We asked 188 economists. And the survey says...

Summary

Planet Money Podcast Summary: "We Asked 188 Economists. And the Survey Says..."

Planet Money by NPR takes listeners on an insightful journey into the world of economics, demystifying complex terms through the perspectives of 188 economists. In this episode, titled "We Asked 188 Economists. And the Survey Says...", hosts Amanda Aronchik and Alexi Horowitz Ghazi delve into the most misunderstood economic concepts, exploring their meanings, the reasons behind their confusion, and real-world implications. This summary encapsulates the key discussions, insights, and conclusions presented throughout the episode.

---

1. Introduction: The Importance of Clear Economic Terms

The episode opens with an engaging anecdote from Bulent Temel, an economics professor at the University of Texas at San Antonio, highlighting the nuances and potential misunderstandings in economic terminology. Temel shares a humorous incident where his use of the term "pegging" led to unintended giggles from his students, underscoring the importance of precise language in teaching economics.

Bulent Temel [01:12]: "Why did God create economists? To make weather forecasters look respectable."

This sets the stage for the episode's main theme: exploring how everyday economic terms can be misconstrued and the impact of these misunderstandings on both educators and the general public.

---

2. Survey Overview: Identifying Common Misunderstood Terms

Amanda and Alexi explain the methodology of their survey, which posed three questions to 188 economists:

1. What term in economics is misunderstood?
2. Why do you think people find that term confusing?
3. Can you share a story related to it?

The goal was to uncover the terms that frequently cause confusion and to provide clarity through expert explanations and relatable stories.

---

3. Public Good

Expert Insight: Dahlia Remler, Professor at City University of New York, identifies "public good" as a commonly misunderstood term.

Dahlia Remler [05:59]: "In economics, a public good... means that one person enjoying the park doesn't take away from other people enjoying it too."

Explanation: While "public good" may seem straightforward, in economics, it specifically refers to goods that are non-excludable and non-rivalrous. Examples include public parks and streetlights. Understanding this definition helps governments in deciding which public goods to fund, especially in situations where private markets may fail to provide them adequately.

---

4. Capitalist

Expert Insight: Joseph Gladstone, Professor at Washington State University, discusses the term "capitalist."

Joseph Gladstone [07:02]: "A capitalist is essentially just someone who has capital."

Explanation: The term "capitalist" often carries negative connotations, being associated with selfishness and greed. However, in economic terms, a capitalist is simply an individual or entity that owns capital—assets that can be used to generate wealth. This clarification helps in separating the economic definition from the colloquial perception.

---

5. Welfare

Expert Insight: Vivian Ho highlights the dual meanings of "welfare."

Vivian Ho [07:20]: "Welfare can be defined as a measure of people's well-being... But it can also refer to a government income support program for low-income families."

Explanation: The term "welfare" can be confusing because it serves as both an abstract measure of societal well-being and a specific government assistance program. This duality often leads to misunderstandings about policies and their intended impacts.

---

6. Price Discrimination

Expert Insight: Alison Schrager, Economist at the Manhattan Institute, explores "price discrimination" through practical examples at a movie theater.

Alison Schrager [10:08]: "Price discrimination... means that people pay what they value things."

Real-World Application: Schrager conducts a field study at a theater showing the movie "Sing Sing," illustrating how different pricing strategies—like senior discounts and time-based pricing—allow varying consumer segments to access the same product at different price points. This approach not only increases market participation but also maximizes revenue for businesses.

Example Story:

• Wilda Williams [09:24]: Utilizes a senior discount and a half-price Tuesday ticket, paying only $8.75.
• Luke Binder [09:43]: Purchases a standard ticket for $19, reflecting his individual valuation.

This segment demonstrates the balance between consumer affordability and business profitability, emphasizing that not all forms of price discrimination are inherently negative.

---

7. Soft Landing

Expert Insight: Diane Swonk, Chief Economist at KPMG US, clarifies the term "soft landing."

Diane Swonk [13:00]: "It just means you've avoided a full-blown recession."

Explanation: A "soft landing" refers to an economic situation where the economy slows down to prevent overheating without tipping into a recession. Despite sounding gentle, as Swonk explains, it can involve significant economic adjustments like rising unemployment and sector-specific downturns.

Diane Swonk [13:28]: "The idea that soft landings are like pillows and feathers and no pain anywhere, I think that gets lost in transcription."

---

8. Moral Hazard: The Most Misunderstood Term

Featured Insight: "Moral hazard" emerged as the most frequently misunderstood term among the surveyed economists. Vivian Ho and Mark Pauli provide a comprehensive explanation and historical context.

Mark Pauli [17:26]: "Moral hazard occurs whenever there's an individual who takes an action for which they don't bear the full economic consequences of that decision."

Example Story:

• Flu Vaccine Scenario [17:59]: Individuals with free access to flu vaccines (due to insurance) might choose not to get vaccinated, relying on the insurance to cover potential illness. This behavior—altered by the presence of insurance—is a classic example of moral hazard, where the insured party takes on more risk because they do not bear the full cost of that risk.

Broader Implications:

• Healthcare: Overutilization of medical services by insured individuals.
• Banking: Banks taking excessive risks under the assumption of government bailouts.
• Employment: Employees with paid sick days might misuse the benefit by taking unnecessary sick days.

Joseph Gladstone [22:36]: "That didn't seem to me to be a matter of morality. That just seemed to me to be a matter of basic economics."

Historical Context: Originally rooted in insurance literature from the 18th and 19th centuries, moral hazard was concerned with behaviors that would complicate insurance claims, such as negligence leading to accidents. Over time, economists like Mark Pauli redefined the term to focus on the incentives and behavioral changes caused by insurance and other safety nets, stripping away the moral judgment previously associated with it.

Mark Pauli [23:01]: "I would say insurance, incentive responsiveness."

Despite suggestions for alternative terminology, "moral hazard" remains entrenched in economic discourse, largely due to its established usage despite its potentially misleading connotations.

---

9. Conclusion: The Power of Clear Economic Communication

The episode concludes by emphasizing the necessity of clear and precise language in economics to avoid misunderstandings and to ensure effective communication between economists, educators, policymakers, and the public. By dissecting these commonly misunderstood terms, Planet Money fosters a better understanding of economic principles and their real-world applications.

Final Thoughts:

Alexi Horowitz Ghazi [23:19]: "The moral of the moral hazard story is that the term itself is probably here to stay."

The episode serves as a valuable resource for anyone looking to enhance their economic literacy, highlighting the importance of context and definition in the study and application of economic concepts.

---

Credits:

• Produced by: Sam Yellowhorse Kessler
• Assisted by: SH Sean Saldana
• Edited by: Jess Jiang
• Engineered by: Valentina Rodriguez Sanchez
• Fact-Checked by: Sierra Juarez
• Executive Producer: Alex Goldmark

---

This summary provides a comprehensive overview of the Planet Money episode, ensuring that listeners or readers gain a clear understanding of the discussed economic terms and their broader implications. By integrating notable quotes and timestamped insights, the summary maintains the engaging and informative spirit of the original podcast.

Transcript

[Alexi Horowitz Ghazi]

This message comes from solidigm. Yesterday's approach to storage can't meet the demands of today's AI ambitions. Bigger, faster and more energy efficient Solidigm solid state storage solutions are optimized for AI. Learn more at storageforai.com this is Planet Money from NPR. Every fall, Professor Bulant Temel starts assembling his teaching materials. The topics, the examples, even what he's going to say and when.

[Bulent Temel]

I actually have a policy that in every class, which is one hour and 15 minutes, I crack at least two jokes.

[Amanda Aronchik]

It's very methodical system. Two joke minimum, one around 20th minute.

[Bulent Temel]

Mark and one around 45th minute mark.

[Amanda Aronchik]

Why do you have it scheduled in your class?

[Bulent Temel]

Because I already have their attention high in the first 20 minutes anyway. So 20th minute is the when it's fading away. And 45th minute, definitely they need a boost.

[Amanda Aronchik]

That's why sometimes the jokes are short, sometimes long, sometimes topical, sometimes irreverent as.

[Alexi Horowitz Ghazi]

To whether they are any good.

[Amanda Aronchik]

Yeah, you guys can be the judge of that.

[Bulent Temel]

Why did God create economists?

[Amanda Aronchik]

Why?

[Bulent Temel]

To make weather forecasters look respectable.

[Alexi Horowitz Ghazi]

Apparently that one kills with economists. Anyway. Bulent teaches economics at the University of Texas at San Antonio. And while he finds economics very, very entertaining, he knows his students do not always agree. Hence all the jokes.

[Amanda Aronchik]

And the reason we're talking to him is because of something funny that happened in one of his classes that he did not plan for. It was about a term he used that his students understood in a different way.

[Alexi Horowitz Ghazi]

This little anecdote references something sexual. So if you're listening with kids and want to skip this part of the story, skip ahead 1 minute and 45 seconds.

[Amanda Aronchik]

Yeah, we're going to count you down before we start the story. Give you a second to skip. Five, four, three, two, one, skip.

[Alexi Horowitz Ghazi]

Okay. Bulandt says the incident happened a few years ago in one of his Intro to Econ classes.

[Amanda Aronchik]

Picture one of those big auditoriums filled with hundreds of students. Bulant starts lecturing on the topic of the trade barriers.

[Bulent Temel]

So there are a number of trade barriers, which are the policies that governments sometimes employ to restrict foreign trade into their country.

[Alexi Horowitz Ghazi]

Right. A government might restrict trade by putting in place tariffs or maybe quotas on stuff coming from abroad.

[Amanda Aronchik]

Bulant explains to the entire class that there is another way for a government to impact trade through their currency. Sometimes a country will tie their currency to another country's, you know, peg their currency.

[Bulent Temel]

Government saying that from this point on, my money will be worth this much to this particular currency for the foreseeable future. So that's what pegging is.

[Alexi Horowitz Ghazi]

And that is when the students started.

[Bulent Temel]

Smirking, I immediately noticed their facial expressions change and they kind of do what you're doing now. Actually, sometimes. Yes.

[Amanda Aronchik]

Yeah, I have my hand over my mouth and I am giggling now. I am not going to explain the other usage of the word pegging here. It involves straps and sex. Google at your own risk.

[Alexi Horowitz Ghazi]

Anyway, Bulant is standing there in front of all of these giggling students and unlike when he tells his carefully planned out jokes, this time he has no clue why the thing he'd said was funny.

[Bulent Temel]

And I tell my wife that night what happened and then she told me what it is. From that point on, I'm more careful teaching that segment of the class.

[Amanda Aronchik]

Hello and welcome to Planet Money. I'm Amanda Aronchik.

[Alexi Horowitz Ghazi]

And I'm Alexi Horowitz Ghazi welcome back to those who took a little pause. Don't worry, you have not missed anything super important.

[Amanda Aronchik]

Economics is filled with terms that we'll just say it don't always make sense to the average person. Terms that sometimes, yes, mean what you think they mean, but sometimes not at all. Not even close.

[Alexi Horowitz Ghazi]

So we surveyed 188 economists and we asked them which are the most misunderstood terms in the field of economics.

[Amanda Aronchik]

Today on the show we are going to hear their answers. Stories about near recessions, a problem with insurance and econ at your local movie theater. Bring some popcorn.

[Alexi Horowitz Ghazi]

You mean like smuggle popcorn into a theater?

[Amanda Aronchik]

Smuggle it in. It's going to be cheaper than if you bought it there.

[Alexi Horowitz Ghazi]

I guess so.

[Ira Glass]

This message comes from Apple Card. Apple Card is the perfect card for your holiday shopping. When you use Apple Card on your iPhone, you'll earn up to 3% daily cash back on every purchase, including products at Apple like a new iPhone 16 or Apple Watch Ultra. Apply now in the Wallet app on your iPhone subject to credit approval. Apple Card issued by Goldman Sachs Bank USA Salt Lake City Branch terms and [e-mail] this message comes from Grammarly. 88% of the work week is spent communicating, so it's important your team gets it right. Enter Grammarly Grammarly's AI helps teams communicate clearly the first time. It goes beyond basic grammar to help teams instantly create and revise drafts in just one click, all without leaving the page they're on. Join the 70,000 teams and 30 million people who use Grammarly to move work Forward. Go to Grammarly.comenterprise to learn more Grammarly Enterprise Ready AI so we put together.

[Amanda Aronchik]

A survey and asked 188 experts these three questions. What term in economics is misunderstood? Why do you think people find that term confusing? And can you tell us, like, a little story about it?

[Alexi Horowitz Ghazi]

We got lots of responses.

[Amanda Aronchik]

My word is public good. This is Dahlia Remler. She's a professor at City University of New York. It's confusing because those are two ordinary English words. And together, people think public good means something that's good for the public. In economics, a public good, yes, does refer to something that is good for the public, like a public park or streetlights. But there is a more technical definition. It means that one person enjoying the park doesn't take away from other people enjoying it too. The other criteria, it is extremely hard to prevent others from enjoying the park. It's there for everyone. This definition can help governments decide what public goods to pay for when private markets fail to fund them.

[Alexi Horowitz Ghazi]

Another misunderstood term we heard comes from Joseph Gladstone, a professor at Washington State University.

[Joseph Gladstone]

The economic term that I find people see as a problem is capitalist. Most people find capitalists as selfish, greedy people. And that's not exactly it.

[Amanda Aronchik]

Joseph says a capitalist is essentially just someone who has capital.

[Alexi Horowitz Ghazi]

But we also found a lot of responses about terms that have a double meaning, like this one from Daymond Jones at the University of Chicago.

[Amanda Aronchik]

The term that came to mind was welfare.

[Vivian Ho]

Welfare can be defined as a measure.

[Alexi Horowitz Ghazi]

Of people's well being, how well off they are.

[Amanda Aronchik]

But it can also refer to a.

[Vivian Ho]

Government income support program for low income families.

[Alexi Horowitz Ghazi]

Two pretty different things, which is confusing.

[Amanda Aronchik]

The thing with a lot of these terms is that they are everyday words. You know them well, probably been using them for years. But economists have given them some other sometimes mystifying meaning. So annoying.

[Alexi Horowitz Ghazi]

For our next term, we went looking for economists out in the wilds of New York City.

[Amanda Aronchik]

Alison Schrager. How are you?

[Alison Schrager]

I'm well.

[Amanda Aronchik]

What are you doing here at the movie theater?

[Alison Schrager]

Well, you know, like a lot of economists, I don't have a very demanding schedule. So I figured Tuesday afternoon, great time to see a matinee.

[Amanda Aronchik]

Allison is an economist at the Manhattan Institute.

[Alexi Horowitz Ghazi]

So we are here at the theater not for a matinee, but because it is the perfect place to talk about Alison's term price discrimination, which is basically setting different prices for individual consumers based on what each of those consumers is willing to pay.

[Amanda Aronchik]

But when people hear price discrimination, they often focus on the discrimination part. They think it is a bad thing.

[Alexi Horowitz Ghazi]

So Allison wanted to come to the movies today to make the case for price discrimination.

[Amanda Aronchik]

Okay, let's Go in the theater and see if we can talk to anybody about price discrimination and not get kicked out. Okay, here we go. Going in.

[Alexi Horowitz Ghazi]

It's a Tuesday afternoon. There aren't a lot of people here. But we catch a woman waiting for her friend before a movie.

[Amanda Aronchik]

My first question is just, did you buy a ticket to a movie?

[Diane Swonk]

Yes, I did.

[Amanda Aronchik]

What you gonna go see?

[Diane Swonk]

Sing Sing.

[Amanda Aronchik]

Okay, what is that about?

[Diane Swonk]

A group of prisoners at Sing Sing who are part of an acting company, and it's sort of the power of theater to change lives.

[Amanda Aronchik]

Can I ask how much you paid for your ticket?

[Diane Swonk]

It's half price on Tuesdays, and I have the app, and also I got the senior ticket, so about $9.

[Alexi Horowitz Ghazi]

So Wilda Williams here got a senior discount, and she's also a member. So she got half off Tuesdays. Her ticket cost only 875. That's like civil War era ticket pricing.

[Amanda Aronchik]

Next, Allison and I do a bit of a stakeout near the ticket machine. Okay, so we're watching a gentleman at the Ticket boots. He's buying himself a ticket.

[Alexi Horowitz Ghazi]

We catch Luke Binder before he heads to his theater. He's also seeing Sing Sing.

[Amanda Aronchik]

Can I ask you how much you spent on your ticket? I spent $19 on my ticket.

[Mark Pauli]

Yeah.

[Amanda Aronchik]

So they are both going to see the exact same movie, Sing Sing, about the power of theater to change lives. Wilda, she paid 875, and Luke, who's in his 20s, he paid $19. Now, Luke told us he didn't feel there was anything wrong with Wilda getting a discount, but he did pay more than double what Wilda paid.

[Alexi Horowitz Ghazi]

Allison tells us this is price discrimination.

[Alison Schrager]

In action, because it just means that people pay what they value things. And that means that people who don't have a lot of money often can now participate in a market they wouldn't have. Like if you are a pensioner and you can't afford a full fare, but they, according to this membership program, give you half off on Tuesdays. That means you can still see movies. You just have to go on Tuesdays unless people are in the movie theater. And that's better for the movie theater and that's better for you. And now more people get to partake in a good.

[Amanda Aronchik]

Now, this is the basic version of price discrimination. Discounts for seniors, discounts for students. These are pretty accepted. But there are some versions of price discrimination that people seem to hate, like algorithmic pricing.

[Alison Schrager]

And that just means that they're using data and AI or maybe to figure out how much you want a Good and are willing to pay for it and charge you accordingly.

[Amanda Aronchik]

Alison says that in economics there's a concept called perfect price discrimination. That means that the price of, you know, like a plane ticket is set exactly at the max each customer is willing to pay. Now in this scenario, a travel website might use online data like your location, how many flights you take a year, how many times you googled flight to Aruba to figure out exactly what price to offer you.

[Alexi Horowitz Ghazi]

Some economists like perfect price discrimination because it brings more people to a market than if there was just one fixed price.

[Amanda Aronchik]

But most people hate price discrimination. Alice and I were standing at the street entrance of the theater when she talked about the recent uproar over price discrimination.

[Alison Schrager]

There was a big scandal recently because Wendy's was going to charge a different price depending on when you came. And everyone was very upset because everyone's paying different prices. But maybe you can't afford Wendy's during prime time, so now you can maybe get a Wendy's lunch at three in the afternoon if you just wait, wait a couple hours.

[Amanda Aronchik]

Yeah, people hated it.

[Alison Schrager]

People hated it, but they should love it because it's like, well, now you can get a cheaper hamburger.

[Amanda Aronchik]

Some people should love it because if they can wait until 3:00, they will get a cheaper burger. There will be some winners with price discrimination.

[Alexi Horowitz Ghazi]

So whether we are talking about making some cheeseburgers cheaper or making Tuesday afternoon matinees affordable for seniors, maybe what we've really learned here is about the power of price discrimination to change lives.

[Amanda Aronchik]

Our next misunderstood term appears in the news all the time. Like, here is Treasury Secretary Janet Yellen saying it at a recent event.

[Diane Swonk]

It really has been amazing to be.

[Amanda Aronchik]

Able to get inflation down as meaningfully as we have.

[Diane Swonk]

And I think this is what most.

[Amanda Aronchik]

People would call a software landing.

[Alexi Horowitz Ghazi]

The term for this segment is soft landing.

[Amanda Aronchik]

Okay, so speaking of soft landing, you filled in our survey and you said, you know, what people don't really understand is soft landing.

[Diane Swonk]

No, they don't.

[Amanda Aronchik]

Are you sure? Now I hear soft landing. I'm like, I feel like I get it. Do I not get it?

[Diane Swonk]

Well, you know, the thing that people don't get is it just means you've avoided a full blown recession.

[Alexi Horowitz Ghazi]

Okay, so this is Diane Swonk, chief economist at KPMG us, part of one of the biggest accounting firms in the world. And Diane says the economy might not be in a recession. This might actually be a soft landing, but that can still entail a lot of economic pain.

[Diane Swonk]

You can have an increase in unemployment which we've already had, actually. You can have certain sectors that go into recession like we saw in the housing market. And so it sounds nice and cushy, but in reality, the reality is that it's a little bumpier and a little more turbulent than I think people think. You know, the idea that soft landings are like pillows and feathers and no pain anywhere, I think that gets lost in transport.

[Amanda Aronchik]

Diane hears this confusion all the time from her clients, from her colleagues. When they're told that the economy is doing well, that we dodged a recession. They still can't help but wonder, like, my industry is struggling. We had to lay off a bunch of people. If this is a soft landing, why doesn't it feel soft? So if you could come up with a different term and replace soft landing, what would you replace it with?

[Diane Swonk]

Oh, I don't know that I have a replacement for it. You know, I guess, you know, soft landing is a little bit too benign.

[Amanda Aronchik]

So I've got a couple suggestions. Maybe minibust.

[Diane Swonk]

Minibust. Yeah, minibust.

[Amanda Aronchik]

Okay, let's try one more. Quasi recession.

[Diane Swonk]

Oh, no. You know, they call them, in Europe, they're calling them technical recessions.

[Amanda Aronchik]

Oh, it's because it's not recession, you.

[Diane Swonk]

Know, because the economy has actually slipped into negative territory, even though it's not a full blown recession in the labor market, which is kind of an interesting way to think about it as well. But when you hear technical recession, people go, well, what is that?

[Alexi Horowitz Ghazi]

Right? It makes it sound like technically we are in a recession, which is not the case. So it makes even less sense.

[Amanda Aronchik]

So for this one, we are taking suggestions. Write to us and suggest a better term than soft landing for this economic moment that we're in. Can't be too hard, can't be too soft.

[Alexi Horowitz Ghazi]

Like a soft boiled landing.

[Amanda Aronchik]

A soft boiled landing would be great.

[Alexi Horowitz Ghazi]

A little gooey. After the break, we reveal the single term that came up more than any other in our survey of 188 economists, which involves a battle between good, evil and insurance.

[Ira Glass]

This message comes from Capital One. Banking with Capital One helps you keep more money in your wallet. With no fees or minimums on checking accounts. What's in your wallet? Terms apply. See capital1.combank for details. Capital1NA member FDIC.

[Vivian Ho]

This is Ira Glass of this American Life. Each week on our show, we choose a theme, tell different stories on that theme. All right, I'm just going to stop right there. You're listening to an NPR podcast. Chances are you know our show. So instead I'm going to tell you we've just been on a run of really good shows lately, some big, epic, emotional stories, some weird, funny stuff, too. Download us this AMERICAN Life.

[Alexi Horowitz Ghazi]

Alexi horowitz, Ghazi here. Sure, subscriptions offer convenience, but are they bad for competition? When you're not canceling because you forget about it or it's difficult to cancel, those forces of consumers taking their business to another product are blunted. That's from our recent Planet Money bonus episode, my extended interview with Stanford economist Neil Mahoney. Listen with [e-mail] this message comes from Wondery.

[Ira Glass]

Some of the craziest conspiracy theories are actually classified government operations. To hear more about these hidden truths, listen to Declassified Mysteries with Luke lamanna on the Wondery app or wherever you get your podcasts.

[Amanda Aronchik]

So we sent out this survey to 188 economists, and when we got the responses, there was one term that came up more than any other, moral hazard. So we called up Vivian Ho, who teaches at Rice University.

[Mark Pauli]

Well, I actually asked my students about what terms that they found were most confusing. And I asked three of my favorite students that I had, and two of them came back and said moral hazard.

[Alexi Horowitz Ghazi]

Moral hazard is a concept that's very much a part of Vivian's work because she is a health economist.

[Amanda Aronchik]

So tell me the correct what is the correct definition for moral hazard?

[Mark Pauli]

So moral hazard occurs whenever there's an individual who takes an action for which they don't bear the full economic consequences of that decision.

[Amanda Aronchik]

So Vivian says it might be easier to understand moral hazard through an example. It's the fall now, so that means changing leaves, pumpkin spice and the flu. Yay. So let's say there's a new flu going around and that there is a vaccine available for free.

[Mark Pauli]

If you have health insurance and they say there's a new vaccine out, you say, I have health insurance, so if I get sick, you know, I really should go get this vaccine. But I don't have time, so I'm just not going to do it. That would be an example of moral hazard, right?

[Alexi Horowitz Ghazi]

People think, I don't need to bother getting a new vaccine. There's a chance I won't even get the flu. And if I do, I can always go get treated for free, basically.

[Amanda Aronchik]

So the problem here is that people take on additional risk by not getting the vaccine because, hey, they're not the ones paying for it if they get sick. And if the flu explodes, more people will need treatment and healthcare costs go up.

[Alexi Horowitz Ghazi]

Another version of moral hazard is that people with health insurance might go to the doctor more than they need to, since they are not the ones paying for it. Moral hazard can have this distorting effect.

[Mark Pauli]

That's why in health insurance we have co pays and deductibles. It's meant to address this moral hazard. So you want to give coverage protection against great financial loss to patients, but maybe you have some skin in the game, and so that will reduce the amount of moral hazard that occurs.

[Alexi Horowitz Ghazi]

Vivian says that moral hazard shows up in all sorts of places, not just in health care with banks that are too big to fail. If a bank is just going to be bailed out when it runs into a problem, maybe the bank doesn't worry too much about giving out those risky loans.

[Amanda Aronchik]

Or say a CEO has a large severance package lined up so they don't worry too much about making bold but risky business decisions. Or take the case of paid sick days.

[Mark Pauli]

The moral hazard is if you know that it's all being paid for, you might call in sick on some days when you're really not what people call.

[Amanda Aronchik]

In sick on days when they're not. I would never. Would you?

[Mark Pauli]

I'm not going to answer that question now.

[Alexi Horowitz Ghazi]

The problem with the term moral hazard is again, those are two words we understand, but the meaning doesn't totally line up.

[Mark Pauli]

I asked my students, well, if you weren't quite sure what it meant, what did you think it meant before I started lecturing on the topic? And then one of my students responded, I thought moral hazard was everything they told you not to do in church, like sex and drugs and gambling.

[Amanda Aronchik]

I mean, it's kind of what it sounds like.

[Mark Pauli]

Exactly.

[Amanda Aronchik]

Vivian's three favorite students weren't entirely wrong. We looked into it a little bit, and the origins of the term do have something to do with morality. Vivian suggested we reach out to Mark Pauli, emeritus professor of health economics at Wharton, to find out a bit more.

[Alexi Horowitz Ghazi]

He's kind of like the Duke of moral hazard.

[Joseph Gladstone]

So the term actually was originated in the insurance literature. They defined it as any deviation from correct human behavior that causes problems for insurers.

[Alexi Horowitz Ghazi]

Mark encountered the term when he was writing his PhD thesis back in the mid-1960s. He says moral hazard is a very old term. It appears in old insurance literature from the 18th and 19th century. It was a huge issue for insurers back then.

[Amanda Aronchik]

Let us share some of this insurance literature. It's kind of amazing and it's definitely super judgy. Like, take this 1867 guide to fire insurance. There were a lot of fires Back then, so insurers were like, who can we trust? Alexei, would you do the honors?

[Alexi Horowitz Ghazi]

My pleasure. Hold on. What is the general character borne by this applicant? Are his habits good? Is he an old resident or a stranger and an itinerant? Have threats been uttered against him? Is he peaceable or quarrelsome, popular or disliked?

[Amanda Aronchik]

Basically, insurance companies were asking, is this person a morally upright citizen, or is he going to be negligent and accidentally set his business on fire?

[Alexi Horowitz Ghazi]

But when Mark was writing his thesis, he thought, this is the wrong question to ask, because once people were insured, he didn't think they ended up using more insurance because they were good or bad people.

[Joseph Gladstone]

And I said, well, that just looks like movement down a demand curve. That's what we teach in econ. One, that when price is low, people will use a lot of something, and when price rises, they'll use less and less of it. And that seems to be what happens with health insurance.

[Amanda Aronchik]

Mark argued this wasn't about whether a person is peaceable or quarrelsome. It's not a moral hazard. He just thought this is what people might do when they have health insurance.

[Joseph Gladstone]

That didn't seem to me to be a matter of morality. That just seemed to me to be a matter of basic economics.

[Amanda Aronchik]

And largely, Mark convinced the field. These days, when economists talk about moral hazard, they're talking about what incentivizes certain behavior. They are not judging people's morality.

[Alexi Horowitz Ghazi]

Now, we figured if he was the guy who changed the meaning, took the moral judgment out of the term moral hazard, he must have a replacement in mind.

[Amanda Aronchik]

Do you have another term that you've been sitting on that you think could replace the term moral hazard?

[Joseph Gladstone]

Well, yes, but I would say insurance, incentive responsiveness. And then, you know, people would fall asleep when I got to the third syllable.

[Alexi Horowitz Ghazi]

So the moral of the moral hazard story is that the term itself is probably here to stay.

[Amanda Aronchik]

So there you have it. A whole bunch of economic terms, along with some hopefully clarifying definitions. Special thanks to everyone who filled in our survey. We obviously could not have made this episode without you.

[Alexi Horowitz Ghazi]

Today's episode was produced by Sam Yellowhorse Kessler, with help from SH Sean Saldana. It was edited by Jess Jiang, engineered by Valentina Rodriguez Sanchez, and fact checked by Sierra Juarez. Alex Goldmark is our executive producer. I'm Alexi Horowitz Ghazi.

[Amanda Aronchik]

I'm Amanda Ranczyk. This is npr. Thanks for listening. Joe Biden's on his way out. Donald Trump's on his way back. Want to know what's happening as the presidential transition is underway. The NPR Politics Podcast has you covered with the latest news and analysis. Listen to the NPR Politics Podcast. The Code Switch team spent Election Day talking to folks about how the outcome might impact them. It's a time capsule of people's hopes and fears before they knew the results.

[Alexi Horowitz Ghazi]

One way or another, there's a change coming.

[Bulent Temel]

I wanted to vote for Trump, but.

[Amanda Aronchik]

I voted for her.

[Mark Pauli]

Gays for Trump.

[Amanda Aronchik]

I cried this morning. I've been crying on and off. I'm terrified. Listen to Code Switch, the podcast about race and identity. From npr. NPR brings you the updates you need on the day's biggest headlines.

[Alexi Horowitz Ghazi]

The Senate narrowly passed the debt ceiling bill that will prevent the country from defaulting on its loans.

[Amanda Aronchik]

Stories from across the world.

[Alexi Horowitz Ghazi]

Knowing how to forage and to live.

[Amanda Aronchik]

With the land is integral to unise culture. And down your block. From CPR news, this is Colorado Matters and you can find all of that and more in your pocket. Download the NPR app today.