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Okay, well, welcome everybody to tonight's lectures. For tonight, we're very happy to have with us Tim Harford. For six years, I think he has been the Financial Times agony aunt. I think he's happy to be described as that dealing with people's personal problems using the principles of economics. And he's in the past given advice which he himself describes, described as life transforming on dating, etiquette, parenting and personal hygiene. Today, he's going to be here talking about his new book, Dear Undercover Economist. There we are, which is available for purchase in the foyer and signing afterwards for those who are interested. And he's going to speak first of all on that for about 45 minutes. And then we're going to have 45 minutes of questions in which he's going to seek to answer your personal problems. So if you've got those 45 minutes to think and please don't be shy, we're all friends here, I think. So with that, just over to Tim. Thanks very much.
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Thank you very much. Thank you very much, everybody. It's wonderful to be back at lse. Every time I come here and see this wonderful lecture theatre filled, I have to pinch myself that everyone has actually come here to listen to me. It's brilliant. Especially when term's just started, everyone's so busy, there's the Booker Prize party going on, so it's a privilege. It's a privilege. Thank you very much for coming. Speaking of books, I am going to talk about this book. I wanted to mention it briefly, not for my own reasons, because of course, unlike most economists, I am entirely altruistic, but simply to let you know that the lady who is standing outside the lecture theatre today holding, who's going to sell books if people want to buy books, is a wonderful independent bookseller from just down the road from me in Hackney, who set up her bookshop in the middle of the credit crunch with no help from the bankers whatsoever. And so if you're wandering away and you don't want to buy a book, that's fine. But if you're wandering away and you're thinking, oh, I'll just get one on Amazon or I'll buy one from Waterstones, think again and support a local business anyway, sort of advert for Hackney business is over. What I want to talk about is, well, I really want to talk about how economics can make us happy. I think the world of economics has become very depressing in the last couple of years. Northern Rock, Lehman Brothers. I found myself really worn down by the whole thing. Not least because as a writing for the Financial Times, I've had to try and keep on top of this whole thing. And obviously I have more serious colleagues who write about macroeconomics and write about the banking sector and so on. But still I felt that as a Financial Times journalist, I felt guilty. Guilty, I think is the right word. I felt guilty that I didn't really understand the first thing about how. How a bank is run. And then I realized that the managing directors of all the banks didn't understand the first thing about how a bank is run. And I felt somewhat better. So just so everyone understands where I'm coming from, I'm a microeconomist. I'm not a macroeconomist. You'll know the difference. The old joke, macroeconomists are wrong about things in general, whereas microeconomists are wrong about particular things. So. So that's the kind of economist I am. The macroeconomists are the ones who caused the credit crunch. In case you want to blame anybody. It wasn't us, it wasn't the microeconomist. Not only am I a microeconomist, but I'm a particular kind of microeconomist. I'm a microeconomist who likes to help people. Now, I just wanted a show of hands. Could you please put your hands up if you are an economist or if you're studying economics now? Wow. So I would say probably 75% of you, could you keep your hands up if you became an economist because you wanted to help people? I'm a little. Some guilty looks. I'm a little disappointed because economics is a wonderful tool for helping people. Economics is, you know, it's like studying to be a doctor or to be a nurse or to be a scientist who's going to invent some wonderful vaccine. Being an economist is a great thing. It's a. Life's transforming is the word. Economics can make people's lives better. And that's what I want to talk to you about. So I guess I have to explain first of all how I got into this whole business. I joined the Financial Times for the first time six years ago and a couple of my senior colleagues were just relaunching the FT magazine and they thought to themselves, wouldn't it be a wonderful idea, a really good joke, if they had a problem page with an agony aunt or agony uncle? But people could write in and ask for advice on etiquette or dating or personal hygiene, and all the answers would be given by an economist. And they thought that this would be a particularly hilarious gag. And this would maybe last for three months or six months. Nobody really dreamed that it was going to still be going six years later and going strong. But I think there are a few reasons for that, for the success of the column. I think the first reason is that I know it's a little strange to write to the equivalent of Star Trek's Mr. Spock and ask him for dating advice. Yes, you're a crush on your econometrics tutor is highly illogical. But I know that seems strange, but there is a curious, compelling quality to the predictions of rational choice theory. They are at least very clear and unambiguous in what they offer. And that's, I think, something that we expect from any good problem page. You write into a problem page, what are you going to expect? You're going to expect an answer that first of all is grossly oversimplified, secondly, contains no knowledge of your personal context and the specific details that you have to deal with and the problems you face in your own life. It's going to stick to generalities. That's the kind of answer you expect from a problem page. It's also the kind of answer you expect from an economist. Just ask anyone who's been visited by the imf. No, it's the same thing, just massively oversimplified, context free. And that's what makes a great problem page. So economics and a problem page, I think are more closely aligned than we really would expect. The second powerful thing about economics to answer personal problems is there's this schism in economics, and it's a very productive schism. So it's between the rational choice guys and the behavioral economics people. The rational choice people have thought incredibly hard about what the optimal course of action is in every possible situation. They know exactly what the right thing to do is. And the behavioral economists have studied exactly why people don't act that way. So you've got everything covered. You know exactly what to do and you know exactly why people don't do it. So economics is very powerful. But the third reason why I think the column has gone on for six years is the quality of the letters that people write into me. I just wanted to give you an example. This is from very early on. I'd barely begun to write Dear Economist, and I got this letter and it's a real letter, by the way. People ask me, are they real? This one is. Most of them are. Ones. At the beginning, before anybody had ever heard of us, we obviously had to make up A lot of stuff. But since then I've just been flooded with brilliant letters. And to be honest, people ask me, do you make up the letters? And I say, well, you can't make up letters like this. You just can't make them up. So this One is from Mr. Smith in London. Dear Undercover Economist, I am 74, vigorous, wealthy and boringly married. My girlfriend of eight years, who is 37, has found a man of her own age of moderate means. She has assets of £300,000 and a salary of about £50,000. I had intended to give her £250,000 and would still do so if she continued a discreet relationship with me. What do you think? You can't make this stuff up. Anybody wants to know what the answer is. Sometimes the question is better than the answer. I'll give you the answer. Dear Mr. Smith, your plan must overcome two obstacles. First, Milton Friedman's permanent income hypothesis invites us to consider any temporary windfall in terms of the income it could generate in perpetuity. Your payment of £250,000, while substantial, would have generated a permanent income of roughly £5,000 at prevailing real interest rates. This is only a modest sum compared with your girlfriend's salary, although perhaps less modest if she proposes starting a family and living off the income of her new beau for several years. In other words, her offer is serious money. Your offer is serious money to her only if she plans to make a serious commitment to her other relationship. This is an unfortunate combination for you. There is a second concern. You cannot write an enforceable contract setting out what you expect for your considerable outlay. All industrial economists in the audience understand this incomplete contracting. It is true that many romantic and sexual relationships have a financial component. However, not many succeed on the terms you propose. Either they proceed to implicit long term contracts or else they are carried out as spot market transactions. You may find it distasteful to pay your girlfriend by the hour. Even if you do not, she will. You are likely to have more success sticking to the formula that has stood you in good stead for eight years. Keep hold of your money, but turn on the charm. So this was an early letter to me and. And you can see why the column is still going strong when people are still writing these letters and provoking me in this wonderful way. Here's a recent one. It's actually one of the most recent in the book. It dates from just after Lehman Brothers collapsed. And again, this is a real letter. Well, I don't know if it's a real letter, but I can Tell you, I didn't make it up. One of the other things that economics now offers is. Is very interesting empirical research. The last letter had a lot of theory in, but there are also empirics and so there's some of that in this answer. Dear undercover Economist, I work as an escort in Canary Wharf, one of London's financial centres. That's a compelling first sentence. I wonder if you might have some sound business advice on how workers in my industry should. Should tackle the sudden drop in demand following the collapse of Lehman Brothers. In the book it's signed Ms. C. I can tell you that's not how she signed herself. To me, certain things can't be printed in the FT. Dear Ms. C, I wasn't aware that escort services were pro cyclical, but I shall take your word for it. You have three options, none of them perfect. 1. Relocate. Canary Wharf is a pure banking play and you could seek a more diversified market. The West End is full of hedge funds, oil barons and old money. However, I recognize that it will take some effort to find new clients. The economist Stephen Levitt and sociologist Sudhir Venkatesh discovered in a recent analysis of Chicago street prostitution that the industry was very concentrated because prostitutes and clients would otherwise fail to find each other. You, of course, are not in quite the same game and may be able to relocate with ease. Option 2. Tough it out at Canary Wharf and hope that supply falls to match demand. Levitt and Venkatesh found that the supply of street prostitution was highly elastic in response to a demand surge. The fourth of July holiday provokes a spike in trade for prostitutes. Who knew existing prostitutes would work longer hours, other prostitutes would travel to the area and women who didn't normally work as prostitutes at all would dabble in the business. You can't make the research up either. It's true. This suggests that many of your rivals will find something else to do in the tough times. 3. You may find that escort services are a little like a state agency in that even severe demand shocks don't tend to reduce fees. You'd find yourself well paid when in work, but frequently idle. That spare time could be used to study or find a part time sideline. I would give exactly the same advice to an estate agent. So, yeah, so that's kind of, that's how it goes. That's what the letters are like. But I didn't want to just read out letters and answers. I wanted to try to take a step back and think about the big picture. What have we really learned? What have I learned in my time answering all these letters about how economics can improve our lives. Well, let's take a few examples, and I don't know if we'll have time to go through all of these, so I was hoping to take a vote as to who wanted to. This is democracy, right? Who wants to hear about what? So we could hear about food and drink, how to cope with Christmas. I realize it's a little early, but, you know, be prepared. Happiness. Or dating? There's a caution. By the way, if anybody was here at my lecture 18 months ago, I've already talked about dating. So you're going to hear the same thing again. But if you weren't here 18 months ago, it'll all be new. And if you were here 18 months ago, maybe you want to hear it again. So just to let you know before you vote. So let's see, hands up. Who would want to hear first about food and drink? Okay, who wants to hear about coping with Christmas first? Okay, who wants to hear about happiness? Oh, interesting. And who would like to hear about dating? Okay, so, well, I reckon. I reckon that happiness and dating win it. And then if we've got time, we'll go back and we'll talk about food and drink and coping with Christmas. So forgive me. Ah, yes, happiness. I fixed all the technology in a really clever way that LSE systems totally fail to be compatible with. So, anyway, so, happiness. So what do we know about happiness? What do we know about happiness? I get more questions about happiness than I get about anything else. Actually, that's a lie. I get more questions about sex than anything else. But I just. I thought it might be more emotionally resonant to say I get more questions about happiness. But I get quite a lot of questions about happiness. And there's a lot of nonsense talked about the subject. Happiness equations. So psychologists, I don't want to diss psychologists. Well, I do want to dis psychologists. Really. Psychologists come up with happiness equations. And the happiness equations that a psychologist comes up with read something like meaning plus autonomy plus engagement equals happiness. What's that all about? I mean, any of you who've studied econometrics will say, well, that's not an equation. There's no intercept. There are no coefficients on any of the variables. There are no error bars. That's just nonsense. And only three significant variables. It makes no sense at all. A proper economist's happiness equation is estimated. You'll have at least 25 variables. You'll have errors, you'll have coefficients. You'll have the proper Stuff I don't know why people listen to psychologists rather than to an economist when it comes to happiness. I can't believe I just said that. Clearly I know why people listen to psychologists rather than economists. It's quite. Because it's completely absurd to listen to an economist about happiness. We don't do ourselves any favors when we're talking about the subject. I interviewed one of the leading lights in this field, Professor Alan Kruger. Now, Alan Kruger is working with a Nobel Prize winner. He's one of the top economists in the United States. He's just been chosen by President Obama to become Deputy Treasury Secretary. He's an absolute top guy and he's doing brilliant, brilliant research on happiness. I called him up and I said, well, tell me about your research on happiness. He said, well, you know, Tim, we don't like to call it happiness, we like to call it subjective well being. We think happiness sounds a little bit frivolous. To which my only answer is, well, cheer up. Bizarre. Anyway, so someone who's a bit less bashful about all this research on happiness is Andrew Oswald of Warwick University. Andrew, Andrew Oswald does loads of happiness equations. The basic way that he calculates these happiness equations is you get a really big survey of people who've all answered a very simple question. The question will be something along the lines of, taken as a whole, how happy are you with your life these days? On a scale of one to seven? And people answer that, oh, I'm feeling three, I'm feeling six, whatever. But they'll also answer all kinds of other questions. So how rich are they, are they married, how old are they, what education level have they got, et cetera. So there's this huge sample and you just go through and do the correlations and see who's happiest and that's a real happiness equation. So here's a proper happiness equation. Let me take a step back. So I've re expressed this as a graph because it's an awful lot easier to understand. So this looks at how happy you are compared with what you do. So are you unemployed, employed, self employed, retired, a homemaker, or still at school or university? So hands up here, who's still at school or university? Ok, you made the right choice. Never leave. Maybe not that surprising, but being unemployed, which is this big yellow negative, anything over here is happier than you might expect. Anything here is less happy than you might expect. So anyone who's unemployed, miserable, and this is separate from money, this is independent of money, because money comes into the happiness equation somewhere else. It Turns out it's very, very depressing to be unemployed. Even if you have money, it's not that surprising, but it's interesting to see. Okay, so a bunch of other things in the happiness equation. So put your hands up if you are a man. Okay, wrong choice. Okay, next question. Does money make us happy? Okay, hands up if you think that money makes us happy. Hands up if you think money does not make us happy. Ok, that's kind of interesting. The people up here think money makes us happy and the people down here think it doesn't. If I got that right. Ok, so these are the poorest people, the second poorest, the second richest and the richest quartile. Money makes us happy. Good to know. Okay, education level. So this is no qualifications, high school qualifications. This is from the States, by the way. Some kind of associate degree. Not a full bachelor's degree, a BA and some sort of graduate degree. There you go. You did the right thing to come to lse. Now onto more difficult areas. So marriage. Okay, People who've never been married, people who are married, people who are divorced, people who are separated, or people who are widowed. Okay, so just to make sure that you can all see this, so the baseline is people who've never been married. People who are married are smug, smug people. However, getting married carries risks, which is getting married is the only way to enter one of these other states, which are all not so good. Interestingly, divorce is underrated. I have a chapter in my previous book, Logic of Life. Divorce is underrated. Turns out the happiness research backs it all up. So much better to be divorced than only to be separated. People who are divorcees are happier than people who are widows or widowers. So if the marriage doesn't work out and you're not experiencing that thrusting bar of yellow joy, then nobody's ever said that on this stage before. Then divorce is the sensible option. Okay, what about children? So the baseline is no children. And then we're going to see how happy you are if you have one child, two children, or three or more children. Let's just check again. What's the optimal number of children? Very important question. People write in and ask me this. What do you think the optimal number of children is? 2. Ask a stupid question. Okay, so the optimal number of children is none. If you are going to indulge, then two is the least depressing option. I have two children myself, certainly not going to go for any more, but no children is best. And so it's quite interesting because we see here there are contradictions already. We can see why people get so tangled up. Because you want to be married, but you don't want to risk having been married and no longer being married. You want to be married, but you certainly don't want to have any children. And they often come together. I'm not quite sure of the details, so. So my advice to you is if you can possibly manage all of this, get rich, but stay at college, marry somebody, but use a lot of birth control and men consider a gender reassignment surgery. And that's the keys to happiness. Of course, there was a question over all of this, which is, should we believe this? Should we actually believe what people tell us? And there are some reasons to believe that maybe what people tell us isn't totally reliable. So here's one example. The psychologist Norbert Schwartz, who works a lot with Alan Kruger, he works with Daniel Kahneman, works with the leading lines of economics. He decided he was going to conduct one of these surveys where he said, well, how happy are you? Scale of 1 to 7? But when people came in, they're so sneaky psychologists, they always pull these tricks. So when people came in, he'd say, I've got the survey for you, but it's my last one. But you can't fill out my last one. So would you mind, please just go around the corner to the photocopier and make a copy of it and then you can fill in the copy. But half of these people, nothing else happened. But for the other half, Norbert Schwartz had left 10 cents on top of the photocopier where people would find it. This is a current exchange rate, about 6 or 7 pence. It's not a life transforming amount of money. It's not going to lift you into the upper quartile. But it turns out that people who've just found six pence are significantly happier than people who have them. So go figure whether you want to believe all of this. Of course we could also, there is another way of doing this. Daniel Kahneman and Alan Kruger survey happiness in a different way. And maybe it's more useful for us because you can't really have gender reassignment surgery. You can't send your children away to an orphanage. You're committed. There's nothing you can really do about these things. But Kahneman and Kruger, instead of asking who's happy? They ask, what are we doing when we feel happy? They go through people's days. They say, well, what did you do yesterday? How did you feel? How did you feel? So first of all, was breakfast how did you feel over breakfast? How long did it take? Then you had a shower. How did you feel? Were you with anybody in the shower? Okay, good. You were commuting. Were you with anybody? How did you feel? Then you went to a meeting. Who were you meeting? How did that feel? Etc. They just go through the day and see what people were doing and who they were with. And here, I think is quite useful advice. So we learn a number of things. First of all, we learned that this finding out the kids is absolutely right. Because being with your kids is not that much fun. It's not easy to grow up in a house with a couple of your little utility maximizers. Doesn't work so well. Shopping is not fun. If we get to the Christmas advice, we'll bear this in mind. Shopping is not fun. Praying is fun. Being with most people is fun. Actually, we enjoy being with people. However, we enjoy being with our parents more than with our husband or wife, which I think is very interesting. Now, I'm not saying modern economics supports Oedipus, but it is odd. It is odd that the people that you choose to spend your life with don't seem to actually make you as happy as the people who nature just handed you on a plate to mum and dad. You just have to live with them. It turns out we do live with them very well. We prefer to spend time with them than we do with our spouse. Is there anybody we don't want to spend time with? Turns out your boss, your boss is the only human being on the planet whose presence makes you less happy. And the most fun you can have, it turns out, is having sex. There's no research on what happens if you're having sex with your boss. No, I do. There is a very surprising finding that I still haven't quite figured out. So despite the fact that sex seems to be the most fun thing anybody can do, it's also the thing people spend the least amount of time doing. Okay, so there's a lesson. You want to be happy? Find ways to increase the amount of sex that everybody's having. This is a very important lesson for everybody. Which brings me on to. To dating. Oh yeah. So yeah. So actually I haven't seen much research on same sex relationships. There is a little bit. There's one I really want to write about, but I'll tell you about another time. But just to let you know, I'm going to talk about speed dating now. I'm going to talk about heterosexual speed dating. And I just want to let you know that I'm not judging. Okay, no, it's just for simplicity, makes the explanation simpler. So another quick show of hands. Who here has ever been on a speed date? Ok, right, Yeah, I almost believe you. So let me ask another question. Who here has a friend who's been on a speed date?
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Well, they're apparently very popular. They're all a rage. Since you're going to claim ignorance, I'm going to tell you about speed dating and then I'm going to tell you why we economists care and what it can do for your love life. So typical speed date, you've got 20 men, 20 women, as I say, heterosexual speed date, just for simplicity. 20 tables for two, 20 candles, soft candlelight, 20 pints of lager, 20 large glasses of chardonnay. So you're going to need them. And the typical speed date is organized by the student union or might be organized by a speed dating company. And the way it works is very simple. So the speed dating representative will ring a little bell. Each of the ladies will sit down at one of these tables and then each of the gents will sit down and talk for three minutes to the lady. And that of course is their first mistake. They should be listening, but they'll talk, they talk, they talk. The end of three minutes, the speed dating rep rings a bell again. Shake hands, maybe peck on the cheek if things have gone well and each of the gents moves to the next table. So you have this series of three minute conversations and at the end of an hour or an hour, 15 minutes, you've had three minute conversation with everybody in the room and you can decide who you want to date. And the report card that people fill out is really simple. None of these A's, B's and C's, none of that. Date number one, yes or no? Date number two, yes or no? Date number three, yes or no? Date number four, yes or no? Very simple. Just a tip, if any of you do go on a speed date, it's considered poor etiquette to tick no while they're still watching. It's not good. So anyway, you go away, you tick yes or no, and at the end of the speed dating evening, the speed dating company, we'll find out whether we're pairs of yeses. And then they'll swap email details, they'll swap mobile phone numbers and you can arrange to meet up for a proper date and discover that actually after four minutes you have nothing whatsoever to say to each other. So that's the basic idea behind speed dating. But why are Economists interested in speed dating? Well, a number of reasons. One is in speed dating you get a lot of information very quickly. Previously, if you wanted to study who ended up matched to whom, there's all kinds of, you know, you need to get the ethics committee forms, the binoculars, the private detective, the Lawyer, you know, 20 year research project, really very, very difficult and a lot of awkward questions from the police. With speed dating much easier, you just get hold of the speed dating database and you've got hundreds, maybe thousands of individual decisions to match up. So it's very, very data rich environment which is one of the motive forces behind the new economics. All this data, lots of data. The second thing that's great about speed dating is people have to tell the truth. We all know from bitter experience that when it comes to love, people do not always tell the truth. I mean, economists know in general people don't always tell the truth. But it's particularly true in love people you don't want to maybe. No, you don't. So speed dating, you've got to tell the truth. Very simple. If you like him, but you don't want to appear too eager, well, you could say no, but then you'll never see him again. So you have to say yes, you have to tell the truth. If on the other hand, you don't really like him, but you want to let him down gently, you'll be tempted to say yes. But then the creepy pervert has your phone number forever. So you say no, you tell the truth. So we've got all this truth telling now. Once you've heard this, you're never going to go on a speed date ever again. Because two economists, Michel Bellot and Marco Francesconi, have teamed up with the largest speed dating company in the UK and got an awful lot of data on who dates whom. And they've also got all this supplementary information. So they've got information about people's wealth, their age, education level, smokers, non smokers, weight, height, all kinds of impertinent questions. They got all the answers and they could see well who matches up with whom. Why would they want to do this? Well, there are a number of reasons, but for me, and you can call me an idealist if you like, no one ever has. But if you like, you can call me an idealist. For me it's all about answering an age old question. And I think you've probably all asked yourselves this question at some point, which is, are the romantics right about love or are the economists right about love? We've all asked Ourselves That. Let me explain a bit more about what I mean. So when I say, are the romantics right about love? I'm thinking of the romantic viewpoint as being that, you know, for all of us out there, there's that one special person. Well, not for all of us, one person. Because that person would be busy for each of us as a special person, a different special person maybe who meets our standards or maybe being a little bit more relaxed about the romantic view, for each of us, we have standards. There's a group of people who exceed those standards and then there's the rest people who don't exceed those standards. But the point is we have standards. Please. We have standards and we're not going to vary those standards. If we meet somebody who exceeds those standards, who satisfies those standards, then we'll fall in love. We'll fall in love. We are happy to date them. And if we don't meet somebody who meets up with those standards, well, we won't. We're not going to date anybody. We'll wait for Mr. Right or Mrs. Right or Ms. Right. That's the romantic view of love. Now, the economists among us see things a little differently. We're hard bitten types and we say to ourselves, look, dating is a marketplace. It's a market. It's not the kind of market where money changes hands. It's not the kind of market you see advertised in phone booths. It's not that kind of market. But it is a market. It's got supply, it's got demand, it's got competition. It's a market. And in a market you are going to have to adjust to market conditions. Now that's the economist's view of love. And I'm sure it's heartwarming for all of us. So one of the questions that Michel Bellow and Marco Francesconi were able to answer is, well, who's right, the romantics or the economists? Now they found a lot of stuff that I think won't surprise too many of you. So one thing they found, for instance, is that on average women prefer tall men. Thank you. They found that on average women prefer to date rich men, but that men could not care less about dating rich women. They want to date thin women. It's not very pleasant, but that's what's in the data. Basically every cliche that your grandmother ever told you turns out to be true. You look at the data, it's all true. People prefer to date more educated people. So stick to your studies. People prefer to date non smokers. So Give up at once. It's not good for you and it's not good for your dating prospects. All these things may be not that surprising. Something else that I think isn't that surprising is that the pattern of of yeses and nos. So the average woman's speed dating card will say date number one, no. Date number two, no. Date number three, no. Date number four, no. Date number five? No. Date number six, no. Number seven? Yes. Number eight, no. Number nine, no. Number 10, no. 11, no. 12, no. 13, no. 14, no. 15, yes. 16, 17, 18, 19. No. So maybe propose a date to maybe two guys out of 20. Typical man's speed dating cart. Well okay, I said it wasn't that surprising. But still there is genuine information here. There is something surprising in this result in this research because we get to answer that question. Are the romantics right about love or are the economists right about that? Very important. How would you find out? Well, what you do is you look at a speed dating evening where there's a lot of potentially attractive candidates. So all the men are tall and they're all rich, they're all non smokers, they all went to lse. It's a perfect evening. So what happens? A typical woman faced with this array of Adonis's says to herself gosh, they're all like George Clooney. It's amazing. I'd like to date George Clooney but I don't want to date all the George Clooneys. That would be greedy, it would take too much time. I never realized the speed dating market was so hot. It's fantastic. So I'm going to raise my standards and I'm still going to propose a date to about two guys. Now imagine another evening where the men on offer are not quite so dateable. You might think that women wouldn't propose any dates, but no. The average woman, faced with the dregs, says to herself, or seems to say to herself, the Bridget Jones part of the brain kicks in. She says, I'm going to die alone. I never realized the market was so desperately poor. Well, I need a man. Any man will do. And she'll sign up to about two speed dates. Now in case you think I'm being horribly sexist, which you may well do. Well first of all, it's in the data. I'm just describing the data. But second, men behave in exactly the same way. Exactly the same way. Yes, men's standards are more generous, more forgiving, more desperate. But nevertheless the standards are flexible in exactly the same way. So if there are lots and lots of dateable women. The men seem to improve, they raise their standards and they still propose as many dates as they would on a speed dating evening, which was, in principle, you would have thought, was much less attractive and would garner many fewer dates. So it turns out that the romantics are wrong, the economists are right, and if you do ever go on a speed date, take a short, ugly friend with you. It really, really works. It's important, it's important that we understand these things. Let me see. I wonder, have I maybe just got time to talk about food and drink before we take questions? So, yeah, let's talk about food and drink briefly. My source here is the American Journal of Wine Economics. It's a wonderful resource. The Journal of Wine Economics is published by the American association of Wine Economists and I read it religiously. Don't bother with Super Planck or the Good Wine Guide or any of that. I just read the Journal of Wine Economics and it tells us a lot of very, very useful things. But in these straitened times, you'll be thinking, how do I stretch out my meager income as a student? Or maybe you're an investment banker and you've got an even more meager income. How do I stretch that out? You're thinking to yourself, maybe at parties I could serve cheaper wine and cheaper food and would anybody get, Would anybody notice? That's a very important question. So a number of people have written in to ask me variants of this question, and they get variants of the answer because there's lots to say. So one thing we know is that really nice labels and expensive price tags are overwhelmingly more influential on our perception of the quality of wine than what the wine tastes like. You can feed wine in a blind taste test to experts and they'll tell you it's a good wine. But stick a 3 pound 99 from Aldi sticker on it and a dodgy looking label and no one thinks it's a good wine. And it doesn't matter what the wine tastes like. If you're told it costs 40 quid and it's got some very, very nice label, people think it tastes pretty good. So one thing you can do is serve terrible wine in very nice bottles. It may work. Economists have started getting involved in neuroscience recently. So we even have neurological data on really bad wine. Has anybody ever seen an MRI scan? A few people. Ok, so they're kind of like really big ipods with holes in the middle. You slide right into the middle. That's sort of the circle where the, the control Wheel, there's a hole there and you slide in and it's all very white and gleaming. And I'm sure they were all designed by Apple. Now what an MRI scan does is read the oxygenation of blood flows in your brain. Is the blood flow in parts of your brain carrying oxygen or not carrying oxygen? Absolutely amazing, because it turns out that blood carrying oxygen has a different magnetic signature to blood not, not carrying oxygen. And an MRI scanner is basically a huge magnetic field and it's detecting disturbances in that magnetic field that are being caused by oxygenation or non oxygenation of tiny amounts of blood in tiny capillaries inside your brain. If that doesn't do your head in, it really should. It's absolutely amazing. And it's a very, very powerful magnet. So if you stand. So imagine for a moment that Professor Manning is an MRI scan. Okay, now if I were to stand here and hold these keys up, the magnetic field, the magnetism coming off Professor Manning is so powerful that the keys would just point straight towards him at this distance. It's incredibly powerful. And of course there's an inverse square law. So the closer you get, the more powerful the magnetic pull is. So another piece I've already told you, use contraception, take short ugly friends with you. If you, if you're going speed dating, the other thing that you should do is never, ever, ever go into an MRI scan wearing a body piercing. It's really not a good scene. But what neuroeconomists have done is to give people wine to drink when they're in an MRI situation and see how their brain is responding and give them exactly the same wine. But in some cases they'll tell them it's a three pound bottle of wine, and in other cases they'll tell them it's a 30 pound bottle of wine. Different parts of the brain light up. You're having a different sensory experience from exactly the same wine just because you think it's expensive. So by all means, serve cheap wine. As long as people think it's expensive, you'll do fine. The second thing is maybe don't worry about those medallions. Sometimes you see on wine, it's won a bronze medal or a silver medal or a gold medal. So the American association of Wine Economists pulled a little stunt recently. These medals are given out by wine judges at wine fairs and they'll be served 10 glasses of wine. They'll drink, spit it out, give it a mark. Drink a second one, spit it out, give it a mark. It's just like speed dating, only with wine, spit it out, give it a mark, and so on. So very, very simple what these economists did. Brilliantly simple. They just gave them the same wine in glass number three, glass number six, glass number nine, the same wine from the same bottle. And the very simple question is, did it get the same mark? No, no, no, no, no, no. So I'm not really sure what those medallions indicate, other than, of course, they tell you that you should enjoy the wine, so probably the wine will taste better, not because it's better wine, but because you think it's better wine. Now, I hear you all ask, does this also work for food? Can I serve cheap food, Tell people it's expensive food, Can I get away with it? Very good question. Well, no one actually asked the question, but my own inner MRI scan was telling me that's what you were thinking. So it's a hard question to answer because of course, wine looks like wine. It all looks pretty much the same. I know the wine buffs are going to say, no, no, the beautiful ruby, blah, blah, blah, but it kind of looks like wine. But food has all kinds of different textures and the presentation varies and it's very important. And you could, even if you can't taste the difference between a prime steak Ashay from a Michelin starred restaurant and a McDonald's Big Mac, maybe they taste the same, but they don't look the same. You can see the difference. You can see which one's the Big Mac. So that's going to bias your impression. So the American association of Wine Economists puzzled over this and puzzled over this and puzzled over this, and then they came up with an answer which is, if you put duck liver pate, very nice, duck liver pate in a blender, blend it into a sort of mousse, it looks exactly like an awful lot of other things put into a blender and blended into a mousse. So it looks like chicken liver pate blended into a mousse. It also looks like liverwurst blended into a mousse. It also looks like Spam blended into a moose. And very importantly, it looks like dog food blended into a moose. So in I think one of the outstanding contributions to economic science, the Journal of Wine Economics, has recently published an article, can people distinguish pate from dog food?
- [49:21]
A
Now.
- [49:24]
B
I know you're thinking to yourself, gosh, I wonder what that paper could possibly be about. What they did research protocol dictated, you can't serve people dog food and tell them it's pate. Apparently that's not allowed. I don't Know why, but it's not allowed. So what you do, first of all, you get people drunk. Okay? So really the correct title of the paper should have been Can Drunk People Distinguish Dog Food from Pate? You get people drunk and they've agreed to get drunk and do this, and then you serve them on Carr's water biscuits garnished with a sprig of parsley mousse A, moose B, moose C, mousse D and moose E. One of them is chicken liver pate, it's fairly ordinary. One of them is very fine duck liver pate. One of them is pureed liverwurst, one of them is pureed Spam, and one of them is pureed organic dog food. So that's reassuring. Okay, so let's take a vote. Hands up if you think people can distinguish pate from dog food. Hands up if you think people cannot distinguish pate from dog food. I think it's about half and half. And you're kind of both right. You're kind of both right. So here's what happened. If you asked people to say which of these substances tastes the best and which of them tastes the worst and rank them, you got, I think, a depressing result, which is that they ranked them in exactly the right order, which means you really can't get away with serving dog food at a dinner party. People will notice that it tastes very bad. And it's kind of obvious it is designed for dogs. They're different to us in a number of important ways. So people, you can't skimp. You skimp on anything. People really will notice. So that's sad but true and we need to recognize it. However, when you ask them which one is the dog food, people do not give you the right answer. So they point to the liverwurst and they say, that's the dog food. And you know, it's surprisingly good. They point to the dog food and they say, that's the liverwurst and it's disgusting. So people possibly slightly too clever for their own good, but anyway, so look, I've. I've told you what to do to make yourself happy. I've told you how to go on a speed date. I've told you you can serve cheap wine, you can't serve cheap food. So I really hope that I've made your lives better in this short talk, but maybe I'm not answering the questions you really want answered. So I think I'll stop the non interactive portion of the lecture now and let's take a little bit of time. Does Anybody have a problem they would like me to solve using economics? Don't be shy, lady. There, I think we've got. Yes, someone sprinting around with a microphone. If anybody else has any. Has anyone. Can you think about the problems you might want to share? Okay. Yes.
- [53:15]
C
Hello.
- [53:16]
B
Yes, that works.
- [53:17]
C
My name is Jess. I'm a second year undergraduate studying economics here and I had an argument with a fellow student yesterday about the reasons we attended lse and she said it was so that she could get a good degree and get a good job. And I said I'm here to stay out of work. And she said there must be much better things that you can do with your time. And I disagreed. Could you advise me if you think I'm doing the right thing? Are there better things that I could do or should I stick out my time here? My whole aim to be not to work.
- [53:50]
B
Okay, well, that's a very interesting question. I think we have some of the. We've got some of the answer here. Okay, so let's review. This is great. Okay, so it turns out that being at school or university is the happiest time of your life. Actually gets worse from here on in. Or is there, Let me not confuse that with age. I mean, by the way, the most depressing time of your life in terms of age is your late 30s. So I'm 36. So thanks very much for that guys. Really appreciated that. So, yes, you are right that simply spending time at LSE is an enjoyable experience. It's the kind of thing that makes you happy. Of course, you might also ask yourself, well, does it lead to other things and maybe it will lead to wealth. It should lead to a degree as long as you're not determined to stay here indefinitely. Should lead to a degree. So that should make you happy. I guess the other really important thing is marriage. So I don't know, what is the dating market like at lse? Jess? Ok, yeah, yeah. Okay guys, it's not good. So if you could maybe improve that, that would help a lot. But I think broadly you're right and your friend's wrong. Any other questions? If we're forced to, I'm happy to take questions that aren't actually directly solving your problems, but I would really prefer just to spread happiness. There's a gentleman there. Yes, Hello. Yes, that works. Excellent. You just mentioned that your late 30s are the most depressing time of your life. I'm rapidly approaching mid 20s and it's a pretty good time. But what can you do to avoid that? That late 30 hiatus when you're not really enjoying your life too much, there is. You can, of course, avoid your mid-30s, but. As I think the who once suggested. But I wouldn't really advise that. I think this is the difficult thing about this happiness equation stuff. And an awful lot of happiness literature is built on this in that it tells you who's happy, but it doesn't tell you the line of causation. Okay, so we don't know. There's nothing you can do about growing old. You're going to grow old. The good news is, of course, that the older you get, the happier you get. After the age of 40, life begins at 40 all over again. You've basically been on the slide ever since your teens. And it's going to be. I mean, it's not a personal judgment of you, sir, Obviously, we hardly know each other. We've just started having this conversation, but things get better from your 40s. But the problem with this is that it's not clear that there's actually anything you can do about this. You can't do anything about the fact that you're male instead of female. It was a bad choice, but there you go, you're stuck with it. So I focus more on the Kahneman and Kruger stuff. So that says to me, avoid having children. Hang around with other people. Make sure you've got plenty of friends. Don't commute. It's incredibly depressing. But if you can manage to be rich while avoiding commuting, that's a very good idea. And these are eternal truths. They're true whether you're 25, 35 or 55. So I hope that that helps. There's a couple of questions up there. Everyone here seems they're just terrified. They're like rats in the cobra's striking range. Does anybody here want to ask a question? I won't bite. Well, I might bite. Okay, gentleman up there. Yes, sir. I just graduated from a military academy and the ratio of women to men was 15% to 85%. So now that I'm in a situation with the statistics just a little different, I was wondering if you'd tell me what I should be doing differently as well. Yeah. And just a question before you give up the microphone, sir. So you just graduated from a military academy, so would that mean you're tremendously fit and brave, presumably? Sure. Okay. Yeah. Well, I think I just helped you straight away there. By the way, Jess over here is on the market, apparently, so maybe. Could be. Anyway, so I do sympathize, because gender imbalance Turns out to be really, really bad. This is something I explained in my previous book, Logic of Life, which, by the way, is a more serious book, but is also available for sale if you want to support our local Hackney Bookshop. But even a very small gender imbalance really affects what goes on in the dating market. And it doesn't need to be 85% to 15%, even say 51% to 49% or 55% to 45% can make a big difference. And the reason is the spare men, if that's not an offensive term. But all the spare men are basically sort of running around buying red roses and competing with the men who have girlfriends. And so women have always got a good exit option. There are always other men around, and vice versa. This can have very profound effects. I mean, this is in all seriousness, for a moment, a study of the US dating markets, marriage markets by Kerwin Kofi Charles and Mingling Luo of the University of Chicago. I think, or they're in the Chicago area, might be Northwestern. They discovered that there was. People don't tend to date outside their racial group. That's just what we see. And because of US prison policy and demographics, in the US There are certain racial groups, certain age groups where a tremendous number of young men are in prison. In some states, it's over 10% of young black men are in prison. And what Kerwin, Kofi Charles and Mingling Luo showed was women responded to this. They basically had a deterioration of their dating prospects and their marriage prospects then were unlikely to marry a good man because even the guys who were available could play the field. And what actually happened is they responded rationally to that. They were far more likely to go to college, far more likely to get a job, to work nights, whatever it took. Realizing that the marriage market wasn't going to offer anything to them. It's an incredibly depressing story, but very interesting example of the way this small imbalance in the marriage market feeds through and people respond rationally to it in a way you would really never expect. Or alternatively, Jess, she's just over there. I'll get you her number. Yes, lady, there.
- [61:29]
C
Problem that you have that you've so far failed to solve through economics. Maybe you have solved all your problems through economics and then what's the one you're most proudest of solving?
- [61:39]
B
Okay, that's a really good pair of questions. Did everyone hear that? I wasn't sure if the mic worked or not. People heard that. Ok, so what's the biggest problem that I failed to Solve the problem I'm proudest of solving. So the biggest problem I think I failed to solve, I'm actually quite pleased with the answers economics produces to these personal queries. I'm working on a new book that's looking at the really, really big problems. Climate change, counterinsurgency, counter terrorism, promoting innovation, HIV vaccine, malaria vaccine. And what really strikes me about those problems, they're not just bigger problems than the problems I dealing with in this book. They're of a totally different nature. They're complex, they change all the time. And our policies have to shift constantly to adapt to the way those problems are changing. So that's something I'm researching at the moment. But I really felt that up until now in all my books, I've never really engaged with the general problem of complexity. And the more I look at it, the more I realize it's absolutely fundamental, the fact that the financial system collapsed and we economists didn't really notice. We noticed, you know, there's a problem with pay structures, there's a problem with global imbalances, there's a problem with the regulatory regime, there's a problem with leverage. But we just didn't put it together and see it as a unified, complex problem. So that's the problem I failed to engage with and I'm engaging with now. And it's absolutely fascinating. Problem I'm proudest of solving. Well, So a year and a half ago a woman wrote to me and she said, oh, I've got a condo on the Pacific coast, or rather my fiance has a condo on the Pacific coast and it's joint owned with his ex girlfriend who lives next door. Thanks to the credit crunch, we can't really sell the condo. It's a relationship specific asset. It's all a bit messy. What could I do? And I wrote to her and I said, actually it's not a relationship specific asset. Children are a relationship specific asset. A tattoo that says Jess for Tim, that's a relationship specific asset. I'm sorry, Jess, that's a relationship specific asset. But a condo that your fiance's ex girlfriend part owns is not a relationship specific asset. It's just an asset that isn't worth as much as you paid for it. So you've already made the loss. What you're going to have to do is you're going to have to follow through, you're going to have to sell it and you're going to have to take the loss on the chin. And I actually suggested that he sell the condo to her at a Bargain price. And then she would actually handle the negotiation with the ex girlfriend just so that the old flame didn't rekindle. And if the market recovered well, she would actually gain massively for her trouble and the risk she was adopting anyway. So I thought I'd kind of explained economics very well. I wrote back to her recently for an FT feature and I said, well, how's it going? And she said, oh, it's all a bit complicated. My, my fiance is actually going to write to you about this. And I said, hang on a moment, that was a year ago and he's still your fiance, so what's going on? And she just wrote back, she said, you're very observant. So that's my job, I'm a journalist. Anyway, I was a little bit worried about them and I got this very funny reception last night. I got an email from her, this picture and a very brief email that just said, tim, we did it. So there you are, they are getting married with a piper on the Pacific coast. So a triumph for economics. So I wanted to share that with you. Actually, there is another one. I'm not sure I can take too much credit for that, but there is another one. A lot of people wrote to me, they wrote back and said, well, what did you think of my advice? A lot of people wrote back in the same spirit that the advice had been given in. So one guy wrote in, he said, I've got a problem. I find I only fancy my girlfriend when I've had a few drinks. Is there a future in this relationship? I said, well, it's very simple. You just got to look at the numbers. The numbers are very simple. Okay, how many times does the average couple make love? About three times a week. What's the recommended safe drinking limit? 20 units, blah, blah, blah. How many drinks per encounter? Perfectly safe. You have a couple of pints before every love making session and your liver will survive. So no problem whatsoever. So you're safe. You're completely safe. Then I wrote to him and I said, well, how did that work out for you? He said, tim, well, I accepted your advice since you are one of the finest brains of your generation. I'm not sure he's right. But anyway, that's what he said. But it didn't work out that well. My girlfriend ditched me for being a drunk. However. However, it's working out much better. I now have a new girlfriend. She's wonderful, everything's great, there's only one problem. Every time we go to bed, she has a couple of Drinks. But one of the other people that I wrote to and solved the problem of, he also wrote back to me and he had a problem which I think is absolutely classic. And here's an example of where economics actually really can make a difference. He said, I'm a student, I'm studying A levels. I think I'm going to move schools, or I'm thinking about moving schools. I think the current school maybe not that great. There's this other school, there's more personal tuition. They've got better results. They seem to be better plugged in. I really want to go to Cambridge. Not lse, sadly. He wants to go to Cambridge. I don't know. Go figure. I want to go to Cambridge. Should I do it? And I said, this is classic piece of economic psychology. You are suffering from status quo bias. You have listed a dozen reasons why you should move and no reasons whatsoever why you shouldn't move. And you're still sitting there at your old school asking me, should you move? Clearly you should move. Get over it. It's a risk. But everything in life is a risk. You should move. Overcome your status quo bias which is so common in human endeavor. Anyway, he wrote back to me later. He said, dear Tim, took your advice. I got great A levels. I'm now doing an internship at the bank of England. The new school was great. I've been accepted to go to Cambridge and I'm going to study economics so that I can help people like you. So well, sometimes economics gives the right answer. Let me. I realize we're sort of running out of time. There's a lady there looking very, very keen. Please wait for the microphone so the people at the top can hear.
- [69:15]
C
I have a relationship specific asset who's getting married next week.
- [69:19]
B
Ah, yes, Congratulations.
- [69:20]
C
She's going to improve her happiness. But it's really quite discouraging for us because. Because it's a considerable dent in our retirement fund. And I wondered if you could advise us on how to lessen the pain of the numbers of noughts that are beginning to clock up on the intended bill, which apparently convention does still specify that we are supposed to meet, aren't we?
- [69:43]
B
That's a very tricky one. One thing that you could do is you could arrange to loan her the money. Everyone hear the question. This lady's relationship specific asset, that is her daughter is getting married next week. Round of applause from everyone, congratulations. However, this turns out to be an expensive proposition, so what can she do about it? Well, one thing that you could do is you could clearly, you've got the money and she's, she's credit constrained. So you could lend her the money and you could get her to pay you back in installments. Now, this has a number of benefits for you, but it should also be beneficial for her. What you could point out is Andrew Oswald's happiness equation suggests that a happy marriage is worth. I'm trying to remember the amount of money. It's the equivalent of having something like 7 to 10,000 pounds a month. Now, that's the amount of money it would take to make you as happy as a successful marriage. So really, she owes you big time. Really big time. And I reckon if you lend her the money, you explain that to her, you can tell her to write to me if she's got any questions and that should pretty much fix it. There's only one disadvantage with this. You may immediately start seeing her sort of clocking up something to keep a tab on. The nursing home builds for you. You. So you win some, you lose some. How many more questions are there? Gosh, people have to go. I tell you what, I'm not going to answer any more questions. I apologize. I will answer questions after or during the book signing, but I think people sort of expect to be able to go now. So thank you all for listening. Remember what you've heard, okay? More sex. Get married. Stay in college. Use contraception. Short, ugly friends. I didn't manage to give you advice over Christmas, but I can summarize it pretty quickly. Scrooge is badly underrated. Learn from the master. Thank you very much.