Judd Kessler (2:55)

So the career plan was to go to college and then find a career, not in academia. That was not something that I even thought of as an option. I was an econ major, I thought I'd be a consultant. I accepted a Bain New York offer to take after graduation. But senior year of college, I wrote a thesis under a supervisor named Alvin Rothschild. And I loved it. It was my first experience doing research. And I thought, this is really fun. I'm on the cutting edge of this topic that I chose that interests me. And so that made me think, all right, maybe I should give it a shot. So that was the trip to Cambridge, England, was me doing an mphil in economics to see, is this something that I might want to pursue as a career? I didn't love the pedagogy in England, so the courses I wasn't enjoying. But every day I'd come home and think, oh, there's some research questions that that lecture prompted. And I realized, oh, the research is keeping me engaged in this program. Even though I don't love the coursework, I probably should be doing this full time.

Barry Ritholtz (4:05)

What was the research topic in your senior year that led you to heading to England?

Judd Kessler (4:11)

So it was a experiment. So I'm an experimental economist. Most of my. Not all of it, but most of my research is experimental, Meaning undergrads are coming into the lab playing a game I've designed, or we're doing some experimentation in the field where people are going about their lives. They don't realize that half of them are getting one version of an experience and half are getting the other. And we're seeing what the effect is. So my undergrad thesis was trying to understand how pairs of people could contribute to public goods, to things that benefited both of them. And I learned about everything that I could learn about public good provision. And I varied both the structure of the game and how the benefits of the public good were split across people. And this was something that had never been done before. And my advisor, Al, was very encouraging, enthusiastic, funded the research study. And I had this experience of looking at the data and thinking, this is the first. I'm the first person. I'm on the frontier. I'm never going to be an astronaut, but I'm on the frontier here, exploring the answer to this question that interests me. I'm looking at the data and discovering the answer.

Barry Ritholtz (5:28)

So this sounds like it's a cross section of game theory and behavioral economics. Fair description.

Judd Kessler (5:35)

Exactly right. And it's a paper. You know, I've since become an academic and I've been writing research papers for a long time. This one was never published. And the reason was that in my 20s and even into my 30s, I didn't really know how to motivate it. I didn't know what it was about, you know, at a deep level, I knew what I had done, and I knew that it was new and different. But I finally cracked the code in my late 30s, because what I had studied, unbeknownst to me, was how couples allocate effort to construct public goods in their household.

Barry Ritholtz (6:14)

Does that mean who cooks, who cleans, who gets the kids? Who basically pays the bills? Is it just that simple exactly?

Judd Kessler (6:20)

Well, it's. The game was we each put in some effort. Sometimes the production is split evenly between the two and. And sometimes it's split unevenly. So one person gets more of the output and the other person gets less. And what I found was that in some structures where we each have to match each other's contribution to generate an output, then the inequality didn't matter. Pairs of people, these are random strangers. They're able to contribute at high levels. It's when we're contributing to the public good and one of us can cut back and kind of free ride off of the other one. When we split it equally, we're able to sustain with the pair high levels of contribution. But when we're split unequally and one of us can free ride off each other, the contribution collapses.

Barry Ritholtz (7:11)

I was gonna say that sounds like a recipe for a divorce.

Judd Kessler (7:14)

Well, the reason I was able to later understand what I had studied in my 20s, was those are the situations where my wife and I have conflicts when we both need to contribute for the public good to be provided. Like, we both have to be diligent with bedtimes with our kids, because if one of us slips, then the kids schedule, then, you know, it doesn't matter if I care more about that or my wife. We kind of both realize we have to be at the same level or we both lose.

Barry Ritholtz (7:46)

Where does it sort of. Where does that gap between effort. How does that manifest?

Judd Kessler (7:53)

So if one of us cares more about, say, the kids eating vegetables, keeping the house neat. Yeah, yeah, for us, it's, you know, the healthful eating. One of us might care more than the other. And in that case, you know, if my wife cares more and I free ride off of her, she fed them a healthy lunch, say, yesterday. Then I can feed them a less healthy dinner when it's my turn. And that's where the recipe for disaster is.

Barry Ritholtz (8:21)

Those are omissions. What about commissions? What about doing things positively where one of you might slip? How does that manifest?

Judd Kessler (8:29)

Ooh. I mean, most of the things I'm thinking Of are like, are we giving them too much screen time? Oh, I guess we could be reading them books at night. I mean, so we both care a lot about this, so we'll do it. But if one of us cared more, that would be a recipe for disaster because that person would read to the kids and the other person would say, you know what, like you got read to last night, I won't do it. Right. And that's when the, the trouble. Yeah, that's when trouble starts. So that was my, my first academic research was exploring those kinds of dynamics in two person games.

Barry Ritholtz (9:01)

How do you go from that to studying market design?

Judd Kessler (9:05)

So this was Alvin Roth, the mentor that I mentioned. He was my undergrad thesis advisor. And when I was getting my PhD, I committed a kind of sin of academic sin, which is you're not supposed to go back to the institution. You did your undergrad degree to get your PhD. But I wanted to work with Al, so I kind of, I cheated a little bit. I went back to Harvard, but it was technically a Harvard Business School Ph.D. joint with the econ department. So I pretended, oh, I'm getting a different angle on this. I ended up being helpful because being at the business school helped me transition to my current job as a Wharton professor. But I went back to work with Al and he was doing both. He was doing experimental work and he was doing market design work. And I had gotten exposure to both of them in his courses as an undergrad and early PhD student. The research that kind of transitioned me was on organ donation and organ allocation.

Barry Ritholtz (10:05)

The book has some fascinating data points on that. We'll talk about that in a bit. I want to stay with your background. You end up winning the Vernon Smith Scholar Prize in 2021. What work was that for?

Judd Kessler (10:18)

So that was for a line of work starting with this organ allocation work, because that was both a public good study like I described in the earlier work, and policy relevant. And so the Vernon Smith Prize is for somebody who's contributed with experimental research in a bunch of areas. And I had, you know, I'd done that. I'd done that in organ allocation. I'd done that in course allocation. I had done work on summer youth employment, but kind of always with this experimental lens to try to understand what the effects were.

Barry Ritholtz (10:53)

And what's kind of fascinating is you're clicking off a lot of chapters in the book which are how do we allocate scarce resources when there are a variety of different ways to do it? Sometimes it's lottery, sometimes it's effort, sometimes it's people paying more to get it, which really is. I never thought of those things as market design. And yet most people look at those things as just, hey, you got lucky. You got the summer job or the course you wanted or the kidney you needed because you signed up. A big theme of the book is, hey, this isn't luck. This is recognizing all of these market design structures and figuring out the rules and playing them as well as you can.

Judd Kessler (11:41)

Exactly right. And in the book, I call these hidden markets because they're not the markets that we always think of. When we think of markets, we think of the farmer's market, where you're paying a price for produce. We think of the stock market where you're paying a price for equity and publicly traded companies. But there are all of these markets where you're trying to allocate a scarce resource. You might have a price that gets paid, but it's not doing all of the work. There's something else that is deciding who gets access to the scarce resource. And then there are markets where there is no price. We've decided that we want to do the allocation without having folks pay. We want to distribute it in some other way. And these are areas that market design thinks about, but that a standard econ class like the ones I teach to my undergrads or MBA students or executives would not necessarily cover.

Barry Ritholtz (12:34)

So other than the students in your Wharton class, how can individuals become more aware of all of these hidden market mechanisms and use them to their best advantage?

Judd Kessler (12:44)

Yeah. So the first step is recognizing that these things are markets. You want access to something, it's scarce, there is a limited amount that can be allocated and you're competing with lots of other people who want them. Examples might make it more concrete because we're thinking about things that people participate in every day, these markets. So you want to get a reservation at a hot restaurant, you want to get a ticket to a live event, you want to get a product that is hard to come by, either, you know, a special clothing drop or this summer it was Labuboos, the ugly, cute stuffy dolls. But you could think of Beanie Babies or Cabbage Patch Dolls if you're as old as me. And in these cases, there is a price that you pay. But there's also some other ordeal that you may have to go through to get access to those scarce resources. Same thing with benefits or services provided by the government. You want to get your kid into public elementary school, you want to get a library book, you want to get a life saving organ Transplant. These are environments where you have to understand, okay, what is the rule that is doing the allocation? And then how can you use your knowledge of that rule to figure out the right strategy?

Barry Ritholtz (14:02)

Your daughter trying to get into her favorite after school program really resonated because it was such a little niche thing. It's just one of those everyday life frictions. You don't really think of those as markets that have been designed, but you do a really nice job explaining. Any allocation of scarce resources is a market decision.

Judd Kessler (14:26)

Exactly. And that one is one of the banes of my existence. I have to. It's a first come, first serve race, which is what I call the experience that folks have on a regular basis of there is a scarce resource, it is being made available at a point in time and whoever clicks first gets it. Whoever calls in first in different market structures is the one who can claim that scarce resource. After school PROGRAMS at my daughter's elementary school, this is what the kids are doing between 2:30 when school lets out and 5:30 when working parents can pick them up. There are some very popular classes for the kids to, to do during those hours. But there are a lot of kids who want to participate in them. And so every semester they will say, okay, on June 12th at 10:00am we're going to release all of the fall semester courses and whoever clicks to claim the spots in those classes first will get them and everybody else will be disappointed. And it is a first come, first serve race. And I like the race analogy because I don't do a ton of cardio. And this is where my heart races faster than, you know, this is fight or flight because I know I'm competing with all these other parents who want to get their kids into these classes. And if my daughter gets what she wants, mornings are wonderful and if she doesn't, it's, you know, I don't want to go to school today.

Barry Ritholtz (15:52)

There's some. You seem to have an advantage because there are some fascinating strategies here. Hey, maybe you don't start with the Monday classes. Maybe you do Tuesday, Wednesday, Thursday, cuz they're gonna fill up while everybody's racing to get Monday. And if you're disappointed on Monday, but you've locked in the three ones for the rest of the week, there's an advantage thinking about how the rest of the participants are playing the game.

Judd Kessler (16:16)

This is exactly right. So the all game theory. It's all game theory. And I wrote a book about game theory. I didn't use the term game theory because I didn't want to scare people off. But it's, it's thinking about what it is that you want and then what it is that other folks might be going for and developing the right strategy for that. Now, first come first serve races, there's a bunch of strategy that is kind of maybe obvious when you think about it, of okay, you have to know that it's a race. You have to know that this is a situation where you need to be available to click as fast as you can at that time. Right when, when I get the email and it says June 12th at 10am is when registration opens. Even if I've never participated in the registration for these after school classes, the 10am tips me off that something is going on at my son's school where the classes are not as demanded. There is no 10am I mean there might be a time when the registration begins, but nobody really cares about it because you can go whenever you want that day or later in the week and there's plenty of options available. But at this market, the 10:00am tells you all right. By 10:01 or 10:02 the good stuff might be taken.

Barry Ritholtz (17:29)

Did your wife ever get to the French Laundry in Napa?

Judd Kessler (17:33)

This was a first come first serve race that I talk about in the book. It's for milestone birthdays only because it's so expensive, so pricey. In the book I talk about how we did not get it for her 40th birthday so she will try again when she's 50.

Barry Ritholtz (17:47)

I was reading that and using your strategy immediately thought, oh, you're flying out just for a weekend. 4 o' clock is essentially 7 o' clock in New York. Why not do 4 or 4:30 and bang, they're good to go.

Judd Kessler (18:03)

This is exactly so the strategy to play there is to think about what I call settling for silver versus going for gold. So the settling for silver strategy is, you know that 7 o' clock or 7:30 is the most desirable time to eat. At least you know, for regular people not in retirement communities. That's the ideal time if you're going to go on a Saturday. That is what most people are going to be aiming for. When I went for her 40th birthday to try to register, I knew it was a race. I knew when the starting gun was going off, I was there, my heart was beating fast And I went first for the 7:30 reservation page reloads. I don't get it and I see that 4:30 is still available. So I click for 4:30 thinking it's better than nothing. And the page reloads. And that is also gone. So struck out there. That's why we're waiting a decade to your point. If I had, I was doing it as a surprise for my wife. If I had planned and talked to her about it in advance, we might have recognized 4 or 4:30 is nearly as good. If you're an East Coaster, it's nearly as good as 7:30. And that's the kind of situation where you want to settle for silver, where you want to go for something where there's less competition. Again, the game theory coming in. Fewer people are going to be going for four. 4:30. That is something that you actually have a much better shot at if you go for it first, you have to act as if that is what you wanted all along. Right? Because when the page reloads the first time, 4:30 is still available. Meaning if instead of going for 7:30, I'd gone for 4:30 initially, as if it was my first choice, she would have been able to cross French Laundry off the bucket list.

Barry Ritholtz (19:43)

There you go. Aside from the east coast west coast difference post pandemic, my wife likes to point out that you use apps like OpenTable or Resy. And she says 6:30 is the new 7:30 because everybody wants to get home and stream whatever they're streaming. It's so different than it was in the 2010s. And I'm like, am I just getting old? Are we going to start going to the early bird specials? She's like, no, no one wants to have dinner nine, ten o' clock at night.

Judd Kessler (20:11)

I believe that. And at the French Laundry, the meals take forever. So getting out of there, you know,

Barry Ritholtz (20:15)

early 4:30 gets you out at 9, 10 o', clock, right? Absolutely fascinating. Coming up, we continue our conversation with Judd Kessler, Howard Marks, professor at the Wharton School at University of Pennsylvania, discussing his new book, Lucky by Design the Hidden Economics. You need to Get More of what yout Want. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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Barry Ritholtz (22:28)

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Judd Kessler. He is the Howard Marks professor at the Wharton School at the University of Pennsylvania. So I want to talk about lucky by design. The book is really interesting. I'm intrigued by how much of what we think of as luck is really just the way allocation mechanisms have been either well designed or poorly designed. Lotteries, wait lists, queues, scoring rules, algorithms, norms. Explain this concept that luck by design may really be based on some hidden economic rules.

Judd Kessler (23:13)

Yeah, so the way the markets operate, there is a set of rules that decides who gets what. So we talked about first come first serve races, but as you point out, there's first come first serve waiting lists, there's lines, there are lottery systems where you're putting your name in the hat and we're pulling people out. And then there are centralized clearinghouses where you might rank your preferences over things you want. And then there are some priorities or rules in the background. And I have this sense that people look at these systems and they don't have a framework for thinking about them. And so when they participate in these markets, they don't really realize they're doing so. And then the outcomes seem like they're based on chance or they try to understand them and they struggle and they feel overwhelmed and stressed out and then play a strategy that might not be right for them. And then they look around and they think, oh man, that person got what they wanted. I didn't. They must have been lucky. Because if you don't understand the system, then it all seems like it's happening by chance. But by understanding the rules that are applying in each market, you then can recognize, okay, this is a situation where it's a first come, first serve waiting list. So I have to put my name down early. Then I have to think about the strategy I'm going to play when it's my turn. Do I take what's offered to me? Do I keep waiting? And you have a develop a framework for that. Even in lottery allocations, which we often think of as being the ones that are based entirely on chance, if you understand the rules, you can develop strategies that help you do better. So you want to go see theater production, and there's going to be a ticket lottery. You can go, you can enter your name for two tickets, but maybe you can bring your friend that you're going to go see the show with, or your partner and you both enter. Now you have twice as many chances. Maybe you get a bunch of friends who work nearby to enter. Maybe it's online. They enter for you. If they lose, they lose. But if they win, they come down to the theater, pick up the tickets and give them to you. All of a sudden, now you've dramatically increased your chances of winning. These are technically allowed, often by the rules. Sometimes you can enter a lottery in years you intend to lose because the system rewards you in subsequent years for prior losses. It's trying to be fair over time. And so the rules are, if you, you know, have lost nine years in a row, then in your 10th year you'll get 10 entries or 100 entries, or 1,000 entries relative to someone who's entering for the first time. Or maybe you win the lottery in a year, you don't want to win and you defer what you get for a year. And now you basically get to enter this year in the hopes of deferring for next year. And if you lose this year, you get to enter next year for the chance of getting whatever it is next year.

Barry Ritholtz (26:06)

So you've gone to school at Harvard and Cambridge. You teach at University of Pennsylvania. When we look at college admissions, that seems to be like a mess of everything. Some credentials, some skill, some checking the boxes, a little bit of lottery, a little bit of early admission, first come, first serve. What do you think of that entire college admission process? What's driving that design?

Judd Kessler (26:35)

Yeah, so that is what I call a choose me market. It's a two sided market where it's, as you point out, it's not as simple as any one rule. It's not like whoever applies first to the school gets it or they're going to totally pick people by lottery. They have a strategic decision as an institution, maybe I should say we as an employee of one of these institutions. But the features of a choose me market, of a two sided market are that there are market participants on both sides. So for college admissions, there's applicants who are trying to get into the colleges and then there are colleges that are deciding who am I going to admit? We're trying to make a class of smart, motivated, well rounded or very pointy people who are going to make the class a rich, fun environment. And the dynamics are about are we both succeeding and getting what we want? So I think the thing that people think of is, okay, is the candidate strong enough? Do they have good enough grades, good enough SAT scores, good enough extracurriculars? But something that we think less about as an applicant, say, because it requires thinking about the other side of the market is how do the universities or colleges feel about the applicants. Well, one of the things that they value is high yield. We want the people who we admit to enroll in our school. We want them to matriculate. When I was applying to college, that yield, the fraction of folks you admit who come, was in the US News and World Report rankings of best colleges and universities. It's not anymore, but it's still a matter of pride and reputation because it's hard to say you're one of the best schools in the country if you know half or two thirds of the people you admit choose to go somewhere else. And so when you mentioned early admissions, early decision or early action, that is where this kind of yield question comes into play. So the way that it works with early decision is when you apply, say to Penn or my employer, early decision, if you do that, you are committing to come if we admit you. So that's great for our yield because now you're guaranteed to come. And lots of schools do this. They have an early admission deadline. There's also early action where you're not committing, but you can only apply to one school, early action. And so it has similar properties where you're kind of giving up applying elsewhere early. And the kind of deal is that admission standards appear to be a little lighter. And so researchers have estimated it's kind of worth about 100 SAT points if you apply early. It's kind of, we like the idea that you want to come, we like that you're going to help us with our yield. And so we're going to kind of Be more open to having you enter. Now, I should say I don't work at the admissions committee. So this is. Right. This is as an outsider doing. Looking at the research about it, but all of a sudden, then it becomes a strategic decision as you as an applicant. So you have one shot in the early decision game. Where do you want to apply? We talked a little bit about going for gold or settling for silver. Do you go for the thing you really want, the 7:30 reservation at the hot restaurant, or do you go for something where there's less competition, like a 430 and the early decision game? That strategy, that settling for silver strategy might be a smart play. Because if the place you really want to enroll, that gold medal option for you is too far out of reach, that even if you apply early, you're not going to hit that admission cutoff, then you're essentially wasting that application in that school. And you should be applying instead to a place where if you applied early, you would actually get in, but if you didn't apply early, you wouldn't. Someplace where you're kind of more on the market.

Barry Ritholtz (30:31)

That's a very narrow little slice. You have to figure out exactly what your odds are.

Judd Kessler (30:36)

Yeah. Which you can do with research, with talking to other people, seeing how does your SAT score compare to the ones that are published on the website. The people who went to your high school in prior years who succeeded in getting in, what were their grades like? What were their extracurriculars like? So when it matters for you, the research that you do to figure out how to succeed in these markets will inform what strategy you should play.

Barry Ritholtz (31:02)

Really interesting. Let's talk about the three E's you discuss what's equitable, efficient, and easy when people are designing various types of market mechanisms? Give us a little overview of that core framing device.

Judd Kessler (31:17)

Yeah. So the three E's are about how well a market operates. So you mentioned them. Efficiency, ease, and equity. Equity is about fairness. It's about, are we treating the market participants equally if that's our goal? Right. If we want everybody to have an equal chance at getting the scarce resource, is our allocation mechanism, Are our market rules allowing us to do that? Efficiency is about making sure that we're not wasting any scarce resources and whether the scarce resources that we're giving out are being put to their best possible use. So if there's someone who really wants something, are we recognizing that and saying, oh, actually, as a society, we're better off if we give that scarce resource to that person? And then ease is the One that think standard econ doesn't think that much about. And the reason is that prices are easy to work with. You might not love that you have to pay a lot of money to buy something, but the actual process of buying something in a market where price is doing all the work is trivial. You go to the website, you click a button and the thing is shipped to you. Or you walk into a store, you pay a price, or you go online and execute some trade or call your broker and do it. It's very straightforward to work with prices.

Barry Ritholtz (32:36)

Let's talk a little bit about one of the most fascinating market mechanisms that's out there, which is live performance tickets. You use the example of Taylor Swift, who could have charged a whole lot more for her tour, which still made billions of dollars, but lots of other artists charged less than the market bears. Why do these artists not go for, you know, revenue maximizing? What's the downside of that?

Judd Kessler (33:04)

Yeah, so I, when I think about sellers deciding, should I set a price below the market clearing price? The price that I would teach in my econ class is going to be the best for them.

Barry Ritholtz (33:16)

Here's the price, here's the demand. Where that intersects is the profit maximizer. But they don't do that.

Judd Kessler (33:22)

So before we get to Taylor Swift, let's think about the restaurant that is letting there be a line around the block or the fad product that is making it hard to get access to their, you know, to what they're selling. In those cases, I think one of the reasons is to bolster future demand. I see a line around the block for a restaurant I walk by. I might have never heard of the restaurant before, but I look and I think, oh man, that restaurant must be really good. Look at that line. That might mean that I get turned into a future customer or at least somebody who's interested in going when the line might be a little shorter.

Barry Ritholtz (33:58)

Lots of buzz, lots of pr.

Judd Kessler (34:00)

Yeah.

Barry Ritholtz (34:00)

Just by the virtue that it looks like more people want a limited scarce resource.

Judd Kessler (34:06)

Correct. And that we see that, you know, throughout with lots of fad products or with, you know, scarcity driving interest and demand. Now, I don't think Taylor Swift has to do that. I think we all know who she is. Her fans are famously loyal and she, you know, doesn't have to worry so much about getting more people to be interested in her as an artist. So she might have other considerations. She might think more about the equity and the efficiency of the allocation of her scarce resource. And one reason she might not charge very High prices, which might be hundreds of dollars for the cheapest ticket and thousands for the kind of closer to the stage seats, is that she's a billionaire. Her Swifties, I'm sure she has billionaire fans because she's such a great artist, but most of her fans, a few thousand dollars is going to be a big chunk of their income for that month or, or more. And so it might not be a great look if she's charging what would be market clearing prices. So for the ERAs tour, she charges $49 for the cheapest seats. The average ticket price was, you know, just above 200. And so at those prices, you know, there's going to be massive excess demand. But she might think that that's more fair that that might be, you know, not just because it will make her look bad, but also right. She might want her fans to be able to come and only have to pay $49 or $99 or $199. It might also be that those folks really, really want to go. So you think about efficiency. There's no guarantee that the person who can pay the most actually values going to the concert the most. If her biggest fans have less income than the fans who can pay more, they're going to get pushed out. Whenever the market is relying exclusively on

Barry Ritholtz (36:00)

prices, you end up with a series of rentiers and middlemen that arguably contribute nothing positive to society and just exact a cost. In the book, I don't remember, was it the UK or Europe EU that they banned places like StubHub and those sort of ticket middlemen?

Judd Kessler (36:19)

Yeah. So this is one of the super interesting things about these hidden markets is that whenever you are giving folks access to a scarce resource at a below market price and there is the opportunity to resell it, you will get middlemen. You will get speculators or brokers who come in exclusively to try to extract surplus from the fact that the market is letting the price kind of be low initially. Now there are economists who say that's how it's supposed to work. We're supposed to get to market clearing prices. But that's not what I argue because the seller has decided that she in this case wants to keep the price low. She wants people, regular people, to be able to buy for $49.99, $199. So the middleman becomes a pretty problem that the market has to address. One way to do that is ban resale. But then you get situations where this was the London Olympics where there were seats that were empty to see some of the events when there are people standing outside the stadium who would desperately want to get in, but because there's no way for the tickets to be redistributed, you know, you end up with empty seats, which is clearly inefficient.

Barry Ritholtz (37:40)

Well, you could redistribute them at a 10% markup or something like that. So there's only once. You can't just go 10, 10, 10, 10, 10.

Judd Kessler (37:48)

So this is the, the question is, you know, how do we innovate in this market? So in the book, I have some ideas about how to do it. I think one key problem with how a lot of live event tickets are being allocated is that they're relying on first come, first serve. First come, first serve races is the way that we do it on the Internet now. And that allows the ticket brokers to program bots that will race faster than any human can. And that is going to mean that the folks who are building the bots with the intention of getting a bunch of tickets and reselling them are going to be at an advantage and be able to extract surplus. The FTC sued Ticketmaster a few months ago about this issue of basically letting there be bots on the platform that

Barry Ritholtz (38:38)

extract, including their own bots that then resell at higher prices.

Judd Kessler (38:41)

Well, this is part of the problem, which is the secondary market platforms, the ones that are facilitating the trades between the brokers or regular people who buy tickets but then can't go and have to resell them, those platforms are benefiting from the sales. They get hefty fees. I bought tickets recently and my calculation was that Ticketmaster, where I was reselling them, I was buying them and then I had friends who cancel. How to resell them was getting 30% of the transaction price.

Barry Ritholtz (39:12)

You would think the artist would be the one that should garner those gains. I've heard. I love the expression crypto is a solution in search of a problem. One would imagine that if the tickets, and I'm not a, you know, bitcoin bro, but if you could sell tickets on the blockchain and there's a smart contract built into that, that the artist gets half of the resale price, it changes the dynamics there a lot.

Judd Kessler (39:40)

So you could do that. But of course, if the artists wanted more, they could just raise the prices, right? They, they don't need, they don't need the resale market to extract that surplus. Right. The what I describe in the book, it doesn't. You don't need to go all the way to the blockchain. For it, you do need names on tickets, meaning.

Barry Ritholtz (39:58)

Oh really?

Judd Kessler (39:58)

Yeah, because right.

Barry Ritholtz (39:59)

So it's ticket and id, not just

Judd Kessler (40:01)

a. Yeah, and that seems complicated. Cause then it's like, oh, I'm going to the. It's like going to the airport. I don't want going to a concert to be like going to an airport. Although last concert I went to had to go through security anyway.

Barry Ritholtz (40:10)

Go through a metal detector at Madison Square Garden for a Knicks game. So.

Judd Kessler (40:14)

Exactly. But. But no, your phone can identify who you are. If I tap my tickets through my phone. Right. It can validate who I am. Facial recognition is getting very good. And so you know, there's clear the service you use at the airport, if that's something you've subscribed to, they have similar style products that get used at venues. Major League Baseball has had a version of this that they rolled out at some point. And so validating that you are named on the ticket is easy to do or getting easier. If you don't have that, then you could put some cap on resale. But then you know, it doesn't. Nothing stops anybody if they have a physical ticket from doing what used to happen, which is standing, you know, outside the venue and selling them or, or selling them on some third party platform that's not tracking how much more the the ticket is, you know, being paid for. Right. If it's in cash, there's no way to validate that. It's only 10%. And then the other thing you have to do, and this is trickier, it is a different type of change is get away from first come first serve. Because even if you have names on tickets, but you're doing a first come first serve race, the folks who program the fastest bots are still going to be able to extract surplus.

Barry Ritholtz (41:31)

So could someone like Taylor Swift with an army of swifties, hey, sign up here. And it's two tickets per name. And you have to be in their system for that long. And so at least what is Madison Square Garden? 25,000 people. At least the first 10,000 tickets are gonna go to local people who are her fan base.

Judd Kessler (41:51)

So the, for the ERAS tour that I, that we started talking about, they did something similar where they did a verified fan process. We had to validate who you were. And then folks came to the website if they were lucky enough to, after being verified to win a lottery. Still a lottery, still a lottery, but then a fairer lottery, fair lottery among people that they thought were real folks rather than brokers. And then you had to wait in A virtual queue and wait for some people, hours. So what ended up happening was they claimed there were a lot of bot attacks, people that didn't have the verified fan code that they needed to buy the tickets were coming and the systems grabbed to a halt and they crashed and people were waiting for hours. And so all of a sudden you had a first come, first serve line built into the system. That was supposed to be a lottery where now you're going through an ordeal. We talked about, you know, is the market easy? It's not easy if you have to wait online in front of your computer for hours. It's almost as painful as having to wait outside the box office, which we used to do for hours. And so, you know, I think the solution is to actually lean more on the lottery and basically say, look, at some point we're just going to have you put your name in, say what your preferences are, what shows you want to see her perform at, which sections you'd be willing to buy tickets for, and you're going to enter yourself in and we will tell you whether you won. But you don't have to be there and pick the specific seats. Right. You can say, I prefer to be in the center and I'm willing to pay more, whatever. But that would make the participation in the market way easier. You could run, you know, whole tours or sections of tours at once. You could reward folks who are more flexible. If I'm willing to see Taylor Swift perform at any venue, you know, on the east coast, and I'll go to any show and sit in any section, I am revealing myself to be a very big swifty, that there is a

Barry Ritholtz (43:46)

piece or a broker that wants to flip the ticket.

Judd Kessler (43:48)

Well, but if the names are on it, then I'm stuck if I have to return, if I can't go, I have to return it to the, you know, to Swift, and she can give it to somebody on the wait list.

Barry Ritholtz (43:56)

List.

Judd Kessler (43:56)

But on the randomized waitlist, right. Like you could design the system to basically cut out the brokers altogether.

Barry Ritholtz (44:03)

So the craziest thing about the brokers in the US I heard stories from several people who said rather than pay the markup in the US it was cheaper to secure tickets in Paris or London. Fly over there, stay in a hotel for a few days, go to the show and go home. That was less expensive than paying full boat to any of the SeatGeek StubHub middlemen that, you know, they charge what the market will bear.

Judd Kessler (44:31)

They charge what the market will bear. They don't add anything to the production. And yeah, it couldn't be, you know, and you get a vacation out of it. You go to Paris to see the show.

Barry Ritholtz (44:38)

Coming up, we continue our conversation with Judd Kessler, professor at the Wharton School, discussing Lucky by Design, the Hidden economics. You need to get more of what you one I'm Barry Ritholtz. You're listening to Masters of Business on Bloomberg Radio.

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Barry Ritholtz (46:39)

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Professor Judd Kessler. He teaches behavioral economics and market design at the Wharton School at University of Pennsylvania. His new book, Lucky by Design. The Hidden Economics. You need to get more of what you want is out now. So let's talk a little bit about some things that are lucky by design. One of the things that slightly before my time, but certainly resonated was what took place during Vietnam with the draft lottery. Some of the data was pretty shocking. At the time, African Americans made up 11% of the population. They were 22% of the people that were drafted and 22% of the casualties 2x the representative population. Why did that go down that way?

Judd Kessler (47:38)

Yeah, so the Situation that arises when you have these hidden markets is whoever's in charge of the market gets to pick the rules. And they might not be equitable or efficient or easy. And the Vietnam draft, before the lottery, which was introduced to kind of correct some of these issues, had a bunch of loopholes in them in the system. So you could get a deferment for various reasons. You could have some of your friends or family members lobby folks on the local draft boards that were gonna decide which men of that age were gonna be sent to be.

Barry Ritholtz (48:16)

So if you were politically connected, you had a better shot.

Judd Kessler (48:19)

Politically connected, wealthier, whiter. Those were the things that let folks.

Barry Ritholtz (48:24)

So you could have a medical disability, you could be in college or grad

Judd Kessler (48:28)

school, you could go to the National Guard. So you would be kind of stay.

Barry Ritholtz (48:32)

And not everybody gets. Gets admitted to the National Guard.

Judd Kessler (48:35)

Correct. So having a kind of way to circumvent what would have been the task of going overseas. The loopholes were kind of played by a few. And a bunch of folks did not either have the means or have the connections or kind of know that this was a way out.

Barry Ritholtz (48:54)

Did. Did the lottery. And I learned a lot more than I knew about it in the book. So they just randomly picked birth dates, your month and day of birth, and that was the order in which people were drafted. How did that impact how things.

Judd Kessler (49:10)

Yeah, so they proceeded.

Barry Ritholtz (49:11)

Did it have the desired effect?

Judd Kessler (49:13)

Well, I mean, it had the desired effect. There were still loopholes that you could use to get out of service, but it had the desired effect of 366 possible birth dates, including February 29, because you didn't want to leave those folks out. You know, they got pulled in order randomly, one at a time. And then the way the lottery worked was they would just call down the number. So folks who are old enough to remember this, at my father's generation, this was a big deal. And, you know, you wanted to have a later your have your birth date picked later, so you were less likely to be called. Now, again, still loopholes. But folks looking back, you know, at history say this helped facilitate the anti war movement that eventually got the US out of Southeast Asia. Because when you have well educated, wealthier kind of folks who have a little bit more socioeconomic status, a little more power in society when their sons started getting called up and, you know, this was a fair system, and so it was harder to get out, then you saw a bunch more kind of influential folks saying, no, no, this is not a war we want to be in for the long Term, huh?

Barry Ritholtz (50:21)

Really, really interesting. Let's talk about the area that you spent so much of your career on, which is organ donation and what those rules look like. To start, I have to ask about the numbers. There are 100,000Americans on an organ waiting list, organ transplant waiting list. I was shocked to read of that hundred thousand, ninety percent are waiting for a kidney. That's amazing.

Judd Kessler (50:50)

Yeah, I mean, so the reason for that is that there is dialysis for

Barry Ritholtz (50:56)

kidney failure, which can keep you alive

Judd Kessler (50:58)

for five or more years. I mean, you want to get a kidney as soon as possible. Dialysis is time intensive, it's painful, it's expensive. Although the cost is borne by Medicare primarily after a certain number of months that your insurance, your private insurance covers it, and then it gets handed off to Medicare. So there's a lot of costs that go into it. But of course, if you don't have a kidney that you can get as a recipient, if there isn't a donor kidney available, this is your only option. But this is why the waiting list for kidneys is so long, because folks can kind of wait for an extended period of time. Think about another organ, like a liver. There is no dialysis. So at some point, if your liver function gets bad enough, you either need a transplant or done. That's it. So this is why the kidney list goes on for so long. But it's also a major financial burden in addition to all the emotional and physical burden that the folks, the patients and their families face. That estimates suggest that it's basically 1% of the federal budget is spent on end stage renal disease on folks who have kidney failure, because Medicare is covering it. You know, Medicare, a big chunk of the federal budget, and this in particular, this line item, is very expensive.

Barry Ritholtz (52:20)

And the crazy thing about this, another data point that shocked me, is sometimes an imperfect match shows up and you have the option of, you know, rolling it over and saying, I'll wait for the next one. 20% of the donated kidneys are just thrown away.

Judd Kessler (52:37)

This is the nature of these first come, first serve waiting lists. So, you know, there's. When an organ becomes available, there's a list that's generated. It's based on how close you are to the transplant center, on the medical match between the organ donor and the recipient. So there's a bunch of considerations that come in, including how long you've been waiting. So if you've been waiting many years on dialysis, you're gonna be closer to the top of the list. So an organ becomes available and you, as the Patient, with the help of your doctor, have to decide is this going to be an organ I take or not. Some of the information about whether it's a good match for you. We only can learn after the organ has been removed from the donor who's passed away. And so now we have testing that's getting done on the organ, and there's only so much time. Yeah, you. So, you know, we have this testing getting done, and folks are getting, are learning, all right, this, it could be this organ that you take, or we can keep waiting and if you're at the top of the list, maybe you get offered a bunch of organs. And so, you know, it is hard to get through the whole list of, you know, 90,000 folks waiting for the organ. And so, you know, if the organ's not great and we can't identify somebody who might take it.

Barry Ritholtz (53:55)

I was kind of fascinated by the example you describe of what they do in Israel, that if you check, I'm willing to be an organ donor three years prior, you're higher on the recipient list. The theory being, hey, if everybody understands this, there's that many more organs available for transplant. How has that tested out in real life? And are any states here putting that into work?

Judd Kessler (54:24)

Yeah, this was the research that got me into market design. In particular, I was working with Al. We started thinking about organs. It has this nice feature of being a public good. If I agree to register as an organ donor, hopefully I won't be in this situation, but my organs are available for transplant. If I die in a way that makes them, you know, available. When folks agree to register, they are making this scarce resource, the organ, they're making it be less scarce. There are more organs available in expectation if folks are registered. So a bunch of countries, including Israel, but also Chile, China and Singapore, have built into their allocation rules an incentive to get people to provide this resource to make it less scarce. And as you said, they in Israel, it's three years, but you can think about doing it different ways. Where if you're 18 years old and you're going to the DMV and it's the first time you've ever been asked, do you want to be an organ donor? You are rewarded if you say yes. Insofar as, you know, 50 years later, if you end up needing a kidney, you're going to get priority over someone that's kind of in the same situation as you, but when they were 18, said, no, no, no, I don't want to help out other people. And so we saw when we did our research that this incentive of being given the option to be a donor so that you can have priority later on induced a lot more people to say they wanted to donate in a game that was modeled on that decision. We looked at Israel and we saw when Israel implemented it. Our estimates suggest about 100,000 more people. And Israel is a small country, so that's a lot. Yeah, it's a lot. Signed up in the run up, you know, kind of before the. They had. They announced it and they were letting people sign up and it was the date when if you signed up before, you'd immediately have priority. Otherwise you'd have to wait the three years to avoid. I mean the three years by the way, is to avoid a loophole where I get sick, I need a kidney and I go sign a donor card and then I have priority. That would totally undermine. That's the whole purpose which we have research showing that, you know, that it would in fact undermine it. So yeah, so then they implemented it and it seems to work.

Barry Ritholtz (56:37)

Have any places in the US adopted this?

Judd Kessler (56:40)

No. So it would have to be. This is not a state by state thing, that Oregon allocation systems are national and so you would need the country as a whole to have a change in the allocation rules. So I have been advocating for that since we did that research over a decade ago, but we have not yet had movement on that. Although I remain perennially optimistic because it's been many years and the problem isn't getting better. So basically anything we can do to make this scarce resource less scarce is valuable.

Barry Ritholtz (57:12)

I'm recalling Richard Thaler's book Nudge. I think he co wrote that with Cass Sunstein.

Judd Kessler (57:17)

Yep.

Barry Ritholtz (57:18)

And there was questions about opt out and opt in. In other words, if everybody by default is an organ donor, but you have to opt out. The reasons people didn't want to do that, religious reasons and other. But is that a potential solution?

Judd Kessler (57:34)

So that was, that was like a great hope of behavioral economics was that these kinds of nudges in choice architecture. Yeah. So this is a case. There are many places where it works. Well, this is a case where it doesn't. And the reason it doesn't is that, you know, if you are say it's an opt out system. So I should pause and say we don't. We can't do that in the US without a major law change because Oregons fall under the Gift Act. So you have to actually make an affirmative statement that you want. You could make it salvage law. So if you're not using it, we can take it, but people might not want to do that. But in the countries that use these opt out systems, the next of kin are still consulted. So what the next of kin are told is that the person did not opt out and it defaults basically to the next of kin to decide. And so what the research shows is that there just isn't a delta between the countries that use opt in and the countries that use opt out.

Barry Ritholtz (58:32)

Because it always goes to that affirmative decision.

Judd Kessler (58:35)

Yeah. And when, you know, I've opted in, I mean, I might be special because I talk about it a lot. Right. But if you've opted in, then the next of kin see that and they know that it was your wish. Right. You said at some point, yes, I want to register. They know that you want to do that. And so if you pass away, they know that they should donate your organ. So they're not gonna stand in the way. It is a binding agreement to be an organ donor. But of course, if the next of kin don't want it. Right. They're the only ones who are left around to sue the doctors. Right. But it ends up being the case if you register. The vast majority of folks who register have their organs recovered.

Barry Ritholtz (59:16)

I found a lot of the book had really supported surprising themes and data. Doing your research, what's the thing that surprised you most about market design? What, what sort of things did you go, huh? That. That doesn't make any sense.

Judd Kessler (59:31)

So at the end of the book, I talk about, you know, how you are a market designer. We've talked about you as a market participant, we've talked about others as market designers. But hidden market is one where there's a scarce resource that needs to get allocated without prices being what determines who gets what. And if you think about it that way, you are a market designer for things like your time and attention, which lots of people want. They want to have you respond to their emails, they want to get on your calendar, and you have to decide who you serve and who you don't. That's the preface. The thing that I learned was a set of market rules that I thought made no sense, which was how we used to allocate water from the Colorado River. So for many years, the rule was first in time, first in right. Which meant that the first folks to tap the river, to take water out, to divert for their own purposes, kind of always got their allotment. So that was California in 1901, where they diverted water from the river to turn a desert into farmland. And then decades later, when there was A drought and there was less water coming down the Colorado. The California got to keep the exact same allotment. And folks who tap the river later, like the city of Phoenix, Arizona, which in 1901 was 10 or 15,000 people, but it's now a million and a half, they had to cut back, even though for them it was drinking water, and for California it was, you know, to grow alfalfa, to feed to livestock. So I looked at that and I thought, oh, man, what a terrible. It's not efficient, it's not equitable. The race that determined who got what was run, you know, centuries ago. Yeah, a century ago. And so, you know, I'm thinking, I'm feeling like, oh, man, isn't it great that we don't use these kinds of systems anymore? And then I looked at my calendar and I saw my recurring meetings on there, and I thought, that's first in time. First and right. I'm doing what they were doing with the Colorado River, a meeting that I put on my calendar, you know, two years ago that takes Thursday at 11am every week. Thursday at 11am is being allocated to, you know, this, this project, even if it's not the most efficient or equitable use of my time. And I realize, like, oh, man, you know, there's some stuff that sacrosanct, like my teaching, but a lot of these recurring meetings, it's not adhering to the efficiency and equity standards that I would want for. For my allocations.

Barry Ritholtz (61:57)

Huh. Having read the book, I keep coming across things. As I was reading it, I was thinking about different things. And then either yesterday or this morning, I saw a Wall Street Journal piece. The new mayor elect in New York wants to freeze prices not just on apartments, but at Yankee Stadium on hot dogs and beer. And there's a couple of interesting issues. Hey, are people going to get too drunk? But some other stadiums have done this, and it's worked out really well. When we look at price controls, how do you think about rent control for apartments or capping the price of hot dogs? Costco very famously has the $50 hot dog for 36 years. How do you think about those different price mechanisms really, as a form of branding or marketing?

Judd Kessler (62:48)

Yeah, I mean, I love the Costco hot dog, so I can see the branding and marketing benefits there. I have thought a bunch about this because it is. Has the potential to create hidden markets or exacerbate hidden markets that are already there. So I recently wrote a piece about affordable housing lottery. So this is in New York City, and a bunch of major Cities around the world do this, where a new development will be built and you'll have 30% of the units that are built are going to be designated affordable, meaning folks are only expected to spend 30% of their income on housing. But there are so many people who are finding rents hard to bear in New York City and these other big cities that the lotteries get flooded. So in last full year, there were about 6 million applicants for about 10,000 units. So each lottery entry has a 1 in 600 chance of winning. And so as a result, folks are kind of constantly applying to these lotteries because that's the only way that you're going to have a chance of getting something is if you're applying to every possible lottery. But then there's all these inefficiencies that can crop up. Maybe I win a lottery, I get really lucky, but it's not in my desired neighborhood. It was still a good lottery to enter because better to get affordable housing than not. Maybe you win in the neighborhood that I want, but there's no way for us to switch. Right. It's kind of like golden handcuffs if you're getting an affordable place. And the same thing with freezing rent, where the folks who are in a rent controlled or rent stabilized apartment that are going to be able to keep paying that low rate, that's great for them, but that doesn't solve the bigger problem. It's affordability for the lucky few, but not for other folks who are moving to the city for the first time and want to make a life here. And so, you know, I can see why folks are eager to do that. But it's hard to think about how to solve that problem without broader changes.

Barry Ritholtz (65:00)

Right. It doesn't move the needle on the broader underlying problem. It just for that handful kind of raises the issue of NIMBYism and just not building well. Since the great financial crisis, we've wildly under built single family homes. Affordable housing go down the list. The focus has been on luxury properties because hey, there's the most amount of economic benefit for the builders to put their time and energy.

Judd Kessler (65:28)

But this is definitely, you know, a supply and demand problem. If you, if you want to bring costs down, you have to increase supply. And you know, as an economist, we are trained to kind of think one step further. So I'd have to read the specific policy about the Yankee Stadium concessions, but my first instinct would be, oh, if you cap the price of concessions, the logical next step is that the ticket price goes up a little bit because now all Of a sudden it's cheaper to go to have the full night out at Citi Field or at Yankee Stadium. And so is there also going to be a price control on the ticket or not? And then are we actually getting the gains that we want or are we getting nice soundbites?

Barry Ritholtz (66:12)

The thing about constructing your own market design is kind of interesting. I have a friend Dave who comes to New York a couple of times a quarter, works in finance, comes down from the Berkshires, and since he's one person and doesn't care which Broadway show he goes to, his market design hack is he waits to, depending on the day, five minutes to seven or five minutes to eight. The prices plummet because they're about to expire worthless. Oh, Hamilton for half price. Let's go Wicked. Half price. And he's seen half the stuff on Broadway at shockingly reasonable prices. So as I was reading this, I thought about that and then I just had an experience up in Newport, my first time visiting. You wrote about this in the book about the restaurant reservations and the waiting list. So we stayed at this hotel and there's a super hot restaurant there which I didn't even know about. We made other reservations for the weekend and we stop in and there's a line of people at 5 o' clock waiting to sit at the bar. I said, we're on the waiting list. He's like, well, we have like 100 seats and the waiting list is about 400 long. I'm like, oh, forget it. And. And I said something to the maitre d and he said, why don't you come down later and see what the line looks like. It usually moves pretty and it was beautiful out. You could see it at the bar. It was outdoors, so it was like we had a seven o' clock reservation. The gold.

Judd Kessler (67:46)

The gold.

Barry Ritholtz (67:47)

And we walked and we were going to walk to the restaurant. So we come down like 6:30, no line at the bar. So I said, hey, you're not seating people at the bar. He goes, no, there's no line. Get over there. And it was just simply being nice to the maitre d and asking a question. Was, was that behavioral hack?

Judd Kessler (68:06)

This is, you know, learning about the market and the market rules and getting inside information about when. When is there less demand? What, what is the optimal strategy in this environment? It requires often doing a little bit of research, but it's not unattainable. We all have the ability to think about the market rules, think about who will know the maitre d. If you're polite to him or her. They might want you to come and give you the inside tips. But you have to either do your own research or have folks advise you that you trust. And, yeah, you can often succeed in markets where other people fail.

Barry Ritholtz (68:48)

So I only have you for another 10 minutes. So let me jump to my favorite questions I ask all my guests, starting with, tell us about your mentors who helped shape your career.

Judd Kessler (68:59)

Yeah, so the main one, I mean, already mentioned him, so you can see how big an influence is Alvin Roth. So he took me in as an undergrad mentee. I had this story in the book, and then it got cut for space. So I put it in the acknowledgments because it was such a formative experience for me where I was taking his PhD class as a senior in undergrad. And so I was kind of a little bit out of place already, and I wanted to write a senior thesis. The thing that kicked me off to this career and put me at this table talking to you now. I had procrastinated asking him to be my advisor because I was a little intimidated. I felt a little out of place. And I came up to him on the day the form was due, and I said, I want to write a senior thesis. I would really like for you to advise it. The form is due today, and this is the commitment. He was like, all right, why don't I sign the form and we'll see how it goes. And he signed the form, and the rest is history. But it was both the idea that I could be involved in learning new things that people didn't know before and do it with somebody who was willing to mentor me. That was a real big impact.

Barry Ritholtz (70:07)

Yeah, I can imagine. What are some of your favorite books? What are you reading right now?

Judd Kessler (70:11)

So this is a pop econ book. My book, Lucky by Design. It's in the spirit of another pop econ book about market design, which Al wrote, which is called who Gets what and why? And so for a while, I didn't want to write another pop market design book because I didn't want to step on his toes.

Barry Ritholtz (70:29)

That's a great title.

Judd Kessler (70:30)

Who Gets what and why. Yeah, and there's a little in the text of my book you can kind of. I drop that every so often, that kind of question, that wording of that question. So that was an idea for me, this idea that you can communicate these market design concepts to regular folks. I recommend my book, but also that book for folks who are interested in this. My colleague, whose office is next to mine, had a book that came out a few weeks before mine. It's called having It All. So my colleague is Corrine Lowe, and I'm really enjoying that book. I mean, I've heard about everything that was in it along the way. But she writes about the time that women and their partners spend in doing household production and how society has progressed over decades where women have entered the workforce, but the norms at home about how time is household chores are split has not changed. So women end up really. Yeah. The data in that book is quite shocking. I mean, I'd been hearing about it as she was doing the research, but women, even in households where they earn more than their male partners, will still be doing more household labor, all of that stuff at home. So in my book, I talk a little bit about how my wife and I manage our household responsibilities and using the concepts of market design to kind of avoid some of these systematic problems that, on average, couples display. Huh.

Barry Ritholtz (72:07)

Really? You know, I love to cook, but I tend to make a giant mess. And my wife is convinced that it's a purposeful strategy. So she cook and it's. I'm like, honey, we're married 30 years. You know me. Is this how I roll? You know, you gotta.

Judd Kessler (72:22)

Yeah, sometimes this is just my technique, but. But one of the things that I talk about in the book.

Barry Ritholtz (72:27)

And must you pour from so high?

Judd Kessler (72:29)

Olive oil splatters?

Barry Ritholtz (72:31)

It doesn't need that height.

Judd Kessler (72:32)

No, you got to get.

Barry Ritholtz (72:33)

Not aerating it. It's.

Judd Kessler (72:35)

It's part of the fun. But no, we. One of the strategies is having one person be in charge of the whole task from conception to execution. So that means if you are cooking, you're also cleaning would be part of that. Right? Because then the incentives are aligned when. When you don't do that, the person who cooks can leave a giant mess. The other person cleans. That. That seems fair. But the decisions, the resentment comes in and why are you making such a big mess? And so it turns out it, you know, might be more efficient and equitable if one person does that whole task and somebody else does a whole other task. Right. You. You cook and I'll do the laundry and clean the floors and that. That's the, you know, the split. That might be fair.

Barry Ritholtz (73:16)

You know, I'm usually out the door early, or if I'm home, I'm at the desk writing. So she takes care of the dogs. And during the weekend, I try and give her a break and feed and walk the dogs early. We've never discussed it. It just kind of worked.

Judd Kessler (73:32)

Out that way sometimes that's how it happens. But for those who are not finding it that easy, talking it out and kind of splitting the tasks is an effective strategy.

Barry Ritholtz (73:42)

Tell us what's keeping you entertained these days. What are you watching or listening to? Either podcasts or Amazon Prime, Netflix, whatever.

Judd Kessler (73:51)

So I am a major fan of the Simpsons get out of here. I have always loved it.

Barry Ritholtz (73:57)

What are we up to? Season 40 something. It's crazy almost.

Judd Kessler (74:00)

Yeah. And but what has been great, I found throughout my life, you know, rewatching old episodes that I kind of get jokes that I didn't get before, which makes sense right when I started watching.

Barry Ritholtz (74:10)

It's one of those things that works for just both kids and adults at the same time.

Judd Kessler (74:14)

Exactly. And so what has been phenomenal for me is exposing my kids to it for the first time. And, you know, I'll say I'll make some reference to something and my kids will be like, what are you talking about? And then I'll pull up the YouTube clip, I'll show it to them, and then they'll be like, oh, can you know, can we watch that episode? So that has been phenomenal.

Barry Ritholtz (74:30)

Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either market design or economics or academia?

Judd Kessler (74:42)

Yeah. So academia there is a path forward for folks who have just graduated college and are thinking about this, and that is to get some experience doing research to see if you like it. Because the market for tenure track academic positions is getting tightened. We're feeling the political wins as well as other things have kind of demographically,

Barry Ritholtz (75:07)

they're slightly smaller admission classes. And I just read 17% drop in international students. That's a big number for a lot

Judd Kessler (75:16)

of the universities that have big PhD programs. The budgets for things like the PhD program will depend on their revenue streams. And foreign students coming for undergrad or for master's degrees is a big revenue source for a lot of institutions. So all of that is to say that academia remains a great option for folks who are interested in it, but it's getting harder and harder. But if folks are interested getting and they have not yet done it, they may have done it in undergrad, getting exposure to the research experience. There are pre doctoral programs for folks who work with academic researchers on their projects and kind of get a sense of what it's actually like. There are master's programs that folks can participate in to see what the coursework is like. So that is definitely one way to go. There are kids who start earlier who start in college, but I was not one of them. I told the story about senior year kind of realizing, oh, I want to do academia. So I hadn't done any research assistant work until after I graduated, but that was the next step for me was saying, okay, I want to see what this is like. So it is a path to do. But you should only do it if you really want to have a job that only someone with a PhD can have. Because there are a lot of great jobs out there for folks interested in these topics, but not in academia.

Barry Ritholtz (76:38)

Final question. What do you know about the world of market designs and economics or even academia that would have been useful 20 plus years ago when you were first getting started?

Judd Kessler (76:50)

Yeah, I think something I've recently developed and part researching for the book is just how diverse the hidden markets are that we participate in every day. As a young economist being trained in how markets worked, I thought basically exclusively about prices and the price mechanisms. That was how I was taught those were the markets I looked at. It's only recently that I realized markets are much broader than that. And thinking through the rules of those markets, how we could design them better so that they're more equitable and efficient and easy for participants, I think there's a lot of gains for us to have as a society. So I'm excited to be working on it for the next 20 years. But if I could go back 20 years and say, hey, maybe focus on these markets a little bit more because there's a lot of low hanging fruit where we could be making things better for everybody. You know, I wish I knew that. And I want others to kind of look at these markets and say, yeah, this could be better.

Barry Ritholtz (77:54)

Fascinating. Professor, really enjoyed the conversation. We have been speaking with Judd Kessler, professor of Behavioral Economics and Market Design at Wharton at the University of Pennsylvania and author of the new book Lucky by Design the Hidden Economics. You need to get more of what you want. I would be remiss if I failed to thank the crack team that helps me put these conversations together each and every week. Alexis Noriega is my video producer. Sean Russo is my research assistant. Anna Luke is my producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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