whole debate in the Western world

  • is about the level of taxation.

  • But I think there's another debate to be asked,

  • which is the level of control we have over our tax money.

  • That what costs us 10 pounds in one context can be a curse.

  • What costs us 10 pounds in a different context we may actually welcome.

  • You know, pay 20,000 pounds in tax towards health

  • and you're merely feeling a mug.

  • Pay 20,000 pounds to endow a hospital ward

  • and you're called a philanthropist.

  • I'm probably in the wrong country to talk about willingness to pay tax.

  • (Laughter)

  • So I'll give you one in return. How you frame things really matters.

  • Do you call it the bailout of Greece

  • or the bailout of a load of stupid banks which lent to Greece?

  • Because they are actually the same thing.

  • What you call them actually affects

  • how you react to them, viscerally and morally.

  • I think psychological value is great to be absolutely honest.

  • One of my great friends, a professor called Nick Chater,

  • who's the Professor of Decision Sciences in London,

  • believes that we should spend far less time

  • looking into humanity's hidden depths

  • and spend much more time exploring the hidden shallows.

  • I think that's true actually.

  • I think impressions have an insane effect

  • on what we think and what we do.

  • But what we don't have is a really good model of human psychology.

  • At least pre-Kahneman perhaps,

  • we didn't have a really good model of human psychology

  • to put alongside models of engineering, of neoclassical economics.

  • So people who believed in psychological solutions didn't have a model.

  • We didn't have a framework.

  • This is what Warren Buffett's business partner Charlie Munger calls

  • "a latticework on which to hang your ideas."

  • Engineers, economists, classical economists

  • all had a very, very robust existing latticework

  • on which practically every idea could be hung.

  • We merely have a collection of random individual insights

  • without an overall model.

  • And what that means is that in looking at solutions,

  • we've probably given too much priority

  • to what I call technical engineering solutions, Newtonian solutions,

  • and not nearly enough to the psychological ones.

  • You know my example of the Eurostar.

  • Six million pounds spent to reduce the journey time

  • between Paris and London by about 40 minutes.

  • For 0.01 percent of this money you could have put WiFi on the trains,

  • which wouldn't have reduced the duration of the journey,

  • but would have improved its enjoyment and its usefullness far more.

  • For maybe 10 percent of the money,

  • you could have paid all of the world's top male and female supermodels

  • to walk up and down the train handing out free Chateau Petrus to all the passengers.

  • You'd still have five [million] pounds in change,

  • and people would ask for the trains to be slowed down.

  • (Laughter)

  • Why were we not given the chance

  • to solve that problem psychologically?

  • I think it's because there's an imbalance, an asymmetry,

  • in the way we treat creative, emotionally-driven psychological ideas

  • versus the way we treat rational, numerical, spreadsheet-driven ideas.

  • If you're a creative person, I think quite rightly,

  • you have to share all your ideas for approval

  • with people much more rational than you.

  • You have to go in and you have to have a cost-benefit analysis,

  • a feasibility study, an ROI study and so forth.

  • And I think that's probably right.

  • But this does not apply the other way around.

  • People who have an existing framework,

  • an economic framework, an engineering framework,

  • feel that actually logic is its own answer.

  • What they don't say is, "Well the numbers all seem to add up,

  • but before I present this idea, I'll go and show it to some really crazy people

  • to see if they can come up with something better."

  • And so we, artificially I think, prioritize

  • what I'd call mechanistic ideas over psychological ideas.

  • An example of a great psychological idea:

  • The single best improvement in passenger satisfaction on the London Underground per pound spent

  • came when they didn't add any extra trains nor change the frequency of the trains,

  • they put dot matrix display board on the platforms.

  • Because the nature of a wait

  • is not just dependent on its numerical quality, its duration,

  • but on the level of uncertainty you experience during that wait.

  • Waiting seven minutes for a train with a countdown clock

  • is less frustrating and irritating

  • than waiting four minutes, knuckle-biting

  • going, "When's this train going to damn well arrive?"

  • Here's a beautiful example of a psychological solution deployed in Korea.

  • Red traffic lights have a countdown delay.

  • It's proven to reduce the accident rate in experiments.

  • Why? Because road rage, impatience and general irritation

  • are massively reduced when you can actually see the time you have to wait.

  • In China, not really understanding the principle behind this,

  • they applied the same principle to green traffic lights.

  • (Laughter)

  • Which isn't a great idea.

  • You're 200 yards away, you realize you've got five seconds to go, you floor it.

  • (Laughter)

  • The Koreans, very assiduously, did test both.

  • The accident rate goes down when you apply this to red traffic lights;

  • it goes up when you apply it to green traffic lights.

  • This is all I'm asking for really in human decision making,

  • is the consideration of these three things.

  • I'm not asking for the complete primacy of one over the other.

  • I'm merely saying that when you solve problems,

  • you should look at all three of these equally

  • and you should seek as far as possible

  • to find solutions which sit in the sweet spot in the middle.

  • If you actually look at a great business,

  • you'll nearly always see all of these three things coming into play.

  • Really, really successful businesses --

  • Google is great, great technological success,

  • but it's also based on a very good psychological insight:

  • People believe something that only does one thing

  • is better at that thing than something that does that thing and something else.

  • It's an innate thing called goal dilution.

  • Ayelet Fishbach has written a paper about this.

  • Everybody else at the time of Google, more or less,

  • was trying to be a portal.

  • Yes, there's a search function,

  • but you also have weather, sports scores, bits of news.

  • Google understood that if you're just a search engine,

  • people assume you're a very, very good search engine.

  • All of you know this actually

  • from when you go in to buy a television.

  • And in the shabbier end of the row of flat screen TVs

  • you can see are these rather despised things called combined TV and DVD players.

  • And we have no knowledge whatsoever of the quality of those things,

  • but we look at a combined TV and DVD player and we go, "Uck.

  • It's probably a bit of a crap telly and a bit rubbish as a DVD player."

  • So we walk out of the shops with one of each.

  • Google is as much a psychological success as it is a technological one.

  • I propose that we can use psychology to solve problems

  • that we didn't even realize were problems at all.

  • This is my suggestion for getting people to finish their course of antibiotics.

  • Don't give them 24 white pills.

  • Give them 18 white pills and six blue ones

  • and tell them to take the white pills first and then take the blue ones.

  • It's called chunking.

  • The likelihood that people will get to the end is much greater

  • when there is a milestone somewhere in the middle.

  • One of the great mistakes, I think, of economics

  • is it fails to understand that what something is,

  • whether it's retirement, unemployment, cost,

  • is a function, not only of its amount, but also its meaning.

  • This is a toll crossing in Britain.

  • Quite often queues happen at the tolls.

  • Sometimes you get very, very severe queues.

  • You could apply the same principle actually, if you like,

  • to the security lanes in airports.

  • What would happen if you could actually pay twice as much money to cross the bridge,

  • but go through a lane that's an express lane?

  • It's not an unreasonable thing to do. It's an economically efficient thing to do.

  • Time means more to some people than others.

  • If you're waiting trying to get to a job interview,

  • you'd patently pay a couple of pounds more to go through the fast lane.

  • If you're on the way to visit your mother in-law,

  • you'd probably prefer to stay on the left.

  • The only problem is if you introduce this economically efficient solution,

  • people hate it.

  • Because they think you're deliberately creating delays at the bridge

  • in order to maximize your revenue,

  • and "Why on earth should I pay to subsidize your incompetence?"

  • On the other hand, change the frame slightly

  • and create charitable yield management,

  • so the extra money you get goes not to the bridge company, it goes to charity,

  • and the mental willingness to pay completely changes.