Drug Development




Where does that blood pressure medicine come from, and why does it cost so much!?  Drug companies must be making a killing, right?  Well, it’s complicated.  Listen up to this week’s podcast to educate yourself on the lengthy and expensive process of new drug development.  Follow along below to see the info in text and pictures.  Enjoy!




Dan Plan part II


First of all, if you haven’t listened to our interview with Dan McLaughlin from last year,  go listen to it now! This episode we check in with Dan and the progress he’s made towards becoming a professional golfer by deliberately practicing for 10,000 hours.

DanPlanUnicycleTo find out why I produced this ridiculous amalgamation of clip art, you’ll have to listen to the whole interview. Among other things we check in with Dan on:

– His recent change of coaches and swing

– How he did in his most recent tournament

– How he deals with crazy blog comments

– If Portland is too cool for golf

Learn more about Dan on his website, and don’t forget to donate!  Thanks for another great interview, Dan!





I’ve had lots of conversations with listeners over the past few years, and one topic that always seems to really grab hold of a lot of them, is how we actually podcast.  Just the fact that the 4 of us are not in the same room, zipcode, or sometimes state is enough to get the conversation really rolling.  Below is a quick outline of what we discuss.  Please shoot us an email with any questions you have about software, hardware, iTunes, WordPress, or whatever else you can think of.  We love putting the show together using all these methods, thanks for listening.


Step 1:  Get a decent Microphone (and while you’re at it, headphones).  Bad audio is really hard to sit through – especially when there is no video to accompany it.

  • The Good Guys use a combination of Audio Technica AT2020USB, Blue Snowball, and Blue Yeti microphones.  Check ’em out.


Step 2:  Software.  A good multitrack audio recording software tool is a must for a podcaster.  We use 4 different ones for our show.

  • Audacity (Free, awesome, both mac and PC)
  • GarageBand (mac only, lots of bells and whistles for musicians)
  • Soundtrack Pro (Part of the Final Cut Pro video/audio editing suite.  Very powerful)
  • Adobe Audition (Part of the Adobe Creative Suite.  Also very powerful)


Step 3: Start recording.  Whether you are putting together a multi-host double ender, or recording your own musings for the world to hear, the most important things is to just hit record.You’ll find out all kinds of things you didn’t think you needed or wanted.  Just keep a backup and go.

Step 4: iTunes.  It’s super easy to submit your podcast to iTunes, but you need to have your content in an iTunes friendly XML format.  Unless you really love writing giant CML files, we advise using some sort of content management plugin that will do the work for you.  We used to use PodPress for wordpress, but switched over to PowerPress and are loving it.


Formal Dinner Manners


Formal Dinner Manners:

A good guy to know is comfortable in all situations. While most of us probably claim to have good manners, we could all probably use a refresher on the rules and etiquette of a formal dinner. Have a listen and learn some new tips to impress your friends, the ladies, and maybe even… your friend’s lady! Thanks for listening!


General Rules of Dinner Etiquette:

Take your cues from the host.
Chew with your mouth closed; don’t talk with food in your mouth.
Bring food to your face not face to your food
Say please, thank you and excuse me

When preparing to attend a formal dinner, know your crowd. Try to anticipate just how fancy the dinner will be and dress accordingly. Better to be slightly overdressed than underdressed. If the dinner is at a friends house, it is appropriate to bring a small gift such as wine, or flowers or my personal favorite, gourmet olive oil. Also, be sure to arrive on time but not to early. Most hosts are busy preparing the meal until just before you arrive. Don’t be more than 10 minutes early.


If the meal is less formal and there is a buffet or family style serving, take an average size serving. Also, you should never double dib on dishes that are meant for the whole group.


The Napkin

Place your napkin on your lap as soon as you sit down (never tuck it into your shirt)
Do not shake out the napkin. Simply unfold it and put it on your lap.
The purpose of the napkin is to be able to wipe food from your mouth and also to remove any inedible pieces of the meal such as bones or fat

Dinner Place Setting:

– Everything revolves around the plate: forks on the left, spoons on the right, knives on the right.

– Work from outside to inside

– Your drinks go in the upper right corner (your water goblet or glass is always the largest, followed by red wine and finally white wine. Largest glass should be closest to the center.)

– Bread plates go in the upper left corner

– Never place used utensils back on the table.

Table setting

Random Dinner Etiquette Facts:

– The prayer should be said (or initiated) by the host; the toast should be offered by one of the guests.

– If you need to lift your soup bowl to get the last bit of soup, tilt the bowl away from you so as to not splash any soup on yourself.

– If someone asks for the salt, always pass both the salt and pepper. They should never be separated during a meal.

– Never reach across the table. If you have to rise from your seat, that is too far. Simply ask someone to pass the item instead.

– If you are eating meat, always cut one bite-sized piece, eat it, and then cut the next piece.

– When you are finished, the way to signal to your host or server that you are done is to place your fork and knife in the 4 o’clock position. The fork should be tongs up and the cutting blade of the knife should face the fork .

– Practice makes perfect.






Fantasy Football!!!


Do you play fantasy football?  If you do, we will go ahead and move you to the front of the line and assume you are a true GGTK.  If not, it’s time to broaden your horizons and take part in one of America’s fastest growing hobbies.  From podcasts, to cable channels, to TV shows, fantasy football is everywhere.  Currently, the total market impact of fantasy football is nearly 5 billion dollars per year.  Sit back and relax as we discuss the basics and history of fantasy football.  Thanks for listening!!



Is a social contest in which users act as general managers of virtual teams made up of real professional football players.  Fantasy football has seen incredible growth in the recent past due to the advent of the internet which makes managing teams and keeping track of statistics much easier.  It is fantasy because the average person has absolutely no chance of managing a professional football team in their lives.



In the first fantasy football leagues, participants would use statistics published in previously agreed upon newspapers to score players after a weekend of play.  Nowadays, computers produce live up-to-the-minute scoring of all players.

The original rules for fantasy football were developed in 1963 at New York City’s Milford Plaza Hotel by a small percentage owner of the Oakland Raiders named Wilfred “Bill” Winkenbach, with the help of Bill Tunnell, a former Raiders public relations manager and Scotty Stirling, a former reporter.  The league was rounded out with pro football journalists and individuals who had purchased or sold 10 season tickets for the Raiders during the 1963 season. The name of the original league was the GOPPPL (Greater Oakland Professional Pigskin Prognosticators League). 2013 will be the GOPPPL’s 51st season.

Slowly, fantasy football began to spread to other sports enthusiasts, often due to the users from the GOPPPL starting new leagues.  However, due to the time-consuming nature of scoring, many people were hesitant to play.

One of the oldest continually running fantasy football leagues is the G’national Football League (GFL) founded in Lakeland, FL in the summer of 1979 by Wayne Wesley.  Before switching to internet scoring in 1997, team owners would have to send in weekly lineups via postcard to the both the commissioner (league manager) and their opponents.  Either the Lakeland Ledger or the Tampa Tribune were used as the official scoring newspapers.  The league still has 2 original owners, several multigenerational team owners as well as international owners.


League Types:

Head to Head:  2 teams match up against each other each week. Winning team is awarded 1 point for a win.

Total Points League: Whichever teams scores the most total points over the entirety of the NFL season is the champion.


Keeper Leagues: Owners are allowed to keep 1 or 2 players from their teams for the following season.  Owners are then required to sacrifice a draft pick for their “keeper”.

Dynasty Keeper Leagues:  Owners are allowed to keep all or most of their players from the previous year.  Rookies are then drafted for at the beginning of each season.

Auction League:  All players are auctioned off to the team owners who pay actual money to have a player on their fantasy team.  There is usually a salary cap per team.


Tbe Draft:

At the start of each season owners all participate in a fantasy football draft.  The draft serves as a way for each owner to mold available players into a team that he thinks will score a lot of points.  A complete list of available NFL players is viewed by each owner who then take turns drafting players from the remaining talent pool.  The draft is the most important and easily the most fun part of doing fantasy football.

Team Composition:  The number and position of players that owners are able to play each week is regulated by the league commissioner.  The usual starting lineup looks something like this:

1 Quarterback

2 Running Back

2 Wide Receivers

1 Tight End

1 Flex Position (either RB or WR)

1 Defense/Special Teams

1 Kicker


For Dummies:

–       In the most general of terms, players earn more points for fantasy owners by doing something good.  This includes scoring points and gaining yards.  Players also lose points by doing bad things like throwing an interception, fumbling the ball or missing field goal attempts.

–       Drafting is important.  Spend time researching players and even completing mock-drafts so that you aren’t overwhelmed on draft day.

–       Trading players during the season is allowed and encouraged.  Try to fill holes in your roster by trading your extra bench players to other owners for players that fit better into the needs of your team.  (It doesn’t make sense to have the 5 best receivers on your team when you can only play 2 each week.)

–       Claim players off of waivers. Players not currently on an owners roster are allowed to be picked up each week by any owner.  When key players get injured, be ready to pick up their replacements off of waivers.


Why Should You Play Fantasy Football:

  1. It is a very social game.  It’s a great way to stay in touch with old friends and to make new friends.
  2. It turns boring NFL football games into high-stakes contests causing you to have interest in every game played during the week.
  3. Everybody is doing it.  27 million people played fantasy football in 2012.







Future Transportation


Behold, the hyperloop!  Basically, Elon Musk would ask you to pay $20 to hop into this tube in LA and arrive in San Francisco (or vice versa) 30 minutes later after traveling up to 760 mph while riding on a cushion of air.  Sign me up!





Go here to check out Elon Musk’s full technical proposal (very cool, but a little dense if you’re not particularly engineering-minded).


Moller’s prototypes for a Personal Aerial Vehicle




Remember to go to Facebook (www.facebook.com/goodguystoknow) to check out the results of our whittling attempts.  While you’re there, “like” our podcast.  Or don’t – we’ll just keep researching interesting topics and providing our version of humor to the masses without requiring any sort of compensation aside from a click of your mouse.  Also, we love you.

Case for Charity


So as listeners may know by now, my year-long challenge was to thoughtfully research and choose some sort of charity to get involved with. I left it a little open-ended but kind of knew in the back of my mind that this mean donating money to something. I feel like life is good and I wanted to be the type of ‘good guy’ that does a little more than buy gift wrap from the kids that come to the door. Support something I believe in, and something that will make some sort of difference.
Sounds like a great goal, and something that’s not that difficult to take some action on. We live in an internet world where it should be super easy for me to find something worth giving to and being able to follow/track etc. But every time I sat down to try and find something worthwhile, I get super overwhelmed. Turns out that there are a LOT of charities out there. Literally, over a million in the united states.

So how about some trivia about giving before we get started for the year 2012 in the US:
What percentage of households gave to charity? 88%
Total amount given by Americans? $316B (about 2% of GDP)
How much of that was from individuals? 72%
Average household contribution? Around $2K
Biggest recipients: Religion 32%, Education 13%, human services 12%, grantmaking foundations 9%

Charitable Index to compare to other countries
So this is a bigger space than I thought, and so when I sat down and googled ‘how to choose a charity to donate to,’ turns out it’s way harder than expected. I mean where else are you trying to choose between 1M plus choices? When deciding on a car or a phone or something, you’ve got at the most a few hundred to choose from.

So I did what all good guys do when they are faced with a problem like this, I procrastinated… And I was unsure of how to proceed, I decided to take a step back and examine my own views of charity and what I wanted to accomplish by giving. My favorite podcast, EconTalk, had a serendipitous podcast where Russ Roberts interviewed Dan Palotta about his book ‘Uncharitable’ and I decided to download and have a read myself. It did a great job of honestly changing how I think about giving and how we think about the charitable institutions in America and that’s what I’d like to talk about today.

The overall thesis of the podcast/book really hit home for me after trying to find a good charity to donate to. When I initially sat down and ceremoniously cracked my knuckles before googling ‘Best charities to donate to’ I was met with a bunch of sites that evaluated how ‘efficient’ charities were. There is a conception that all that matters with a charity is what percentage of donated dollars go directly to the cause. If I’m donating a dollar, I want most of that to go to the cause itself, rather than paying the employees’ salaries, or for fancy advertising spreads. I want my money to actually be put to work. Low overhead, and high efficiency have a huge premium when choosing a charity.

Palotta’s thesis is in direct contradiction with this seemingly well-placed intention. He argues in “Uncharitable,” that if we really want charities to grow to the point that they can enact real global impact and change with some of the world’s toughest problems, we need to let them use the tools and tactics that we know work for building growing organizations that can get big things done. This is deliberately a little vague, but we’ll get more specific with the 5 main things he thinks are a problem with the way charities are run today.

Just for a brief background on Palotta, he is somewhat of a ‘philanthropic entrepreneur.’ His organization basically invented the breast cancer 3-day walks and other events like it. Big events that brought a ton of awareness, and much more importantly, a ton of money to charitable causes. So I’m going to go through the 5 things that he says we have wrong when we think about charity. His book argues that this goes back to our puritan roots in colonial America.

First Error: Constraints on Compensation –
This was what really drew me to the topic and got me to buy the book because it reminded me of the conversation we had a couple years ago about how much we pay teachers. Here are some of the things that we say about compensation of people who work in charitable fields:
– There should be a limited amount of money people can make in charity
– People who want to make money off of charities aren’t doing it for the right reasons, they should do it out of the goodness of their hearts.
– People who donate to charities make a sacrifice, so people who work there should to.

There are a bunch more, but let’s just take these in order to give you a flavor of what Palotta is talking about. #1, that there should be a limited amount someone can make in charity. Limiting the compensation logically places a limit on outcomes. A quote from a charity professional that Palotta cites: “The nonprofit sector is not the for-profit sector… I don’t think we need to pay someone $350,000 to get the best and the brightest” Palotta asks, “Is there one kind of ‘best and brightest’ who is worth $350,000 and should work for the needy, and another kind of ‘best and brightest’ who is worth many times more and should not work for the needy?

Palotta goes on to compare the salaries of the highest paid CEOs of some major health insurance companies to the salaries of the highest paid CEOs of health and human services charity CEOs. (2002 numbers): CEO of Oxford Health Plans $76M. CEO of Stowers Institute: $717K. Could have a whole podcast on this but we don’t have time. It’s the same general argument that we talked about with teachers. If you place some artificial limit on what someone can make in a certain profession, you aren’t going to attract the best and brightest. So by extension, the best and brightest CEOs are naturally going to gravitate to the private sector instead of the non-profit.

“People should work for charities out of the goodness of their hearts.” This implies that making money, and doing something you’re passionate about are mutually exclusive. You can either a. make money, or b. help the needy. Palotta asks the question, ‘So does this mean that upper management of Apple like Steve Jobs isn’t passionate about creating an incredible technology product that touches millions of lives? Or that Bill Gates wasn’t passionate about Microsoft and making the PC a reality?” When you say it like that, it becomes easy to see, that ‘hey, you can be passionate about anything you do AND make money. Self deprivation is not a pre-requisite to do something you’re passionate and care deeply about.

“People who donate to charities sacrifice, so the people that work there should to.” This is where Palotta flexes his economics biceps because he points out that this sentiment is talking about two different markets. One is the labor market, and one is the gift giving market, and a sacrifice means something different in both places. If I’m trying to decide to sacrifice $1000 to donate to a charity, that’s a fundamentally different than someone deciding to choose a career in non-profit which will certainly affect their earning potential for providing for their family.

So that’s the first error in ideology of charity, that we need to have a limit on compensation. And I spent the most time on that one because I feel it’s the most important and was the most jarring to me. Second one is a little more fun, that charities are discouraged from taking risks. Businesses do this all the time. They try off-the-wall products until they hit the jackpot, they try edgy marketing schemes. Pharmaceutical companies spend millions on R&D to develop drugs that may never pan out.

But we want charities to be different. We don’t want to feel like our dollar is going to waste. Palotta gives the example of the charity “Hands Across America” to raise money for hunger and homelessness. They had a goal to raise $50M for the cause. The event and coordination cost $17M to produce, and then they only raised $34M for the cause, so only like $16M went to the cause. They were absolutely torn apart by the media.

Palotta holds this up as an organization that tried something new, didn’t hit their goal, (They still donated $15M to homelessness that wouldn’t have been there before) and were lambasted for it. It’s indicative of a culture that frowns on risk. If I’m a charity and I know that I absolutely need to get a certain rate of return, I’m going to stick to what is safe, and not necessarily think outside the box and go for a huge win.

The third assumption follows nicely from this one, that there is an overall discouragement of long-term vision in the charitable industry. Donors expect their money to be used for current programs, rather than to be put into reserve. The example is given of the September 11th attacks. There was a huge outpouring of donations and the Red Cross wanted to set aside a portion of those for future disasters. Even saying that you kind of bristle because you want your money going to the cause you donated to.
The problem is that that is not how successful organizations work. They don’t simply spend every bit of money they get in. They invest in future programs and initiatives. They have vision statements and goals that last longer than just the current budgetary year.

A really powerful example Palotta brings up is Amazon.com. It was founded in 1994 but didn’t post a profit until 2002. 8 years! One early Amazon investor was quoted as saying “What few people understood was that in the first five years, every time there was a trade-off between making more money or growing faster, we grew faster.” Scaling was important to Amazon and preparing for future growth. Palotta imagines how we would feel about a charity that did the following:
– We want to create a huge charity to end hunger in Malawi within 15 years.
– First 5 years; raise tens of millions for the cause. None of these funds will go directly to help the hungry, but will create this community of constituents and then in the next 5 years do a huge $50M advertising campaign to raise serious money. We’re talking ads during the superbowl etc. to raise $2B.
– Then once we have $2B it’s 5 years of investing hundreds of millions per year directly in Malawi fighting the cause.

This scenario sounds awesome, but it means that for those first 10 years, none of the donated funds would actually go to the hungry. The media would tear it apart, and there would be huge public outcry. So to avoid this, charities end up raising a few thousand dollars a year and never get to that huge critical mass where they could actually do something valuable.

Which transitions into assumption number 4 – discouragement of paid advertising. I think by now you know where Palotta is going with this thesis, so I’ll just give a couple stats here. The mini-thesis here is charities are competing for your dollar with everything else. Economics is about trade-offs right? Should I buy the Iphone 6 for $600, or should I get a refurbished Iphone 5 for $400 and donate $200 to charity? I wonder who advertises more and asks me to make that decision?

The 2005 Advertising budget for a few popular charities:
Save the Children: $6.4M
Amnesty International: $40K
American Foundation for Aids Research: $7K
Compared to some popular consumer companies:
GM: $4.3B
AT&T: $2.4B
McDonalds: $1.6B

These numbers speak to the fact again that we want our money going directly to the cause, not to something that might bring in way more money and attention to the cause etc. I don’t want my money going to ad space! But guess what? That’s how you build brand awareness, loyalty, value. These are tools that we, as a society, don’t want the non-profit sector to use!

Finally, there is an implicit prohibition of investment returns on charity. This one I think is the most out there with Palotta’s thesis, but is a little bit fun to talk through. Basically he says that currently charities are forced to rely on pure altruism in their fundraising. People donate expecting -100% return on their donation. This is great for altruistic people, but is not great for high net worth individuals and institutions. What if, as in the scenario we laid out for the amazon.com model of a charity, I offered an investor shares of the charity for their INVESTMENT (not donation). If I believe that their marketing campaign will work (just like I believed that the amazon.com model would work), I may be apt to invest some of my retirement portfolio in the organization.

This sounds a bit like a Ponzi scheme to me in which future donor dollars will be used to pay off initial investors, but the overall gist of the argument still rings true, and brings me back to the original claim that Palotta’s trying to make; that we philosophically don’t let charities use the same tools as the for-profit sector, and this is a big reason why this sector doesn’t grow and innovate like the private sector does.

So I’m not sure where that technically leaves me in my challenge. But I certainly am looking at the whole non-profit sector in a new light. I’m not going to be distracted by overhead and efficiency ratios from these online tools, but more focused on charities that have a cool vision and maybe even some proven results.

Tesla Motors



If you have already heard of Tesla Motors, you definitely know how cool this concept is. Although electric vehicles have been around for a very long time (since before the gas powered car), economic and political realities have suppressed their full potential. Elon Musk (founder – Paypal, SpaceX) is out to change that with Tesla Motors.

Tesla Motors produces fully electric cars capable of traveling between 230 and 300 miles on a single charge! That is almost double what other competitors have been able to produce to date. The innovation of the design of this car, as well as the tech specs of the batteries and superchargers makes this a great conversation piece. Many think it will fail, many think it’s the future. Have a listen and let us know what you think!

Here is the interview with the founder I mentioned. If you have an hour, I highly recommend it!


Personality Disorders



Dr. Boeree does a great job of breaking down the individual personality disorders on this page.  Check it out to read up on some of the nitty gritty details and to start diagnosing yourself and your friends!  Actually, be a little careful with that…


Below you’ll find some pretty good examples of the various personality disorders as played by characters in movies and film.  Enjoy!


Cluster A (Weird)







Cluster B (Wild)




This one was particularly hard to find a good example for.  The whole movie, “Girl, Interrupted” is about a girl diagnosed with borderline personality disorder, so check it out if you’re interested.  None of the clips I found really do it justice.






Cluster C (Worried)


Avoidant (Lucy’s got her own issues in this one…)





Obsessive Compulsive Personality Disorder

You want me to donate my what?


Huge shout out to our listener Fiachra. He’s from Ireland and wrote me a great email about his change of majors from public policy to economics, and has been reading a lot about ‘behavioral economics.’ If you are a die hard GG2K fan, you may have heard our very first episode ever from a few years ago on the efficient market hypothesis. Just as a reminder, the EMF essentially says that all market information is immediately absorbed and reflected by prices. The big assumption that we make in that framework is that people and by extension, markets, are efficient. This assumption is where behavioral economics tries to wedge itself in to explain some of the anomalies that happen in markets.

So we’ve talked about economics as being a study of decisions. When we talked about utility and opportunity cost, we found out that we are constantly making trade-offs about how we spend our resources; money, free-time, etc. Behavioral economics explores the social, cognitive, and emotional factors of these decisions. And the more I read about it, it’s not necessarily about having its own methodology, but it gives examples of where the traditional model breaks down. So rather than talk about theory for the whole podcast, Fiachra sent me several studies that illustrate what we are talking about. I’m going to use two from him and one that I found on my own.


So will start with the one that I ran across when researching behavioral economics. The study was published in 1997 by Colin Camerer of Caltech and looks at how New York Taxi drivers structure their day. The cool part about looking at taxi cab drivers is that we had a bunch of drivers that all get to make the same decisions about how many hours they work each day. Their wages are ‘elastic’ in that their effective hourly wage fluctuates from day to day, depending on how many fares they get compared to how many hours they spend driving around looking for fares.

If we took the traditional view of rational decision making, in order to make the most money overall, the rational thing to do would be to work more hours on the days that were busy and they didn’t spend a lot of time looking for fares. Then on days that were slow, the rational decision would be to quit early and gain back some leisure time for themselves because it wouldn’t be worth it to sit and grind it out.

As you may have guessed, the exact opposite happens. The study found that drivers worked longer hours on the slow days and quit early on the good days. The study writers had some theories about this, but decided to ask the fleet managers, ‘Which sentence best describes how many hours cab drivers drive each day?

–          Drive until they make a certain amount of money – 6

–          Drive a fixed amount of hours – 5

–          Drive a lot when doing well, quit early on a bad day – 1

So this appears to fly right in the face of traditional economic theory. But bringing in a well established concept from psychology that I think we’ve mentioned before helps explain. Loss aversion. Humans feel the pain of loss much more than they feel the pleasure of gain. So setting a daily earnings target ensures that they will never feel like they ‘missed out’ on income for the day. Similarly, once they hit their target on the busy days, they feel like they’ve done their jobs and can quit early, even though it doesn’t maximize their earnings. I can’t wait to have my next drunken discussion with a cabbie about this study…

Ok, I’m going to lean on Fiachra for the next two studies (And this next section is directly from him!  Note the Irish flare in his writing like ‘behaviour’ and ‘queue’ :))


So let’s start off with what will be in years to come one of the most famous application of behavioural economics, organ donorship. All over the world there are people that need organs, really badly, also every day thousands of people die with fully functioning organs in their bodies, and yet the organs cannot be moved from one person to another because by the time the hospital gets the permission off the obviously distressed relative the organs are no good anymore.
Numerous solutions from the neoclassical economic community have been suggested such as paying people to donate organs (results in turning it into a market rather than a social transaction and lowers donation rates, more on that later!) which people find a bit repugnant as they conjure up the image of the broke male student selling his kidney to get through college (though considering how rampant the public think the female student moonlighting as a hooker is it seems that this only evens up the score a bit..) which are based on the idea that if there is more demand than supply then you must increase the market price of something in order to get to an equilibrium.
Some countries, though have very high organ donation rates (we’re talking 98-100%), Austria, Poland, Hungary to name a couple while others like the United States, United Kingdom and Denmark have quite low ones (less than 20%), and for a long time this was assumed to be a case of different cultures blahblahblah, but then they looked at two countries Belgium and the Netherlands (Maybe you guys call it Holland I don’t know?) two countries that are incredibly similar (and were actually part of a kingdom together a few centuries ago) and yet the Netherlands after spending hundreds of millions of a huge donation campaign managed to get its rates up to… Wait for it.. 26%!) while Belgium had no campaign no nothing and had a rate of 98%) what was the difference?
Well in the Netherlands when you go in to get your driver’s licence you fill out a form and at the bottom of the form it asks you “If you would like to be an organ donor please tick this box”
And in Belgium you get an identical form except at the bottom of the page it says “ If you would NOT like to be an organ donor please tick this box”
It’s that simple.
This is due to something called the Status Quo bias whereby people are resistant to changes, the Conformity Bias whereby people assume that the default option is the right one (interestingly in opt in countries giving away your organs after death is seen as the equivalent to donating 25% of your earning to the poor upon death whereas in opt out countries it is seen as equivalent to letting someone in a rush skip ahead of you in queue, not because they have different cultures to start with but because if you haven’t thought about something much then you assume it’s not a big deal, and not ticking a box requires no thought) and the role of Inertia whereby people don’t like to do things that would seem to conventional economists as insignificant, such as say ticking a box, they don’t like it it makes them uncomfortable, thinking about the decision makes them uncomfortable they’ll just leave it.

So last is a study that pokes a hole in the traditional thinking deals with financial incentive for performance. Being paid for performance is not a controversial concept. Every year I sit down with my manager at the beginning of the year and she tells me what my max bonus I can get is if I complete various objectives. The conventional wisdom is that if my potential bonus is bigger, I’ll work harder throughout the year to achieve it.

So this last study explores what this looks like. Does performance just increase in a straight line, is there such thing as too big of a bonus, etc. I’m not going to go too deeply into the study but will link to it on the website, but basically they gave test groups a variety of tasks that they had to get to a “very good” level of proficiency to get the max bonus. Some of these tasks were purely physical, like stacking washers in some sort of puzzle shape, and some were more cognitive, like playing a simon says game.  They ran these games with a variety of ‘bonus’ levels.

Without going into too much detail, they found that there was a sweet spot for the bonuses, and if you went above that sweet spot, performance actually declined in 8 out of the 9 tasks. They actually do a good job in this study of not claiming to know ‘why’ this effect happens, just that it does. But I can think of a bunch of reasons, one in particular being that I can’t putt in golf when any money is on the line.

I certainly have some concerns with this study. Even though they come right out and address that it would probably be wrong to extrapolate the results of these insignificant tasks to the real incentives provided by institutions, I think the implication is there. But I also think that this is one of the studies that at very least makes us think a bit harder about accepting the efficiency of our financial markets. The US stock market and financial institutions are built on big bonuses, and we kind of lull ourselves into thinking that by paying big performance bonuses, our hedge fund and mutual fund managers are going to perform better.

I can’t stress enough that it’s quite a stretch to extrapolate stacking quarters and remembering numbers to performance in the financial markets, studies like this at least make us ask the question if we should really be expecting better performance the higher and higher bonuses that institutions offer.

If you get nothing else from this podcast, it’s that behavioral economics attempts to bring in psychological, social, and emotional factors to questions that traditionally are answered by arguments based on rationality. I think I’ve only scratched the surface, and I’m honestly not sure how I feel about a lot of it. But maybe we can have Fiachra on next year after he’s taken a few classes and he can let us know what behavioral economics can tell us about macroeconomics. That’s when I think it will really grow some teeth and start disrupting the status quo. Again, big thanks to Fiachra for helping me put this one together.