Morally questionable, economically efficient

0:00Support comes from our 2025 lead sponsor of Planet Money, Amazon Ads. Less than half of customers fully trust their financial institutions. Amazon Ads helps financial brands build that trust through relevant ads using first-party signals to reach the right customers. More at advertising.amazon.com. This is Planet Money from NPR. A couple decades ago, Al Roth was working on solving this problem. People who needed kidneys weren't getting matched effectively with people who had kidneys to donate. Part of the kind of work I do is called matching theory. Al helped create this, like, beautiful, elegant algorithm that would match kidney donors with recipients.

0:49You obviously won a pretty big prize for this work. I did. I recommend it. You like the prize. It's a good prize. Yeah, a week long of parties. The prize he won? It was the Nobel Prize in economics. As you might know, Al's matching work vastly improved the way people get kidneys and saved literally thousands of lives. Like in the year 2000, before Al's work, there were only two paired kidney transplants. Two! Thanks to Al's algorithm, there are now about a thousand per year. But, Al says, his Nobel Prize winning algorithm, it isn't even the best way to get people kidneys. Technically, he says the best way is to grow kidneys in a lab, so it's not even the second best way.

1:35I'm just envisioning you doing all this matching work, knowing that this is like a little goofy. Like, there's an easier way. I hope it's a lot goofy, the work I'm doing, anyway. No, no, that's right. So could we figure out a way to have more donors, to have fewer deaths? I bet we could. Okay, so there is a much easier, more efficient way to get people kidneys. It's the way people get most things with money. Like, what if we could just buy and sell organs? Oh, we'd have a lot more organs. That's how we get most of our stuff. There's a famous passage quoted from Adam Smith, which I'm going to paraphrase, but it says something like it's not through the generosity of the butcher and the baker that you get your food.

2:24You buy it from them. That's how they sustain their families is by selling you food. And that's how you get food. And that's why there's enough food. Right. The kidney market already has supply and demand. It just doesn't have prices to balance them because buying and selling kidneys is illegal in basically the entire world. So here we are. We don't have enough kidneys. We desperately need more. And yet we refuse to pay more than zero dollars for them. And as Al saw while working on kidneys, people had moral objections to the idea of paying for organs. They had concerns that just didn't really make sense to him as an economist.

3:04But when I started to look, it turns out there are lots of markets like that. Lots of markets where people just don't want to allow a market. They feel icky about putting a price on something. Al has a list. For example, surrogacy. A legal and flourishing industry in much of the U.S., not in much of the rest of the world. Assisted end of life. Perfectly fine medical transaction in Oregon. Illegal where I am in Virginia. Al is actually working on a book about all of this. Its working title is Repugnant Transactions in Controversial Markets. And the idea is that sometimes economists have perfectly good ideas that other people don't think are perfectly good.

3:46Al sort of made his own little sub-discipline in economics about this. Economics, yuckonomics. You know, I trade in book titles. I'm open to suggestions. You can email Al with your book title suggestions, though honestly that's kind of hard to beat. In the meantime, when we have those knee-jerk reactions and our gut repels us from considering the icky thing, economics would like to humbly submit that maybe we should. Hello and welcome to Planet Money. I'm Mary Childs. And I'm Greg Rizalski. Today in the show, we apply an elegant economic framework to Al's market, the trading of human organs, to whether or not we should exact revenge on our enemies, and to whether or not we should trade on inside information.

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5:29Easily track, block, or cancel recurring charges right from the Capital One mobile app. Simple as that. Learn more at CapitalOne.com slash subscriptions. Terms and conditions apply. This message comes from Insperity. Excellence takes drive, work, perseverance. Tiger Woods brings it to the course. Insperity brings it to your business. Want to be the best? Work with the best. Insperity. How you HR matters. Learn more at Insperity.com slash tiger. When we face difficult situations that don't have an absolutely clear right answer, economist Al Roth says borrowing tools from economics can be useful.

6:13Economists deal in tradeoffs. And one of the things about tradeoffs is you have to say to yourself, supposing there's something we really don't like, what will happen if we ban it? And if the answer is it won't go away, but it'll go underground or become criminalized or become very irregular, then you might prefer to regulate it rather than ban it. And there are real problems with banning things. For example, remember that time we tried to ban alcohol, like in the 1920s and 1930s? We discovered that it gave rise to a big criminal economy and didn't completely wipe out alcohol at all. So we legalized it.

6:52And the legal market for alcohol, with all its problems, is a lot nicer in many ways, a lot more socially useful than the criminal market, you know, Al Capone and the St. Valentine's Day massacre and, you know, Elliot Ness. Alcohol, as you may know, is legal today. Selling kidneys? No, not legal. With kidneys, we are in our prohibition era. There is a black market for kidneys, and often it's pretty terrible because the almost universal laws against compensating kidney donors have driven that market underground. And what underground often means is out of the hospitals and into hotel suites and apartments.

7:34And yes, so medically very bad as well as not just illegal, but dealing with criminals medically very bad, bad for the donors, bad for the recipients. And that's what we have today. that's the market we have chosen. We have the black market with money and the legal market with no money. So Al has been thinking about solutions to this. Like, what can we do realistically to incentivize more kidney donations? How else could we go about creating a market for kidneys to be, as Al likes to put it, more generous to kidney donors? And when Al thinks about how to design a market, he prioritizes investigating what exactly it is that we're objecting to.

8:16So he can build a market that fixes or avoids those problems. And in the case of kidneys... There are metaphysical objections. You know, it's just wrong. But the objections that seem to touch on the world seem to say that you can't do this without exploiting poor people because poor people are so vulnerable that just offering them money takes away their agency. The first reaction is just a gut reaction, which doesn't help inform Al on design. The second reaction is that money can be coercive. That if people have no money and you offer them money to participate in a study, they might have to do the study, especially if you offer a huge amount, like a life-changing amount of money.

9:02It's just too compelling. They wouldn't have a choice. This argument does strike Al as unreasonable. There's lots of jobs that we pay people to do because otherwise no one would do them. And you can earn a decent living being a meatpacker. But that's one of the things that bothers people. They say, why should we allow a market that will be mostly – most of the participants will be in the lower parts of the income range? And, of course, that isn't very sympathetic to people who are lower income, right? In other words, we need jobs that people with lower income can get. That's why they have some income.

9:34There are jobs. Luckily, there is a really obvious, easy solution to this objection. Just solve poverty. There'd be a lot less repugnance to monetary transactions if there was no income inequality. If you wanted to sell me your kidney, but we all had the same income and the same prospects, it just might not be a big thing. Okay, failing that, Al mentioned another way to create a kidney market, a way to get kidneys only from people who aren't that poor, a tax break. People who are wealthy enough to benefit from tax credits on income tax aren't the poorest of the poor. So it might be that the way to start paying kidney donors is to say, we will give you a tax break on everything after the first$10 million of income in the year that you – and then only hedge fund managers would donate kidneys.

10:25And that would be repugnant. But there's a twisted logic to it because at least they could – like should something go awry in the surgery or – Yeah, they'd be fine. They'd be fine. Perfect. Like now we have a few ideas of how to make this happen without paying people for kidneys. We could resolve income inequality or we could just, you know, do a tax credit and receive only hedge fund manager kidneys. And right, there's something a little goofy about all this because these solutions are trying to account for objections that are just hard to design around because those objections are at least partly stemming from some messy human feeling or intuition that just won't let us exchange things in the normal way.

11:08So do you think there'll ever be a U.S. market for kidneys? Well, I think we're not doing a good job yet and that we ought to find a way to be more generous to donors so that we have more of them. And what that looks like, you're open to suggestions. I'm open to suggestions. After the break, more ick. Non-kidney suggestions for your optimization. one for the aspirational girl bosses, and one for the stock traders among us.

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14:04So recently, I was poking around on the internet reading economics papers, and this one paper jumped out at me, where I felt like it was trying to give me life advice, maybe counterintuitive, antisocial life advice, but if the research is robust, I'm listening. What's the time that you have exacted revenge? Uh, let me think. Probably the best example is when I was at my very, very first conference in London. This is Siri Isakson. At the time, she was a graduate student. She was presenting her research. This was actually her first study ever. And she was at a conference, which was for behavioral economists to show their experimentation research.

14:48What they learned when they put people, you know, test subjects in an artificial controlled situation. And at these presentations, people in the audience are supposed to ask questions or suggest changes that would help improve the research. There was a guy, this guy in this audience who just kept pushing me on, you know, but this is a lab experiment. And how can you draw conclusions from this? And what if your sample is like very special? and just the sort of criticism that is more kind of like on the method than on your actual research. So there's no way to like really respond to that. So he kept pushing and pushing.

15:24And finally, I was just like, look, if you're going to bring this criticism, then fine. But you need to bring it in every single talk because this is an experimental lab based conference. And yeah, that did work. How do you know it worked? Well, because, well, first of all, he was silenced. So he stopped after that comment. And second, you know, a lot of people came up and were like, that was a really good way of handling that situation. Later on, Siri was thinking about what to research next. She's now an assistant professor at the Norwegian School of Economics. And she and a fellow economist, they start talking about how they're really interested in studying retaliation.

16:04You know, retaliation, revenge. It's kind of like fundamentally human, but it's also really messy and therefore difficult to study. And her colleagues suggested looking at this game show in Sweden where Syria's from. It's on SVT. It's called Vem Viet Mest, which means who knows most. I think we all kind of know about it in Sweden. So it's something that's been going on forever. And like, you know, there's only so many Swedes. So at some point, you know, you're bound to... Everyone's been on it. I mean, not everyone, but I do know people who have been on it. Yeah, yeah. There were a few things about this game show that made it kind of perfect as a way to study retaliation.

16:44First of all, there's a ton of potential data points because it's been on basically every weeknight since 2008. Also, the way it's structured has this one part that makes contestants essentially choose to retaliate or not. On the show, the contestants are answering a bunch of trivia questions really fast. So the first question is thrown out by the game show host who randomly picks someone. And then basically, if you answer correctly, now you earned the right to throw this question to someone else. And how the contestants act at that moment is super useful for Siri and her co-authors. They see throwing a question to someone else as an act of aggression.

17:27In this setting, getting the question is not positive because this is the elimination stage. So each time that you get a question, you're risking to lose a life. So if someone throws you a question, they are trying to knock you out.

17:45And Siri saw that as a response, some contestants would do something that looked pretty clearly like retaliation. So what happens is you throw the question at me, which we then consider an attack since now I risk to lose life. And then I answer correctly and I throw it directly back at you, right? That's what we define as a direct retaliation. You sent me the question, so instead of sending it to any of the other contestants, I choose to immediately lob it right back to you, demonstrating that I am formidable. I have retaliated. So that is me showing toughness to the whole crowd, and I've shown them then that don't throw these questions at me because I'm going to throw them right back.

18:27And this direct retaliation the researchers found, it is effective. By retaliating, you do lower the probability of getting questions in the next couple of rounds. And getting questions is what's going to get you knocked out of this game. So you increase your success rate by retaliating. Okay, so retaliation works. I'm going to make a little note to myself there for later. Yeah, absolutely. That's what I'm saying. It's life advice. But there was something in this finding that made it even more interesting. When we look at, do people use this opportunity to retaliate once they're attacked? Men do it 20 % of the time.

19:01and women do it five percentage points less. So about 15 % of the time, which is, I would say, a huge effect. A five percentage point difference, that is huge. Men are using this effective strategy a lot more than women are. However, and this is quite fascinating, the effect is twice as strong for women. So what you see is that women retaliate much less than men, but those women who do in fact retaliate, the effect, the warding off effect, on future attacks for those women is twice as large as it is for the men who retaliate. Whoa. So that's quite interesting. So in this game show, they found that, first of all, retaliation works, counterattacking wards off future attacks.

19:45And they found that men retaliate more than women. And that the women who do retaliate get even more bang for their buck. Okay, but we should say that this game show, it's like, it's a pretty artificial, like, controlled environment. Definitionally not as messy as a workplace or like a friend group. Do you recommend retaliation outside of this game show? So I think that's a very good question. And I think more research is needed for this. Because sometimes just issuing an edict from a finding like this, it's not the best idea. Siri cited this famous study on women negotiating for higher pay. Typically women negotiate less.

20:29So in this study, the researchers pushed women to negotiate more like men. And these women who were pushed into negotiating actually ended up worse off. We cannot say that if these women would just do things this way, that the same thing would happen. Because the women who are retaliating, the women who are negotiating, they might be different. They might be the Sheryl Sandbergs of the world and that what works for Sheryl isn't going to work for me. Exactly, exactly. And so that's not to say that you shouldn't retaliate. And I'm a very kind of competitive, like I have a lot of those traits. So I do, in fact, retaliate and seek it back.

21:06Like I do, I do, I do, I do follow my own like results to some extent, but I wouldn't like, it depends on who you are, right? Okay. So retaliation works for Siri, but we don't want to over extrapolate here. Maybe it's like, if you think you're bad at revenge, maybe you shouldn't do it. Like don't force yourself. But on the other hand, if you think you're like really good at revenge, like have at it. Smite your enemies. There you have it. So by now, I am sure that you are totally sold on this beautiful, idyllic, economically rational world in which we buy and sell human organs. Kidneys are plentiful.

21:42We all smite our enemies effectively and directly, regardless of gender. And our last big idea, courtesy of clearer economic thinking, insider trading. Maybe it's good, actually. For this one, I called up Chester Spatt, a professor of finance at Carnegie Mellon University. I previously served as chief economist of the U.S. Securities and Exchange Commission. The SEC. So he would know about insider trading. And for the record, he thinks it is bad. He thinks we should not allow insider trading. Because he says people feel like it puts them, non-insiders, at a disadvantage. So they won't want to trade.

22:20It does seem kind of unfair, right? Because it would mean that like well-connected people with all their fancy friends, they'd be like running around with all these well-informed trades. You and I might assume we're going to get ripped off in the market. Like I can't compete with some guy who like summers in Nantucket and has like friends who work for like Fortune 500 companies. He's going to have way better information than I do. The reason we don't want insiders to trade is because that discourages trade by others, and it leads to basically much greater costs of trading. Okay, but there is this longstanding debate in law and economics about whether banning inside trading is actually smart.

23:04Everybody was talking about this in the 1990s. It was like grunge rock, Tamagotchis, those like bracelets that like, you know, that you slap and they like go around your wrist. Slap bracelets, yeah. Slap bracelets. Yeah. It was all those things and a fundamental rethinking of insider trading. Right. Like, are we outlawing insider trading just because we don't like it and we don't think it's fair? But in doing so, we're actually missing out on some major societal benefits. Is there a better way? Why might insider trading be good? I'll sort of point to two different kinds of reasons. So first, in terms of price discovery, basically, by the insiders trading, they're bringing information to bear in the marketplace that gets into prices.

23:48Yeah, price discovery. The more people actually show at what price they would buy or sell something, the more precisely we can know what that something is worth. And if people with inside information can trade on that information, like they know some good news is coming and they buy the stock, that adds a little information to the big stew of the stock market. Other people in the market might not know why a particular stock is going up, but they can see, aha, the stock is going up. Something good might have happened. That's useful. Chester says it helps markets become more efficient. I think it tends to lead to a better allocation of resources.

24:26And we do want to. As a society, we do want a better allocation of resources. We do want to use resources more effectively. If someone knows a company is going to do well, even if they are an insider, society is arguably better off if we allow that signal to get into the market. So price discovery. That's Chester's first reason why insider trading is maybe good. The second reason is about how companies pay their executives. Because the legal view is that insiders are typically management, and the information is typically some valuable thing that belongs to the firm, that the insider got from their work there.

25:05And, as with money, the firm can or should be able to choose to give out its valuable things. There's a longstanding argument that insider trading is a way in which a firm could be choosing to compensate its management by permitting this, and, you know, some argue that could be part of an efficient labor contract. That is to sort of view this as sort of an allocation of property rights, And that's an old perspective in some aspects of the law and economics tradition. Like if you're on a team that does something really good, going to be profitable. So you're not supposed to vote for yourself in the stock market by buying shares in your own company?

25:48Right. The compensation argument says your company might want to reward you for good work by letting you buy that stock before others can. You earned it. That's right. So, okay, maybe you're not totally swayed. You're like, wow, no, I would never insider trade. I would never sell my kidney. I totally hear you. Or, or maybe you're about to go destroy your enemy coworker in a meeting. Let us know how it goes. You can email us with your findings and or your own suggestions, ways in which you have used economics to solve your life. Send us a voice memo. We are planetmoney at npr.org and Planet Money on most social media platforms.

26:31Next time on Planet Money, there are a lot of examples in life where if someone harms you, you could sue them. But you can't sue someone for breaking your heart, right? She's like, yeah, I'm suing the person that my husband cheated with. I'm suing him. I'm like, what? And she's like, yeah, I'm suing him for alienation of affection. That's what I'm doing. And I was just like, what in the world are you talking about? This episode was produced by Willa Rubin and edited by Jess Jang. It was engineered by Sina Lafredo and Josh Newell. Fact-checking by Ciara Juarez. Alex Goldmark is our executive producer.

27:04And special thanks to Liana Simstrom and Petter Simstrom. I'm Mary Childs. And I'm Greg Rosalski. This is NPR. Thanks for listening.