1 00:00:00,040 --> 00:00:02,460 The following content is provided under a Creative 2 00:00:02,460 --> 00:00:03,970 Commons license. 3 00:00:03,970 --> 00:00:06,910 Your support will help MIT OpenCourseWare continue to 4 00:00:06,910 --> 00:00:10,660 offer high quality educational resources for free. 5 00:00:10,660 --> 00:00:13,460 To make a donation or view additional materials from 6 00:00:13,460 --> 00:00:17,390 hundreds of MIT courses, visit MIT OpenCourseWare at 7 00:00:17,390 --> 00:00:18,640 ocw.mit.edu. 8 00:00:25,830 --> 00:00:30,600 PROFESSOR: We ended last time kind of without really a 9 00:00:30,600 --> 00:00:36,760 resolution in the sense that we looked at this example of 10 00:00:36,760 --> 00:00:46,030 these vendors in India and the Philippines, and these vendors 11 00:00:46,030 --> 00:00:48,295 were somehow-- 12 00:00:50,850 --> 00:00:55,630 they seem to be unable to save their way out of something 13 00:00:55,630 --> 00:01:01,960 that seems extremely costly to keep bearing. 14 00:01:01,960 --> 00:01:13,310 They were paying 5% a day, and even when somebody paid down 15 00:01:13,310 --> 00:01:17,800 their entire debt so that they didn't have to borrow any 16 00:01:17,800 --> 00:01:22,170 more, they slipped back into debt within about three weeks. 17 00:01:22,170 --> 00:01:32,060 So it was a sense in which these people seem to find it 18 00:01:32,060 --> 00:01:40,140 difficult to stay out of debt and, in particular, to hold 19 00:01:40,140 --> 00:01:41,520 onto their savings. 20 00:01:44,300 --> 00:01:49,960 So here's another experiment, which sort of brings out some 21 00:01:49,960 --> 00:01:51,205 more off it. 22 00:01:51,205 --> 00:01:55,900 It's in Busia, Kenya, a letter missing there. 23 00:02:01,610 --> 00:02:06,870 So the way it started is that-- 24 00:02:09,550 --> 00:02:16,370 the experiment is by Esther Duflo, Michael Kremer, and 25 00:02:16,370 --> 00:02:17,630 John Robinson. 26 00:02:17,630 --> 00:02:21,260 What they had done was they started by actually giving 27 00:02:21,260 --> 00:02:24,590 farmers some fertilizer. 28 00:02:24,590 --> 00:02:28,600 One of the enduring kind of puzzles in agricultural and 29 00:02:28,600 --> 00:02:33,090 economics is why farmers in Africa don't use more 30 00:02:33,090 --> 00:02:36,700 fertilizer given that fertilizer is something that 31 00:02:36,700 --> 00:02:40,600 basically makes money for people. 32 00:02:40,600 --> 00:02:43,860 So why don't they use fertilizer, and their various 33 00:02:43,860 --> 00:02:46,000 possible answers would talk about those. 34 00:02:46,000 --> 00:02:52,605 But to demonstrate that it really does seem to work-- 35 00:02:59,070 --> 00:03:01,190 what they started by doing is making sure that it's true 36 00:03:01,190 --> 00:03:09,400 that it works, so what they did was they had people give 37 00:03:09,400 --> 00:03:15,610 farmers fertilizer and told them, this is your plot, just 38 00:03:15,610 --> 00:03:17,790 go ahead and use fertilizer, and they give them free 39 00:03:17,790 --> 00:03:18,510 fertilizer. 40 00:03:18,510 --> 00:03:20,990 So they took a bunch of plots and gave them free fertilizer. 41 00:03:23,800 --> 00:03:27,040 So very simple, you give people free fertilizer, they 42 00:03:27,040 --> 00:03:34,010 do use it, not surprisingly, especially if you make sure 43 00:03:34,010 --> 00:03:36,560 they can't sell it, and they do use it. 44 00:03:36,560 --> 00:03:50,150 When they use it, their incomes go 45 00:03:50,150 --> 00:04:05,320 up by 27%, and that's-- 46 00:04:09,620 --> 00:04:13,360 Oh, their incomes go up by 27%, which is 47 00:04:13,360 --> 00:04:15,340 100% increase annually. 48 00:04:15,340 --> 00:04:19,410 So that's like three months, three months, you bought the 49 00:04:19,410 --> 00:04:23,310 fertilizer, you laid it in the ground, you waited for three 50 00:04:23,310 --> 00:04:27,100 months, you would get 27% more back. 51 00:04:27,100 --> 00:04:33,630 So they were pretty convinced that fertilizer was a very 52 00:04:33,630 --> 00:04:35,510 useful thing to use. 53 00:04:35,510 --> 00:04:38,500 And this, they did it many times, so it varies. 54 00:04:38,500 --> 00:04:41,980 Fertilizer is, in fact, not predictable. 55 00:04:41,980 --> 00:04:47,590 Sometimes it works better than others, but the range of these 56 00:04:47,590 --> 00:04:53,360 returns, where you never got less than 80%, I think, 57 00:04:53,360 --> 00:04:56,710 basically, on your money, and that's a very good investment 58 00:04:56,710 --> 00:04:59,400 if you get 80% on your money. 59 00:04:59,400 --> 00:05:03,620 Sometimes, you get 500%, but even if you got a 80% on your 60 00:05:03,620 --> 00:05:05,370 money, that would be a good investment. 61 00:05:05,370 --> 00:05:06,760 So question is why don't they do it? 62 00:05:13,250 --> 00:05:15,500 So the various theories, obviously, on why 63 00:05:15,500 --> 00:05:17,110 people don't do it. 64 00:05:17,110 --> 00:05:20,200 One is that they don't know about it. 65 00:05:20,200 --> 00:05:24,350 That seems implausible, partly because fertilizer's not a new 66 00:05:24,350 --> 00:05:24,720 technology. 67 00:05:24,720 --> 00:05:26,950 It's been around for a very long time. 68 00:05:29,690 --> 00:05:35,380 And second, because take those farmers who were given free 69 00:05:35,380 --> 00:05:36,590 fertilizer. 70 00:05:36,590 --> 00:05:43,440 They used it, they got 100% return, annualized return, go 71 00:05:43,440 --> 00:05:47,900 back to those people at the end of the year and the 72 00:05:47,900 --> 00:05:51,350 beginning of next season and ask them do you want to use 73 00:05:51,350 --> 00:05:53,680 fertilizer. 74 00:05:53,680 --> 00:05:58,530 98% say yes, of course, we want to use fertilizer. 75 00:05:58,530 --> 00:06:02,460 Only 37% actually use it. 76 00:06:02,460 --> 00:06:06,010 So these are people who clearly know fertilizer works 77 00:06:06,010 --> 00:06:07,475 because they did it. 78 00:06:07,475 --> 00:06:08,725 It worked. 79 00:06:10,900 --> 00:06:13,990 There's no two ways about the fact that they know it 80 00:06:13,990 --> 00:06:17,500 because, the fertilizer, they had used it, they saw the 81 00:06:17,500 --> 00:06:20,550 results, they saw it's working. 82 00:06:20,550 --> 00:06:24,630 Why didn't the farmers who had seen that the fertilizer 83 00:06:24,630 --> 00:06:28,210 generates these massive returns not go back to using 84 00:06:28,210 --> 00:06:30,440 fertilizer? 85 00:06:30,440 --> 00:06:30,850 Yeah? 86 00:06:30,850 --> 00:06:33,730 AUDIENCE: Beause they said couldn't really afford it, and 87 00:06:33,730 --> 00:06:36,694 then also the fact was when they did have the money, 88 00:06:36,694 --> 00:06:38,670 fertilizer generally wasn't there. 89 00:06:38,670 --> 00:06:42,128 And when they didn't have the money it was there. 90 00:06:42,128 --> 00:06:43,610 So it's difficult. 91 00:06:43,610 --> 00:06:47,590 PROFESSOR: OK, so that's sort of the-- 92 00:06:47,590 --> 00:06:50,770 but before we come there, lets rule out some other 93 00:06:50,770 --> 00:06:51,830 explanations. 94 00:06:51,830 --> 00:07:00,990 So one other explanation is credit constraint, so we 95 00:07:00,990 --> 00:07:03,390 already discussed it's hard for the poor to borrow. 96 00:07:03,390 --> 00:07:07,110 Interest rates are very high. 97 00:07:07,110 --> 00:07:12,780 That would be a good explanation if fertilizer were 98 00:07:12,780 --> 00:07:16,020 indivisible, so if you had to use a certain minimal amount 99 00:07:16,020 --> 00:07:17,900 to make money. 100 00:07:17,900 --> 00:07:20,240 But fertilizer is extremely divisible. 101 00:07:20,240 --> 00:07:25,550 You can buy it in like You could buy 500 grams of it, put 102 00:07:25,550 --> 00:07:29,500 it on a small plot, and you'll make more money 103 00:07:29,500 --> 00:07:30,740 on that small plot. 104 00:07:30,740 --> 00:07:33,720 If you bought two kilos, you make more 105 00:07:33,720 --> 00:07:35,080 money on a bigger plot. 106 00:07:35,080 --> 00:07:37,050 If you bought 10 kilos, you'd have even more. 107 00:07:37,050 --> 00:07:42,290 So the question is why don't people use fertilizer? 108 00:07:42,290 --> 00:07:45,190 If they have less money, why don't they use it 109 00:07:45,190 --> 00:07:46,440 on a smaller plot? 110 00:07:48,700 --> 00:07:52,120 It's not enough to say that they don't have money because 111 00:07:52,120 --> 00:07:54,175 money just-- 112 00:07:54,175 --> 00:07:59,400 if you're less money, you can use it on less land. 113 00:07:59,400 --> 00:08:01,840 The main point is that whenever you use it, you make 114 00:08:01,840 --> 00:08:08,170 money, so even if you use it on a smaller plot, the output 115 00:08:08,170 --> 00:08:11,110 on that plot would still go up by a lot, and the returns 116 00:08:11,110 --> 00:08:14,860 would be 100% a year on the money you put in. 117 00:08:14,860 --> 00:08:15,800 Yeah? 118 00:08:15,800 --> 00:08:18,774 AUDIENCE: So I understand what you're saying, but on the 119 00:08:18,774 --> 00:08:23,020 other hand, they can only afford to fertilize a very 120 00:08:23,020 --> 00:08:26,172 small amount of land, that their returns might just not 121 00:08:26,172 --> 00:08:29,325 be worth it to make this tiny investment. 122 00:08:29,325 --> 00:08:32,720 You would have to wait for several months to get an extra 123 00:08:32,720 --> 00:08:35,387 several rupees whereas you have this money now, you might 124 00:08:35,387 --> 00:08:37,085 as well spend it now [INAUDIBLE]. 125 00:08:39,846 --> 00:08:45,330 PROFESSOR: I guess that might be right, but it's sort of-- 126 00:08:45,330 --> 00:08:50,600 in the end, it's why aren't they thinking, look, it's 100 127 00:08:50,600 --> 00:08:52,260 Kenyan shillings now. 128 00:08:52,260 --> 00:08:55,950 I'm going to get 200 in three months. 129 00:08:55,950 --> 00:08:58,300 If it's 100 shillings, and that's very little, that's a 130 00:08:58,300 --> 00:09:02,220 dollar and a bit, it's still you get twice as much. 131 00:09:02,220 --> 00:09:05,610 So why aren't people thinking in proportion? 132 00:09:05,610 --> 00:09:09,870 Why aren't they thinking that twice as much is a lot more? 133 00:09:09,870 --> 00:09:10,170 Yeah? 134 00:09:10,170 --> 00:09:14,130 AUDIENCE: Wouldn't fertilizer be more viable for bigger 135 00:09:14,130 --> 00:09:17,100 farmers because they have irrigation, which is required 136 00:09:17,100 --> 00:09:18,590 for fertilizer to really work. 137 00:09:18,590 --> 00:09:20,280 PROFESSOR: Not in Kenya, actually. 138 00:09:20,280 --> 00:09:22,410 I mean, fertilizer is-- 139 00:09:22,410 --> 00:09:24,880 it's true that it would be more useful. 140 00:09:24,880 --> 00:09:29,610 But mostly even, Kenya has especially-- 141 00:09:29,610 --> 00:09:34,280 this is the what they call the short rain season. 142 00:09:34,280 --> 00:09:38,570 Most of agriculture in the short rain season is rain fed, 143 00:09:38,570 --> 00:09:41,400 so I think people don't-- 144 00:09:41,400 --> 00:09:45,600 it's true that I'm sure fertilizer would reduce risk, 145 00:09:45,600 --> 00:09:48,680 but there isn't much of risk. 146 00:09:48,680 --> 00:09:54,150 Even when the rains are not great, you still make money. 147 00:09:54,150 --> 00:09:59,100 So if you ask farmers, they do tell you the answer that they 148 00:09:59,100 --> 00:10:00,350 don't have any money. 149 00:10:06,020 --> 00:10:09,430 So they're answer is we don't have any money. 150 00:10:09,430 --> 00:10:11,090 It's exactly what you said, which is that 151 00:10:11,090 --> 00:10:12,360 they don't have money. 152 00:10:12,360 --> 00:10:14,200 Well, how would we buy fertilizer? 153 00:10:14,200 --> 00:10:17,890 The fact is that, as you'll see in a minute, they do have 154 00:10:17,890 --> 00:10:25,320 money, especially when they harvest. 155 00:10:25,320 --> 00:10:28,780 Farming is a cyclical business. 156 00:10:28,780 --> 00:10:30,940 You make money at some point. 157 00:10:30,940 --> 00:10:34,820 You plant, you wait for three months, your crops come out, 158 00:10:34,820 --> 00:10:37,330 you sell your crops, you get money, then 159 00:10:37,330 --> 00:10:40,030 you wait for a while. 160 00:10:40,030 --> 00:10:42,690 You buy some seeds. 161 00:10:42,690 --> 00:10:45,040 You plant again, so it's kind of a cycle. 162 00:10:45,040 --> 00:10:49,640 So if you think of the point when they have sold the crops, 163 00:10:49,640 --> 00:10:52,920 they certainly, at that point, certainly do have money. 164 00:10:52,920 --> 00:10:55,090 It's not true that they don't, and we'll see in a minute 165 00:10:55,090 --> 00:10:57,210 evidence that they do have money. 166 00:10:57,210 --> 00:11:01,570 And in particular, they seem to-- 167 00:11:01,570 --> 00:11:03,620 I mean, even if they can't save all of it because they 168 00:11:03,620 --> 00:11:08,090 need to eat most of it, they could have saved a little bit 169 00:11:08,090 --> 00:11:13,390 of it, so they could have saved the money. 170 00:11:13,390 --> 00:11:17,030 Alternatively, they could just buy fertilizer then, when they 171 00:11:17,030 --> 00:11:17,710 have the money. 172 00:11:17,710 --> 00:11:19,330 Fertilizer it is very durable. 173 00:11:19,330 --> 00:11:21,600 You just buy fertilizer. 174 00:11:21,600 --> 00:11:23,320 You keep it in a bag. 175 00:11:23,320 --> 00:11:25,050 It'll stay for three months. 176 00:11:25,050 --> 00:11:28,190 It's not that you need to buy fertilizer on the day when you 177 00:11:28,190 --> 00:11:29,430 need to go farming. 178 00:11:29,430 --> 00:11:33,200 You could have bought fertilizer ahead of time and 179 00:11:33,200 --> 00:11:36,640 kept it in your home. 180 00:11:36,640 --> 00:11:40,140 So we'll see that they do have money at some point, and when 181 00:11:40,140 --> 00:11:42,040 they do have money, they don't necessarily buy 182 00:11:42,040 --> 00:11:43,290 fertilizer with it. 183 00:11:51,290 --> 00:11:55,530 In fact, they did a small survey, and they asked did you 184 00:11:55,530 --> 00:12:02,200 buy fertilizer at harvest time when you had money. 185 00:12:02,200 --> 00:12:05,890 The answer is, no, almost no one did that. 186 00:12:05,890 --> 00:12:11,960 So if you look at the population, about 30% of them 187 00:12:11,960 --> 00:12:20,970 use fertilizer at any point of time, but of that 30%, only 188 00:12:20,970 --> 00:12:24,650 about 3% had bought it early when they had money. 189 00:12:24,650 --> 00:12:29,850 Most of them bought it at the point of planting, so they had 190 00:12:29,850 --> 00:12:31,620 either managed to save or they had borrowed. 191 00:12:31,620 --> 00:12:33,390 But in any case, they had-- 192 00:12:33,390 --> 00:12:34,730 [INAUDIBLE] 193 00:12:34,730 --> 00:12:36,125 Let me remove Skype. 194 00:12:56,260 --> 00:12:57,510 Yep. 195 00:13:00,440 --> 00:13:11,130 So what is true is that, so basically, no one buys 196 00:13:11,130 --> 00:13:13,620 fertilizer early even though-- 197 00:13:16,280 --> 00:13:19,970 if you think that it's a problem to-- 198 00:13:19,970 --> 00:13:25,760 maybe you don't have money at planting time, then you should 199 00:13:25,760 --> 00:13:27,900 just buy it early. 200 00:13:27,900 --> 00:13:34,460 So here's a nice experiment, which is sort of exactly 201 00:13:34,460 --> 00:13:37,590 trying to figure out what's going on here. 202 00:13:42,040 --> 00:13:47,830 So what they did was they went to different farmers, and 203 00:13:47,830 --> 00:13:51,730 since some farmers had already had some experience using 204 00:13:51,730 --> 00:13:56,495 fertilizer and others had not, they stratified by that. 205 00:13:56,495 --> 00:13:57,745 What does it mean to stratify? 206 00:14:01,650 --> 00:14:02,900 AUDIENCE: [INAUDIBLE]. 207 00:14:13,650 --> 00:14:16,430 PROFESSOR: Right, they're randomized within the group of 208 00:14:16,430 --> 00:14:20,870 people who had used it before, and within the group of people 209 00:14:20,870 --> 00:14:22,050 who had used it before. 210 00:14:22,050 --> 00:14:27,850 So they divided up the population and randomized 211 00:14:27,850 --> 00:14:32,650 within each group, and then they came to the household and 212 00:14:32,650 --> 00:14:38,970 offered them fertilizer and said, look, you pay for it. 213 00:14:38,970 --> 00:14:43,742 We will sell it to you, and we'll bring it to you so you 214 00:14:43,742 --> 00:14:45,770 don't have to go to a market to buy it. 215 00:14:45,770 --> 00:14:53,110 And that saves a trip, saves trouble, but it also-- 216 00:14:53,110 --> 00:14:57,910 so this was done at harvest time, and it basically forced 217 00:14:57,910 --> 00:15:01,650 them to make a decision then. 218 00:15:01,650 --> 00:15:04,530 So you couldn't say, well, maybe I'll buy it. 219 00:15:04,530 --> 00:15:05,390 Maybe I won't. 220 00:15:05,390 --> 00:15:09,885 I'll wait until when I need it. 221 00:15:09,885 --> 00:15:13,160 It was kind of a all or nothing decision, where they 222 00:15:13,160 --> 00:15:20,880 had to take a decision right now when they had money. 223 00:15:20,880 --> 00:15:22,130 This was the first experiment. 224 00:15:28,040 --> 00:15:33,210 Then they follow it up a second experiment where they 225 00:15:33,210 --> 00:15:40,950 took another set of people, and then in the second 226 00:15:40,950 --> 00:15:43,995 experiment, they offered people an additional choice. 227 00:15:47,050 --> 00:15:53,120 You can either choose when you'll get-- 228 00:15:53,120 --> 00:15:54,390 we'll come to sell you fertilizer. 229 00:15:57,510 --> 00:16:02,570 This was done before harvest, so they didn't have any money 230 00:16:02,570 --> 00:16:03,620 at that time. 231 00:16:03,620 --> 00:16:08,250 So they said you can either tell us, and we'll come right 232 00:16:08,250 --> 00:16:11,840 after harvest, or we'll come when you plant. 233 00:16:11,840 --> 00:16:14,550 Just tell us what to do. 234 00:16:14,550 --> 00:16:17,330 So the first experiment, they were not given the choice. 235 00:16:17,330 --> 00:16:20,190 They said you want it now, we'll bring it to you free. 236 00:16:20,190 --> 00:16:21,920 You don't have to go collect. 237 00:16:21,920 --> 00:16:24,610 If not, that's it. 238 00:16:24,610 --> 00:16:27,030 Then you're on your own. 239 00:16:27,030 --> 00:16:32,280 Now, it's you can either buy now or later. 240 00:16:32,280 --> 00:16:33,530 You're offered a choice. 241 00:16:37,810 --> 00:16:46,660 And the other thing that they did was other people who were 242 00:16:46,660 --> 00:16:51,620 not given any offer like this, when it came to the actual 243 00:16:51,620 --> 00:16:54,410 time of the planting, they came to these people and said 244 00:16:54,410 --> 00:16:56,620 do you want to buy fertilizer. 245 00:16:56,620 --> 00:17:01,890 We'll bring it to you, and then some people, they offered 246 00:17:01,890 --> 00:17:04,760 a 50% discount. 247 00:17:04,760 --> 00:17:08,410 So they actually said if we give you a discount, 248 00:17:08,410 --> 00:17:09,680 will you buy it? 249 00:17:09,680 --> 00:17:12,089 So these were the treatments, so think of the treatments as 250 00:17:12,089 --> 00:17:17,130 the first treatment, all or nothing at harvest time, you 251 00:17:17,130 --> 00:17:22,790 want to buy fertilizer; second treatment, before harvest, do 252 00:17:22,790 --> 00:17:27,250 you want to buy fertilizer at harvest or later; third 253 00:17:27,250 --> 00:17:32,180 treatment, at planting time, do you want to buy fertilizer 254 00:17:32,180 --> 00:17:36,260 from us if we deliver it to you free. 255 00:17:36,260 --> 00:17:37,510 That's the experiment. 256 00:17:43,590 --> 00:17:50,160 Before we get into the experiment, 257 00:17:50,160 --> 00:17:53,540 suppose people were-- 258 00:17:53,540 --> 00:17:56,420 what's the disadvantage of saying that you 259 00:17:56,420 --> 00:17:58,930 can only buy it-- 260 00:17:58,930 --> 00:18:02,370 we'll offer it to you now, but not later? 261 00:18:02,370 --> 00:18:05,130 What's the downside of that? 262 00:18:05,130 --> 00:18:07,530 Why did they go to the second treatment, do you think, where 263 00:18:07,530 --> 00:18:15,500 they give you a choice when to buy? 264 00:18:15,500 --> 00:18:17,683 What's the advantage of giving you this choice? 265 00:18:32,966 --> 00:18:33,459 Yeah? 266 00:18:33,459 --> 00:18:34,709 AUDIENCE: [INAUDIBLE]? 267 00:18:38,890 --> 00:18:45,510 PROFESSOR: Right, exactly, I mean, typically we think that 268 00:18:45,510 --> 00:18:48,560 buying things early is a bad idea. 269 00:18:48,560 --> 00:18:48,900 Why? 270 00:18:48,900 --> 00:18:52,240 Because you're locking up your money. 271 00:18:52,240 --> 00:18:57,130 I mean, fertilizer's not that easy to sell, whereas if 272 00:18:57,130 --> 00:19:00,130 somebody got sick, you had money, you'd 273 00:19:00,130 --> 00:19:02,490 be able to buy medicine. 274 00:19:02,490 --> 00:19:04,180 Now, instead you have fertilizer. 275 00:19:04,180 --> 00:19:05,710 So why would you lock up money? 276 00:19:05,710 --> 00:19:09,740 So in general, the standard intuition would be that 277 00:19:09,740 --> 00:19:13,670 locking up money is a bad idea, not a good idea. 278 00:19:13,670 --> 00:19:14,970 So in the first treatment, they were 279 00:19:14,970 --> 00:19:16,310 forced to lock up money. 280 00:19:16,310 --> 00:19:17,870 The second one, they give them a choice. 281 00:19:23,280 --> 00:19:33,390 So we take the first one, basically, there was a 50%-- 282 00:19:33,390 --> 00:19:39,860 so about, as I said, 25% to 30% of them use fertilizer. 283 00:19:39,860 --> 00:19:44,340 That went up by 11 to 14 percentage points, so that's 284 00:19:44,340 --> 00:19:49,460 like a 46% to 63% increase in fertilizer use. 285 00:19:49,460 --> 00:19:54,050 So you get more than 50%, more than 50% increase in 286 00:19:54,050 --> 00:19:57,785 fertilizer use when you just tell people, look, we'll bring 287 00:19:57,785 --> 00:20:00,760 it to you for free. 288 00:20:00,760 --> 00:20:02,910 Do you want it at harvest time? 289 00:20:07,560 --> 00:20:10,790 This did not change-- 290 00:20:10,790 --> 00:20:15,720 so then what they looked at is this season, of course, you 291 00:20:15,720 --> 00:20:18,200 getting it delivered to you, so you buy it. 292 00:20:21,140 --> 00:20:23,260 It doesn't have any persistent effect. 293 00:20:23,260 --> 00:20:24,790 You saw that it was a good idea. 294 00:20:24,790 --> 00:20:28,220 Did you start saving money or finding a way to 295 00:20:28,220 --> 00:20:30,040 buy ahead of time? 296 00:20:30,040 --> 00:20:31,820 The answer's no. 297 00:20:31,820 --> 00:20:33,150 People seem to be-- 298 00:20:33,150 --> 00:20:39,440 when you offer it to them for free at harvest time, a 299 00:20:39,440 --> 00:20:41,430 substantial number of them buy it. 300 00:20:41,430 --> 00:20:45,780 But if you said, look, last year you did this, 301 00:20:45,780 --> 00:20:47,040 look, it was good. 302 00:20:47,040 --> 00:20:49,800 You got much more output. 303 00:20:49,800 --> 00:20:54,010 This time, why don't you buy on your own? 304 00:20:54,010 --> 00:20:55,120 Just buy it at harvest time. 305 00:20:55,120 --> 00:20:56,630 We won't help you. 306 00:20:56,630 --> 00:20:58,210 You can do it on your own. 307 00:20:58,210 --> 00:20:59,760 Nobody does it. 308 00:20:59,760 --> 00:21:02,690 So it's not the case that people learn from this 309 00:21:02,690 --> 00:21:08,060 experience to buy fertilizer to use at harvest time. 310 00:21:08,060 --> 00:21:10,725 They go back to not using it, basically. 311 00:21:20,120 --> 00:21:25,820 So when you give people a choice, that's experiment two, 312 00:21:25,820 --> 00:21:26,970 you get bigger effects. 313 00:21:26,970 --> 00:21:30,550 Instead of getting 11 to 14 percentage points, you get 18 314 00:21:30,550 --> 00:21:31,940 percentage points. 315 00:21:31,940 --> 00:21:42,040 That's almost 75% increase in fertilizer use, so if you give 316 00:21:42,040 --> 00:21:45,040 them a choice, then you get more people taking it up. 317 00:21:49,010 --> 00:21:52,160 On the other hand, if you show up at harvest time-- 318 00:21:52,160 --> 00:21:57,680 so this is not mainly an effect of offering it to them, 319 00:21:57,680 --> 00:21:59,240 just bringing it to them. 320 00:21:59,240 --> 00:22:01,490 It's not because they're getting free transportation. 321 00:22:01,490 --> 00:22:03,990 It's not because they don't have to go buy it that they're 322 00:22:03,990 --> 00:22:08,130 doing it because if you came to them at planting time and 323 00:22:08,130 --> 00:22:13,310 said do you want to buy it, we'll get it to you free, that 324 00:22:13,310 --> 00:22:14,560 has no impact. 325 00:22:17,710 --> 00:22:23,650 If you bring it to people at planting time free, then they 326 00:22:23,650 --> 00:22:26,720 don't buy it, so it's not the case that you get the same 327 00:22:26,720 --> 00:22:30,560 effect by just delivering it to them free at any time. 328 00:22:30,560 --> 00:22:32,450 You have to deliver it to them free 329 00:22:32,450 --> 00:22:36,940 typically at planting time-- 330 00:22:36,940 --> 00:22:38,710 sorry, at harvest time. 331 00:22:38,710 --> 00:22:41,190 When they have money, you have to deliver it to them free, 332 00:22:41,190 --> 00:22:43,830 then they buy it. 333 00:22:43,830 --> 00:22:47,280 If you bring it to them when they are planting, and you 334 00:22:47,280 --> 00:22:50,240 offer free delivery, that doesn't have the same impact. 335 00:22:50,240 --> 00:22:52,520 So it's not that whenever you offer it to them 336 00:22:52,520 --> 00:22:56,800 free, they buy a lot. 337 00:22:56,800 --> 00:22:59,030 They only buy a lot if you offer it free 338 00:22:59,030 --> 00:23:00,280 when they have money. 339 00:23:05,410 --> 00:23:13,310 The 50% discount does have a significant effect, maybe not 340 00:23:13,310 --> 00:23:14,520 surprisingly. 341 00:23:14,520 --> 00:23:19,480 On the other hand, it's not really smaller than just 342 00:23:19,480 --> 00:23:25,680 offering people to get free delivery with no discount. 343 00:23:25,680 --> 00:23:28,650 No discount is better than giving people a discount if 344 00:23:28,650 --> 00:23:31,270 you give them the discount at the right time-- 345 00:23:31,270 --> 00:23:33,360 sorry, the free-- 346 00:23:33,360 --> 00:23:35,750 the delivery at the right time. 347 00:23:35,750 --> 00:23:41,640 So if I go to you at harvest time, and I say I won't give 348 00:23:41,640 --> 00:23:44,490 you a discount, when do you want it, you get a bigger 349 00:23:44,490 --> 00:23:48,980 effect than if I tell you I'll give you 50% discount, but 350 00:23:48,980 --> 00:23:55,820 that I offer that to you only at planting time. 351 00:23:55,820 --> 00:23:58,780 So just those magnitudes are what's worth looking at 352 00:23:58,780 --> 00:24:01,600 because you're getting people-- 353 00:24:01,600 --> 00:24:08,180 it's not that people, even if you offer them a 50% discount, 354 00:24:08,180 --> 00:24:11,790 you don't get as big an effect as just finding the right time 355 00:24:11,790 --> 00:24:13,835 to make an offer without a discount. 356 00:24:17,551 --> 00:24:18,044 Yeah? 357 00:24:18,044 --> 00:24:21,970 AUDIENCE: How do people get this if it wasn't delivered? 358 00:24:21,970 --> 00:24:25,300 PROFESSOR: You just go to the local town and you buy-- 359 00:24:25,300 --> 00:24:27,188 AUDIENCE: --drag it back or pull it back-- 360 00:24:27,188 --> 00:24:29,140 PROFESSOR: Oh, you bring it on a-- 361 00:24:29,140 --> 00:24:33,520 they have all these three-wheel taxis and little 362 00:24:33,520 --> 00:24:35,040 trucks in Kenya. 363 00:24:35,040 --> 00:24:38,470 You put it in the back of one, and you bring it. 364 00:24:38,470 --> 00:24:38,970 It's like-- 365 00:24:38,970 --> 00:24:41,240 AUDIENCE: [INAUDIBLE]? 366 00:24:41,240 --> 00:24:44,090 PROFESSOR: No, it's a small cost, actually. 367 00:24:44,090 --> 00:24:45,340 That's the usual. 368 00:24:47,510 --> 00:24:50,010 Now, you notice that there was this 18 369 00:24:50,010 --> 00:24:52,880 percentage point increase. 370 00:24:52,880 --> 00:24:58,800 That came from a bunch of those people said, look, it's 371 00:24:58,800 --> 00:25:06,230 free delivery, but we just want it 372 00:25:06,230 --> 00:25:08,590 delivered at planting time. 373 00:25:11,730 --> 00:25:18,760 So some people behaved as if they had no worries about 374 00:25:18,760 --> 00:25:23,290 having the money later, and the other half said bring it 375 00:25:23,290 --> 00:25:26,930 to us now, so a bunch of people said 376 00:25:26,930 --> 00:25:28,180 bring it to us now. 377 00:25:31,520 --> 00:25:35,790 The reason why this one gives you a bigger effect than 378 00:25:35,790 --> 00:25:40,230 forcing people to buy early is because a bunch of those 379 00:25:40,230 --> 00:25:43,080 people actually prefer to get it late. 380 00:25:43,080 --> 00:25:45,870 So it's clear that the economics we described before 381 00:25:45,870 --> 00:25:49,380 is working for some people, but it's also striking that 382 00:25:49,380 --> 00:25:52,940 about half of those people say, no, we want it now. 383 00:25:52,940 --> 00:25:54,970 We want to lock up our money. 384 00:25:54,970 --> 00:25:58,060 We want our money to not be spendable. 385 00:25:58,060 --> 00:26:00,370 We want it in fertilizer now. 386 00:26:00,370 --> 00:26:04,590 So what's quite striking is that people are willing to 387 00:26:04,590 --> 00:26:07,340 lock up their money, even though it's-- 388 00:26:14,370 --> 00:26:16,030 So what could be going on? 389 00:26:24,710 --> 00:26:31,500 So here's a story that seems to mostly work. 390 00:26:31,500 --> 00:26:33,890 So these people have money at harvest time and want 391 00:26:33,890 --> 00:26:37,310 fertilizer, but somehow, they don't manage to buy 392 00:26:37,310 --> 00:26:38,900 fertilizer. 393 00:26:38,900 --> 00:26:46,170 So the reason why the experiment works is that these 394 00:26:46,170 --> 00:26:49,746 people basically say, look, we will buy fertilizer. 395 00:26:58,910 --> 00:27:06,690 So what seems to be going on is that, as we said, 98% of 396 00:27:06,690 --> 00:27:11,050 those people who had plots where fertilizer was used said 397 00:27:11,050 --> 00:27:12,500 they wanted to buy it again. 398 00:27:12,500 --> 00:27:14,970 Only 37% actually did. 399 00:27:14,970 --> 00:27:18,490 So at harvest time, it seems most people plan to use 400 00:27:18,490 --> 00:27:22,390 fertilizer, and then only a small fraction of them 401 00:27:22,390 --> 00:27:24,470 actually managed to get there. 402 00:27:24,470 --> 00:27:29,310 So what seems to happen is that they 403 00:27:29,310 --> 00:27:31,180 don't manage to implement. 404 00:27:31,180 --> 00:27:35,730 So they think that they're going to buy fertilizer, but 405 00:27:35,730 --> 00:27:38,710 then somehow end up spending the money before they get to 406 00:27:38,710 --> 00:27:39,960 the fertilizer. 407 00:27:45,110 --> 00:27:51,600 So one way to think about what could be happening is that 408 00:27:51,600 --> 00:27:59,240 people say, look, today I really want to buy fertilizer, 409 00:27:59,240 --> 00:28:05,160 but right now, I really like a drink or I'd really like to 410 00:28:05,160 --> 00:28:06,430 have a barbecue. 411 00:28:06,430 --> 00:28:09,250 So they go to the market, they buy something, and they say, 412 00:28:09,250 --> 00:28:12,220 look, it doesn't really matter because tomorrow, 413 00:28:12,220 --> 00:28:13,470 I'm going to save. 414 00:28:17,320 --> 00:28:22,610 Today, let me have a barbecue, but tomorrow, I'm definitely 415 00:28:22,610 --> 00:28:23,850 going to save. 416 00:28:23,850 --> 00:28:27,470 So they say that so it doesn't really matter. 417 00:28:27,470 --> 00:28:31,970 It's going to be in three months that we're going to 418 00:28:31,970 --> 00:28:35,040 plant, so even if I don't save today, I'll save tomorrow. 419 00:28:40,320 --> 00:28:45,270 So sometimes, this is represented by this formula. 420 00:28:45,270 --> 00:28:47,710 These kind of preferences are sometimes [INAUDIBLE] 421 00:28:47,710 --> 00:28:50,360 by this formula. 422 00:28:50,360 --> 00:28:56,040 So the U function is the utility you get or the 423 00:28:56,040 --> 00:28:59,160 pleasure you get out of eating today or 424 00:28:59,160 --> 00:29:01,330 tomorrow or day after. 425 00:29:01,330 --> 00:29:07,330 Today is c0, tomorrow's c1, day after is c2, the day after 426 00:29:07,330 --> 00:29:08,480 that is c3. 427 00:29:08,480 --> 00:29:13,130 Or we could think of months, c0 this month, c1 is next 428 00:29:13,130 --> 00:29:15,886 month, et cetera. 429 00:29:15,886 --> 00:29:20,830 What's important is that U of c1 is multiplied by two 430 00:29:20,830 --> 00:29:22,876 numbers, both less than 1. 431 00:29:26,208 --> 00:29:30,730 U of c2 is multiplied by beta delta squared. 432 00:29:30,730 --> 00:29:34,570 If delta's less than 1, delta squared is less than 1, but I 433 00:29:34,570 --> 00:29:36,810 didn't multiply by beta squared delta squared. 434 00:29:36,810 --> 00:29:40,150 I multiplied by beta delta squared. 435 00:29:40,150 --> 00:29:46,150 The day after that is multiplied by beta delta 436 00:29:46,150 --> 00:29:51,440 cubed, so I didn't multiply by beta cubed delta cubed. 437 00:29:51,440 --> 00:29:53,610 Why am I doing that? 438 00:29:53,610 --> 00:29:58,610 What's the point being made by having that structure? 439 00:29:58,610 --> 00:30:01,860 This is sometimes called a quasi hyperbolic model. 440 00:30:06,380 --> 00:30:07,995 Why did I put that structure there? 441 00:30:28,080 --> 00:30:28,573 Yeah? 442 00:30:28,573 --> 00:30:33,010 AUDIENCE: Maybe like delta is something that [INAUDIBLE] 443 00:30:33,010 --> 00:30:35,968 whereas beta is a variable that probably won't happen. 444 00:30:35,968 --> 00:30:37,218 Like, [INAUDIBLE]. 445 00:30:40,920 --> 00:30:47,560 PROFESSOR: Well, specifically, these are constant, so think 446 00:30:47,560 --> 00:30:50,000 of them as being numbers. 447 00:30:50,000 --> 00:30:52,370 Beta's like a number, like-- 448 00:30:52,370 --> 00:30:57,520 maybe delta is 0.9, and beta's something like 0.6. 449 00:30:57,520 --> 00:30:59,230 That's the sort of numbers people often throw 450 00:30:59,230 --> 00:31:02,718 around over a month. 451 00:31:14,870 --> 00:31:16,930 What does this preference specifically say? 452 00:31:19,525 --> 00:31:20,914 Yeah? 453 00:31:20,914 --> 00:31:23,670 AUDIENCE: Seems like it's just saying that if more importance 454 00:31:23,670 --> 00:31:29,060 is given to c0, and anything in the future as a discount 455 00:31:29,060 --> 00:31:30,040 factor of beta. 456 00:31:30,040 --> 00:31:34,940 But the further into the future you go, you go from 457 00:31:34,940 --> 00:31:39,350 delta to delta squared so [INAUDIBLE]. 458 00:31:39,350 --> 00:31:42,340 PROFESSOR: Right, but specifically what it's saying 459 00:31:42,340 --> 00:31:46,970 is that today versus tomorrow is very different from 460 00:31:46,970 --> 00:31:49,580 tomorrow versus day after or day after 461 00:31:49,580 --> 00:31:51,870 versus day after that. 462 00:31:51,870 --> 00:31:57,420 It's saying specifically that when I offer you a choice 463 00:31:57,420 --> 00:32:01,250 between today and tomorrow, you want it today, but you 464 00:32:01,250 --> 00:32:05,390 don't care as much about day after versus day after that. 465 00:32:05,390 --> 00:32:11,080 So beta and delta both numbers less than 1, then what this 466 00:32:11,080 --> 00:32:15,610 preference is exactly saying is that I 467 00:32:15,610 --> 00:32:16,860 would take one today. 468 00:32:20,310 --> 00:32:23,850 I'll give up two tomorrow to get one today, but when I 469 00:32:23,850 --> 00:32:27,260 compare tomorrow with day after, I'm not going to take 470 00:32:27,260 --> 00:32:32,380 one tomorrow instead of two day after. 471 00:32:32,380 --> 00:32:35,130 So people are very short-- 472 00:32:35,130 --> 00:32:38,290 they want things now, but they don't really care about when 473 00:32:38,290 --> 00:32:39,790 they get it if they don't get it now. 474 00:32:43,710 --> 00:32:47,000 Why is that an interesting set of preferences? 475 00:32:47,000 --> 00:32:52,020 Well, if you believe those set of preferences, then this 476 00:32:52,020 --> 00:32:54,180 behavior seems to start to make sense. 477 00:32:54,180 --> 00:33:00,910 So what I really want is I want tomorrow-- 478 00:33:00,910 --> 00:33:03,650 since I don't care about whether I consume tomorrow or 479 00:33:03,650 --> 00:33:08,070 day after, I want tomorrow to do the saving. 480 00:33:12,060 --> 00:33:15,370 Today, I don't want to save because today is much more 481 00:33:15,370 --> 00:33:17,300 important to me than tomorrow. 482 00:33:17,300 --> 00:33:20,610 Tomorrow is not that much more important than day after, so 483 00:33:20,610 --> 00:33:23,870 if I want some money for day after, the best way to get 484 00:33:23,870 --> 00:33:29,430 there is by eating a lot today, saving a lot tomorrow, 485 00:33:29,430 --> 00:33:31,450 and then ending up with the money day after. 486 00:33:31,450 --> 00:33:39,220 I would rather do that than eat little today and also a 487 00:33:39,220 --> 00:33:40,210 little tomorrow. 488 00:33:40,210 --> 00:33:46,940 I would rather save by binging today and then waiting, and 489 00:33:46,940 --> 00:33:50,000 then implementing saving tomorrow. 490 00:33:50,000 --> 00:33:52,290 The problem is that when you get around to 491 00:33:52,290 --> 00:33:54,235 tomorrow, what happens? 492 00:33:57,080 --> 00:34:02,210 If your plan is I will save more tomorrow, I'll eat more 493 00:34:02,210 --> 00:34:03,740 today, save more tomorrow, what's the 494 00:34:03,740 --> 00:34:05,966 problem with that plan? 495 00:34:05,966 --> 00:34:07,110 AUDIENCE: Tomorrow becomes today. 496 00:34:07,110 --> 00:34:08,830 PROFESSOR: Tomorrow becomes today. 497 00:34:08,830 --> 00:34:12,600 Once tomorrow becomes today, you start thinking, OK, well, 498 00:34:12,600 --> 00:34:14,020 I have the same preferences. 499 00:34:14,020 --> 00:34:17,889 c0 then becomes tomorrow's c0. 500 00:34:17,889 --> 00:34:21,870 I want to implement the same plan tomorrow. 501 00:34:21,870 --> 00:34:28,590 I want to eat a lot tomorrow, and get day after to do the 502 00:34:28,590 --> 00:34:32,239 savings, and you can keep doing that. 503 00:34:32,239 --> 00:34:33,692 That's the problem. 504 00:34:33,692 --> 00:34:40,870 OK, so that's the idea. 505 00:34:40,870 --> 00:34:43,760 Now do people actually behave in such a way? 506 00:34:49,080 --> 00:34:51,380 So here's an experiment. 507 00:35:01,840 --> 00:35:05,460 Ashraf, Karlan, and Win asked 1,700 subjects in the 508 00:35:05,460 --> 00:35:10,090 Philippines the following questions. 509 00:35:10,090 --> 00:35:13,900 So they asked them, first, would you prefer 200 pesos now 510 00:35:13,900 --> 00:35:18,280 or 250 pesos later? 511 00:35:18,280 --> 00:35:22,840 Some people said I'd prefer 250 later, in 512 00:35:22,840 --> 00:35:24,220 which case, they stopped. 513 00:35:24,220 --> 00:35:29,770 If they said that they would prefer 200 now rather than 250 514 00:35:29,770 --> 00:35:34,815 in a month, then they were asked how about 300? 515 00:35:42,884 --> 00:35:49,070 If they said they'll even take 300, then they were asked how 516 00:35:49,070 --> 00:35:53,410 much would it take to stop you from wanting 200 today? 517 00:35:53,410 --> 00:35:56,430 Somebody might say 400. 518 00:35:56,430 --> 00:36:02,020 I'll take 200 today and 400 a month. 519 00:36:02,020 --> 00:36:08,170 So there are people who could say 250 I'll take in a month. 520 00:36:08,170 --> 00:36:10,840 Some people say I'll take 300 in a month. 521 00:36:10,840 --> 00:36:14,280 Some people will say name a number. 522 00:36:14,280 --> 00:36:16,010 So do you see how it goes? 523 00:36:18,910 --> 00:36:20,775 Then they are given a break. 524 00:36:20,775 --> 00:36:25,930 They went and wander around, then came back, and 15 minutes 525 00:36:25,930 --> 00:36:28,480 later, they were asked the same set of questions, but 526 00:36:28,480 --> 00:36:34,580 with one change, which is that instead of asking them about 527 00:36:34,580 --> 00:36:38,020 today versus in a month, they were asked in six months 528 00:36:38,020 --> 00:36:40,500 versus in seven months. 529 00:36:43,170 --> 00:36:45,630 Same thing, but notice what we're doing is 530 00:36:45,630 --> 00:36:46,915 exactly this exercise. 531 00:36:46,915 --> 00:36:51,080 We are exactly trying to pinpoint whether or not people 532 00:36:51,080 --> 00:36:55,950 have a different view of today versus tomorrow versus one 533 00:36:55,950 --> 00:36:59,430 month later at any other point of time. 534 00:36:59,430 --> 00:37:05,830 That's exactly the idea, that am I someone who thinks that 535 00:37:05,830 --> 00:37:09,300 tomorrow is going to be-- 536 00:37:09,300 --> 00:37:13,340 do I think that tomorrow it's going to be it 537 00:37:13,340 --> 00:37:14,360 really doesn't matter. 538 00:37:14,360 --> 00:37:16,430 I can cut back tomorrow, but I really don't 539 00:37:16,430 --> 00:37:20,010 want to cut back today. 540 00:37:20,010 --> 00:37:21,260 So this is what they found. 541 00:37:24,230 --> 00:37:26,280 This is a complicated table, but we can 542 00:37:26,280 --> 00:37:27,530 go through it slowly. 543 00:37:30,170 --> 00:37:34,485 So the way to think about it is that the-- 544 00:37:37,450 --> 00:37:44,720 each square in a matrix is how much money would you take 545 00:37:44,720 --> 00:37:50,325 today versus 200-- 546 00:37:54,690 --> 00:37:57,260 so how much money in the future versus 200 today. 547 00:38:02,060 --> 00:38:06,750 Along the vertical dimension, we're increasing the amount of 548 00:38:06,750 --> 00:38:11,730 money in a month from today. 549 00:38:11,730 --> 00:38:16,120 On the horizontal dimension, we increasing the amount of 550 00:38:16,120 --> 00:38:19,650 money in a month from six months. 551 00:38:34,790 --> 00:38:37,760 And those are the fraction of people who make those choices. 552 00:38:37,760 --> 00:38:40,880 So some people are just patient. 553 00:38:40,880 --> 00:38:44,730 Those people say, you offer me 200 today, I'll 554 00:38:44,730 --> 00:38:46,160 take 250 in a month. 555 00:38:46,160 --> 00:38:48,900 You offer me 200 in six months, I'll take 556 00:38:48,900 --> 00:38:51,580 250 in seven months. 557 00:38:51,580 --> 00:39:00,320 Some people say you offer me 200 today, I 558 00:39:00,320 --> 00:39:04,120 take 250 in a month-- 559 00:39:04,120 --> 00:39:09,180 or more than 250, but less than 300 in a month, and they 560 00:39:09,180 --> 00:39:13,350 express the same preference in the future as well. 561 00:39:13,350 --> 00:39:19,560 But then interesting people are the people who seem to 562 00:39:19,560 --> 00:39:23,190 have different preferences, and we see that there are both 563 00:39:23,190 --> 00:39:24,470 kinds of people. 564 00:39:24,470 --> 00:39:26,855 There are some people who are-- 565 00:39:31,960 --> 00:39:37,360 So what is the dark squares? 566 00:39:37,360 --> 00:39:38,920 What are the dark squares telling you? 567 00:39:38,920 --> 00:39:40,646 Who are those people? 568 00:39:40,646 --> 00:39:42,070 The really dark ones. 569 00:39:47,710 --> 00:39:48,960 What are their preferences? 570 00:40:13,530 --> 00:40:16,645 AUDIENCE: They'll take less money, one month from now then 571 00:40:16,645 --> 00:40:19,270 require more money in the future. 572 00:40:19,270 --> 00:40:22,720 PROFESSOR: The really daft, daft ones are the ones who are 573 00:40:22,720 --> 00:40:30,680 saying I'll take less than 250 for 200 in one month, but six 574 00:40:30,680 --> 00:40:34,650 months or seven months, it'll take me more than 250 to 575 00:40:34,650 --> 00:40:35,640 compensate. 576 00:40:35,640 --> 00:40:38,090 So they seem to be the opposite of the kind of people 577 00:40:38,090 --> 00:40:39,310 who you're talking about. 578 00:40:39,310 --> 00:40:43,640 They seem to be impatient in the future but 579 00:40:43,640 --> 00:40:46,420 patient in the present. 580 00:40:46,420 --> 00:40:47,191 Yeah? 581 00:40:47,191 --> 00:40:48,153 AUDIENCE: All right, I have a question. 582 00:40:48,153 --> 00:40:51,520 Could it be that it's not so much about money today versus 583 00:40:51,520 --> 00:40:55,368 money tomorrow, and preferences for consumption 584 00:40:55,368 --> 00:40:57,773 versus investment? 585 00:40:57,773 --> 00:41:01,820 So if you're waiting for the 250 in a month, you're putting 586 00:41:01,820 --> 00:41:04,688 your income towards investment as opposed to [INAUDIBLE] 587 00:41:04,688 --> 00:41:06,122 consumption. 588 00:41:06,122 --> 00:41:06,600 PROFESSOR: Sure. 589 00:41:06,600 --> 00:41:08,000 AUDIENCE: Does that make sense? 590 00:41:08,000 --> 00:41:10,020 PROFESSOR: I mean, it makes sense. 591 00:41:10,020 --> 00:41:14,700 It's just I don't understand why that's different. 592 00:41:14,700 --> 00:41:17,040 It's the same thing. 593 00:41:17,040 --> 00:41:18,720 I'm going to get money in the future. 594 00:41:18,720 --> 00:41:22,796 Investment is just a way to get money in the future. 595 00:41:22,796 --> 00:41:25,330 I think it's the same thing. 596 00:41:25,330 --> 00:41:28,440 What's not visible, but I can tell you, is that those three 597 00:41:28,440 --> 00:41:33,890 dark squares, which are people who are patient now but 598 00:41:33,890 --> 00:41:35,470 impatient in the future-- 599 00:41:35,470 --> 00:41:41,570 that's about 15% of the population seem to be patient 600 00:41:41,570 --> 00:41:44,960 now, impatient in the future. 601 00:41:44,960 --> 00:41:54,220 Now, the ones who are in the kind of what I call hyperbolic 602 00:41:54,220 --> 00:42:00,430 squares, that's about 25% of the population, they're 603 00:42:00,430 --> 00:42:02,950 impatient now, patient later. 604 00:42:02,950 --> 00:42:06,270 They are the people who are impatient. 605 00:42:06,270 --> 00:42:14,950 They're saying I'll take 200 now over 300 later, but-- 606 00:42:14,950 --> 00:42:16,540 or was it 250 later? 607 00:42:16,540 --> 00:42:18,670 But in a month, I'll reverse that preferences. 608 00:42:18,670 --> 00:42:23,760 I'll take 200 in six months rather than 609 00:42:23,760 --> 00:42:25,520 250 in seven months. 610 00:42:25,520 --> 00:42:26,660 Sorry, the other way. 611 00:42:26,660 --> 00:42:31,710 I'll take 250 in seven months, but 200 in six months, and 612 00:42:31,710 --> 00:42:34,240 that's about 25% of the population. 613 00:42:34,240 --> 00:42:40,530 And then there is another 17% of the population who are in 614 00:42:40,530 --> 00:42:45,290 that other box, and they're people for whom-- 615 00:42:45,290 --> 00:42:48,950 about half of those are actually more patient now than 616 00:42:48,950 --> 00:42:52,470 they were in the future than the other way around. 617 00:42:52,470 --> 00:42:54,770 So basically, what this shows is that it's not 618 00:42:54,770 --> 00:42:55,970 everybody's like that. 619 00:42:55,970 --> 00:42:58,430 Some people are just very impatient. 620 00:42:58,430 --> 00:43:01,850 Who are the very impatient people? 621 00:43:01,850 --> 00:43:03,180 Which box would they be? 622 00:43:08,050 --> 00:43:09,300 AUDIENCE: [INAUDIBLE]. 623 00:43:14,390 --> 00:43:15,920 PROFESSOR: Those people, we-- 624 00:43:18,600 --> 00:43:21,936 You're right, they are the people who are-- 625 00:43:21,936 --> 00:43:27,900 I guess they're the people who are most impatient, but some 626 00:43:27,900 --> 00:43:30,360 of those people are more impatient now. 627 00:43:30,360 --> 00:43:33,860 Some people are more impatient in the future. 628 00:43:33,860 --> 00:43:35,270 Who are the most patient people? 629 00:43:47,830 --> 00:43:49,080 Which box? 630 00:43:56,095 --> 00:43:59,065 AUDIENCE: Require 250 now or later? 631 00:43:59,065 --> 00:44:02,640 PROFESSOR: Yeah, so the top left-hand boxes were the most 632 00:44:02,640 --> 00:44:03,580 patient people. 633 00:44:03,580 --> 00:44:06,510 So basically, what this says there's about a third of the 634 00:44:06,510 --> 00:44:09,910 population who are very patient. 635 00:44:09,910 --> 00:44:10,394 Yeah? 636 00:44:10,394 --> 00:44:13,298 AUDIENCE: What were the incomes of the 637 00:44:13,298 --> 00:44:14,750 people in this survey? 638 00:44:14,750 --> 00:44:20,558 Like is 250 a lot for them, relative to 300 or-- 639 00:44:20,558 --> 00:44:22,550 PROFESSOR: No, these are actually 640 00:44:22,550 --> 00:44:24,230 small amounts of money. 641 00:44:24,230 --> 00:44:26,910 Not very cvalued. 642 00:44:26,910 --> 00:44:29,002 These are not very big amounts of money. 643 00:44:29,002 --> 00:44:31,978 AUDIENCE: But in terms of part of their income, would that be 644 00:44:31,978 --> 00:44:34,470 significant or not? 645 00:44:34,470 --> 00:44:40,610 PROFESSOR: Significant per billion, but really not. 646 00:44:40,610 --> 00:44:46,570 So the point that we want to take away from this is that 647 00:44:46,570 --> 00:44:48,450 people seem to vary a lot. 648 00:44:48,450 --> 00:44:50,660 It's not that there's one kind of people in the world. 649 00:44:50,660 --> 00:44:55,610 Some people are patient now and impatient in the future. 650 00:44:55,610 --> 00:44:59,150 A lot more people are impatient now and patient in 651 00:44:59,150 --> 00:45:00,200 the future. 652 00:45:00,200 --> 00:45:02,980 But there's a whole bunch of people who are both impatient 653 00:45:02,980 --> 00:45:05,670 now and impatient in the future, and a whole bunch of 654 00:45:05,670 --> 00:45:08,080 people who are patient now and patient in the future. 655 00:45:08,080 --> 00:45:11,620 So there are all kinds of different 656 00:45:11,620 --> 00:45:13,080 behaviors in this table. 657 00:45:13,080 --> 00:45:13,573 Yeah? 658 00:45:13,573 --> 00:45:17,024 AUDIENCE: Does this table change for people in developed 659 00:45:17,024 --> 00:45:19,000 countries who are making lots of money? 660 00:45:19,000 --> 00:45:21,580 PROFESSOR: So here's another experiment. 661 00:45:21,580 --> 00:45:22,970 It's not here. 662 00:45:27,490 --> 00:45:29,070 Let's look at another one. 663 00:45:29,070 --> 00:45:30,940 This is actually interesting. 664 00:45:30,940 --> 00:45:32,386 I think I have it here. 665 00:45:32,386 --> 00:45:34,145 I'll show it to you. 666 00:45:34,145 --> 00:45:35,710 Actually not-- 667 00:45:35,710 --> 00:45:38,830 it's quite interesting. 668 00:45:38,830 --> 00:45:41,070 This one was done in the US, and it's kind of 669 00:45:41,070 --> 00:45:42,320 interesting to see. 670 00:46:22,902 --> 00:46:25,760 [INAUDIBLE], OK, good. 671 00:46:25,760 --> 00:46:27,330 It is something funny. 672 00:46:27,330 --> 00:46:32,100 This is not going to get recorded, but it's this-- 673 00:46:35,900 --> 00:46:37,150 yeah. 674 00:46:42,910 --> 00:46:46,680 So this is a very famous experiment on the US. 675 00:46:46,680 --> 00:46:48,760 Exactly the same kind of question, but 676 00:46:48,760 --> 00:46:50,010 now, people were asked-- 677 00:46:55,380 --> 00:46:57,840 so this is the median response. 678 00:46:57,840 --> 00:47:05,010 So people were asked how much money would you take in x 679 00:47:05,010 --> 00:47:07,730 months, where x is either three months, one year, or 680 00:47:07,730 --> 00:47:11,630 three years, relative to that much money today. 681 00:47:15,570 --> 00:47:22,720 OK, so this is in the US with college students, and then 682 00:47:22,720 --> 00:47:25,030 these were Cornell students if I remember right. 683 00:47:29,340 --> 00:47:31,690 So you can see, this is the answer-- 684 00:47:31,690 --> 00:47:33,680 it's interesting. 685 00:47:33,680 --> 00:47:46,700 So if I offer you $15 today versus $30 in three months, 686 00:47:46,700 --> 00:47:50,040 the median response-- 687 00:47:50,040 --> 00:47:53,360 many people were asked this question, and this is the 688 00:47:53,360 --> 00:47:56,150 answer to the question, what's the median response. 689 00:47:56,150 --> 00:48:00,770 So if you take half the people-- 690 00:48:00,770 --> 00:48:07,820 so for example, for $15, half the people said I'll take less 691 00:48:07,820 --> 00:48:10,330 than $30, half the people said I'll take more than $30, so 692 00:48:10,330 --> 00:48:12,900 the median response was $30. 693 00:48:12,900 --> 00:48:17,680 So you can see that, basically, the US in three 694 00:48:17,680 --> 00:48:21,790 months, the trade off is basically people 695 00:48:21,790 --> 00:48:23,970 want twice the money. 696 00:48:23,970 --> 00:48:26,410 That's a yearly discount factor of 277%. 697 00:48:30,280 --> 00:48:33,343 For one year, they say $60. 698 00:48:38,610 --> 00:48:45,280 For three years, they say $100. 699 00:48:45,280 --> 00:48:49,650 Now, the point is that that number is getting, relatively, 700 00:48:49,650 --> 00:48:52,240 you're getting more patient as you look into the future. 701 00:48:52,240 --> 00:48:56,320 So it's today versus the future always, but as I may 702 00:48:56,320 --> 00:48:59,000 force you to look further into the future, you become 703 00:48:59,000 --> 00:49:01,760 actually more patient. 704 00:49:01,760 --> 00:49:05,080 And that sort of phenomenon I was alluding to, which is that 705 00:49:05,080 --> 00:49:09,480 as people really want it today, but the difference 706 00:49:09,480 --> 00:49:13,160 between tomorrow and in one year later is 707 00:49:13,160 --> 00:49:14,920 not that much more. 708 00:49:14,920 --> 00:49:17,830 AUDIENCE: So the amount increase, right? 709 00:49:20,740 --> 00:49:22,195 It's not [INAUDIBLE] 710 00:49:22,195 --> 00:49:26,075 more patient just because you are talking about $3,000 711 00:49:26,075 --> 00:49:27,045 versus $15. 712 00:49:27,045 --> 00:49:28,500 Then you say [INAUDIBLE]. 713 00:49:31,750 --> 00:49:34,110 PROFESSOR: Yeah, so that's exactly right. 714 00:49:34,110 --> 00:49:36,770 That's to make the other point, that as amounts 715 00:49:36,770 --> 00:49:40,530 increase, people look like they're more patient. 716 00:49:40,530 --> 00:49:43,710 So if this was a lot of money-- so in the US, they're 717 00:49:43,710 --> 00:49:47,380 going to look actually more impatient than in the 718 00:49:47,380 --> 00:49:48,000 Philippines. 719 00:49:48,000 --> 00:49:50,280 The Philippines, they were looking much more patient 720 00:49:50,280 --> 00:49:52,200 because these were actually big amounts of money in the 721 00:49:52,200 --> 00:49:53,930 Philippines. 722 00:49:53,930 --> 00:49:56,090 In the US, for those amounts of money, 723 00:49:56,090 --> 00:49:57,340 they look more impatient. 724 00:50:01,940 --> 00:50:04,870 So it's when the amounts of money are bigger, people seem 725 00:50:04,870 --> 00:50:06,070 to look more patient. 726 00:50:06,070 --> 00:50:07,510 That's the bottom line of that. 727 00:50:07,510 --> 00:50:11,320 The bottom of that says that once you go to $3,000, people 728 00:50:11,320 --> 00:50:13,030 really don't want twice as much. 729 00:50:13,030 --> 00:50:15,760 They'll take much less than twice as much to wait three 730 00:50:15,760 --> 00:50:19,460 months, so people get much more patient as you increase 731 00:50:19,460 --> 00:50:20,230 the amount of money. 732 00:50:20,230 --> 00:50:26,110 I think that's a very kind of interesting fact. 733 00:50:26,110 --> 00:50:30,160 I need to go back to where I was, but this is a-- 734 00:50:30,160 --> 00:50:33,320 so that's kind of the answer to your question, is that this 735 00:50:33,320 --> 00:50:34,980 is actually relatively-- 736 00:50:39,840 --> 00:50:44,090 people are actually-- no, this is the wrong-- 737 00:50:44,090 --> 00:50:45,505 I need to go back to the PDF. 738 00:50:55,080 --> 00:50:59,240 So actually, they are relatively patient here 739 00:50:59,240 --> 00:51:01,480 because these are amounts of money that are relatively 740 00:51:01,480 --> 00:51:02,730 large for them. 741 00:51:05,040 --> 00:51:08,360 If you make the amount of money smaller, people become 742 00:51:08,360 --> 00:51:10,370 less patient, not more patient. 743 00:51:10,370 --> 00:51:13,300 So in the US, with these choices, they look more 744 00:51:13,300 --> 00:51:16,415 impatient actually, not less impatient. 745 00:51:19,090 --> 00:51:23,370 OK, so the question is can this is really explain the 746 00:51:23,370 --> 00:51:24,390 fertilizer puzzle? 747 00:51:24,390 --> 00:51:27,000 So we can see that there are people, about a quarter of the 748 00:51:27,000 --> 00:51:29,500 population, do behave in this funny way. 749 00:51:29,500 --> 00:51:32,210 They want it now, and they think in the future they're 750 00:51:32,210 --> 00:51:34,110 going to be very patient, so they want to 751 00:51:34,110 --> 00:51:35,610 postpone their savings. 752 00:51:35,610 --> 00:51:40,680 They want to say I will consume now and save later. 753 00:51:40,680 --> 00:51:43,990 That's a kind of a natural instinct for about a quarter 754 00:51:43,990 --> 00:51:45,890 of the population. 755 00:51:45,890 --> 00:51:48,550 The problem is that this requires people 756 00:51:48,550 --> 00:51:50,160 to be pretty naive. 757 00:51:50,160 --> 00:51:52,060 What do I mean by naive? 758 00:51:52,060 --> 00:51:55,650 I mean they need to actually not realize that this is what 759 00:51:55,650 --> 00:51:58,000 they're doing because otherwise they should be able 760 00:51:58,000 --> 00:52:01,030 to say, look, but I'll do that tomorrow as well, and day 761 00:52:01,030 --> 00:52:04,710 after and the day after that, so I'll never buy fertilizer. 762 00:52:04,710 --> 00:52:06,990 I want to buy fertilizer. 763 00:52:06,990 --> 00:52:10,030 So if you were sophisticated and, you fully understood what 764 00:52:10,030 --> 00:52:12,940 you were doing, what would you do? 765 00:52:22,640 --> 00:52:23,040 Yeah? 766 00:52:23,040 --> 00:52:25,000 AUDIENCE: You force yourself to save [INAUDIBLE]. 767 00:52:25,000 --> 00:52:26,660 PROFESSOR: You'll buy now. 768 00:52:26,660 --> 00:52:27,870 You just buy now. 769 00:52:27,870 --> 00:52:30,615 You know that you can never really-- 770 00:52:30,615 --> 00:52:34,820 Yeah, or you save now, whatever you need to do. 771 00:52:34,820 --> 00:52:37,640 You know that you'll never win the game by postponing because 772 00:52:37,640 --> 00:52:40,330 you know tomorrow you'll have the same problem. 773 00:52:40,330 --> 00:52:44,890 So basically, if you're sophisticated, 774 00:52:44,890 --> 00:52:46,890 you would buy now. 775 00:52:46,890 --> 00:52:50,280 So you never want to do it, so you really need people to be 776 00:52:50,280 --> 00:52:53,235 pretty naive to be able to-- 777 00:52:58,050 --> 00:53:05,990 In other words, sophisticated people should not react to 778 00:53:05,990 --> 00:53:08,210 this program. 779 00:53:08,210 --> 00:53:10,070 They would buy in any case. 780 00:53:10,070 --> 00:53:12,670 The only advantage this program offers is that they're 781 00:53:12,670 --> 00:53:16,750 getting free delivery, but free delivery, as we saw, is 782 00:53:16,750 --> 00:53:17,870 not worth that much. 783 00:53:17,870 --> 00:53:20,480 When you give people just free delivery, that doesn't have a 784 00:53:20,480 --> 00:53:23,110 big effect. 785 00:53:23,110 --> 00:53:32,530 So in other words, if these guys are really sophisticated, 786 00:53:32,530 --> 00:53:37,130 they shouldn't need this program to get them to buy 787 00:53:37,130 --> 00:53:37,670 fertilizer. 788 00:53:37,670 --> 00:53:40,260 They would buy it in any case because they'll realize that 789 00:53:40,260 --> 00:53:44,630 this is what's going on and say, look, if I can try to 790 00:53:44,630 --> 00:53:47,670 fool myself and say I'm going to buy it tomorrow, but I'm 791 00:53:47,670 --> 00:53:49,940 not going to buy it tomorrow. 792 00:53:49,940 --> 00:53:53,370 I'm always going to do the same thing. 793 00:53:53,370 --> 00:53:53,630 Yeah? 794 00:53:53,630 --> 00:53:56,746 AUDIENCE: Didn't they say that the fertilizer wasn't 795 00:53:56,746 --> 00:54:00,078 available [INAUDIBLE] 796 00:54:00,078 --> 00:54:01,982 back to the city to check it, so that's why they 797 00:54:01,982 --> 00:54:02,880 [INAUDIBLE]? 798 00:54:02,880 --> 00:54:06,810 PROFESSOR: I'm sure that's also true, but just take this 799 00:54:06,810 --> 00:54:08,060 particular experiment. 800 00:54:19,520 --> 00:54:22,280 I'm sure there are other costs, like there is some 801 00:54:22,280 --> 00:54:25,510 transportation costs of finding fertilizer, et cetera, 802 00:54:25,510 --> 00:54:31,830 but it's hard to imagine that's the only problem. 803 00:54:31,830 --> 00:54:34,430 However, here's a problem with saying that they are 804 00:54:34,430 --> 00:54:35,680 sophisticated. 805 00:54:45,570 --> 00:54:47,770 Suppose people were sophisticated, then they 806 00:54:47,770 --> 00:54:49,880 wouldn't want the fertilizer-- 807 00:54:49,880 --> 00:54:52,530 the program would not have an effect because, basically, 808 00:54:52,530 --> 00:54:54,540 they would buy it in any case. 809 00:54:54,540 --> 00:54:58,650 Now, suppose they're not sophisticated, so they don't 810 00:54:58,650 --> 00:54:59,980 understand they do this. 811 00:54:59,980 --> 00:55:03,020 Suppose they come and tell you do you want to buy now or in 812 00:55:03,020 --> 00:55:04,460 the future? 813 00:55:04,460 --> 00:55:05,710 What would you say? 814 00:55:08,890 --> 00:55:10,920 You all would say in the future because why would 815 00:55:10,920 --> 00:55:12,170 [INAUDIBLE]? 816 00:55:14,890 --> 00:55:18,200 I don't realize I'm going to do this, so then I have no 817 00:55:18,200 --> 00:55:21,730 reason to say lock up my money. 818 00:55:21,730 --> 00:55:24,850 I should always ask to spend it in the future. 819 00:55:27,350 --> 00:55:31,160 You cannot have them being completely fully 820 00:55:31,160 --> 00:55:33,680 sophisticated, in which case the program would not have an 821 00:55:33,680 --> 00:55:37,360 effect, because they're sophisticated. 822 00:55:37,360 --> 00:55:38,530 They don't need the program. 823 00:55:38,530 --> 00:55:39,890 They'll buy in any case. 824 00:55:39,890 --> 00:55:43,720 But if you assume that they was not sophisticated at all, 825 00:55:43,720 --> 00:55:47,120 then they would say, look, bring it 826 00:55:47,120 --> 00:55:48,600 back at planting time. 827 00:55:48,600 --> 00:55:49,740 I'll buy it then. 828 00:55:49,740 --> 00:55:51,350 Why would I lockup my money? 829 00:55:51,350 --> 00:55:55,040 Because I don't understand that I have this problem. 830 00:55:55,040 --> 00:55:57,670 So these people must be halfway between being 831 00:55:57,670 --> 00:56:00,200 sophisticated and not being sophisticated. 832 00:56:00,200 --> 00:56:01,910 They cannot be either fully sophisticated. 833 00:56:08,400 --> 00:56:10,360 If they were fully sophisticated, they would not 834 00:56:10,360 --> 00:56:13,320 need this program. 835 00:56:13,320 --> 00:56:16,590 If they were fully unsophisticated, they would 836 00:56:16,590 --> 00:56:20,450 not respond to when you offer them and ask them do you want 837 00:56:20,450 --> 00:56:23,800 to buy it now or later, they would all say later, and half 838 00:56:23,800 --> 00:56:27,330 of them say they want it now even though they don't need 839 00:56:27,330 --> 00:56:29,080 the fertilizer now. 840 00:56:29,080 --> 00:56:32,180 So some of those people must realize that later, they're 841 00:56:32,180 --> 00:56:37,390 going to not have the money, so somehow there is some 842 00:56:37,390 --> 00:56:42,690 combination of sophistication and naivete that's driving 843 00:56:42,690 --> 00:56:43,940 this behavior. 844 00:56:46,610 --> 00:56:50,640 So one way to look at this question of how sophisticated 845 00:56:50,640 --> 00:56:53,380 is go back to that experiment that we were talking about, 846 00:56:53,380 --> 00:56:55,520 the Ashraf, Karlan, and Yin. 847 00:56:55,520 --> 00:56:57,925 What they do is they offer their subjects a lock-box. 848 00:56:57,925 --> 00:57:03,940 A lock-box is just a box where the key is usually kept with 849 00:57:03,940 --> 00:57:07,720 someone else, so you don't have access to the key. 850 00:57:07,720 --> 00:57:09,065 You can put money into it. 851 00:57:09,065 --> 00:57:12,460 It's just a money box. 852 00:57:12,460 --> 00:57:16,570 And they were told that you can set you goal. 853 00:57:16,570 --> 00:57:24,940 Your goal can be either a date, so I'll break the box, 854 00:57:24,940 --> 00:57:29,360 I'll open the box at Christmas. 855 00:57:29,360 --> 00:57:30,930 Or it could be an amount of money. 856 00:57:30,930 --> 00:57:34,380 I'll open the box once I have $200 in it. 857 00:57:34,380 --> 00:57:44,150 So if you look at what people say, most people want it on a 858 00:57:44,150 --> 00:57:51,450 date, so a huge fraction say I want it on Christmas, my 859 00:57:51,450 --> 00:57:55,060 wife's birthday, my husband's birthday, my son's birthday, 860 00:57:55,060 --> 00:57:58,030 my child's graduation, something like that. 861 00:57:58,030 --> 00:58:01,960 Then some people have an amount based goal. 862 00:58:01,960 --> 00:58:06,140 They say that I need it for buying a house, so I need this 863 00:58:06,140 --> 00:58:07,450 much money. 864 00:58:07,450 --> 00:58:10,390 But most people seemed to set time-based goals. 865 00:58:17,070 --> 00:58:22,440 Now, out of 1,7000 people, only 200 people 866 00:58:22,440 --> 00:58:25,060 wanted these boxes. 867 00:58:25,060 --> 00:58:28,210 So not everybody wanted it. 868 00:58:28,210 --> 00:58:35,300 In fact, only one out of eight, roughly, wanted one of 869 00:58:35,300 --> 00:58:36,550 these boxes. 870 00:58:39,140 --> 00:58:48,570 But among those who did, there's a massive effect of 871 00:58:48,570 --> 00:58:49,660 being hyperbolic. 872 00:58:49,660 --> 00:58:54,680 Hyperbolic are those people who are patient in the future 873 00:58:54,680 --> 00:58:57,880 but impatient now. 874 00:58:57,880 --> 00:59:03,030 Those are the people who really wanted the lock-boxes, 875 00:59:03,030 --> 00:59:04,210 so that's what you'd expect. 876 00:59:04,210 --> 00:59:10,360 You'd expect that somebody who is fundamentally patient, but 877 00:59:10,360 --> 00:59:16,070 is impatient right now, is the one who wants a lock-box 878 00:59:16,070 --> 00:59:19,580 because they do see the value of saving. 879 00:59:19,580 --> 00:59:22,770 They're patient fundamentally, but they're impatient right 880 00:59:22,770 --> 00:59:25,010 now in the moment. 881 00:59:25,010 --> 00:59:27,270 Those are the people who would want a lock-box, and that's 882 00:59:27,270 --> 00:59:28,520 exactly what you find. 883 00:59:28,520 --> 00:59:31,610 You find that the people who want the lock-box tend to be 884 00:59:31,610 --> 00:59:36,690 people who are patient in general, in the future are 885 00:59:36,690 --> 00:59:39,510 patient, but are less patient right now. 886 00:59:39,510 --> 00:59:42,320 They want the lock-box to kind of bind their hands. 887 00:59:50,850 --> 00:59:54,450 So they seem to know that they're hyperbolic, so a lot 888 00:59:54,450 --> 00:59:57,640 of these people seem to know they're hyperbolic. 889 00:59:57,640 --> 01:00:00,190 They seem to realize that they have this problem, so they're 890 01:00:00,190 --> 01:00:01,570 not unsophisticated. 891 01:00:01,570 --> 01:00:04,940 They seem to be relatively aware of their-- they're not, 892 01:00:04,940 --> 01:00:06,570 at least, totally unsophisticated. 893 01:00:06,570 --> 01:00:08,140 They seem to have some awareness of their 894 01:00:08,140 --> 01:00:11,640 self-control problem. 895 01:00:11,640 --> 01:00:15,320 The other striking thing is only women are effected. 896 01:00:15,320 --> 01:00:21,120 Men don't seem to understand they have this problem, even 897 01:00:21,120 --> 01:00:23,080 though they do, actually. 898 01:00:23,080 --> 01:00:26,760 So women seem to understand they have a problem. 899 01:00:26,760 --> 01:00:29,275 Men also have the same problem, but they don't seem 900 01:00:29,275 --> 01:00:31,000 to understand it. 901 01:00:31,000 --> 01:00:36,190 Now, here's another experiment, last experiment we 902 01:00:36,190 --> 01:00:43,170 will talk about, which gives a different take to this men 903 01:00:43,170 --> 01:00:44,420 versus women question. 904 01:00:47,040 --> 01:00:52,820 We've been talking a lot about this kind of hyperbolic view, 905 01:00:52,820 --> 01:00:57,340 which says that I'm worried that I won't be able to save. 906 01:00:57,340 --> 01:01:00,690 An alternative view of why people don't save is they feel 907 01:01:00,690 --> 01:01:05,160 like I want to save, but I know that I can't because 908 01:01:05,160 --> 01:01:07,450 somebody else will come and take the money away. 909 01:01:10,800 --> 01:01:14,800 My husband will spend it, or my brother will come and beg 910 01:01:14,800 --> 01:01:17,040 me money, and I'll have to give it to him or something. 911 01:01:17,040 --> 01:01:21,940 So one other reason for not saving, which is related, and 912 01:01:21,940 --> 01:01:27,500 one reason why women might want a lock-box more might not 913 01:01:27,500 --> 01:01:29,740 be because just that they're hyperbolic. 914 01:01:29,740 --> 01:01:33,540 They might also worry about the fact that their husbands 915 01:01:33,540 --> 01:01:38,710 will just take away the money, and that might explain their 916 01:01:38,710 --> 01:01:42,380 demand for lock-boxes, that they want to keep the money 917 01:01:42,380 --> 01:01:45,580 away from their husband and say that we can't get at the 918 01:01:45,580 --> 01:01:47,210 money right now. 919 01:01:47,210 --> 01:01:52,270 So this is an experiment in a bank. 920 01:01:56,090 --> 01:01:58,280 This one was done by Simone Schaner, who was a 921 01:01:58,280 --> 01:02:02,320 PhD Student at MIT. 922 01:02:02,320 --> 01:02:07,910 So this is a bank, and basically, she invited a bunch 923 01:02:07,910 --> 01:02:12,440 of married couples to the bank and said do you want to open 924 01:02:12,440 --> 01:02:13,230 an account. 925 01:02:13,230 --> 01:02:18,315 And the accounts she offered had came in three types. 926 01:02:18,315 --> 01:02:24,730 I mean, everybody was offered one joint account for two 927 01:02:24,730 --> 01:02:29,690 spouses, one wife's account, and one husband's account. 928 01:02:29,690 --> 01:02:32,410 The reason why they did that, she was trying to get at this 929 01:02:32,410 --> 01:02:36,130 idea that maybe if I have a joint account with my husband, 930 01:02:36,130 --> 01:02:39,910 that's not very good because he can take out the money. 931 01:02:39,910 --> 01:02:42,490 If I want to have an account, I want full control of it. 932 01:02:48,460 --> 01:02:52,700 So what she's interested in is this question, are people 933 01:02:52,700 --> 01:02:55,550 sufficiently aware of this problem that they're willing 934 01:02:55,550 --> 01:02:58,500 to give up a high return account to 935 01:02:58,500 --> 01:02:59,750 have their own account? 936 01:03:03,460 --> 01:03:07,040 So the design of the experiment is one where, 937 01:03:07,040 --> 01:03:10,940 sometimes, randomly, the joint account has the highest 938 01:03:10,940 --> 01:03:14,420 interest rate, and your own account has a very low 939 01:03:14,420 --> 01:03:15,990 interest rate. 940 01:03:15,990 --> 01:03:18,720 And what she's interested in is whether you would give up 941 01:03:18,720 --> 01:03:23,400 getting a high interest rate account to 942 01:03:23,400 --> 01:03:25,720 get your own account. 943 01:03:25,720 --> 01:03:28,320 So for the whole family, it would be better to get a joint 944 01:03:28,320 --> 01:03:33,100 account in terms of returns. 945 01:03:33,100 --> 01:03:38,470 So the returns can vary between 0% to 10%, so you 946 01:03:38,470 --> 01:03:41,620 could be getting 10% on the account instead of zero, but 947 01:03:41,620 --> 01:03:46,360 you might choose zero because you don't want your wife or 948 01:03:46,360 --> 01:03:49,335 husband to get at it. 949 01:03:59,700 --> 01:04:00,910 So I'll skip this. 950 01:04:00,910 --> 01:04:02,310 This just explain the point. 951 01:04:02,310 --> 01:04:05,890 The point is that people got different accounts offered, so 952 01:04:05,890 --> 01:04:08,560 some people were offered a joint account with the 953 01:04:08,560 --> 01:04:14,040 interest rate zero, a man's account with interest rate 954 01:04:14,040 --> 01:04:19,640 zero, but a joint account with interest rate two. 955 01:04:19,640 --> 01:04:23,680 So this is sort of just to understand the experiment, you 956 01:04:23,680 --> 01:04:28,630 might be someone who gets the joint account interest rates 957 01:04:28,630 --> 01:04:32,310 could be 10, but the man's account interest rate could be 958 01:04:32,310 --> 01:04:34,710 zero, and the woman's account interest rate could be two. 959 01:04:44,160 --> 01:04:49,600 So what's in the squares are the excess interest rate on 960 01:04:49,600 --> 01:04:55,560 the account you're choosing, so maybe you choose an account 961 01:04:55,560 --> 01:04:58,650 which gives you 4%. 962 01:04:58,650 --> 01:05:01,080 You could have gotten the best account you could have got 963 01:05:01,080 --> 01:05:02,640 would have interest rate of 10. 964 01:05:02,640 --> 01:05:05,390 Your excess interest rate is negative in that case. 965 01:05:05,390 --> 01:05:08,530 You are getting a -6% on the interest. 966 01:05:08,530 --> 01:05:11,350 So the question here, the reason why this experiment is 967 01:05:11,350 --> 01:05:14,920 interesting, you're trying to figure out do people give up 968 01:05:14,920 --> 01:05:21,850 getting lots of extra money to make sure that somebody 969 01:05:21,850 --> 01:05:23,477 doesn't have access to their account. 970 01:05:31,110 --> 01:05:34,360 So first thing she did was to figure out-- 971 01:05:38,320 --> 01:05:40,350 she'll administer these questions 972 01:05:40,350 --> 01:05:42,426 where they ask them-- 973 01:05:42,426 --> 01:05:44,890 it's kind of like the questions we were asking. 974 01:05:44,890 --> 01:05:56,190 How much money would you give up today for 290 Kenyan 975 01:05:56,190 --> 01:05:59,940 shillings tomorrow? 976 01:05:59,940 --> 01:06:03,030 So these are questions basically aimed to measure how 977 01:06:03,030 --> 01:06:06,000 impatient people. 978 01:06:06,000 --> 01:06:10,310 Would you take 20 today or 200 tomorrow, and if you say 20 979 01:06:10,310 --> 01:06:12,665 today, you're very impatient, obviously. 980 01:06:12,665 --> 01:06:15,650 So that's the kind of question she was asking. 981 01:06:15,650 --> 01:06:21,520 So what she did, by using that, what she figured out was 982 01:06:21,520 --> 01:06:24,380 who are the couples who are well matched. 983 01:06:24,380 --> 01:06:28,570 So if I'm impatient and my wife is impatient, that's no 984 01:06:28,570 --> 01:06:31,340 problem because neither of us want to save. 985 01:06:31,340 --> 01:06:36,760 So I don't have to tie my husband's hands or my wife's 986 01:06:36,760 --> 01:06:42,730 hands because I have the same preferences as she does, and 987 01:06:42,730 --> 01:06:45,810 therefore, if she wants to spend, I also want to spend. 988 01:06:48,730 --> 01:06:52,450 Then there are couple which are both parties are patient, 989 01:06:52,450 --> 01:06:57,450 so if one wants to save, the other wants to save. 990 01:07:03,240 --> 01:07:06,610 And then there are people who were given-- 991 01:07:06,610 --> 01:07:08,240 the couples which are ill matched. 992 01:07:08,240 --> 01:07:11,630 Ill matched couples are where one says I want to save now, 993 01:07:11,630 --> 01:07:14,880 the other says I want to spend now. 994 01:07:14,880 --> 01:07:16,670 So they're ill matched couples. 995 01:07:16,670 --> 01:07:20,960 Now, it's the ill matched couples that are going to 996 01:07:20,960 --> 01:07:24,510 choose accounts that have low returns. 997 01:07:24,510 --> 01:07:29,940 If you're well matched, it really doesn't matter who's 998 01:07:29,940 --> 01:07:33,340 name the account is in because we have the same objectives. 999 01:07:33,340 --> 01:07:35,850 We both want to spend now. 1000 01:07:35,850 --> 01:07:38,060 We both want to spend in the future. 1001 01:07:38,060 --> 01:07:40,980 Whatever we want to do, we both want to do. 1002 01:07:40,980 --> 01:07:44,030 But if one of the spouses is patient, and the other's 1003 01:07:44,030 --> 01:07:46,170 impatient, you have a problem. 1004 01:07:46,170 --> 01:07:48,910 Now, it turns out, she went with the hypothesis that 1005 01:07:48,910 --> 01:07:51,300 she'll find that only the men are impatient. 1006 01:07:51,300 --> 01:07:55,760 Turns out it was about 50/50, about men and women are 1007 01:07:55,760 --> 01:08:00,280 equally likely to be less patient than their spouse. 1008 01:08:00,280 --> 01:08:04,500 But a lot of these households were ill matched, so a lot of 1009 01:08:04,500 --> 01:08:07,650 the households had one spouse who was very patient and the 1010 01:08:07,650 --> 01:08:10,700 other spouse who was very impatient. 1011 01:08:10,700 --> 01:08:13,930 That's a setting where you'd imagine going back to the 1012 01:08:13,930 --> 01:08:18,520 issue we were raising, as we said, maybe people don't save 1013 01:08:18,520 --> 01:08:23,220 because they feel that they can't save. 1014 01:08:23,220 --> 01:08:28,220 If they try to save, the spouse will just spend it. 1015 01:08:28,220 --> 01:08:30,609 So if one of the spouses is patient, but the other's 1016 01:08:30,609 --> 01:08:33,970 impatient, the impatient spouse kind of has an 1017 01:08:33,970 --> 01:08:36,760 advantage because once the money's spent, it's gone. 1018 01:08:39,460 --> 01:08:42,779 The patient spouse will keep guarding the money, but the 1019 01:08:42,779 --> 01:08:46,240 impatient spouse, all she has to do is to spend it. 1020 01:08:46,240 --> 01:08:50,370 Once it's spent, it's gone, so in a sense, the impatience 1021 01:08:50,370 --> 01:08:53,710 spouse always has an advantage. 1022 01:08:53,710 --> 01:08:56,910 So you're always fighting against the impatience spouse. 1023 01:08:56,910 --> 01:09:01,350 The patient spouse is always trying to save it and can't do 1024 01:09:01,350 --> 01:09:04,380 much about it once the money's spent. 1025 01:09:04,380 --> 01:09:07,529 But as a patient spouse is always-- 1026 01:09:07,529 --> 01:09:09,430 if she's saved it through today, she has to save it 1027 01:09:09,430 --> 01:09:10,399 through tomorrow. 1028 01:09:10,399 --> 01:09:15,529 In some sense, it's kind of an asymmetric problem. 1029 01:09:15,529 --> 01:09:19,279 So what she's looking for is what happens to these ill 1030 01:09:19,279 --> 01:09:20,529 matched couples. 1031 01:09:25,270 --> 01:09:28,929 So this is sort of just to give a sense of how many are 1032 01:09:28,929 --> 01:09:29,380 ill matched. 1033 01:09:29,380 --> 01:09:30,114 Yeah, Melissa? 1034 01:09:30,114 --> 01:09:31,364 AUDIENCE: [INAUDIBLE]? 1035 01:09:35,926 --> 01:09:38,686 PROFESSOR: We'll be done in two minutes. 1036 01:09:38,686 --> 01:09:42,160 So this is a graph of ill matched couples. 1037 01:09:49,480 --> 01:09:51,520 A lot of these are at zero. 1038 01:09:51,520 --> 01:09:55,470 You can see zero means you have the same discount factor. 1039 01:09:55,470 --> 01:09:57,080 You're equally patient. 1040 01:09:57,080 --> 01:09:59,920 But you can see that there are people who are difference of 1041 01:09:59,920 --> 01:10:06,000 -0.5, so that means that I want it-- 1042 01:10:06,000 --> 01:10:12,300 my discount factor is maybe 0.9, and my spouse is 0.4. 1043 01:10:12,300 --> 01:10:14,640 And look, it's basically symmetrical. 1044 01:10:14,640 --> 01:10:16,290 Men and women are not different. 1045 01:10:16,290 --> 01:10:19,450 It's just one of the spouses is more 1046 01:10:19,450 --> 01:10:20,840 impatient than the other. 1047 01:10:20,840 --> 01:10:22,160 And then what she looks at-- 1048 01:10:22,160 --> 01:10:24,970 I'll skip these and show you the picture. 1049 01:10:24,970 --> 01:10:29,530 So on the horizontal axis is excess interest rate. 1050 01:10:29,530 --> 01:10:30,810 How much are you giving up? 1051 01:10:36,800 --> 01:10:39,500 When the wife's account has, let's say, the highest 1052 01:10:39,500 --> 01:10:43,540 interest rate over the other account-- 1053 01:10:47,950 --> 01:10:59,010 what fraction of the people use the account more? 1054 01:10:59,010 --> 01:11:02,420 And you can see that basically, for well matched 1055 01:11:02,420 --> 01:11:06,880 couples, the shared saving in that account is clearly 1056 01:11:06,880 --> 01:11:08,720 increasing with interest rate. 1057 01:11:08,720 --> 01:11:10,570 If the interest rate is higher, you save 1058 01:11:10,570 --> 01:11:11,930 more in that account. 1059 01:11:11,930 --> 01:11:16,260 For ill matched couples, they see no relationship. 1060 01:11:16,260 --> 01:11:20,800 You don't save more because the account is more rewarding. 1061 01:11:20,800 --> 01:11:21,100 Why? 1062 01:11:21,100 --> 01:11:24,750 Because it doesn't matter if it's more rewarding or not. 1063 01:11:24,750 --> 01:11:28,000 You just don't want that on the other guy to have that 1064 01:11:28,000 --> 01:11:31,300 access to that account. 1065 01:11:31,300 --> 01:11:37,000 So ill matched couples don't react to the interest rate. 1066 01:11:37,000 --> 01:11:38,800 Their priority is something else. 1067 01:11:38,800 --> 01:11:40,390 They want their own account. 1068 01:11:40,390 --> 01:11:42,760 Doesn't matter whether that's a low interest account. 1069 01:11:42,760 --> 01:11:46,890 The well matched couples, you see this, and you can see the 1070 01:11:46,890 --> 01:11:49,770 same thing for the joint accounts. 1071 01:11:49,770 --> 01:11:52,490 The joint accounts, again, it's the same question, excess 1072 01:11:52,490 --> 01:11:55,850 interest rate, share saving. 1073 01:11:55,850 --> 01:11:58,970 The well matched couples, as the interest rate goes up, you 1074 01:11:58,970 --> 01:12:01,200 save more in that account. 1075 01:12:01,200 --> 01:12:03,180 In the badly matched couples, it doesn't matter. 1076 01:12:03,180 --> 01:12:05,050 Interest rate doesn't matter. 1077 01:12:05,050 --> 01:12:08,490 If you're badly matched, you choose the one that you will 1078 01:12:08,490 --> 01:12:11,220 keep the other guy out. 1079 01:12:11,220 --> 01:12:13,190 You're not the one that has the highest interest rate.