Nobel Laureate Alvin Roth: How Incentives Shape Your Life | EP 757

27:02So I think you see both of those forces contesting with each other. One of the examples I gave in the book was there was a terrorist attack in some city in Australia. I forget now which one. And Uber put in its surge pricing because lots of people wanted to leave the central business district where this terrorist had taken over a chocolate shop. And people died eventually in the chocolate shop. But people were very upset. They're trying to escape from this area. And Uber is very expensive. During the emergency, Uber changed its pricing and refunded to people because they understood that this was something that would give them very bad will.

27:37But what you needed, nevertheless, was to pay Uber drivers a high price to go into the dangerous area while everyone else was fleeing. So you had a, in order to have supply of taxis, of Ubers, you needed a high price for the drivers. And Uber decided that as a public relations gesture, it wouldn't impose that high price on the passengers. So pricing during emergencies is complex. Here in Florida, we've recently seen the cost of our Ubers and Lyfts go up considerably because they're starting to mandate that the drivers get some forms of benefits. And instead of assuming these costs, the companies have decided to just pass it on to the end consumer, which to me is crazy as well.

28:24But so many people continue to pay it. Why wouldn't you do it? Well, I want to talk about now that we've laid this formula out. Much of my career, I was a business executive in companies like Dell and Lowe's Home Improvement. And in my own work, I describe something that I call a tax I think we're paying in these systems. We look at why do we have so much burnout? Why do we have so much disengagement globally? And I think that there's a professional and emotional tax that people pay when we have to silence, in many cases, our value systems to remain useful inside a system like a company that we find ourselves existing.

29:08in. From your perspective, Al, can an organization that ignores the moral signals of its members be understood as a kind of failed market if so many people are disengaged? Well, it might depend on the magnitudes and the degree of consensus. I can see why a company that sells hardware, say, or food might not want to, it might want to, but I can also understand why it might want not to become engaged with a highly contentious issue. In other words, I'm willing to go to a restaurant regardless of how the owner of the restaurant voted in the last presidential election, as long as they don't tell me how they voted in the last presidential election.

29:47I can go eat good food at someone's restaurant without having to agree with them on politics or on any contentious issue. On the other hand, if they have a strident position that I disagree with, I might not want to go eat there. So I can understand why a chain of restaurants might want to not become identified with a political party, right? Because everyone needs good food, regardless of their politics. So I think there's a business interest sometimes in keeping the business separate from politics. Now, individual employees have protected speech, right? If you're an American employee of an American company, you have lots of rights of free speech.

30:31So I think companies probably overstep their bounds if they want to police what kind of opinions you express on your podcast. But they could perhaps want you to wear a company uniform without a political pin on it when you're serving tables at their restaurant. So again, I think these are more complicated things than are easily summarized in a sentence. And that's why legislation is often a sentence. I think that's why I have some hesitation about broad brush legislation that tries to solve socially contentious issues. When I was doing my studies for my MBA, one of the books that I used the most was the one that Don Moore and Max Bazerman wrote that is still being used today in MBA programs across the world.

31:19And when I had Max on the show to talk about his last book, we got into a conversation about Richard Branson formed this thing called the B team. And he's trying to get executives together to start thinking about how do you measure what an institution stands for over shareholder value and productivity. So some of this gets into how do you start getting them to consider moral legitimacy as part of their health, whether that's how do they comply with trying to change things that might impact climate change or other things. So when you think about this, what do you think it would look like if institutions started to measure moral legitimacy?

32:05I think to some extent already, institutions can't completely shy away from measuring moral legitimacy. I think if you're a bank, well, for good or for ill, banks often don't like to have business accounts from shops that sell sex toys, for example, even though sex toys are perfectly legal in the United States. But if your business name has sex toys in it, you might have trouble opening a bank account for your business. And it's because the bank worries that somehow the controversial nature of your business might reflect badly on them. And of course, there are places where there are laws. If your business is importing and retailing heroin, well, there are laws against that and there are laws against money laundering.

32:50So a bank not only could be associating itself with your terrible business, but could be guilty of violating anti-money laundering laws. So there are reasons for banks, for example, to want to know something about their customers and avoid certain kinds of businesses, doing business with certain kinds of customers. So I think it makes, if you take a long view, a lot of companies last for a long time. And they live in American democracy, U.S. companies live in American democracy, and they thrive in the general protections that offers to American businesses and American citizens. So I don't think it's crazy for them to think in the long term is something that's going on good for that, that water in which we all swim.

33:34It is an interesting discussion. I think when people think about companies, oftentimes they don't think about the ancillary benefits that industry has provided the world. And it's just easy to look at a company like Verizon or AT &T and you see a mobile device, but what you don't see is all the capabilities that exist on that device that benefit people far beyond what the device itself can do. Well, so the device has lots of properties not immediately visible and lots of consequences. But how about buying broccoli in a city where they don't grow broccoli? It depends on roads and on trucks and on the whole economy that allows trucks to bring broccoli to supermarkets.

34:15So broccoli is pretty simple stuff, but it depends on a lot of social construction that makes society healthy so that you can eat broccoli, even if you live in a city. Yeah, when I was at Dell, our chief marketing officer worked on this great campaign that was going to be called The Power to Do More. And it was all trying to showcase how Dell's products were positively impacting society. And one of the first commercials they developed that they showed to us as an executive team was this one on how we were powering much of healthcare's systems and how they were performing surgeries and making diagnoses because of the analytics platforms, et cetera.

34:58And I'm not sure why the board pulled it, but they decided that they didn't want to go with the campaign. But I thought it was a great way of showing how a company actually serves society in many more ways than people realize. Right. Now, again, that's complex because if they had the footage, they could show you a drug kingpin hold up in some part of the world using his Dell computer to manage his supply chain. So your general purpose tools work for lots of good and lots of ill, if that's what it means to be general interest. If I'm a crime lord, I still need a computer. So that's a complicated message.

35:31But there's something about an orderly society that is good for business and good for the people who live in it, as opposed to a violent... If you go look where that drug lord lives, he might live in a place where there's lots of social violence, where the police and the militias fight each other all the time, and it's dangerous for citizens to live there. So one of the things about Dell is it sits in a civilized, peaceful, safe part of the world. And that's pretty valuable. So Al, I said I'd get back to kidneys and I want to go back there. My wife is a primary care provider. And today I was talking to her about your book and I had listened to a podcast recording you had done all the way back in 2015 today, where you're talking pretty extensively about kidneys.

36:15And one of the things I picked up from that interview was that, as you said earlier, paying money for kidneys is not allowed in most countries in the world. But in that interview, it was mentioned that in Iran, it actually is allowed. And I'm not sure if you've since that time had a chance to look at Iran and what has differed there between economies that don't allow it and economies that do. But I thought I would ask the question. Well, so in Iran, there's a legal market for kidneys where kidney donors, living kidney donors can be paid. It's facilitated by the state. There are a couple of national charities that run it.

36:56There are other parts of the world, in most other parts of the world, it's illegal to pay for a kidney, but that doesn't mean that there aren't black markets. So the black markets, some of them are just concealing financial payments, but going through the usual hospital system. But some of the black markets are very dark indeed. The laws against paying for a kidney have forced some of those black markets to operate outside of the traditional hospital system. And so you can see videos taken of transplants going on outside of hospitals, and the doctors aren't always wearing masks or gowns. The quality of the medical care is very low.

37:32It's dangerous for the patients. It's dangerous for the donors. These markets are run by criminals. The donors are often not paid. They're very seldom given adequate post-operative care. Same for the transplant patients. So those are markets like the market for illegal abortions when, you know, in the 1970s and earlier in the United States when abortions were illegal, that are not done inside of medical institutions and are therefore not only illegal, but very dangerous. So one thing you can say about the Iranian market is the surgeries for the donors and for the patients, for their preoperative care, for their postoperative care, is all done in real hospitals with real surgeons.

38:12And by all accounts, I haven't visited those hospitals myself, but by all accounts, they're excellent hospitals. When European and American medical observers go, they're impressed by the quality of the medical care. So there's a question of, is it wrong to pay the donors? And that's a separate question from having allowed donors to be paid. Can you provide first quality medical care? And on the second question, the answer for Iran is positive. And it's not at all positive for many of the parts of the world where you can indeed still pay donors, even though it's illegal. But then you and they are involved in a really substandard kind of medical attention.

38:52So it's like prohibition of alcohol. Not only was there plenty of available alcohol, some of it was methyl alcohol instead of ethyl alcohol. and it would blind you or it was made inexpertly by people who weren't trying to kill you but weren't sufficiently good chemists to avoid killing you so i think we're seeing something like that in black markets where in parts of the world where people are paid to donate a kidney but it's illegal and iran has at least dodged that so you can think of them as being a sort of a post-prohibition society the way we are in alcohol where there's still alcohol which you can feel good or bad about, but you buy it in regulated conditions from legal providers.

39:37Yeah, and I'm sure most people who are listening to this don't think about blood donations, yet many countries prohibit paying for blood donations, yet here in the United States, we allow payment for plasma. And not only that, do we allow it, we export a significant amount worldwide. Tens of billions of dollars a year. So the situation, much of the world regards blood donation, and in particular plasma donation, is similar to kidney donation. It's great to do, it's life-saving, but you can't pay the donors. And only a few countries, of which the United States is one, allow plasma donors to be paid.

40:15In the U.S., we mostly get our whole blood from volunteer donors, but our plasma is both from volunteer and from paid donors. And most countries that don't allow plasma donors to be paid don't have enough plasma to fill their domestic needs. Plasma-derived pharmaceuticals are life-saving for many conditions. They're essential pharmaceuticals. But in many places, they think, although it's immoral to pay plasma donors, you don't have to because you can buy as much as you need from the United States. And, of course, the United States is selling blood from paid plasma donors. So I think much of the world adopts an out-of-sight, out-of-mind policy regarding blood and plasma donation.

40:59because they buy all the plasma they need from the United States. And a lot of the plasma exported from the United States is collected and processed by subsidiaries of foreign countries from places like Spain, where it's illegal to pay plasma donors, but it's not illegal for Spanish companies to pay American plasma donors. And by and large, plasma donation hasn't led to a disaster in the United States. In other words, it's a little controversial and people are worried about it, but it's sufficiently regulated that plasma donors aren't dying of having given too much plasma. The plasma is not contaminated.

41:34It's a high-quality pharmaceutical product around the world. So that's an example where the reason there aren't millions of people dying for lack of plasma pharmaceuticals is that the United States pays for plasma and exports it and sells it. There are millions of people dying for lack of transplants. Well, Al, listening to you describe these morally contested markets, what strikes me is that beneath the economics, I think there lies a deeper human signal, whether people feel they belong and whether they feel they matter within the system shaping their lives. And research in psychology from Jeff Cohen and Greg Walton's work at Stanford on belonging to Gordon Flett and Rebecca Goldstein's work on mattering suggests that when systems signal a person's worth, trust, and performance increase.

42:24How does that resonate with your view that markets require social support to function? Well, I think there's a big difference between legal markets that have social support and black markets that involve you to deal with and maybe become a criminal. Think about medicine. So one of the nice things about medicine, and it's not the only profession by any means, one of the nice things about medicine is that lots of doctors feel committed to their profession, not just to their employer, right? So when you go to see some doctor, even though he's employed by a medical practice or maybe by a hospital or some other kind of health plan, that doctor mostly feels an obligation to not harm you and maybe help you and not to prescribe some expensive drug that wouldn't help you and might harm you, right?

43:14So you expect a level of care from medical professionals that's due in part to their professional identity. And they're, I'm a doctor, they say, my job is to treat you properly. Now, there are also doctors working on various margins. We've talked about black markets for kidneys. But let's think about performance enhancing drugs. Supposing you're a doctor who works with a bicycle team in the Tour de France, and your job is to help them climb hills really fast when they're really tired, because they've been doing it for previous days. But your main obligation is to make sure that the pharmaceutical drugs that you give them are undetectable because it's against the rules to take performance enhancing drugs in these athletic competitions.

44:00So all of a sudden you're in this criminal enterprise, but you're a doctor. Your main object is undetectability, not long-term health of your bicycle riders. You want them, you're interested in their short-term health. You want them to be able to climb hills really fast, but you're not so interested in whether they'll get congestive heart disease when they're middle-aged because you've been asked to conspire with the bicycle team and the racing industry to defeat the medical profession. The medical profession is going to have urine tests and blood tests and look for performance-enhancing drugs in your bike riders.

44:36By golly, you're such a good doctor and pharmacist that you're going to find ways to defeat that. And that, the mattering, is of a different sort than it was when you were a health professional and you were worried about how would taking steroids affect people when they were no longer riding their mics. So I think that there's this question of professional ethics that is a little bit like the belonging and mattering that you're talking about, which we mostly talk about in terms of how students do in college. That's where I've encountered it. You should feel like you belong and that your being in college matters and that'll make you more effective at being a student.

45:15But I bet that being in an illegal black market part of your profession erodes your sense of I'm a responsible member of my profession with obligations outside my immediate payments for what I'm doing today. It is interesting. I have a book coming out in October and I interviewed a number of people for it, including Jim Milzaki. And he and I were talking about, when you think about the loneliness epidemic and how many people today are experiencing greater forms of anxiety and depression than ever before. As we were talking about it, he referred to it as it's because our society has almost become a mattering market, a system in which our presence, attention, and even our identity feel increasingly commodified.

46:04like how do you think about that when markets began shaping not just what we buy but whether we feel valued i'm not a historian but my guess is that's not an entirely new thing it happens at a speed and intensity maybe that it didn't used to happen but a lot of people maybe forever have identified themselves by how they earn their living if i meet you casually and i say what do do very often your answer has to do with how you earn your living i'm a professor of economics i teach now of course we're all parts of many communities and part of the modern smartphone era is that some of those communities are ephemeral you're seeing them on your phone and there might be people you don't know and you only know about them what they show on their phone and that can make you feel disengaged from your regular world in a way that going and teaching a class makes me feel engaged with students.

47:01We had a year during COVID when we taught remotely, when my students looked the way we're looking at each other and on a screen. And when we met them the next year, it was a little disorienting. You couldn't tell thumbnail size pictures. You couldn't tell who was big and who was small and who was cheerful and talked a lot and who didn't talk very much because you hadn't really met them. You'd seen them on screens. So I think that's something that's new, but I bet that feeling like you matter in various ways has long been identified with your role in society, your profession, your religion, your socioeconomic status, your location.

47:37Am I a Californian or a New Yorker? I grew up in New York, but I now live in California. We're a very mobile society. I think that there was a time where your location was a much bigger part of your identity than it is today. Al, thank you for addressing that. One other peer of yours that I wanted to talk about was Claude Steele. He describes wiseness as the active signal that someone has seen in their full potential. And you speak about market design shaping trust and cooperation. And how can we think about some of these companies or systems that we've talked about, how they can become not only efficient, but wise?

48:18Wise is a tough word because wisdom and it's what's a wise thing to do might change over time. I thought you were going to ask about being trusted. Well, that was going to be the second part of it. But so if you want to go there, it is a different thing. And economists and economic historians are of two minds about how markets affect trustworthiness. On the one hand, we at least imagine that before there were markets, we were mostly in hunter-gatherer bands that were kin, right? You lived among your immediate family and your cousins and your uncles and your nephews. And so there were some trust relations that grew out of that.

48:59They were family. But then as societies got more complex and trade became important, we started dealing with strangers and people we don't know. Here you and I are talking to each other, having met for the first time today on a screen. When I go to the grocery store, I don't know the farmers who made the broccoli that the truck driver brought to the supermarket. So one thought is, and it's what's gone under the name of the bourgeois virtues, one thought was markets made people more reliable and trustworthy. In other words, if I'm part of a market arrangement, if I sell broccoli or buy broccoli, it's to my advantage.

49:37It's necessary for me to become a reliable person. I have to regularly send the shipments that are due. I have to regularly pay for the shipments that arise, that arrive. So that's the idea that markets increase moral behavior, trustworthy behavior, even to strangers, not just to family. But then there's also this idea that the market makes me focus on making money, and that corrodes my morality. You know, that at the bottom of the box of broccoli is one that's spoiled. Do I still put it out in my supermarket on display? Because if someone buys it without looking at it, I'll make more money than if I throw it away, as I should, because it's spoiled.

50:17So both of those things happen. But if you buy spoiled broccoli from a supermarket, you might not go back again. So there's limits to how much you can impinge on the trust that people expect you to, the trustworthiness that people expect you to exhibit if you're selling groceries in a supermarket or if you're doing anything else. So part of thinking about how markets work and regulating them and trying to make them work well is to make it easier for people to be trustworthy and therefore easier for people to trust each other in market transactions. The last thing I wanted to make sure we covered before we finished today is that part four of your book really goes into the road ahead.

50:59And you start talking about your anticipation of emerging controversies, technologies from reproductive innovations to digital markets. They're all going to evolve and they're going to generate new forms of repugnance. But things that I picked up reading the book are repugnance and legality are not identical and laws and moral norms evolve on different timelines. So some of the things that you call for are things like evidence-based policy and experimentation with careful regulation. But I was hoping you could talk about these. Well, so I didn't write about artificial intelligence in my book, but it's clear that it arouses lots of fears and concerns, as well as lots of hopes and potentials.

51:45So I think that we're going to have to think hard about, as a society, I think we're going to have to think hard about how we're going to incorporate various kinds of machine intelligence into our lives. So, for instance, in San Francisco, not far from where I live, the city has banned the police department from using facial recognition software. The question is, as Americans, we've always had some protection against unreasonable search and seizure. and back in the time of independence, that meant your papers and possessions. Police couldn't come into your house without a warrant and shuffle through all your papers.

52:17But now when you're out in public, you can be pretty anonymous if no one knows what you look like. But if cameras that can recognize you by your face are looking at you, then you're not so private anymore. So these questions about privacy, what privacy are we entitled to? What privacy would we like to have? of what privacy are we willing to give up in order to let police operate more effectively? These are all questions that are, I think, coming to the fore and that we're gonna have to decide because lots of our traditional privacies, which just had to do with people don't recognize you when you're out and about, those are going away.

52:56Technology is changing those things. But I bet that we're gonna have to think about among our other civil rights, we're gonna have to think about what are our rights of privacy. Al, I really appreciate you coming on today. And for the audience, I highly encourage you to buy a copy of Moral Economics. It was really a fascinating read for me. As you could tell from my questions, really got me thinking about a number of different markets that we interact with every single day. It was such an honor to have you, Al. Thank you so much for joining us. Thanks for having me. I enjoyed our conversation.

53:28That brings us to the end of today's conversation with Alvin Roth. What stood out most to me is this. We often think of markets as neutral, as if they simply reflect supply and demand. But they don't. They reflect us, our values, our fears, our moral boundaries. Because every system we participate in is quietly answering a question. What do we believe is acceptable? And what Alvin shows us is something both sobering and empowering. When we try to ban something we don't like, it doesn't disappear. it often just becomes hidden, more dangerous, less accountable, which means the real challenge isn't just deciding what we oppose, it's deciding what are we willing to design instead.

54:11Because better systems don't happen by accident, they happen when we're willing to confront complexity, to question our assumptions, and to take responsibility for the world we're shaping. And maybe that's the deeper invitation in this episode, to stop seeing systems as fixed, and start seeing them as something we can influence. And that insight leads directly into my next conversation, because if today's episode is about how external systems shape our choices, next we turn inward to explore how we use our energy within those systems. I'm joined by psychologist Diana Hill, author of Wise Effort.

54:48In that conversation, we explore what it means to align your energy with your deepest values and how to shift from constant striving to what she calls wise effort. Because it's not just about how hard you work, it's about where and why you apply your energy. If today's episode helped you understand the systems around you, this next episode will help you understand how to navigate them without losing yourself. You won't want to miss it. Some of these methods that we think were just one size fits all, like mindfulness is good for everyone. It is not. Mindfulness is not beneficial for some people.

55:20Self-compassion. For a subgroup of people, self-compassion is not beneficial. I wrote a whole book on it. I'm like, this hurts. But we actually really need to look at folks more at the individual level. And so a lot of those older studies were just like big averages with sample populations that were, as we know, like male white college students. So that's not who I am. So I don't necessarily want to apply that to me. So yeah, science is changing for sure. If today's episode resonated with you, share it with someone who's curious about how the world really works. Leave a fire star rating or review on Apple Podcasts or Spotify and pick up the workbook for today's episode at the ignitedlife.net, our substack.

56:03Until next time, remember, you're not just shaped by the systems around you. You are part of what shapes them. I'm John Miles, and you've been PassionStruck.

56:20Thank you.