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Master Economist on Strategic Quitting and Valuable Decisions on the Margin — John List

Tim Ferriss・99 minutes read

John implements clawback incentives in various settings, emphasizing upfront rewards and scientific methods to motivate workers and children. Research on fundraising and tipping behavior reveals insights on effective strategies, highlighting the importance of understanding human behavior for successful outcomes.

Insights

The concept of clawback incentives, as explained by John, involves rewarding upfront and retracting based on performance, proving effective in motivating workers and even viewed as a commitment device.
John emphasizes using input incentives with his kids, focusing on controllable actions like studying hours rather than uncontrollable outcomes like exam grades, showcasing a nuanced approach to incentivizing behavior.
Research on charitable giving and tipping behavior reveals gender differences in motivations, with men driven by tax advantages and women by altruism, highlighting the importance of understanding diverse donor behaviors.
Leveraging big data for societal problem-solving, as seen in the analysis of Uber's losses and effective strategies for mitigating negative outcomes, underscores the significance of data interpretation and theory of mind in decision-making processes.

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Recent questions

What is a clawback incentive?
A reversal of traditional incentives.
How do charitable giving practices differ between men and women?
Men are motivated by tax advantages, while women are driven by altruism.
What is the impact of reputation on behavior in markets?
Reputation influences generosity and accountability.
How can theory of mind skills benefit decision-making?
Enhances empathy and predictive abilities.
How can behavioral economics insights be applied to influence behavior?
Utilize non-financial incentives like social norms.

Related videos

Summary

00:00

"Clawback Incentives: Motivating Workers with Commitment"

The guest, John, has eight kids, with his grandpa, dad, and brother all being truckers.
John explains the concept of a clawback incentive, which reverses traditional incentives by giving the reward upfront and taking it back if performance is lacking.
He has implemented clawback incentives in Chinese manufacturing plants, a pre-K school he started, and with his own kids, including using it to encourage potty training.
John emphasizes using input incentives with his kids, focusing on controllable actions like studying hours rather than uncontrollable outcomes like exam grades.
Incentives are given weekly in the Chinese manufacturing plant, based on the number of non-defective items produced.
John's research on charitable giving began when he was asked to raise money for a center, leading him to conduct a field experiment to understand donor behavior.
He highlights the importance of upfront money in fundraising and using scientific methods to learn what motivates people to give.
John's study on tipping explores the effectiveness of different matching ratios in donations, finding that the matching mechanism itself is more crucial than the ratio.
The clawback incentive has shown to have lasting effects in motivating workers, with some even viewing it as a commitment device that brings future benefits to the present.
While the clawback incentive may depreciate slightly over time, it generally remains effective in encouraging effort and commitment, with workers often appreciating it as a motivational tool.

18:46

"Gender differences in charitable giving and tipping"

Fundraiser experience led to seeking advice from fundraising experts.
Experts suggested using a three-to-one match for fundraising.
Charitable giving constitutes 2-3% of the nation's GDP.
Charitable giving practices often rely on anecdotes rather than data.
Men are motivated by tax advantages in charitable giving, while women are driven by altruism.
Differences in charitable giving behavior between men and women.
Tipping behavior differs from charitable giving behavior.
Only 1% of Uber riders tip on every trip.
Men tip more than women on the Uber app.
Design experiments and tweaks for effective tipping strategies.

37:58

"Uber's Bad Trips Cost Millions, Research Reveals"

The speaker attended a conference and later expressed dissatisfaction with an app to TK, vowing to switch to Lyft instead of Uber.
The speaker conducted research on Uber's losses due to bad trips, using big data sets to analyze the impact on revenue.
A scheme was developed to issue timely apologies after bad trips, including a basic apology or a $5 coupon, which proved effective in mitigating the negative effects.
The research findings were significant, showing that bad trips cost Uber hundreds of millions of dollars, prompting the need for action.
TK agreed to publish the research findings in an academic journal, highlighting the importance of leveraging big data for societal problem-solving.
The speaker discussed the impact of reputation on behavior in markets, noting that individuals tend to act more generously when their reputation is at stake.
The conversation shifted to the perception of ride-sharing services like Uber, highlighting the unfair comparison with traditional taxi services due to the lack of data capture and accountability.
The speaker delved into the concept of critical thinking hierarchy, emphasizing the importance of data interpretation and theory of mind in decision-making processes.
Theory of mind was explained as the ability to empathize and predict others' reactions, crucial for optimal decision-making in various scenarios.
Suggestions were made for developing theory of mind skills, including understanding others' preferences, beliefs, and constraints to make informed choices.

57:13

"Decisions, Randomness, and Scaling in Poker"

Tipping behavior is influenced by strong social norms, leading to constraints in tipping.
Understanding the decision-making process of individuals is crucial before determining optimal actions.
Randomizing in poker is challenging, requiring decisions on bluffing frequency and timing.
Humans struggle with true randomness, leading to biases in decision-making.
Using external tools like a clock's second hand can aid in randomizing actions in poker.
Winning a poker tournament in Australia led to a retirement from playing.
Poker involves a balance of skill and luck, with skill often underestimated.
The book "The Voltage Effect" delves into scaling good ideas effectively.
The author's experiences with poverty, education, and scaling projects led to writing the book.
Scaling is not a silver bullet problem but rather an Anna Karenina problem, with five vital signs determining scalability.

01:15:39

"Jonas Sulk's Polio Vaccination Strategy Success"

Jonas Sulk, known for the polio vaccination, tested it on his own kids first, ensuring its effectiveness.
Sulk confirmed the vaccination's success by testing it on various children, proving its reliability.
Understanding the audience's needs is crucial, as Sulk discovered the vaccination worked for all kids, emphasizing the importance of knowing your audience.
Leveraging the healthcare system, Sulk ensured the polio vaccination's delivery was efficient and cost-effective.
Sulk's strategy involved integrating the vaccination into routine checkups for children, ensuring its widespread adoption without additional costs.
Recognizing the properties of the situation is vital, as Sulk's success hinged on leveraging existing systems for efficient delivery.
Unintended consequences, like the impact of tipping on Uber drivers' behavior, can significantly affect outcomes and must be carefully considered.
Network externalities, exemplified by Facebook's value increasing with more users, can enhance the success of an idea at scale.
Strategies to mitigate unintended consequences, such as paying drivers for transit time and imposing fines for cancellations, can improve outcomes.
Overcoming rejection rates and incentivizing drivers for shorter trips can optimize results in ride-sharing services, showcasing the importance of scalable incentives.

01:33:59

Fractal Economics: Solving Problems with Mathematics

The speaker found solace in academia, particularly at the University of Wyoming and the University of Central Florida, where they could be themselves without societal pressures.
Reference to a documentary on fractals and Benoit Mandelbrot sparks a discussion on the potential applications of fractal geometry in economics.
Fractal mathematics could aid in solving economic problems by providing analytical solutions, unlike the unpredictability often associated with human behavior.
The speaker highlights the challenge of applying quantitative laws to economics due to the absence of universal constants, unlike in physical sciences.
The importance of field experiments, despite initial skepticism, is emphasized for their potential to yield causal relationships applicable in various sectors.
Leveraging behavioral economics insights, non-financial incentives, like social norms, can be highly effective in influencing behavior and decision-making.
Examples of successful non-financial incentives include messaging strategies to encourage tax compliance, resulting in significant revenue increases.
Marginal thinking, focusing on the cost of the last unit acquired, is crucial in decision-making, as illustrated by a case involving driver acquisition strategies at Lyft.
The speaker shares a personal story about quitting a golf career to pursue economics, emphasizing the significance of recognizing optimal quitting points in life.
A large-scale experiment, designed by Steve Levitt, demonstrates that people are often happier after making significant life changes, highlighting the importance of understanding opportunity costs and optimal quitting.

01:52:49

"Optimizing decisions through strengths and passions"

In situations where decisions are not clear-cut, it is advised to not quit unless a better option aligning with one's strengths and passions is available.
Regularly assess available options to ensure they match personal strengths and interests for sustained success.
While stories of perseverance are common, there are countless individuals who persist without success, highlighting the reality of lost opportunities.
Building a culture within organizations that promotes inclusivity and equality can be achieved through subtle actions like stating negotiable wages in job advertisements.
Encouraging negotiation through job ads can lead to equal pay for both men and women, fostering a culture of fairness from the outset.
StubHub is praised for its efficient seat market based on supply and demand, offering opportunities for last-minute purchases and sales.
The transparency of NFT marketplaces on the blockchain presents a rich field for behavioral economists to analyze behaviors and transactions.
Exploring fintech and data science can provide valuable insights for both consumers and regulators, addressing potential weaknesses in the system.
Reading Adam Smith's "Wealth of Nations" may be challenging for those not well-versed in economics due to its verbose nature, suggesting starting with "Theory of Moral Sentiments" for a more accessible introduction.
Utilizing resources like Wikipedia entries on Adam Smith and his works can provide context and updates before delving into complex economic texts.

02:10:31

"Moneyball Infinity: Data Science in Sports Economics"

The speaker discusses their work with the Chicago White Sox, where they developed a draft model called Moneyball Infinity, incorporating data science to analyze player statistics from a young age, emphasizing the impact of economics on various aspects of life, from sports to politics to everyday decision-making.
The conversation touches on the importance of scaling ideas and applying basic economic principles to improve one's life and family's well-being, highlighting the potential for data-driven strategies to create positive change, with a promise of further exploration into the speaker's extensive projects and collaborations in future discussions.

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