Tim Harford The Undercover Economist
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Highlights

Steve Levitt plays poker with the FT

“I used to play poker a ton and then I quit. It’s too time consuming and toooo boring.” There’s something boyish about the way Steve Levitt drags out the word. But then his inner economist reasserts itself: “What you come to realise about poker over time is that the ratio of luck to skill in the short term is too high to make it feel productive.”

Here’s what you need to know about Levitt. He used to be a rising star in academia, with prestigious positions at Harvard and then Chicago. He picked unusual topics: cheating sumo wrestlers; the link between legal abortion and falling crime. His detective work with data was influential. In 2003, when he was just 35, Levitt won the John Bates Clark medal, often a precursor to the Nobel memorial prize. The journalist Stephen Dubner profiled him in The New York Times Magazine; a book deal followed for the pair, and the result, Freakonomics, sold four million copies. So, I’m playing poker with a data-savvy millionaire genius, a game I understand only in the sense that I’ve written about it. The good news is that Levitt doesn’t play any more. The bad news is that on his last outing, five years ago, he was within one hand of the final table at the World Series of Poker … I am doomed.

We’re at a casino in Mayfair: just me, Levitt, and the dealer, JD. At 47, Levitt has greyed since I first interviewed him nine years ago. But he still looks young and he’s better dressed than he used to be, in a silver-grey jacket and a midnight-blue shirt. JD, who deals for the poker professionals on late-night TV, looks the part in a black suit and waistcoat. Your correspondent has just come from a radio studio and is dressed accordingly. The game is Texas Hold’Em, the modern standard for poker, in which each player constructs a hand from his two concealed cards plus five communal cards on the table. The stakes: £100 each, winner takes all.

Like any good economist, I understand how to play poker in theory but am not sure how to do it in practice. (It takes me a couple of dry runs to figure out whose turn it is to bet.) We have 10,000 chips each and I have a king in my very first hand. The “flop” of three communal cards reveals a second king so, after a couple of small raises, I go in hard with a bet of 2,000 chips. Levitt chuckles, which is unnerving. After pausing, he folds. I get the impression he’s not convinced of my expertise – but I’ve won the first pot, even if it is tiny.

I’m trying to write down all the hands for posterity but that quickly becomes ludicrous. So, too, is the idea of conducting an interview while playing. Concentration is required – from me at least. I guess that Levitt wouldn’t break sweat if he had to play and chat simultaneously. I fold, and Levitt opts to show me his cards. I ask what the thinking is behind showing me that he was bluffing. Both JD and Levitt rush to explain that he had two pairs, and wasn’t bluffing at all. I realise that I have no idea what’s happening. This could be a long afternoon. Or, more likely, a short and expensive one.

“I think the statistics of poker are actually probably overrated,” Levitt says. “Most of poker is based on pretty easy rules of thumb. In a game like this there’s not many hard calculations to do.” He tells me about some research he conducted in Las Vegas, with a range of poker players including 18 winners of World Series events. “Almost all of them continued to use the rules of thumb that you use in regular poker. Even though they were not the right rules to use in the game we ran.” He concludes that experts can quickly be undone. “If you change the rules or the incentives, they tend to do very poorly.”

As our appointed break time approaches, Levitt’s getting into his stride. He’s more aggressive than I am, pushing me out of hands. But when I do stay in until our first showdown, I lose: it’s a pair of fives against Levitt’s pair of sevens. There have been no dramatic moments, yet I am slowly bleeding chips. JD is encouraging. “The play hasn’t been that bad,” he says. Levitt agrees. Still, I am losing.

Then, the very last deal before the hour, I have a decent hand: two pairs. The pot’s not a bad size and Levitt might be drawing to get a flush, so I decide to shut things down: I bet big. Levitt folds, and, as we break, I’m not far behind, with 8,900 chips to Levitt’s 11,100. I observe that since I first met Levitt, he has become a celebrity. He snorts. He’s relieved that nobody ever recognises him because he looks “so generic”.

“The nice thing is, the perks that come with the success of our book are opportunities. People come to me all the time with great opportunities.” Such as what? Money? Secrets? Power? For Levitt, the answer is simple: fun. That could mean anything from a round of golf at Augusta to working with the US Defense Advanced Research Projects Agency to prevent sex trafficking. He designs algorithms to catch credit-card fraud, and for horseracing syndicates. “The horseracing is the most fun thing.”

At one point, Levitt talks about his academic career in the past tense. “I view everything I do as a hobby now,” he says. “I no longer feel like an adult. I feel like what has happened is that I’ve been given so many opportunities that I am somehow back into a very childlike phase that I’m in the candy store and I get to pick and choose whatever I want.”

Immediately after the restart, I’m dealt a 9-7; it’s trash. But Levitt doesn’t raise the stakes so I stay in and see the flop: 4-6-8. Now either 5 or 10 will give me a straight; I call Levitt’s diffident bet. The next card is the 5. I do have a straight. It’s a monster hand in two-player poker. With 4, 5, 6 and 8 on the table, Levitt might have a straight too. But I know something he doesn’t: I have a 9, so my straight will be higher than his.  Levitt comes in with a solid bet, I raise, and he calls. Then the final card comes: another 9. That’s annoying because it might allow Levitt to split the pot with me. If Levitt has the 10 and 7, he will beat me. But that’s vanishingly unlikely. I go all in. Levitt calls.

If I win, I’ll be 18,000 chips to 2,000 chips ahead. If Levitt wins, game over. And … he has the 10 and 7 of spades. I’ve lost it all. Just like that.

“He called with the nuts,” says JD. JD and Levitt are quick to commiserate. Levitt had no idea that I had him beaten all along. JD admires how I reeled Levitt in. Levitt says that I was incredibly unlucky; that last card, the 9, killed me. And the 10-7 was the only combination in the deck that could have beaten me.

“Now that’s a hand worth writing about,” says JD. I’m feeling pretty good: I’ve lost to a “bad beat” in true poker-pro fashion. But gradually the congratulation fades into criticism. Levitt points out that I should never have gone all-in. It was a small risk but a pointless one, because Levitt would never have called me except in the unlikely event that he had the 10.

“That’s an essential rule of thumb you need to know,” Levitt says. “But that’s not Poker 101. That’s Poker 403. That’s Master’s Level Poker. PhD level Poker.” Maybe. But I’ve been schooled.

 

Written for and first published in the Financial Times on 27 June 2014. (I’m not sure why I didn’t post it at the time, but you might enjoy it now.) Levitt was promoting his book Think Like A Freak.

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12th of October, 2019HighlightsComments off
Undercover Economist

How this climate change economist changed my world

I read a lot of economics papers, but I don’t often read economics papers that make me think, “this changes everything”. But Martin Weitzman wrote one. I still remember exactly where I was when I read it. Even for a nerd like me, that’s not normal.

Professor Weitzman took his own life in late August. He was 77 and had reportedly been worried that he was losing his mental sharpness.

Weitzman’s sad death prompted me to reflect on what it was about his essay that so struck me. It was a commentary on Lord Nicholas Stern’s Review on the Economics of Climate Change. Weitzman gently pulled the Stern Review apart — “right for the wrong reasons” — and offered an alternative view of the problem.

For those of us who think climate change requires bold, urgent action, there are two awkward facts to contend with. The first is that its most worrying impacts — including floods, crop failures and diseases — are unlikely to manifest at full strength for decades or even centuries. The second is that because the world has been getting dramatically richer, future generations are likely to be much wealthier than we are.

Both these awkward facts militate against doing anything too expensive in the short term.

Here’s an analogy: imagine that I discover an incipient damp problem in my house. A surveyor tells me that if I spend £1,000 now, that will spare my great-grandchildren £5,000 of repair works in a century. At first glance it seems that I should fix the damp.

On reflection, though, spending money now would be foolish. Investing £1,000 in the stock market on their behalf would be better. At a modest 3 per cent real rate of return, it should be worth about £20,000; at 5 per cent it will be worth £130,000.

In any case, won’t my great-grandchildren be vastly richer than I am, just as I am vastly richer than my great-grandparents? Why worry? They’ll cope.

This oversimplification of the complexities of climate change gets at something important. Lord Stern’s case for action depended on arguing that our super-rich descendants living in the far future should weigh very heavily in our calculations. It is hard — not impossible, but hard — to square that with how we behave in respect to any other issue, personal or social. We simply do not set aside nine-tenths of our income to benefit future generations.

Weitzman was among several prominent economists to raise this concern. But he then asked us to contemplate the risk of runaway effects. An example: as arctic permafrost thaws, a huge volume of methane, a powerful greenhouse gas, may be released. Other economists have recognised the issue of “tail risks”, well outside the most likely scenarios. None have thought more deeply about it than Weitzman.

Central estimates can lead us astray. The most likely scenario is that climate change will cause real but manageable suffering to future generations. For example, the World Health Organization estimates that between 2030 and 2050, climate change may cause an extra 250,000 deaths a year because of threats such as malaria, heat exposure and malnutrition — a less serious problem than local and indoor air pollution, which kill 8m people a year. If we focus on the central forecast, it is local air pollution that should get most of our attention.

It is only when we ponder the tail risk that we realise how dangerous climate change might be. Local air pollution isn’t going to wipe out the human race. Climate change probably won’t, either. But it might. When we buy insurance, it isn’t because we expect the worst, but because we recognise that the worst might happen.

The truly eye-opening contribution — for me, at least — was Weitzman’s explanation that the worst-case scenarios should rightly loom large in rational calculations. If there’s a modest chance that the damp problem will give all my great-grandchildren fatal pneumonia, I shouldn’t ignore that. And my great-grandchildren wouldn’t want me to: the probably rich great-grandchildren would happily sacrifice some trivial amount of income to avoid being the possibly dead great-grandchildren. But they won’t have the choice. It’s up to me.

Weitzman was a stupendously creative man. Other celebrated contributions studied the trade-off between pollution taxes and pollution permits, the “Noah’s Ark” problem of what to focus on when preserving biodiversity, and an early argument in favour of companies sharing profits with their employees.

“If you don’t think an idea might be worthy of the Nobel Prize, you shouldn’t be working on it,” he told one colleague. Some economists would say that he reached that impossibly high standard more than once — and were surprised that he was not named as a joint Nobel Prize winner last year, when William Nordhaus was recognised for his work on climate change economics.

Nevertheless, the message of Weitzman’s recent work has influenced the policy debates on climate change: the extreme scenarios matter. What we don’t know about climate change is more important, and more dangerous, than what we do.

Written for and first published in the Financial Times on 13 Sep 2019.

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Marginalia

Two evenings with Randall Munroe

I’m interviewing Randall Munroe of xkcd on stage twice this week. Being the straight man for Randall is something that would have been on my bucket list, if it had ever occured to me in my wildest imaginings.

Speaking of wild imaginings, Randall’s new book,  How To, is a think of strange beauty. As I mentioned before,

“it’s in much the same style as What If? and just as funny and informative. I loved it, then my twelve year old daughter stole it and she loved it, then my eight year old son stole it and he loved it. I suspect we’re all getting something different from the book, which explores such questions as: If you wanted to fill a swimming pool with bottled water, could you open the bottles with atomic weapons? (There is actually a study of this question…) If you wanted to ski down a hill with no snow, would it work to drag a snow-machine along with you? How feasible is it to boil a river dry with a big array of kettles? “

Come along, if you’re free. Randall is speaking at the Royal Festival Hall in London tomorrow (October 7th) and at the Sheldonian Theatre in Oxford on Friday. And other places too, although I won’t be there to witness.

 

 
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6th of October, 2019MarginaliaComments off
Undercover Economist

When it comes to productivity hacks, are you an Arnie or an Elon?

Returning from the summer with a head full of good intentions, I have become aware of a philosophical schism in the world of productivity hacks. In one corner, Arnold Schwarzenegger. In the other, Elon Musk and the “timeboxers”. (I swear, I am not making this up.) The philosophical divide is over a simple question: how much should you schedule blocks of time in your calendar?

Mr Schwarzenegger reportedly kept his diary clear as a film star, and even tried to do so when he was governor of California. “Appointments are always a no-no. Planning ahead is a no-no,” he once said. Visitors had to treat the Governator like a walk-in restaurant — show up and hope for the best.

The opposite approach is timeboxing: timeboxers advocate transferring the entire “To Do” list to a calendar. Need to do some laundry? Set aside time on the calendar. Have a column to write? Block out the necessary hours. Want to chill out on Instagram? Put it in the calendar. Not getting enough sleep? You guessed it: calendar.

Since any productivity hack needs a celebrity endorsement, timeboxers claim (on thin evidence, it seems to me) that the technology entrepreneur Elon Musk uses the technique. Most of us have to compromise a little more with the rest of the human race than do either Mr Musk or Mr Schwarzenegger. Yet the divide is real: schedule as much as possible, or as little as you can get away with? We must all decide if every minute of productivity or rest should be planned in advance, or whether it’s better to be more flexible.

Timeboxing originated as a collaborative technique for software developers, and in that context it may work well. Yet, as a personal productivity tool, it seems infantilising. Calendars work for time-specific commitments, such as flights or nights at the opera; everything else should go on a to-do list, a much more flexible way of keeping track of commitments.

I do not want to dismiss those who claim timeboxing works for them. I’m just not persuaded. Some say timeboxing helps them avoid being overwhelmed by a long list of tasks; I say prioritise. Timeboxers note Parkinson’s law: work expands to fill the time allocated. I say, set deadlines.

More recently, I’ve seen timeboxing praised as a strategy for avoiding distractions. Nir Eyal, the author of Indistractable, says that timeboxing helps him confine Facebook and YouTube to narrow slivers of the day. If that works for you, fine; I suspect it’s more productive to have a more fundamental rethink of your relationship to social media.

David Allen, author of the cult book Getting Things Done, reckons that timeboxing is a psychological crutch. We all need to feel on top of the commitments we’ve made to others and to ourselves, and it’s not easy. For those of us who feel we’re losing our grip, he tells me, “structuring time for social media, walking the dog, prepping for dinner, might make you feel more comfortable. If you’re like me, though, you plan as little as you can get by with”.

Todd Brown of Next Action Associates, a management training firm, agrees. People like blocking out time because it feels like they can “grab control of the situation”, he says. At the end of the week, however, what if everything has changed?

I agree with both of them. Commitments do not become easier to manage simply because you decide in advance when it is all going to happen. Life has a habit of producing surprises: the boss has an urgent task; the car won’t start; an old friend texts to tell you she is on a flying visit from Australia. The most inevitable surprise of all is that everything always takes longer than you think it will.

Still, that is just my opinion. If a serious study of the rival techniques exists, I have yet to find it. One relevant experiment was conducted nearly 40 years ago by the psychologists Daniel Kirschenbaum, Laura Humphrey, and Sheldon Malett. They recruited undergraduates and gave them some basic productivity tips. One group was counselled to plan their goals and activities in broad monthly blocks. Another group was instead advised to plan their activities and set their goals on a daily basis.

Neither approach is precisely analogous to timeboxing, but the daily schedule is similar because students would draw up detailed plans. These plans backfired disastrously: day after day, the daily planners would fall short of their intentions and soon became demotivated, spending less time on studying and falling behind over the course of the academic year. The more amorphous monthly planners proved far more successful, presumably because they had more flexibility to adapt to events, as well as wasting less time fiddling around with their calendars. A plan that is too specific soon lies in tatters.

It is clear that some people have made timeboxing work for them. Everyone is different, and every job is different. For me, however, my To Do list is long, and my diary is as clear as I can keep it. And if Arnie is on my side, so much the better.

 

Written for and first published in the Financial Times on 6 September 2019.

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Undercover Economist

The curious economics of being ripped off on holiday

I once wrote that there are two types of charges: the ones you see coming and the ones you don’t. Perhaps I was too reductive. There’s a third category: the fees that you know are looming, but the fog is so thick that you can’t see them clearly.

Travellers are well used to these: the strange cover charge in the tourist-trap restaurant; the outrageous price of the hotel minibar and WiFi; those painful fees for flying with luggage. (Does it cost more to carry your bag on to the plane, or to put it in the hold? I lose track.)

I found myself pondering this a few weeks ago in the baking heat of Europcar’s Munich office. We’d hired a car online, arranging to drop it off in Milan and agreeing to pay the extra charge for doing so. Now the grumpy lady behind the desk insisted that there was a further charge of €14.99. Why? Because we planned to drive the car outside Germany. Apparently, the price we’d paid online was perfectly valid, but only if we arranged to teleport the car to Malpensa airport.

Surrounded by heat-exhausted children, my wife was outraged. It was the principle of the thing: Europcar had found a way to charge an extra fee despite not supplying anything beyond the original service. I was more relaxed, but only because mentally I’d already started drafting this column. (Europcar now tell me that because of a “system error” the charge was not clearly flagged at the time of booking, and they hope to prevent repeats.)

In fairness to Europcar, the only reason we had booked with them was because their rival Avis had stiffed us for a substantially larger sum of money the previous year. We are always careful to refuse all the overpriced extras, but this time, when we dropped the car off, Avis charged us almost €90 for “windscreen insurance” and then ignored our complaints about the matter. (I guess the true value of the insurance to be more like 90 cents than €90.)

Perhaps, somewhere in the byzantine process, we had failed to seek out and untick a “please overcharge me later for windscreen insurance” box? Even after the fact, it is often hard to tell.

How much should we worry about these hidden extras? Perhaps we should laugh them off as a cost of modern life. After all, businesses must still compete with each other and cover their overheads, so if these hidden charges could somehow be made to vanish, the everyday price might have to rise. We all know that such charges lie in wait when we deal with certain sorts of business — tourism and banking spring to mind. So why worry?

Unfortunately, it’s not that simple. Even when we know that certain charges will be added, we behave differently when those charges are highlighted. Over a decade ago, three economists, Raj Chetty, Kory Kroft and Adam Looney, conducted an experiment with a US retailer in which the familiar sales tax on everyday items was either made explicit or left implicit.

The sales tax, of nearly 7.5 per cent, is traditionally added only at the checkout. When products were relabelled to show clearly both the usual pre-tax price and what the post-tax price would be, shoppers bought substantially less. Professor Chetty and his colleagues had demonstrated that we respond differently when a cost, even a familiar one, is drawn to our attention.

There’s another reason to object to hidden charges: they make it harder to compare prices. The harder it is to compare prices, the less vigorous the forces of competition will be, to the detriment of the typical customer. I can rely on the fact that any car hire company will try to overcharge me, but I can have no confidence in just how hard the financial sucker punch will be, or when and where it will land. Should I refuse to do business again with Europcar, or should I reckon that they let me get away lightly?

A company could, of course, make a great play of not engaging in such tricks. Why not offer a price with “no hidden extras”? Alas, there are two problems with this. The first is that anyone can claim to offer a price with “no hidden extras”. When I typed the phrase into a search engine, one of the top results was Avis. Given my painful experience with the company, that is not encouraging.

There is a subtler problem too, explored a few years ago by the economists Xavier Gabaix and David Laibson. Even if an advert proclaiming “no hidden charges” is credible, it is not necessarily profitable. The problem is that not all customers would find the promise appealing. Some would instead infer “if you are good at avoiding hidden charges, try one of our competitors, who will offer you a cheap deal in the vain hope of ripping you off”. The transparent company would attract the suckers without exploiting them; the sneaky company would be a magnet for the sophisticates, who might well then avoid the tricks. The advertisement would backfire.

Perhaps it is no surprise, then, that companies boast about offering clear, transparent prices less often than we might expect, and that the boasts are often empty. That is my view as an economist. My reaction as a consumer will require some careful thought. Windscreens are transparent; prices, less so.

Written for and first published in the Financial Times on 30 August 2019.

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Undercover Economist

We are all potential victims of the con artist

Denise Milani was a 32-year-old Czech swimwear model. Paul Frampton was a divorced particle physicist more than twice her age. What happened next was a tale as old as time: they met online; she sent messages by turns steamy and adoring; they arranged to meet in Bolivia, where she was doing a photo-shoot.

Alas, when Prof Frampton arrived in La Paz to meet her face-to-face for the first time, she’d had to dash to another shoot in Europe. Could she meet him in Brussels instead? And would he mind, terribly, collecting an empty suitcase of hers and bringing it with him?

Of course, the real Ms Milani had no idea that her photographs were being used by a Bolivian drug gang. Prof Frampton seems to have had no idea either, although a friend warned him — correctly — that drugs were surely concealed in the suitcase linings. Prof Frampton duly spent several years in a Buenos Aires jail for smuggling 2kg of cocaine.

Why do we fall for the con? The obvious explanation: some people are idiots, or in Prof Frampton’s case, idiot-savants. But he isn’t the only academic to fall for a fake persona online.

In 2007, psychologist Robert Epstein struck up an online conversation with Ivana, a pretty and affectionate woman from Nizhny Novgorod. He was sufficiently charmed that it took him four months to realise that she was a chatbot. What makes that incident notable is that Prof Epstein was no head-in-the-electron-cloud particle physicist: he is one of the world’s foremost experts on how computers imitate humans.

He concluded that he had been fooled by his own wishful thinking as much as by a clever programmer. This isn’t unusual. Maria Konnikova, in her elegant book The Confidence Game, puts it well: “Cons work so widely because, in a sense, we want them to.” Profs Epstein and Frampton wanted to believe that attractive young women found them desirable. Wishful thinking can lead us far astray.

So, too, can fear and greed. Visceral emotions are easy to exploit. The “Nigerian prince” scam hooks our greed. We are promised vast riches, unlocked by a small advance payment. Other scams prey on fear: one cold-caller claims to be from your bank, warning that your account has been compromised; another is from the Revenue, demanding prompt payment of unpaid taxes. Anxious and panicked, we find ourselves bounced into making decisions we would mock in others.

There is no single unified theory of the con. Certain con artists really are artists — astonishingly charismatic, bold and versatile. But Ms Konnikova points out that many cons, like many magic tricks, are uncomplicated exploitations of common human traits, often traits that in other contexts would be strengths rather than weaknesses.

Self-deception, for example, is surprisingly useful in everyday life. One psychological study of competitive swimmers found that those with a clear-eyed assessment of themselves were more likely to fail. Another study, of married couples, found that the happier marriages were also the ones in which the spouses had a fuzzy read on each other’s opinions. Life seems smoother if we can’t see the wrinkles.

We like to think of ourselves as exceptional. Indeed, we wouldn’t be human if we didn’t loom large in our own thoughts. Our self-absorption leads us not to ask hard questions when we are promised exceptional treatment. It seems reasonable that a voluptuous model finds us irresistible, that an African oil billionaire trusts us with his cash, and that Brexit will be a doddle because, if we are polite yet firm, Germany will give the UK everything we want.

While exceptionalism makes us susceptible, so too does emotional vulnerability. Bereaved people, or those on the rebound, are tempting marks. People who have fallen for anti-vaccine pseudoscience do so because they are anxious about their children — as well as feeling smart enough to see through Big Government, Big Pharma propaganda. Many con victims fall for a second, follow-up fraud as they lick their wounds from the first.

Extended confidence tricks, where victims are fleeced over many months by someone they trust, often begin with the con artist offering friendship, sympathy or easy answers to someone who is feeling wounded. The US and UK electorates may both wish to take note.

One of the final cruelties is that many victims of fraud continue to trust the fraudster long after the con should have been apparent. A pre-Ponzi Ponzi scheme — William Franklin Miller’s 1899 Franklin Syndicate — was striking not only for its scale, but for the way Miller’s investors continued to dote on him even after the New York Times exposed the scam. What was the Times anyway, but a purveyor of fake news?

What unnerves me about Prof Frampton is that my own father knows him well. They were students together decades ago and still keep in touch. When I think of Prof Frampton, I instinctively worry that the victim of the next con could be my father. Perhaps I should be more alert to the fact that the victim of the next con could be me.

 

Written for and first published in the Financial Times on 19 July 2019.

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Marginalia

What’s it like to have lunch with a Nobel laureate?

My recent “lunch with the FT” with Richard Thaler (Nobel laureate, author of Nudge and Misbehaving) was a lot of fun. I don’t do these formal sit-down interviews often but over the years I’ve racked up a few.

At the end of the lunch I mentioned to Thaler the other economists I’d lunched with. “Good company”, he said. I think he’s right. So, just in case you missed the other interviews:

Thomas Schelling (1921 – 2016, Nobel Laureate 2005). I interviewed Schelling in his home shortly after he won the Nobel. I was still barely a journalist at all; he was charming and gracious. I find Schelling and his ideas endlessly fascinating. If you’d like to read a Schelling book, perhaps start with Micromotives and Macrobehaviour.

Gary Becker (1930 – 2014, Nobel Laureate 1992). Becker, charmingly, committed a “rational crime” during the interview.  Becker’s ideas were a big influence on my writing The Logic of Life.

My very first “Lunch with the FT” was with Steven Levitt, just before Freakonomics came out. It feels like a long time ago…

And if you want more, here’s my lunch with blogger, activist and novelist Cory Doctorow; here’s the time Michael Lewis played me at an obscure German boardgame.

 

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Undercover Economist

Should we take a few long holidays, or lots of short ones?

I know a man who used to deal with a stressful job, working 15-18 hour days in a senior role, by slipping away to a rented house near Richmond Park in London.

There, he refused to be interrupted by messages except during office hours, spent time playing bridge well and golf badly, and he ensured that the location of the hideaway was a well-kept secret. The few colleagues who did visit were strictly banned from talking about work. Yet despite his apparently laid-back approach, this fellow got results.

To be clear, I know this person only by reputation; Dwight Eisenhower died before I was born. But this is how he responded to the burdens of being supreme allied forces commander during the second world war. He found it essential to take time off.

We would all like to feel that our work is essential and our personal contribution irreplaceable. But, as Alex Soojung-Kim Pang, author of Rest: Why You Get More Done When You Work Less, notes, we’re unlikely to be doing quite as essential a job as Eisenhower’s. If he benefited from some down time, so might we.

But what sort of break is best? Should we be thinking of long sabbaticals, or is it enough to keep evenings and weekends free? Perhaps the ideal compromise is Bridget Jones’s dream of a “full-blown mini-break holiday weekend”?

The simple answer is all of the above. There’s something fractal about rest: we need it daily, weekly and yearly. That said, my reading of the (slim) evidence is that if you can bear the cumulative expense and the travel time, frequent short breaks beat the occasional elongated vacation.

Reason one: holiday memories tend to depend not on how long the holiday was, but on the intensity of the experiences. What matters is not how long you went away, but just how exciting and different the most exciting and different moments were. The first day of a visit to somewhere new will typically be more memorable than the tenth.

Reason two: a change of activity can be a spur to creativity. This need not be a long holiday; even an engaging hobby will do. Nobel Prize-winning scientists are much more likely to have serious arts and crafts hobbies than other scientists, who are in turn more likely to have serious hobbies than the rest of us.

Still, a holiday can help. Lin-Manuel Miranda was taking his first vacation for several years, at a resort in Mexico, when he read Ron Chernow’s biography of Alexander Hamilton, and was inspired to start working on what became the musical phenomenon, Hamilton. “The moment my brain got a moment’s rest, Hamilton walked into it,” he explained.

Intriguingly, Hamilton is, among other things, a musical about the importance of taking proper holidays.

“Take a break,” sings Hamilton’s wife, Eliza to her workaholic husband. “Run away with us for the summer, let’s go upstate.” Hamilton decides he needs to keep working instead and then makes sleep-deprived errors that led to his downfall.

Eisenhower’s aim in relaxing in his hideaway seems to have been to maintain his energy and good judgment. In short, he rested so that he could be a better general when he was working.

That leads us to reason three for taking a short break: if we need rest to prevent exhaustion, a single, long vacation won’t do the trick. Jessica de Bloom of the University of Groningen has found that the recuperative effects of a vacation tend to wear off in just a few weeks. You can’t store up the benefits of a long holiday any more than you can sleep for 24 hours then stay awake and sharp for the rest of the week.

All this raises another question, though: what should we do while we’re taking a break? According to Mr Soojung-Kim Pang’s survey of the available research, the ideal break offers relaxation, control, mastery and mental detachment.

By relaxation he simply means something that requires little conscious effort — from a walk to watching television. Control means autonomy over how you spend your time. Mastery refers to immersion in a challenging and absorbing task. An active holiday of skiing, sailing or rock climbing might do the trick — but so might a weekend of home improvements, assuming you’re better at putting up shelves than I am.

Finally there’s mental detachment — disconnecting from the responsibilities of the office. Such disconnection is harder than ever these days but it can help, even when the break is otherwise anything but relaxing. Business trips can be exhausting yet even they have been found to reduce burnout and stress, because they provide a break from day-to-day responsibilities.

And one 1998 study — by Professors Dalia Etzion, Dov Eden and Yael Lapidot — discovered that men called up for active reserve duty in the Israeli army found that the experience provided the same relief from burnout and stress in their normal lives that a holiday would have done.

It’s not that serving in the army is relaxing but that it provides a sense of distance from the day job. Unless, of course, your day job is in the army. In that case I recommend that you emulate Ike and enjoy a game of golf or bridge.

Written for and first published in the Financial Times on 16 August 2019.

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Highlights

“If you want people do to something, make it easy.” Richard Thaler has Lunch with the FT

The Anthologist doesn’t serve cashew nuts, so I order a bowl of smoked almonds instead. When they arrive, caramelised and brown as barbecue sauce, I ask for them to be put right in front of Richard Thaler. He protests that the waiter isn’t in on the joke.

The readers will be, I assure him. “The educated ones, perhaps,” he concedes.

Those educated readers may know that Professor Thaler is a Nobel laureate economist, but even more famous as the co-author of Nudge. They may even know — from his later book, Misbehaving: The Making of Behavioural Economics — that the 73-year-old is fond of telling an anecdote about a bowl of cashew nuts that sheds light on his approach to economics.

He served the notorious bowl to some guests while dinner was roasting in the oven, then watched everyone compulsively munch on the nuts and gradually spoil their appetites. So Thaler decided to remove the temptation by hiding the cashews in the kitchen. His guests thanked him.

It would be an unremarkable tale, except that such behaviour simply does not fit the rational economic model of human behaviour. Either eat the cashews or don’t eat the cashews, says classical economics, but don’t thank the person who moves them out of easy reach.

Reflecting on such stories helped Thaler create “behavioural economics” — a branch of the discipline that aims at psychological realism. Doing so also helped him with the equally difficult task of persuading other economists to take the behavioural view seriously.

True, it’s just a story about cashews — but if you don’t think short-termism and weak willpower are economically significant in the grand scheme of things, I have a payday loan, a pension drawdown scheme and an auto-renewing gym membership to sell you.

And, sure enough, Thaler’s ideas about the importance of realistic human behaviour have permeated into the economic mainstream, particularly the study of finance. His policy proposals have influenced tax collection, organ donation, energy efficiency drives — and most notably pensions, where participation in workplace schemes dramatically increases when people must explicitly opt out if they are not to be automatically enrolled.

Thaler cultivates a happy-go-lucky persona, a man whose own weaknesses help him understand the weaknesses of others. “You assume that the agents in the economy are as smart as you are,” he once told Robert Barro, one of the pillars of the economics establishment, “and I assume that they’re as dumb as me.” Barro was happy to agree with that.

This sunny July, however, Thaler is a model of self-control. “Notice how many nuts I’ve had so far,” he announces, 20 minutes into our conversation. He gestures for emphasis. “Zero.”

I’m not surprised by that, although I am when Thaler — who struck me as a bon vivant — admits that he has been skipping lunch entirely. He’s in London for a fortnight, teaching a course at the London campus of the University of Chicago Booth School of Business, and after a generous breakfast he says he has neither the need nor the time for lunch.

This may also explain his lack of interest in the restaurant itself. We meet at the business school, and he’s chosen the closest place — announcing “it’s me again” to the waitress who stands outside. I don’t even glimpse the interior of The Anthologist, because she promptly directs us to a pavement table, which has a large masonry wall on one side and on the other — if you squint — a view down Gresham Street to a back corner of the Bank of England. The scooters and trucks roar past a couple of yards away, but Thaler has no trouble making himself heard.

He used to squeeze more out of his annual fortnights in London. “I would spend the morning with the Behavioural Insight Team” — the famous “nudge” unit established by David Cameron and inspired by Thaler’s book with the law professor Cass Sunstein — “then come and teach all afternoon. And then half the nights there would be dinners with friends. And I was comatose at the end of the first week.”

He does admit to having a few dinners planned, though — and to timing his visit to coincide with the Wimbledon Men’s Final. He and his wife, the photographer France Leclerc, had Centre Court tickets. Was he a fan of Djokovic or Federer?

“We support Rafa. Although if he had been playing in a match like that it might have got too much for my wife. She would have been hiding somewhere by the fifth set.”

It was the same on election night: the Trump/Clinton contest reduced his wife to a nervous wreck. “And who were you supporting in that one?” I ask. He gives me a withering look. “At least credit me with sentience.”

President Barack Obama seemed to appreciate behavioural economics and gave Thaler’s co-author, Cass Sunstein, a senior appointment. The Trump administration, observes Thaler, has no interest in behavioural economics. “Look, there’s no demand for expertise of any sort . . . The lack of competence and expertise is like nothing anyone has ever seen.”

Whitehall’s Behavioural Insight Team seems to be displaying more longevity than the White House equivalent. “The key move they made very early on was to extricate themselves from government.”

They’re now a semi-autonomous social enterprise in which the Cabinet Office retains a stake. They made that move, of course, before Cameron’s referendum-induced autodefenestration. “I will say that David Cameron never talked to anybody at the Behavioural Insight Team about the Brexit referendum”.

And what should they have said if he had? “One thing for sure is Remain is a horrible name. It’s weak. Whereas Leave is strong.”

Thaler has written about the referendum before in the Financial Times. He reminds me that Theresa May said, before the referendum: “The reality is that we do not know on what terms we would have access to the single market.”

The waiter interrupts us and presses Thaler to order some wine. He waves him away. “No, I have to teach for the next three hours.”

We return to May, and her explanation that a vote to Leave would be a vote for something undefined and unknowable. Yet as prime minister, she felt that it was quite sufficient to declare that Brexit means Brexit. “Brexit means Brexit — that is one of the dumbest statements that has ever been uttered by a head of state. And I’m aware that there are thousands of tweets one could compare it with. I mean, it’s simultaneously meaningless and wrong.”

The waiter finally manages to get us to order something. Thaler goes for a crispy duck salad. “It’s called salad, you know it has at least the illusion of being healthy”. I’m tempted by the Wagyu beef burger but feel ashamed (social pressure means nothing to homo economicus but is a powerful nudge for human beings), so I order some cod with samphire.

The waiter is keen to upsell. Spritzer? Some halloumi? Thaler and I are baffled by the suggestion of halloumi with cod and duck, although I would have cracked if the waiter had tried to sell us French fries.

We turn to the state of economics, and how it became so wrapped up in the idea of rational agents. Some of those models have a hypnotic pull, I suggest: they’re so ingenious, so difficult, and once you’ve understood how they work you don’t want to abandon them in favour of the bowl-of-cashews guy.

I’m recalling a time I was reading a classic article by Barro — in the emergency room, having dislocated my jaw after a spectacular yawn, which I protest was unconnected to the research paper in question. I don’t get far. “You should change this story!” hoots Thaler. “It should be that you read this paper and, literally, your jaw dropped.”

It’s a reminder that Thaler is a storyteller as well as a sharp theorist. Misbehaving is full of stories. “I decided to just start writing things that would amuse me,” he says — including an account of a huge academic bunfight over the allocation of corner offices at the University of Chicago economics department that cannot fail to provoke Schadenfreude.

“I sent that to my friend Michael Lewis. I said, ‘How much of the book could be like this?’ and he said ‘All’.”

Lewis (whom I interviewed here) isn’t a bad sounding board: he’s the author of Liar’s Poker, Moneyball and The Big Short. He also wrote a biography of Thaler’s friends and colleagues, the psychologists Daniel Kahneman and Amos Tversky. I wouldn’t mind getting him to look over my first drafts.

When it arrives, the cod is pleasant enough, but there isn’t much of it. I’m regretting not ordering the fries. The smoked almonds look tasty, but they’re across the table sitting beside Thaler’s left hand. He hasn’t so much as twitched towards them.

The key message of Nudge was that governments could improve the health and wellbeing of their citizens without infringing on their liberty, simply by more thoughtfully designing their rules, procedures, or even labelling. “If you want people to do something, make it easy.” Put the cashews in the kitchen and the fruit by the cafeteria checkout.

More recently, Thaler has been thinking and writing about what he calls “sludge”. It’s the same procedure in reverse: if you want people not to do something, make it difficult. Reaching for an example, Thaler has a bone to pick with The Times.

The first review of Misbehaving was published there, and Thaler’s editor sent him a link. “And I can’t get past the paywall without subscribing.” But then he notices there’s an offer of a month’s trial subscription at an introductory rate. “But I read further, having written a book about this, and I see that it will be automatically renewed.”

Not only that, it will be renewed at full price, “and that in order to quit, I have to give them 14 days’ notice. So the one month free trial is actually two weeks. And I have to call London [from Chicago] in London business hours, not on a toll free line.”

He pauses and chides me to check that the FT isn’t placing similar sludge in the way of readers who wish to unsubscribe. I assure him that nobody would ever want to unsubscribe, but in any case such knavery would be beneath us. But part of me wonders. “Check your policy at the FT,” he advises. (Later, I check. The FT offers a very similar introductory offer, but I am relieved to discover that the newspaper offers regional phone numbers and you can also cancel online.)

While we’re talking about the consumption of digital goods, I am keen to ask him about how he deals with email, smartphones and social media. We’re in the middle of a colossal set of experiments in behavioural manipulation that would have been hard to imagine when Sunstein and Thaler wrote Nudge over a decade ago. Google, Apple, Facebook and Amazon are constantly running little trials to see what we do in response.

“The world has changed. I remember that while we were writing the book, I got my first iPhone.”

But does it tempt him? Distract him? An iPhone, it seems to me, is a bottomless bowl of digital cashews. But he’s not worried. “I’m not on Facebook at all . . . I am on Twitter and I find much of it to be quite useful. There’s a growing academic economics Twitter that’s fantastic. There’s almost no ad hominem. There are people live-tweeting conferences. Fantastic. There are people who will give a 10-tweet summary of some new paper.”

Thaler stops eating his salad — he’s managed to get most of it down, in between his answers. I’ve long since finished my little piece of fish. The smoked almonds have somehow migrated into the centre of the table, easily within my reach. They are untouched. “Let the record be noted that my consumption so far is zero,” he declares.

Thaler isn’t interested in coffee or dessert, but says he has time if I want something. I order espresso. After it arrives, I take a sip, and then my hand moves instinctively towards the almonds before I catch myself. He laughs. “That was a trembling hand.”

My involuntary slip prompts us to start talking about accidents. “Here’s something I was thinking about this morning,” he says. “All these announcements to mind the gap. Can that conceivably be useful?”

“Mind the gap,” is part of the sonic wallpaper of the London Underground, a reminder not to accidentally stumble into the space between Tube train and platform. I wonder if Transport for London has run an experiment. “I’m wondering that too.” Although we both doubt it.

“Now here’s my hypothesis. 99.9 per cent of the people on the Tube have blocked this out long ago. And whatever the percentage of tourists is, half of them have no idea what ‘mind the gap’ means. It could be ‘cheerio’.”

In short, the people who might conceivably benefit from the warning probably don’t understand it. So why not experiment with some different approaches to see if that reduces accidents?

The proposal is typical Thaler. He’s noticed a feature of everyday life that most of us either overlook or take for granted — and he’s turned it into an easily implementable experiment that might actually make the world a better place.

It’s time for him to go and teach. We shake hands, and then he reaches forward, slowly and deliberately, for a smoked almond. He holds it up in front of me as though displaying a fine diamond.

“One!” he says. Then he pops it into his mouth, and ambles off towards the business school. Only when his back is turned do I dare grab one myself.

The Anthologist 58 Gresham St, London EC2

Smoked almonds £3.75

Crispy duck salad £11.50

Cod with samphire £14.95

Sparkling water £3.95

Double espresso £2.90

12.5 per cent service £4.63

Waiter rounds up the bill (a nudge?) £0.32

Total £42.00

 

==

 

 
Written for and first published in the Financial Times on 2 August 2019.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to order online or through your local bookshop.

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Marginalia

The magic of picture books

Perhaps it’s the holiday feeling, but I’ve been looking at books with lots of pictures recently.

First, Randall Munroe’s marvelous How To. It’s in much the same style as What If? and just as funny and informative. I loved it, then my twelve year old daughter stole it and she loved it, then my eight year old son stole it and he loved it. I suspect we’re all getting something different from the book, which explores such questions as: If you wanted to fill a swimming pool with bottled water, could you open the bottles with atomic weapons? (There is actually a study of this question…) If you wanted to ski down a hill with no snow, would it work to drag a snow-machine along with you? How feasible is it to boil a river dry with a big array of kettles? Needless to say, strongly recommended.

Very different, from the equally talented cartoonish Zach Weinersmith and always-interesting economist Bryan Caplan, is Open Borders – which is a polemic essay, illustrated by Weinersmith, arguing for dramatically more liberal rules on immigration. I’m much more sympathetic to this idea than most people, so perhaps not best placed to find the holes in the argument, but it’s well worth a read: Caplan makes a strong case, founded on the idea that immigration is good for the global economy while respecting the basic liberty of every person in the world. Of course, there are many possible objections both to the argument, and to the policy, and Caplan works through all the obvious ones, arguing against them – sometimes from first principles and sometimes by appealing to data. And it’s all pictures – which does make it quick and fun to read.

And different again: I finally, three decades late, decided I should read Sandman by Neil Gaiman. Two volumes in and I’m loving it. The first volume is occasionally shlocky, awkward or exploitative to modern sensibilities – but only occasionally. Gaiman, one feels, is still finding his feet. Still, most of it is spellbinding. And volume 2 is even better. If you haven’t read it, you should.

One more thing. My father and I are going on an all day walk to raise money for Rennie Grove Hospice Care. I’m not going to pretend it will be a sinew-shredding challenge, although I hope to pick up a blister or too. But it’s a very good cause and we’d be most grateful for any support you can give. My mother died of cancer in 1996 and our whole family hugely valued the hospice care she received during her long and difficult illness.

Thank you in advance.

 

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