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Welcome to this special edition of the IFS Zooms In, rather than me interviewing someone as usual, this week we’re offering you the opportunity to listen to the IFS Annual Lecture which we were delighted was given this year by Nobel Laureate, Professor Jean Tirole, a good friend of the IFS and indeed a member of the IFS Deaton Review: The Inequalities. Jean Tirole of course is famous for his work on competition and regulation.
But in this lecture, he really applies his extraordinary insights to some of the big moral and ethical and practical questions facing all of us, bringing economics to life as a way of thinking about the big public policy questions of our time. What are the market failures that we as a society, or as a world need to deal with? What are the government failures, crucially, that we need to deal with? What are the ethical problems in action that we continually face? How do we misunderstand and understand the information and data in front of us? How do we think about privacy? How do we respond to climate change?
So, I commend to you the next hour or so of listening to one of the great thinkers of our time offering his expertise and his advice on how to think through some of the big issues of our time.
It is really great to be together again and it’s the first time, actually, I can do it, after all those Zooms. And also, this annual IFS lecture is wonderful for me because it’s like a role model for Europe I think and the world. The kind of work that is done for the common good and try to get science-based policy recommendations. So, it’s a great pleasure to be giving this IFS lecture.
A lot of people actually say that given that we are going through a very big crisis with COVID now we are ready to actually confront the challenge of climate change, inequality and whatever, AI and whatever the issue that we’re going to face in the next few years. Some are suspicious of that, it’s a kind of wishful thinking and what I would like to talk about is how we, perhaps we can change our institution and also the way we are acting to avoid going back to business as usual. Which is my best predictor, I guess, of what’s going to happen. And now I’m not going to give you any solution, I’m going to go through the thinking that we might conduct, and I leave a lot of questions marks but I think it’s an interesting thing to do.
So let me start with things you all know, but just so everybody’s on the same wavelength, with the common good. So, on the common good as we all know there are lots of things we do which are not aligned with the general interest. So as consumers we pollute too much, we may fail to be vaccinated, we drive too fast and so on and so forth. Same thing business actually, and banks may take too much risk and jeopardise the welfare of their depositors or their workers. We all know the States are engaged in excessive spending and despite that provide poor education often, create financial crisis, don’t solve inequality and so on, and I’m not going to mention all the issues that come from my country first.
So, the common thing with all those phenomena is first that the price interest is not aligned with the general interest and the economics of the common good is really tying to make sure that the institution forces actually to align their action with the general interest. Now I’m going to criticise that a little bit later on, but I think the right way to start.
Now what are the instruments, the first instrument is of course persuasion, so we economists tend to think about incentives, but persuasion is also influenced by other social sciences, and the ideas really is to encourage good citizens behaviour. So that, you know, you should not pollute in a sense, corporate social responsibility, social irresponsible investment and the like. And do some norms-based interventions so you try to convey to people information about the consequences of their selfish behaviour, or the social-norm itself, so these are all attachments that shows you about how to do it.
And that’s all important, of course, but it’s not sufficient. It’s not sufficient because we see that incentives are needed, you know if you just take climate change for example, we have been extorting people for twenty-nine years now, because you know, much of what was at COP21 at Paris, was already at Rio in 1992. And we exhort people to actually change their behaviour and very little has happened since. So, at some point, you need incentives. Sometimes you can combine both, actually, a combination of incentive and persuasion can work pretty well, even in cases where you can’t choose incentive because there is no one watching, you still get good behaviour. And I was kind of surprised at the change in behaviour relative to tobacco for example in Spain or in France. I didn’t predict that it would work so well, in a sense.
Now defining the common good I think the best thing we have is actually another trick which is a vale of ignorance. We all have a position in society and of course you know, we are biased by who we are. And the idea is to go back and just imagine a thought experiment where we are not born yet and we don’t know whether we’ll be a man or woman, whether we’ll be born in a rich or poor family, in a well to do neighbourhood, with good schools, in which religion and so on and so forth, even in which country. And you ask yourself which kind of society would I like to live in? It sounds simple, it’s complicated as well, but because you really have to abstract yourself from who you are. And you know, just think that you are a random member of a whole population.
But even this thought experiment, which is kind of a little bit naïve, gives you a lot of conclusions. So, for example all kinds of insurance mechanism. Again, it’s where you are born, in what family for example, so equal education which is a fundamental thing, you know equal opportunities in life, it’s really thing. But also, solve all kinds of mishaps you might incur in life: health problems, income, unemployment and so on and so forth, so getting insurance. Of course, you want an efficient economy, so you want all kinds of regulations to make the market more efficient, supervision, backing supervision, antitrust and so on. And also, you want some kind of regulation of societal interaction, so a kind of tolerance with respect to all the people’s religion or ethnicity. That you get of course from the vail of ignorance.
And of course what we want is a long term vision, I’m going to come back to that. But of course the issue is politics and you know, I’m not criticising politicians but they are, their main thinking is of course about the next election, and that means that that has a number of consequences. Because if you think about what climate change, or poor education, or lack of pension reform - so inequality - have in common, it’s always the same point, which is that if you don’t do anything for two years, it doesn’t matter. You don’t see any change fundamentally. So, until the next election why should you spend money on that?
So basically, this is what happens, but of course a year, plus a year, plus a year, plus a year, decades of inaction and those are time bombs. So, we social scientists, we must actually push this long-term vision, because incentives of those who are in power, and again it’s not a criticism, are oriented towards the short term.
And also, without prejudging instruments. So that’s going to bring me to my next topic, and one of those instruments is a market. That is pretty controversial, especially in the country I’m living in, but not only. The efficiency of a market in achieving allocation has been criticised, and many famous philosophers have written books on the morality of markets. They almost have the same title, not, just two examples by Harvard Michael Sandel and Stanford Debra Satz, they almost all those books and there are other famous philosophers as well that have written similar books, they almost have the same title but they have pretty different content, they almost all are concerned with exactly the same examples: markets we may not want to have.
But of course the most famous one is the one of Michael Sandel which was a best seller, and yeah I’m reading from his work, basically a wide range of foods and services, including babies for adoption, surrogate motherhood, sexuality, drugs, major service goods and organs for transplantation are not to be commoditised for markets. So, they are not being, they shouldn’t be taken care of through markets, no more than friendship and admission to university or Nobel prizes are to be bought, or genes of other lifeforms are to be patented.
Now I’m not disagreeing with this assertion, the question is how do you get to that? and what do you do about it? That’s going to be my question. So, an economist for the common good, I basically disagree with this approach, and not, I mean Michael Sandel, Debra Satz is much more balanced in terms of reasoning, I think, but basically, I try to identify what’s wrong with what’s wrong. Not again that I necessarily disagree with the conclusion, that’s a different matter. It’s a way of reaching the conclusion. Which often is indignation. And indignation is not something I like so much. I like it as a warning signal. So, when I feel indignant about something, that means that something, I feel something may be wrong, that’s the first step, I would say. But then the indignation should stop there, and what we should be doing is try to think about what’s wrong, why it’s wrong, in a sense. Because that’s going to help us understand what the solutions are.
And you know, more assertions are really kind of override the freedom of others. So, until recently, and still today, many countries sex between people of the same sex or different races was thought of as being immoral by the big majority of people, and they were imposing their indignation on a minority of people without any justification, just because they found that completely immoral. And that’s not right, okay, you have to explain why at some point.
And the second reason why I feel uncomfortable about indignation is because those markets exist anyway. So, we should not put our head in the sand, we should really try to understand what to do with that. Because you know you can say, “I don’t like prostitution, I don’t like organ markets or surrogate motherhood,” fine, but you know those markets exist whether you like them or not. So, you really have to think about what’s going on. So, identify market failures and that of course is a central task of economics and I really think economics is a moral had philosophical science.
The next thing I want to argue and that would be kind of obvious to many of you, is that actually many of those things are standard market failures. And you know, sure you can feel they’re completely immoral, but they are also very good economic reasons for not accepting the market as they are. So, the first reason is classic externalities we usually use the term externality for things like carbon emissions for example or under consumption of vaccine or over consumption of anti-biotics, so it’s sort of Pigouvian analysis, which is well known. But if you think about it the same kind of argument applies to other things as well, which is a moral market.
So, for example do you want babies for adoption to be given to the highest bidder, you could have that market for babies for adoption, they are scarce. And why don’t you sell them to the highest bidder? Okay, I mean you might feel *gasps* what is he talking about? Who is this guy who is speaking now?” It is a very simple externality, it’s a person who is going to get the child, going to take good care of this child and love this child, I mean there is a sub party who is not part of the contract, just like for child labour or just like for slavery. It’s just like a very basic externality that we don’t want to accept. Same thing, I mean markets for votes, okay I can sell you my vote but it might be a good transaction for you and me except that of course, and there are lot of externalities on my selling my vote to you, on third parties.
Now perhaps more interesting is what’s called image externality, now image externality is basically the idea is that when you do something, even if it’s fine for yourself, you actually might damage the image of a group of people. So, an interesting example was like twenty-five years ago, a French administrative court actually used the externality argument. There was this stupid practice, but people seemed to like it, where you take a little person, and you throw this little person as far as you can in a night club or something like that, and that has happened in most countries, actually, until recently, and people pay to see that. Now why, don’t ask me why but they pay to see that.
Now the interesting part in the 1995 decision of the court, was that actually the little person actually was the one suing for the right actually to exercise his job. It’s, apparently it’s not dangerous and he says, “this is my job, this is my living, I have the right actually to do it, so why, the nightclub which was hiring me is paying me and I’m willing to do it, there is no danger and so on, so why do you, don’t you let me do that?” and the opinion of the court is that, that was fine for him, but there was externality on the image of small people. And same thing for prostitution and, I mean that’s not the only reason why you might be upset about this market, but it’s certainly one thing.
Imperfectly competitive markets, we all know about that. We know that incomplete information and estimated information are important, but of course, for example, if you think about things which are addictive, like oxycodone or contract pregnancy and the like, you know the person might not anticipate the consequences in the long term. Same thing for kidney sales, you might not quite anticipate what’s going to happen to you in a few years.
Or it could be estimate information so you know, I found this example of Michael Sandel a bit weird, I mean who is thinking that he or she might pay for friendship? Or admission into university, right, it makes no sense, because if you pay, if I pay you to be my friend, of course, I’ll never know whether you’re my friend, right? You know if you graduate from UCL but you have paid for it. I’m not saying paying for your tuition, you’re paying for admission, so being selected, then who knows? I mean of course the value of the diploma will go down very quickly, so, you know, it makes no sense. It’s just a very classic asymmetric information issues.
Same thing with all kinds of market issues we don’t like including price gouging. Of course talking about market power raises the issue about the post-covid mood, coming back to this whole policy for good and bad reasons. And there’s a whole debate about that, and you know my own view is kind of in the middle. I’m not saying we should never use it for useful policy, but I’m saying don’t use it in useful policy unless you do it well. Unless you introduce the right governance. And again, you know my experience in my own country, is not a great experience, but there are ways of doing it well.
The problem with this when you talk to politicians, they want to start a new initiative, you know to create a new chip or new battery or whatever, and you know, at first, they don’t even ask where the supply is and whether they have the people who are going to make it happen. But also, they don’t put the right governance in place. You know they, they want to put their name on some programme, but then they don’t check what’s going to happen in this programme because they don’t put in place the right governance. And there are ways of doing that, which I could discuss later on.
Internalities, standard market failure, people don’t stand for their own best interest, okay. They fail to pursue their self-interest in general due to some kind of self-control issue. So, in general the reason why we regulate drugs, and alcohol, and junk food is simply that people are too orientated towards their short term wellbeing, and of course ignore the long term consequences. And again, it’s a very standard argument and the thing is that you can apply that to repugnant markets as well.
So, let’s forget about slavery, what about voluntary slavery, so I sign with your contract, I’m well informed and there is no, there is no duress and I just want to do it, I want to sign a contract saying you give me a lot of money today and then I’m your slave forever, well let’s assume it’s doable, I’m sure the treasury would not like it. But why not? I mean it’s a contract between two people, but of course the danger is of course that I would like to have the money right away, and this cannot basically what’s going to happen for me, during the rest of my life. Same thing this argument has been invoked for organ sales, people sell their kidney for five hundred pounds, or a couple of hundred pounds, they have the money right now, maybe for their family, actually, of course you know later on they are less happy.
Opioids with the scandal, with the free sample and all things. So that’s the very common market failure that has been regulated in other incidences, so you know there’s nothing special to this regulation of such markets, inequality urr, other market failure, and finally there is a market failure for pricing. Here now I’m looking to the future a little bit more and the fact that we social scientist are late actually with thinking about policy. Of course that’s a topic that has been around for decades and even centuries, but now things are moving very fast. And the marginal cost of knowing everything about you and knowing everything about your social graph, who are your friends, what are your politics, has gone down to zero. It has gone down to zero because you have AI, you have social networks, we have face recognition in streets, we have everything so now you can know Paul’s social networks and social graph very well at no cost. Which has a lot of consequences.
So, the one we economist study most often is the possibility for using that for discrimination. Labour market discrimination, so product market discrimination, so you know if they know your willingness to pay, of course you won’t get much consumer surplus they will capture the behaviour surplus more generally. There is the old Schleifer issue that you know if there is no regulation then you won’t get health insurance if you have the wrong genes or if you are already sick, that’s an issue. But it’s not only in health it can be the case for the labour markets or personal relationship markets.
The four, last four bullet points is another advertising of mine, I’m sorry, I’m selling my book, I’m advertising my current research, I’m not working for the common good here, but for my own interest. So, things like, which I think are important, so for example the violation of a right to oblivion which is in every, basically every country’s law, many religions and so and so forth, which are, is violated of course by the information remaining on the websites forever, which means that you don’t get to second chance and that’s an issue.
Another issue is the interaction between our public sphere and our price sphere, with colleagues and all of that is done with colleagues, but you know as colleagues, basically I’ve started doing this series predicting that basically there will be a crowding out, people who pay more and more attention to the public sphere, and less and less attention to the price sphere. That means that your price sphere relationship will be a degraded version of what it should be, and we have some experiments that point exactly in that direction.
There’s issue of divisive issues. So they are consensual issue which are issues which basically everyone in this room will agree about, like you know polluting or committing a crime or insulting someone - is not something very nice. I hope everyone will agree in this room. But the other thing, also maybe not, maybe this one is a bad example for that, you know, the other things for which people disagree, like politics and religion, sexuality, abortion, social issue, vaccination, whatever. That’s also something in which you, an area where you might care about your policy of course because you might want to avoid the hostility of people who don’t think like you and might become hostile to you, even violent possibly.
So, you might want sometimes to take refuge in a safe place, not exhibit your behaviour in public places, so for example for a long time, gay people, for example, could not enjoy the public space together, because they were afraid of being ostracised or violence or something. And they were forced to choose a social graph which were they, basically like-minded people choosing a same kind of behaviour and the like. So, it’s actually an interesting line of research, because safe spaces is also have a lot of welfare costs, ancillary of welfare cost, in terms of you know the kind of narrative and the kind of action that circulate within those safe spaces. So, it’s actually a very important policy issue.
And the last one actually is about the social score, which is being put in place in China, and by the way if you have read the 2021 Artificial Intelligence Act, of the European commission, basically it’s going to ban this kind of social score. Of course, it’s always almost throwing the baby with the bath water, because social scores sometimes can be useful, but they are extremely dangerous when you mix them with political compliance when you mix them with the social graph and so on, and you basically achieve at the very low cost what the Stasi achieved before.
Okay so, market failures, actually that’s our bread and butter, to be honest, that allows us economists to work on something and not say that markets are wonderful all the time, but it’s true that by and large we believe in markets and actually that’s why we work so hard to make them better, because they have efficiency properties. But to start on the response, I guess, and you’re going to tell me, probably it dates back to Adam Smith but okay, markets have market failures, you need governance, the government is going to be market fixers, and everything will be all right. Except, except that governments are captured by lobbies, governments are, have an election so they are going to pander to their electorate, they are going to be short term-ists, and governments of course are local, and they, of course there are issue with jurisdiction.
So that’s difficult, we certainly believe the state should be a regulator, so correct market failures, that I’ve mentioned, the many market failures, it should of course provide a legal framework. There’s been some problem with the forms here but high risk, high reward product and so on, the government is not that good at running contracts for reasons which are kind of obvious and we can go back to.
Now COVID-19 has even an example of a market come government failure. Now the market failure is very clear it’s an externality issue, so in terms of social distancing, testing, vaccinations and so on, of course we don’t necessity take into account the externality we impose onto others. But there was a huge government failure as well, or social failure, I don’t know, with a lot of short term-ism, like of corporation. It’s not only the supplies, there were lots in the newspapers about not having mask, actually in France we actually said the mask we use less because we didn’t have any in stock, all kinds of things. And now one of the issues is of course, the lack of social compact about the pandemic past, the pandemic past is something extremely useful, but you know there’s still a lot of discussion about whether you can impose it.
So, in France we have this kind of, I was discussing with Paul earlier, this kind of a mixed system where formally we are very strict, we have a pandemic past, but actually it’s not enforced, and actually you know, it’s very hard to ask people actually to make sure they haven’t prepared themself. It’s difficult. But actually, it’s this kind of thing we haven’t prepared ourselves. And you have to kind of remember, that’s not the last one. Pandemics are not a rare event anymore, and the other coronavirus of course. But that’s not the only thing. You have a huge resistance to antibiotics with no new antibiotics being produced. You have the melting of the permafrost with all viruses and bacteria being released. You have bacteria eco-warfare. I don’t want to depress you, you know it’s a joyous occasion, we’re all together, for the first time in eighteen months and I’m - I will back to the economist as the bearer of bad news.
But yeah, and then there was of course the fact that the, this decline multi-lateralism that we have observed fortunately one of the presidents have been a bit kicked out, but you know, the national interest is coming back in most countries, and that’s very scary. You see it a bit of course in COVID as well, you know this is something that is coming back.
So, let me criticise which I just told you, which, by the way, I believe in it, but still, it’s not enough, okay? It’s really the view that you know, there are a lot of market failures, we know how to fix them, the governments should fix them, of course we know the government is doing lots of wrong things, but you know this is the right approach. I’m not going to give you a solution, but at least I’m going to raise the issues. And maybe call for a new research agenda for public economics. And the reason for that is that, our morality in our public policies are very much influenced by cognitive biases. I’m going to go through that slowly, and it’s effects of course, many of the fields that are in direct contact with society. So of course, being economists I’m sensitive to that, but when you see the reaction to the medical professor, to the MDs and so on, what you read in biology and evolution is theory in the US or climate change in the US, I mean it’s a border thing is that there is less and less respect of science.
Now, where does it come from, because, you know, it’s nice to say, it is the right policy, and actually that’s one of our, of the things that we ask about in the commission that Olivier Blanchard and I chaired actually, Carol was there, Richard was there, and a couple of other people from the UK. And it helped us a lot. But you know, if it’s so simple, so take carbon pricing for example, how come such a simple solution of which there is consensus of almost all economists, why isn’t it implemented? And is that because you know it’s badly designed, the way we do it, is that because it’s not explained well? You know what’s going on? So, we have to think about the perception at some point.
And also, the cognitive biases. So, the first cognitive bias is motivated beliefs, and we all suffer from that, I certainly suffer from them as well. We believe what we want to believe, about the future. We want to think we have a bright future, we don’t want to be depressed, listen to an economist talk about pandemics. You know we want to actually think about we have a, you know we won’t have to make too much effort to fight climate change, for example, it’s not a pleasant thought. And that’s why I think for example the green groups slogan, you know which is in almost all the country is kind of dangerous. You can say well, “if we can have our cake and eat it too, why don’t we do it? You know we spend on green stuff and then we grow faster, and we are richer, so why don’t we do it?” And it’s more than that actually because you know, people take that as an excuse actually for not doing anything. So, you know, we’re going to be richer, thanks to being green, so why should I do it, put any effort and contribute to the reduction in the global warming?
We want to believe we have some beliefs about our society, so we don’t want to see our society as being unequal. It’s a very unpleasant thought. For example, if you think about organ sales, and you see someone selling his or her kidney for a couple of hundred pounds, you find that shocking right? But why do you find that shocking? In particular because it reveals to you how unequal our society is. And yeah, this is something you don’t want to see, I don’t want to see it, personally. And that showed you, you don’t, it really shows you in front of your eyes that actually - the same thing with prostitution, okay that poor lady, what’s going on? I mean she’s just destitute and that means she’s willing to sell her body for money.
We also don’t want to see society as being violent because it’s not very good for our wellbeing. We don’t want to live in a violent society. So, there was, it’s a famous episode that I relate in Economics for the Common Good about the death penalty in France. So, from 1939 through 1981, the death penalty you know was used in France, but instead of public execution with execution in prisons without public. Why is that? Because the execution at four, five a.m., people brought their children and rejoice and they found it fun. And you know it was very shocking, actually they destroyed the movies that show that. Because it’s very troubling, right, disturbing seeing that people go and see an execution and bring their kids at five a.m. and have a huge amount of fun. Right, so they made it, they tried to hide those executions. So that’s a kind of motivated believe I had in mind.
Now in that respect the economist is the bearer of bad news. I don’t want to, of course I’m partisan I’m biased towards economists, but it’s true that economics is exposing our values and one of the things is of course, you know when you look at careful economic analysis, the way its done at the IFS of course then you get numbers, and those numbers are to disagree with, and they expose our values in a sense.
In the sense that we all want to live in a society where incentives are not needed, right? It would be a nicer society, except that that’s a la-la land that doesn’t exist. And interestingly if you’re in lots of fields, that for example, legal scholars are a lot more clever than economists, they don’t talk about incentives, they talk about fairness. So, when they talk about intellectual property, we say we need profit in order to incentivise R and D for example. That’s crazy, we should not talk like this, we should talk like lawyers and say, it’s fair. You know fairness is a much nicer concept that profit and time consistency. Same thing, the sensitivity of contracts, more obligation to honour ones promises. You know, it’s almost an outrageous grounds some how. So, we are not very good at selling what we do.
At the same time, we have to recognise that we may destroy social norms also. There is danger in that respect because what we are saying really, is that people are not as nice as you believe. You know they need incentive to work, they need incentive not to pollute, they need incentive not to do this, not to do that. Which is fine if you can control people through incentives, you know you can control pollution through a carbon price, you can control lay-offs through an expense rating system, and so on. But what happens when you cannot control because you have no policy behind is what is an issue because by exposing the true values you basically have brought bad news about the goodness of society. And that probably can degrade, destroy behaviour in uncontrolled aspects of life. And that’s possible that we economist, we are not only the bearers of bad news, but we also are destroyers of social norms. And if that’s try that’s a caveat in their activity. We still need a carbon price, to stop climate change, by the way.
We face a difficulty of, that people have a first impression, they look at the direct effect of an economic policy, they rarely look at indirect effects like GF general effects, like you know what happens if you impose rent control, if you have employment protection, it’s a little bit the same argument in a sense, the direct effects are nice, and they’re also good for equality, they look very nice. But then if you think about the indirect effect on incentives, then you get into trouble. But of course, people they just see they direct effect and not the indirect effect. [Unclear] in the climate change control, in the report I’ve written with Olivier Blanchard we looked a little bit at perceptions, for, as you might expect, for climate change, taxes are, upset everybody, but people love subsidies. Now you expect that a subsidies be a tax in a sense because somebody else is going to be taxed, but the same people are going to tell you, “ah, no, carbon tax is a scandal, but I love those subsidies.”
We had the same thing actually with inheritance tax, it was kind of funny because we asked people, Stephanie Stantcheva asked people to, “do you like to have an inheritance tax or should you be left free to give your money to your children?” and everyone says, “ah, no tax, I should be able to give money to your children.” And then you ask them the question, the same people, you ask them the question, “do you find it fair if different children start with very different wealth?” They said, “*gasp* it’s a scandal.” And yeah, and they don’t see the contradiction between the two points. And actually, we ourselves, you know intellectually I’m all in favour of an inheritance tax, but I want to give my money to my children, but I’m also schizophrenic right, but this is the kind of thing that we have to deal with.
Ethical dilemmas, it’s very important at the time of COVID, of course, people like Carol, of course, know pretty well but healthcare, ethical dilemma. We have a very hard time in our society to control them. So, for example for choices of equipment or of personnel in hospitals, of course you, any such choice is going to mean that you’re going to save some lives and basically kill some others. But the very nature of the choice; but you never reason in those terms. You don’t, you never sacrifice people openly, because you have a limited budget, because that would not be acceptable in society, and society’s not ready to do that ethical dilemma.
I saw actually, things improve a little bit with shortage of ventilators in Italy and France because there was a discussion of actually, “how should we sacrifice?” And yeah, people were willing to engage, so I saw there was some progress there. And that went, I think in the right direction. But this is going to be all over the place, so my colleague Jean-François Bonnefon in Toulouse, there’s a pretty well-known article in science, he’s a psychologist, getting back to the old trolley dilemma but applying it to the autonomous car. Now when there is a danger of an accident, and the driver has to choose between killing himself or herself and killing five pedestrians, it’s taken like this. There’s no deliberate choice. But of course with a software that has to be built in a cold state, you have to decide are you going to kill those five pedestrians, or are you going to kill the driver? And he has looked at the attitude of people with respect to that choice. And by the way, the funniest thing is that people there contrary to the standard trolley dilemma, they said, “oh no, let’s kill the driver,” and then they said, “but I don’t want the state to regulate my car.” That was kind of funny, right. They understood pretty well what was going to happen, poor understanding of statistics is well known and of course the difficulty of communication within divisive issues.
So, what shall we do? And that’s where I don’t have an answer of course, but let me give you a couple of considerations. The first consideration is that statistics don’t work. They don’t work well, which is terrible because we think the facts are important, and that’s what should drive policy. Fundamentally, policy should be based on the facts. But in, within the population, it’s very hard to use facts. Actually, there is a wonderful quote of Marcel Proust, “the facts do not penetrate the world, our beliefs, our beliefs,” that’s very nice way of saying it. That’s my translation, it’s actually nicer in French, but it, you know it’s really true. And you know, statistics, you know you can talk to people about statistics, they don’t react, they understand but they don’t react, they forget, anyway. And by the way, you know the whole debate with the extreme right attitude towards immigrants is that they actually quote totally wrong numbers, at least that’s the case in France, but it’s also the case for other countries as well. You can correct the statistics, it’s never going to change the vote of people who actually vote for those parties.
It's difficult now because they don’t change their attitude of anybody wanting to believe what they want to believe, I don’t know, but that’s a big issue. Where the debate is is on narratives. And for an economist and a social scientist, narrative is not something interesting because it’s not a basis on which to take discussions. Sure, I can find an immigrant who committed a crime, and I can tell you the narrative abut this immigrant actually committing a very bad crime, but I can also find a narrative about an immigrant plight who actually cross the channel to actually blah, blah, blah. I can tell you a narrative which is going to make you feel good about immigrants. And I prefer the latter, but you know in a sense none of them is scientific, right?
Why should we care about one person? The only thing which counts is the statistics, right? So that is an issue but this a much, much more powerful way of communicating things. Now what tricks do narratives use? They use wishful thinking, what I mentioned earlier, the hope for a bright future. So, in France, I don’t know about the UK, but in France, the number of politicians, right wing, left wing will say, “ecology should not be punitive.” Okay, so no carbon price, and it’s a wonderful slogan, it works very well, you know. How can ecology which is a nice thing to be associated with be punishments and it’s kind of, it works pretty well.
Perspective taking, which is what I was talking about what’s called transport theory, is basically taking a person and making this person in a sense better than a statistic and their personalities work. There’s of course a confusion between correlation and causality, as everybody knows, you should not go to the hospital because your probability of dying there is actually much larger than your probability of dying at home. You know this is a kind of thing – of course this is the bread and butter of economists.
And something which is very important is excuses, for, especially for anti-social behaviour. So, they can be crazy excuses, like many of the excuses we have heard about vaccines, or not, I’ll come back to the replacement excuse. The replacement excuse is actually an excuse not to behave in a nice way which is grounded, so the replacement excuse is basically, “if I don’t do it, somebody else will,” right? And you can find lots of examples in the Nazis for example that uses the replacement excuse, but selling weapons to dictatorships, bribing officials to win a contract, the doctors who actually give opioids they use that excuse you know, “if I don’t give opioids to that patient, the patient will get the opioids somewhere else.” The professional athletes taking illegal drugs and so on and so forth. And we also do it in our everyday lives. So, it’s an excuse but it does some ground, right, because if there is competition, then it’s very easy for the person to switch and get the weapons or the drugs from somebody else. But of course it’s a good excuse also not to behave pro-socially.
So let me take us then on to talk about flimsy excuses, because they are very important, there has been a lot of research, some of you in the room will know that research, but I am fascinating, totally fascinated by this research. It’s called, “more wiggle room,” one of the earliest papers on the topic was by Dana, Weber and Kuang and starts from something which is basically a standard test of generosity or post-sociality, in which basically you are given two choices, on your computer, and you have the choice between a selfish action, let’s call it action A, which is going to give you six pounds, but the other person you don’t know, is someone else in the room, will get only one pound. Or you can be generous, and then each of you will have five. Okay so the first payoff is the payoff of the dictator, the one who choses, and the second payoff is the payoff of the second party.
Okay so if I did it in this room, chances are that about three quarters of you will choose B. Now by the way, entire, entire self-signalling because the extent, nobody else know, there’s no social-signalling, nobody knows, or will know what you have choices. So, it’s entirely signalling to yourself. You know the old Adam Smith internal spectator. But you know, okay, I lose one, I can be nice, right, it’s only one pound. For multiple reasons the other regarding preferences were say, “I’m being nice, because I internalise the welfare of others, not as much as my welfare, but you know, I internalise somewhat your welfare, at least one quarter of your welfare,” might explain this. But not quite. And this is why it becomes important, I mean there has been thousand of experiments like this done. But consider this, complicates things a little bit, there is a state of nature one, and in state of nature one it’s exactly the same trade off, I can be selfish, get six for me and one for you, or I can be generous and then we get five each. There is another state of nature which is equally likely, in which it’s a no-brainer. So, if I choose A, I get six, you get five. If I chose B, I get five and you get one, it’s a no brainer.
Now, where it gets interesting is I have a button where I click, and I can choose whether to know the state of nature. It’s completely free, but the question is, if you click, you will know the state of nature, one or two. If I don’t click, I will never know and I will have to choose between A and B nonetheless. So, what will you do? Well do you want to learn the state of nature? Decision theory tells us we want to know the state of nature, because we’ll take a better decision if it’s state of nature one, at least for three quarters of us, we’ll choose B, but in state of nature two of course, we’ll choose A. Now, what happened in the experiment, do you guess? Well? What happens is that half of the people don’t want to know the state of nature and low and behold, what do they choose? A, right, they choose A because they have the excuse that they may not be selfish, because of course they may not hurt actually the person in state of nature two. Now this is a real bad excuse, this is a really, real bad excuse, and nonetheless, half of the people choose not to know and then they choose A of course.
Now, this experiment has been done in many different forms, so for example, there are two dictators and each dictator can - so going back to that one, the simpler one where there is only one state of nature, but each dictator can basically impose a generous outcomes. So, if one of them at least chooses B, then that will be the generous outcome. And low-and-behold, once there is another dictator, even so everybody’s pivotal they choose, they choose A, at least two thirds at least choose A.
But there are also experiments which are closer to life, like real life. So, for example, there is a choice of not being there when the charity comes to your home, there is a choice of delegating a nasty decision like firing an employee to somebody else. Even so you choose of course someone who is going to be tough and is going to fire the employee. And so those flimsy excuses are actually very powerful, they resonate and they are very bad excuses but they still have a lot of impact on what we do, okay? Let me skip the replacement excuse.
So let me conclude because it’s going to be close to an hour now. So, in the long term, of course we, there are things we can do like of course, discredit relativism and post-truths and, instil a respect for science. It’s really hard, I mean a country like France which always claims it’s a very rational country with people, you know they venerate the French enlightenment of the 18th century and whatever, that’s a country of Pasteur of course. And then there is a big, very strong anti-vax movement and it doesn’t deduct from COVID, it’s an old thing, there are a lot of anti-vax in France. Homeopathy for example many French people thing it’s efficient, there are hundreds of reports of academies of medicine and so on, useless, it’s very depressing, it’s very depressing. And actually, it’s reimbursed by a social security and complementary, supplementary interests, and so on. And then you get GMOs, I mean, again, you know, you might be against GMOs but you know, again we should have a rational debate, right? About nuclear power, you know, should we use nuclear power in, you know, against climate change, for example? We should have a rational debate on that; 5G, I don’t want to talk about 5G. It's just very, very hard, so you know at some point we have to invest in the long term.
So, we have to invest in respect of scientists, of course, you all remember five years ago Chancellor Gove saying, I think the people of this country are fed up, have had enough, I’m sorry, of experts. Now this is not unusual, there are lots of Michael Gove’s around the world, I can, you know in each country I can find you politicians where they have similar sayings. You know, I mean this one is pretty famous, but and it’s not new either. So, I took a specific date, 1793 so you all know Edmund Burke saying it, that the age of chivalry is gone, for economists, the glory of Europe is extinguished forever. Come on!
But that was it, so, now we have had the conservatives now we have the left-wing people, so Lavoisier was as you know was a great scientist, a chemist and he was sentenced to death by the revolutionary court, but there was a very important experiment that he wanted to finish, that was for the common good, like “let me finish the experiments before I die!” And no, he could not finish the experiments because the president of the court said, “the republic doesn’t need scientists.” Okay, so nothing new here, but that’s an issue.
Now, it’s hard actually to actually recreate a trust in scientists. Of course, we know that they are sources of corruption in our activity. And the most obviously one is money, that can actually distort our reporting and our research, there’s a temptation of course to be a public intellectual, I mean it varies across countries, but yeah, I also come from a country where becoming a public intellectual is something very important. You know it grants you a lot of respect which is nice, but it also comes with certain, certain politics of course, and again I’m not blaming politics here, but you know there’s also a dangerous, danger in mixing what you do in research and mixing your political opinion which are very respectable on the side, you know, otherwise. Because, you know, you may have a very rigid attitudes, don’t want to disappoint your fellow travellers and even if you don’t, there’s this issue that people will say that you’re saying that not because it’s your science, it’s because you are left wing or you are right wing. And that, when it comes to that there’s an issue right here, because people don’t believe what you say anyway, and it’s true for economists, for, in medicine, whatever field.
So that’s really an issue as well. You know we have to think more about how to get our act together and make sure we deserve the trust of the people, but also we need to have people engaging with experts and you know it’s not always easy, It’s easier to have a look at a good Netflix series or read a nice novel than reading an economics book or whatever. But we need to teach better at school, we can make it fun actually, I think we can make school much more fun than it is now. I mean after all, you know I was mentioning the issue of correlation versus causality and there is a French guy called Coluche, you may know him, and he passed away a while ago and he was a very popular person, he made lots of jokes with crazy correlations interpreted as causality and if humourists can do that, then why can’t you do that, I mean as a teacher? You know you can re-explain why some reasoning. And same thing for RCTs I mean, Pasteur did that in 1881, you know it’s very simple to explain, you can explain that to pupils in fifth grade or something, it’s not that hard.
But of course we ourselves have to participate more in the public debate and try to understand the perspectives, so do some perspective taking, to better understand what we do wrong because we do a lot of things wrong in terms of communication, that’s for sure.
Okay, so let me conclude here, but is COVID a catalyst for change or an echo chamber for weaknesses, unfortunately I don’t think it’s going to be a catalyst for change, I’m sorry to be a bearer of bad news again, but I wish it were, but clearly we must use not only economists but social scientists more broadly in order to understand the reluctance of people to adopt policies we find kind of obvious. And you know in terms of thinking as framework, and I’ve been pushing that of course, but you know thinking about the common good as a way of organising of sorts about public policy.
In any case I was thrilled to be giving this lecture, I look forward to your questions and thank you very much for your attention.
This week, we bring you this year's IFS annual lecture delivered by Professor Jean Tirole, Honorary Chairman of the Toulouse School of Economics.
In his talk, he discusses how economics can be used to shape narratives and help solve the biggest crises facing our societies and governments.
Jean Tirole is member-founder of the Toulouse School of Economics (TSE) and of the Institute for Advanced Study in Toulouse (IAST). He is also affiliated with the Massachusetts Institute of Technology (MIT), where he holds a position of Visiting Professor, and the Institut de France. He was awarded (solo) the Nobel Prize in economics in 2014 for his analysis of market power and regulation. He is also laureate of numerous other international distinctions, including the inaugural Yrjö Jahnsson prize of the European Economic Association (1993), the inaugural Frontiers of Knowledge Award of the BBVA Foundation (2008), the CNRS gold medal (2007) and Northwestern University’s Nemmers prize (2014). His research covers industrial organization, regulation, finance, macroeconomics and banking, and psychology-based economics.