The rationality of irrationality

Esta semana presentamos a Dan Ariely, economista conductual y profesor en Duke University

¿Cuándo fue la última vez que compraste una camisa que no necesitabas solo porque tenía un descuento? ¿O compraste un café de 5 dólares cuando había café más barato al cruzar la calle? Las personas son irracionales, a pesar de los mejores esfuerzos que hagamos para evitarlo; particularmente, cuando se trata de dinero.

En este episodio de The BID, Dan Ariely, economista conductual, profesor en la Universidad de Duke y cofundador de Common Cents Lab, habla sobre qué nos hace irracionales y cómo la economía conductual puede ayudarnos a afrontar cuestiones importantes como los ahorros y la jubilación.

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  • Mary-Catherine Lader: What’s something irrational you did today? Hold that thought. Here’s what people said when we asked around.

    Female 1: I spent more money on a flight because I had credit card points that I could use, even though I could have used them on anything, but I just bought a more expensive flight.

    Female 2: The most irrational thing I did today was started a fight over nothing with my husband.

    Female 3: I packed my lunch and I worked really hard to pack it and forced myself to bring it this morning, and then I bought lunch anyway.

    Mary-Catherine Lader: Despite our efforts to make every decision right or to go through a day without making mistakes, it’s pretty much impossible to actually do that. You buy a shirt you don’t need, just because it’s on sale. Or you buy $4 – well, in New York, $5 coffee even when there’s cheaper, equally-good coffee across the street.

    On this episode of The BID, we speak to an expert on irrationality: Dan Ariely. Dan is a renowned behavioral economist and a professor at Duke University. There, he co-founded Common Cents Lab, a nonprofit focused on increasing financial well-being for low-to moderate-income people in the United States. BlackRock is working with Common Cents Lab to help people build emergency savings.

    Dan has published six books, given six TED talks, and co-founded five startups. In fact, he ends his emails with a signature sign-off: “Irrationally yours.”

    Today, we’ll talk about just that: what makes us irrational, particularly when it comes to money, and how behavioral economics can help us tackle big issues like the short-term savings crisis and the retirement crisis.

    I’m your host, Mary-Catherine Lader. We hope you enjoy.

    Dan, thank you so much for joining us today.

    Dan Ariely: It is my pleasure.

    Mary-Catherine Lader: So let’s start by explaining perhaps an often-used term that may not be totally well-understood by all those who throw it around: what exactly is the behavioral economics?

    Dan Ariely: Yes, it’s actually I think not exactly understood even by the people who practice it. So, behavioral economics is really easy to understand in contrast to standard economics. So what is standard economics? In standard economics, we assume that people are rational. That people take all the information into account, that people can think into the future, they don’t have emotions, and so on and so on. And because of that, we think people always, always, always make the right decision. In behavioral economics, we say, not so fast, let’s not make assumptions about people; let’s just put people in different situations and see how they behave. So the first difference is that social science and behavioral economics are experimental in nature, rather than based on assumptions. And when you get people to behave, you see that they’re often irrational. And now comes a really interesting point is if you believe that people are rational, you will build the world in a certain way. You would convince people to stop smoking or stop texting while driving in one way. But if you believe that people are irrational, in systematic and predictable ways, then you would go about improving the world in different ways, right, you wouldn’t necessarily say to people, hey, did you know that texting and driving is dangerous, stop immediately; you would do other things. So the difference is about the assumptions, how we learn about people, and what are the implications for improving society?

    Mary-Catherine Lader: So is there a magic answer about what exactly makes us irrational, and how those solutions designed for irrational humans are different? Or is it different depending on the kind of choice you’re solving for?

    Dan Ariely: Yes. So, there is one way to be rational and there are many ways to be irrational.

    Mary-Catherine Lader: So it’s not so simple.

    Dan Ariely: It’s not so simple. And it depends on the level of granularity that you want to talk about. So, if you’re trying to think about the most general case, you could think about evolution. And you could say, our brain was developed to deal with an evolutionary environment that is very unlike the environment we’re in right now. Just think about the differences of running in the savannah and being afraid from a tiger to being afraid that your stock portfolio is going up or down. And then if you get to more specific levels, and you say, but is there one reason? The answer is no. For example, one reason is emotions, right, emotions get us to be derailed from our long term best interest many times. We have things that have to do with our difficulty in computing things, difficulty in holding multiple hypotheses in mind, difficulty of thinking many steps ahead. So there are many, many things that we do wrongly on this specific level, but they all stem from this fact that we’re basically utilizing brain mechanisms, think about them as tools, in a way that they were not designed for.

    Mary-Catherine Lader: We talk a lot on this podcast about choices people make around money, whether they’re professional investors or individuals. You started Common Cents Lab, essentially a research organization to help focus on better decision making around money. What is specific to irrationality when it comes to how people engage with money?

    Dan Ariely: Yeah. Can I ask you if you thought about your biggest money mistake, what was it?

    Mary-Catherine Lader: It’s not investing enough soon enough; it’s waiting too long to try to make the perfect decision.

    Dan Ariely: Yeah. So one is procrastination, just delaying, and that actually has a few causes to procrastination. And then the second thing is not sacrificing enough now for the future.

    Mary-Catherine Lader: Yeah.

    Dan Ariely: Which is to say, I see a new bicycle now, I really feel like it, it’s really wonderful. If I delay to the future, how exciting is that? Not very exciting. So if you think about the process of de-cumulating wealth, and making the rational decision, it’s really, very, very tough. You need to know how long you’re likely to live, and what will you need in retirement. If I told you, you were going to die at age 50, life is much simpler from computing how much you need to save. But if you don’t know if you live to 60 or 100, now things are very difficult. So the thing about money is both that it’s a wonderful, wonderful invention, it’s at the level of the wheel in terms of its contribution to society. It’s unbelievable what this abstract notion is doing to us as a society in a good way. At the same time, really hard to think about it. And I’ll give you one example, we went to a Toyota dealership a few years ago. And these were people who went to meet the dealer, they knew what the price of the car was, and they had to decide yes or no. And we stopped them, and we said, “Look, if you are going to go ahead and buy this car, what would you not be able to do? What is it coming instead of? What is the opportunity cost?” And people had no answer. Why? Because they never thought about it. So we pushed them and pushed them, and then the most common answer we got was, “If I go ahead and buy this Toyota, I can’t buy a Honda,” which of course is not the answer we were looking for. The answer we were looking for is, this is going to be instead of three weeks’ vacation for the next three years and 700 lattes and 16 books and so on. It turns out that the most beautiful thing about money which is that we can buy lots and lots of things with it, is also what makes it really hard to think about. The abstract notion. So if I gave you now $3 dollars, what exactly did I give you? How exactly do you think about it? Do you think about the marginal value of $3 dollars? No. By the way, it’s a simple representation. We find that we have a much easier time getting people to do something for a cappuccino than for $3 dollars.

    Mary-Catherine Lader: That’s fascinating. Why, they didn’t trust you when you offered the $3 dollars? The value is different to everybody?

    Dan Ariely: It’s the representation. Imagine I was on the street corner, I said, “Hey excuse me, will you fill a survey for $3 dollars?” What exactly is this $3 dollars giving you? It could give you a cappuccino, but it could give you a lot of other things. But at that moment, you’re not thinking about a cappuccino, even something better. But when I say, “Would you fill a survey for ten minutes for a cappuccino?” Now all of a sudden, you represent the value of what you’re getting. And that is part of the challenge with money is we have a hard time representing the value of money. And because of that, we make lots of mistakes in how we spend.

    Mary-Catherine Lader: So what are some practical real world examples of trying to help make people make better decisions about money? Particularly decisions in the moment that have the kind of future implications you’re talking about?

    Dan Ariely: So I’ll tell you about some tricks we found in the lab and there is a digital wallet called Capital that implemented it. There are some things that are bills that are just coming out. But the things we have control over are discretionary spending, restaurants, cabs, coffee, beer, supermarkets.

    Mary-Catherine Lader: Right.

    Dan Ariely: Now if you gave people a monthly budget for these things, we find that people run out very quickly. Let’s say your monthly budget is $2,000, you look at it at the beginning of the month, you say, look at me, I’m so rich, I have $2,000, and two weeks later you’re at zero. So we found out that a month is too long of a timeframe to plan, so we pushed it for a week. And then we found out that a week that starts on Friday is very different than a week that starts on Monday. If the week starts on Friday and I give you $500 in this spending account, people spend way too much on the weekend. If I put it up on Monday, it will savor for the weekend. So this company called Capital took this idea seriously. And they give people a prepaid debit card. And they load up the amount of money that you need for the week every Monday. And they show you how much money you have from your plan. So that’s one trick, and of course you could do it yourself; you don’t have to do it with somebody else, but the idea is the month is too long, get it to be weekly, start the week on Monday.

    Mary-Catherine Lader: Picking the number, the right number is a whole other question I’m sure.

    Dan Ariely: That’s right. It’s not basically pick a number and the dangerous thing to do is to see what have I been spending so far? And just using that number, because that is a recipe for repeating past behavior. What you really want to figure out is what kind of joy am I getting? And that’s another study we did is we asked people to look at their spending and for each spending event, we asked them to what extent they were happy with this and to what extent they regret it. When we buy things, it’s always with an eye to the future: how would I feel if I got this, how would I feel if I did this? We don’t very often go back and reflect on what we’ve done, and say, was this a good decision or a bad decision? And when we get people to do that, there is lots of categories that people say, I did spend way too much money. By the way, the leading category that people regret is eating out. And it’s not because eating out is a bad idea, it’s because they eat out, they eat too much, they drink too much, and they regret all of those the next day. So trick number-one is weekly budget, starts Monday; trick number-two is from time to time, think about what makes you happy. And part of the challenge in the world is that everybody wants something from us, every app, every coffee shop, everybody wants our time, money or attention right now. And because they design the environment, they have a really easy time derailing us from our goal. So let’s say you go to the supermarket, and you have a goal of what you want to get. The supermarket also has a goal, it’s just not the same as yours. And guess what, they decide what is going to wait for you by the cash register, and they decide to put things in there that would ignite your emotions and get your curious and make you likely that you will buy it. They don’t put the tomatoes and cucumbers there. So, another important thing is to try to remember what we’re working towards, what we really want, and not be swayed as much by the environment, and that is also why having discretionary spending is good. For example, I’ll give you my own example, I think I need to change my car in three years. And every time I get a salary, there is a fixed amount of money that goes to a separate account for my future car. And I don’t trust myself if it’s in my checking account, I could just say, here is my balance, minus something. I basically want to see the balance actually reflecting more correctly what I have. And for the goals I want, I try to move the money to those goals automatically, so that it accumulates and I don’t have to worry about it.

    Mary-Catherine Lader: So is this what you call choice architecture?

    Dan Ariely: All of this is part of choice architecture, absolutely. So choice architecture is the idea that the design of the environment really matters, you design the environment one way, you’ll behave one way. If you put the fruits and vegetables in your refrigerator in the bottom drawer, you will not get to it very often, and by the time you do, they’ll rot. If you put them at eye level, you eat more fruits and vegetables, right, if you set up things to move money automatically to some categories, you’ll have money for those categories, if it doesn’t, you’ll find ways to spend it on other things.

    Mary-Catherine Lader: So then how does this apply in the context of professional investors? You could argue the incentive is pretty clear: professional investor or portfolio manager has to make money to earn a return, whereas maybe in our personal lives, as you’ve been talking about, sometimes it’s hard for us to be really honest about our goals or to size them appropriately. What have you learned about choice architecture or controlling for the irrationality in investing in public markets, for example?

    Dan Ariely: Yeah, so this belief that the moment we become professional we become somehow better is really interesting. So you could say, maybe if it’s not your money, you don’t care so much, so you’re not as emotionally invested. But of course we pay financial advisors proportional to how much money they make, so it is their money. You could say maybe getting a lot of training is helpful, like professional chess players, they’re really good, they play, they play, and they’re really good at it. But to develop that, you’ll need a lot of repetition and you’ll need accurate feedback. The stock market of course doesn’t give it to you. So there are cases where a professional could be distant, for example, lots of patients go to their doctor and say, doctor, you’re recommending this procedure, what would you do? Or if it was your son or daughter or mother, what would you do? And Jerry Groopman in one of his books, he’s a very good physician, he analyzed many situations, and said that it’s really good for doctors not to care about their patients.

    Mary-Catherine Lader: That sounds terrible.

    Dan Ariely: Yeah. Yeah. But he said that when they care about their patients, they are biased in their opinion. And when they don’t care, they are more able to give them objective, clean information. So there are cases where professionals are more objective; I’m not sure the stock market is like that. And there are cases where people can get lots of experience by repetition and by doing things differently and seeing how things work, and they also become professionals. Again, I don’t think in the stock market it is the case. So I actually don’t view a lot of professional investors as investors in that, but what I think they can be good at is helping people understand the psychology of money. You get out of college, you get your first job, you have a tendency to want to get an apartment, and a new sofa, and a TV, and maybe a car, and do all these things. A good financial advisor would say, slow down. Right. It’s more of the let me help you figure out how to run your life with this amount of money.

    Mary-Catherine Lader: So those kinds of tradeoffs, visualizing those, understanding those, studying them, is part of what you do at Common Cents Lab. Why did you start Common Cents Lab and why focus on money and particularly lower middle-income Americans?

    Dan Ariely: So first of all, why focus on money? So I think about all the cases in the world where we as human beings don’t live up to our potential. So I think we waste our time, we waste our money, we waste our health, we don’t create the right conditions for motivation in the workplace, we waste the environment and we hate. Mainly those are the big ones—

    Mary-Catherine Lader: So many! Big problems, yeah.

    Dan Ariely: —yes. And I picked a few years to focus on money because I think that the transformation of the cell phone and digital currency gives us tremendous opportunities to do that. So as long as we had physical money, there was not much we could do with it, not much that we could change in how people think and represent it. But now that it’s digital, and we have the phone walking around the world with us, it means we can have a decision aid in real time, helping us do things better. And there is one way to go which is Apple Pay, which is to say let’s make it easy to spend money. Let’s make it frictionless, let’s make it such that people don’t think about spending money, that they tap or swipe or touch and then they get very surprised at the end of the month. Or you could say let’s create a different type of technology and get people to think a little bit deeper and maybe it will be a bit more painful, but make sure that it’s more likely people would spend according to their long term goals in a way that is actually good for them. So that was the first reason for going into the domain of money, and we focus on low-income because the mistakes there are incredibly devastating. Imagine a low-income person that lives hand to mouth, and they have no extra. And one month, something bad happens, they have no extra! What do they do? They borrow, in the current environment, they borrow at a very, very high percent interest rate. And let’s say that there months later, that problem they had is fixed, maybe somebody was sick, the roof was leaking, something like that. Now they are three months behind plus interest.

    Mary-Catherine Lader: Right.

    Dan Ariely: Right. And that spirals down. So for people, I’m a university professor, I have a salary, if there is a negative income shock, I am perfectly able to handle it; but if you don’t, that creates tremendous turmoil and just to give you some statistics, what percentage of Americans do you think don’t have enough money to be able to pay an unexpected bill of $500 dollars?

    Mary-Catherine Lader: I’ll say 60?

    Dan Ariely: It’s a little bit less than 50, but it’s a lot, right. When you think about that statistic, you think about a third world country, you don’t think about the U.S.

    Mary-Catherine Lader: Right, totally.

    Dan Ariely: Imagine you have 100 percent of wealth and you broke Americans into five compartments, the poorest 20 percent, the next 20 percent, the 20 percent in the middle, the richest, and the absolute richest. And you ask the question, “From this 100 percent of wealth, how much does each of those buckets of 20 percent, hold?” And of course we know the top 20 percent own a lot of the wealth, but what people often don’t know is how little the bottom people have. So from a total of 100 percent, the bottom 40 percent of Americans have about 0.3 percent of the wealth.

    Mary-Catherine Lader: Wow.

    Dan Ariely: Basically nothing. And we focus on inequality of the top side but the real terrible thing is it’s the bottom. So if I could get somebody in the middle range of the distribution to save another $1,000 dollars, that’s lovely. But if I can get somebody at the bottom end of the distribution to save $500 dollars, I could protect them from some serious downsides. And you could ask, can they save? And the answer is, yes. We’ve shown it in slums in Africa, we can get people who live on $10 dollars a week to save some money for a rainy day, and we’ve shown that if you just open an account for people and you call it the saving account for their kids, and you put a tiny amount of money in it, people start thinking of their kids differently. All of a sudden, the parents say, oh my goodness, this kid is 2-years-old, but has a college savings account. And they start reading to them more and all kinds of things happen. So money is not just a way to accumulate wealth, it’s also a way for people to think about themselves. And in some of the research, it’s shown that let’s imagine somebody who owes $10,000 dollars in credit card debt, and you could say, what should I do first? Should I get them to pay it first or to build a little savings account? And the rational answer is to get them to put as much as possible towards the debt, because they pay higher interest rate on that than they make from their savings account.

    Mary-Catherine Lader: Right.

    Dan Ariely: But it turns out that having some money in a savings account gives people a lot of hope and confidence and optimism. And that by itself, is an important thing to do. Here is another statistic, what do you think is the turnover rate in places like Pizza Hut, McDonald’s, Burger King, how often do people change their jobs?

    Mary-Catherine Lader: I would say every eight months, and maybe the turnover or the attrition is like 30 or so percent?

    Dan Ariely: The turnover rate is 130 percent.

    Mary-Catherine Lader: Whoa!

    Dan Ariely: So basically what you said, right, people change more than once a year. And when people change jobs, it’s not that there is another job waiting for them.

    Mary-Catherine Lader: Why do they leave?

    Dan Ariely: You know what, it’s a big mystery, but somebody could get in a situation where they can’t make it—their car broke down, and then they feel embarrassed to show up again. It could be that somebody got a shift that didn’t work well for them. So, lots of things happen and there is lots of pain in the lower-income—everywhere in the world, but in the U.S., we should be better.

    Mary-Catherine Lader: Totally, totally. And so you mentioned, you sort of hinted at the connection we make between money and work. You’re doing more research these days what drives people and what motivates people in the workplace. So what have you learned about the extent to which money motivates people to show up to work? Whether they’re working at a Pizza Hut and they need to show up for that one day after they missed a shift, or in a completely different context?

    Dan Ariely: I have data on about hundreds of companies, big companies in the U.S. stock market, and I have data about all kinds of ways how people treat their employees. And I can look at this data, and I can say, if companies treat their employees well, do the companies also do better in the stock market? And it turns out that absolute salary doesn’t matter that much, relative salary matters a lot. Right. So it’s much more about the sense of fairness.

    Mary-Catherine Lader: Relative to people who do similar work to us? Or to the people in our communities?

    Dan Ariely: So it’s relative to the people at your job who are doing similar work. Right, that is the most salient one. And one way to think about it is your absolute level of salary doesn’t come into your mind very often. But when you see injustice in your company, that really bothers you. Another thing that seems to matter a lot is the sense of autonomy. If you think about work, a lot of things about work are the things that allow us to prosper, where you don’t think you’re like a pawn and someone tells you what to do and you’re just executing. But you feel a sense of connection and meaning and so on. And those things really matter, and we find in these large datasets that companies who are better at this – giving their employees a sense of meaning and autonomy – also do better in the stock market.

    Mary-Catherine Lader: And so then if money is part of it, autonomy is a big part of it as well, then what creates that sense of meaning in a productive workplace, how can companies do a better job in giving their employees that sense of meaning and autonomy?

    Dan Ariely: So lots of ways. I think the first thing to do is to realize in how many ways we are killing autonomy. And basically, that is what bureaucracy does. Think about what bureaucracy is, it is basically the company saying to the employee, we don’t trust you. Right, and it could be that we don’t trust you that when you go to dinner you’re doing the right thing, so we want to see the receipt, and we want an essay about who you met and we want recording of all the things. So one thing we need to start doing is to realize the cost of bureaucracy, the cost of lack of trust to employees. And then the second thing about giving autonomy is that we need to understand that while giving autonomy, there are pluses and negatives, just the plus outweighs the negatives. I’ll give you an example, if I have a new person in my research lab comes in, the easiest thing for me to do is to meet them on the first day, and say, here is the project you’re on, go. And we’ll help you do it of course, but this is what you are assigned to do. A much more difficult position is to say, tell me a little bit about you. And help me understand what you are curious about, what interesting is for you, what your career goals are, what you want to learn in the few years that you’re going to be here. And then, tailor something to them. And say, why don’t you go and think about these three projects and see which one fits you better. Now if you think about this, it’s something that loses efficiency. I just wasted a meeting with somebody, I learned something about their parents, and their hobbies, and so on. I gave them a task for the next week. They’re not going to execute, they’re just going to think about what fits them better. And you could say, this is a very inefficient use of time. But if you think about people not as robots, think about what will be the sense of meaning and connection and commitment to the project, for somebody in my first story versus the second story, it’s very, very different. We need to understand that if we aim for efficiency, and everything is about efficiency, we’re also going to take away this sense of connection, belonging, autonomy, and these things need investments of time and resources. They just pay very well.

    Mary-Catherine Lader: And do you see companies trying to do that at scale and prioritizing it? And how does it end up paying off for the company to make that initial investment in understanding what gives their employees a sense of meaning, even at an individual level?

    Dan Ariely: So from the datasets I told you about, hundreds of companies, I can tell you that the companies that were doing well on employee motivation in my data, do about 12 percent over the S&P on average. So companies who are good at this, in my dataset, have a 12 percent return a year on their stock value.

    Mary-Catherine Lader: And how do you know if they’re good at it?

    Dan Ariely: In my research, I have measured about 80 different dimensions of employee well-being, satisfaction, all kinds of things. Some of them, as I told you, don’t seem to matter, like absolute salary. Some of them really matter. And I can take the ones that matter, and I can compute how much better the companies that treat their employees well do compared to companies who don’t treat their employees well or compared to the average company. It’s a very large study, it took me a really long time, but I think it is starting to show that the returns are substantial.

    Mary-Catherine Lader: So purpose really matters then for companies?

    Dan Ariely: Yeah. Absolutely. Here is the thing. Think about the minimum you need to do not to lose your job, and the maximum you can do if you’re really excited.

    Mary-Catherine Lader: It’s a really big difference.

    Dan Ariely: This is called good will, how much good will do you have? And as we move to the knowledge economy, good will is bigger and bigger. Because if you had a job like organizing the chairs around the table or something, somebody can see and measure it. When your work is between your ears, it’s happening in your brain, it’s very hard to supervise, very hard to contract on it. So now it’s just a question of how hard do you want to work? You can sit at your desk and ponder life, you can work really hard, you can think, you can read, you can do lots of things. It’s up to you to decide what your motivation is. And the question is, what gets people to be motivated? And meaning, purpose, a sense of connection, teamwork, all of those things really, really matter.

    Mary-Catherine Lader: Well, that’s an inspiring and also challenging note for us to end on. Let me end with a rapid fire round, where I’m going to ask you a couple quick questions that you can answer in one sentence or less. Ready?

    Dan Ariely: Okay.

    Mary-Catherine Lader: So what motivates you?

    Dan Ariely: Reducing misery.

    Mary-Catherine Lader: That’s pretty powerful. And it sounds like you’re doing that in spades. What is the hardest decision that you’ve ever had to make?

    Dan Ariely: It was as medical decision. I will give you more than one sentence, but I was badly burned, over 70 percent of my body was burned, and many years ago I was in the hospital for many years. And there was a real question about amputating my arm or not, and the doctors all recommended it for all kinds of reasons. I decided against it. My hand is not very functional and it’s quite painful. I’m not sure it was a good decision but it was a very, very tough decision.

    Mary-Catherine Lader: That sounds extremely challenging. And what as the easiest?

    Dan Ariely: What was the easiest decision? Okay. I turned 50 two years ago and I decided to celebrate with my best friend. We are friends from 7th grade.

    Mary-Catherine Lader: Wow.

    Dan Ariely: And we decided to take a month — we grew up in Israel — we decided to take a month and hike in Israel. And we hiked from the north to the south for a month, and every day we invited people to join us. Some people we knew; some people we didn’t know. And that decision to take a month off and simply hike and spend time with a friend was one of the best decisions I’ve made.

    Mary-Catherine Lader: It sounds like it, it sounds pretty memorable. And in the spirit of choice architecture, you talked about how we can change our environment to make different decisions. What have you done to change your choice architecture?

    Dan Ariely: I do lots of things, but I do have a standing desk, for example. And every night when I leave the office, I put it in the up position.

    Mary-Catherine Lader: Ah, smart.

    Dan Ariely: And what that guarantees is when I come in the morning, I start by standing. It’s electrical, it’s not that difficult to do.

    Mary-Catherine Lader: Right.

    Dan Ariely: But I found that even if I come in the morning and it’s in the down position, I don’t put it up. So that’s one example. Another thing I’ve done is I have created an accountability rule for myself. I have a cousin who I love dearly, her name is Yael, she lives in New York. And we made an exercise pact. It’s very hard to exercise: I travel a lot. It’s not too complex, but for example, you can have one dessert only on the weekend. And we have to exercise three times a week and if we don’t do it on a weekly basis, we have to report and then we get punished by the other person. And that system of accountability really helped me gain much better control over my health, both eating and exercise, plus I get to talk to my lovely cousin.

    Mary-Catherine Lader: One last question: in your spare time, you’re a chef, you’re actually working on a book about cooking. What is your favorite dish to make?

    Dan Ariely: So, first, this book is like my Moby Dick. One day I will write it. So what is my favorite dish? I think that my favorite thing to do is actually to make homemade pasta.

    Mary-Catherine Lader: Challenging.

    Dan Ariely: I think there’s like a dramatic difference in the quality, and there is also something incredibly — I don’t do it when I’m just by myself, but when I invite people — it has the extra sense of taking care of people that I like as well.

    Mary-Catherine Lader: Well that sounds really compelling. Dan, thank you so much for joining us today, thank you sharing you insights, your research, a little bit about your own choices; it’s been an absolute pleasure having you.

    Dan Ariely: It was lovely, and I’m looking forward to our next meeting.

    Mary-Catherine Lader: BlackRock is partnered with Dan’s Common Cents Lab on our Emergency Savings Initiative. We’re enrolling and encouraging thousands of Americans to save. To learn more about the Emergency Savings Initiative or get involved, visit