today I want to talk to you about a
simple thing simplicity itself you see
in economics one of our guiding
principles is Occam’s razor
not bad Occam’s razor Occam’s razor is
the principle that if two explanations
of reality two descriptions of the world
around us two predictions of the future
are equally good then let’s choose the
simpler explanation the reason for that
principle is partly for our own sanity
that is it’s partly about the cognition
processes that you just heard Shelley
talk about we need to filter the world
because frankly there’s just too much
input with billions of people making
trillions of choices each and every day
it’s frankly impossible for a single
person a single computer or even a
single policy regime to be able to
decipher what’s going on and then to
decide what we should do to enable
better choices in the future so we have
to make some assumptions we have to
simplify the challenge of course is
where do you simplify people have a
tendency to simplify in the wrong places
and economists mostly being people also
have a tendency to simplify in the wrong
places you’ve all heard the jokes right
the classic joke is an economist a
chemist and a physicist are all stranded
on a deserted island and all they have
are the canned food salvaged from their
wreck the chemist says let’s submerge
the cans in salt water eventually
corrosion will eat through the metal and
we’ll be able to eat the contents the
physicist says that’ll take way too long
instead let’s launch the cans in the air
with sufficient force so that when they
come down from the app
of their trajectory they’ll land on the
beach smash open and we can get at the
contents The Economist says you’re both
missing the easy answer assume that we
have a can opener you should laugh it’s
a ridiculous response and yet it’s a
very human response why don’t we just
assume we already have the answer that
will save us that the arduous task of
problem-solving this indeed is the
fundamental challenge of simplicity how
do we make the right assumptions so that
we can see the situation clearly and not
just simplistically how do we assume
simplicity wisely as opposed to
foolishly this is exactly the task that
faces every innovator every entrepreneur
when they come to my class on innovation
the first thing I tell them is forget
about changing the world for now just
understand it try to describe it as
richly as fully as you can the world is
an incredibly complicated tapestry if
you try to pull out one string and say
this will do it the whole tapestry comes
apart so instead first understand and
then try to improve but where do we
start first you have to understand the
physical environment the social
environment the preferences of the
people involved if you don’t understand
those you’ll definitely come up with a
non solution but worse than that you
might actually solve a non problem that
is you might actually fix part of the
situation that people actually enjoyed
this is the challenge how do we simplify
well one of my favorite stories is
attributed to Niels Bohr Nobel Prize
winner when he was an undergraduate at
the University of Copenhagen apparently
one of the questions on his final exam
was
describe how you would determine the
height of a skyscraper using a barometer
his response probably apocryphal is so
beautiful I tell it to everyone I can
his response apparently went like this
to be boring you could measure the air
pressure at ground level then walk up
the stairs to the top of the skyscraper
measure the air pressure there and then
convert the difference in millibars into
feet that’s the answer
alternatively if you wanted to be a
little bit more creative you could walk
up to the top of the skyscraper drop the
barometer off measure the time it took
to hit the ground and calculate the
distance based on the appropriate
physics equation unfortunately you broke
your barometer alternatively you could
set the barometer on end measure its
height measure the length of its shadow
measure the length of the skyscraper
shadow and it’s a measure it’s simply a
question of proportional geometry
proportional math to figure out how tall
the skyscraper must be alternatively you
could tie a short piece of string to the
barometer swing it like a pendulum at
ground level swing it like a pendulum at
the top of the skyscraper and the
difference in the gravitational
restoring force will tell you the height
of the building alternatively the
simplest answer is simply walk to the
building custodians door knock and say
I’ll give you this barometer if you tell
it turns out that in order to be simple
you have to know a lot you have to know
all the appropriate pieces of the
environment you have to know science you
have to know social science you have to
know humanities you have to know oh my
gosh it’s hard to be simple and that’s
exactly the trap that an undergraduate
student and I walked into nearly 20
years ago when we first started thinking
about modeling the Olympic Games you see
everyone thought they knew how and why
each individual nation would win Olympic
medals if you talk to politicians it was
all about patriotism pride if you talk
to newscasters it was all about
competitive training regimes and your
nutritional schedule compared to other
athletes but for us the answer had to be
simple not so simple as simply
patriotism that seems foolishly simple
but there had to be a mathematical
simple model for us as economists that
means putting in economics as the stuff
that causes Olympic medals so where does
an economist begin well an economist
always begins with income for surely
rich nations win more medals than poor
nations don’t they to an economist that
seems like an obvious assumption I mean
first of all they can afford better
equipment better training better
nutrition but even at a baseline level
the populations from which those
athletes hail must surely have better
infrastructure better health care
actually just more ability to focus on
athletics as opposed to getting by until
the next day
so surely rich nations should win more
medals than poor nations no but to stop
there would be foolishly simple so what
else could matter
well we hypothesized let’s keep it to a
handful let’s say income matters
probably population matters if you’re a
large nation there’s a larger likelihood
that there will be world-class athletes
within that population and furthermore
political structure might matter the
ability for your country to marshal
resources together for a particular goal
climate could matter cold nations versus
hot nations and of course whether you’re
hosting the games or not should matter
because the home-field advantage is well
documented in sport Olympic or not
now the hilarious part is in economics
in order to write a simple bottle it has
to look like this this believe it or not
is an incredibly simple model so simple
that my co-author ifer Ali and I were
deemed kind of professional
laughingstocks
how could you even begin to believe that
this will do anything far too simple
what are you just assuming we have a can
opener so we took a geeky amount of
pleasure spending weeks months
collecting all the data on all past
Olympic Games trying to test our
assertions how did we do
well astonishingly well it turns out
that we got just the right combination
of knowledge simplicity and frankly luck
so that in that first run of the model
just before the 2000 Sydney games we
successfully predicted the Olympic medal
count with 87 percent accuracy that
actually just started the story because
over the succeeding two decades it’s
gone up to 97% what does this tell you
it doesn’t tell you that I’m smart it
just tells you that I did a lot of
research and I got really lucky but
together the two of us I Frawley and I
discovered some important truths we
discovered that income frankly was even
more important than we had thought it
for example Africa while it has 1/6 of
the world’s population has historically
only 1/2 percent of all Olympic medals
the United States while it has perhaps 4
percent of the world’s population
historically way over performs at the
Olympics 17 percent roughly of all
Olympic medals ever a lot of that
student coming if you count down nations
from the top of the medal standings if
you count down ten nations they’re all
rich and those ten win a full one-third
of all Olympic medals on offer in any
games that should sober you is the
playing field truly level we found that
on average a nation with $2,000 more in
GDP per capita income per capita if you
wish wins an additional Olympic medal
but of course income isn’t the only
thing that matters population matters to
an additional 10 million citizens adds
on average an additional Olympic medal
political structure works matters I say
works it turns out that single party
regimes authoritarian regimes military
regimes do much better than democracies
at the Olympic Games this is not policy
advice
I’m simply saying that it’s historically
true and of course the single most
important factor is are you hosting the
games the host nation traditionally wins
20 medals more than they would have won
were they not hosting the games but
think about that how often does a nation
talk about poverty as if I know I talk
about the income gap between rich and
poor as though I’ve personally been poor
and and that’s not true I mean I was a
graduate student so I do know what it
means to live on ramen noodles and
frozen peas but that’s not being poor
that’s being temporarily financially
constrained that’s different the only
way I know about poverty is through my
research so if you’ll permit me let’s
build a model together about the income
gap I know for example that if you lined
up the u.s. population from poorest
household to richest household on a
football field the median household in
the United States would earn about fifty
six thousand dollars that fifty six
thousand dollars would translate into a
stack of hundred dollar bills about two
and a quarter inches high compare that
to the poverty line which in the United
States right now is about seventeen
that’s maybe two thirds of an inch of
hundred-dollar bills and as you run
upfield toward the rich end of the
income distribution the 95th percentile
the five-yard line has an income in
excess of $200,000 for a household for a
family of four that’s about a stack of
eight inches of hundred-dollar bills as
you approach the goal line the richest
household in America
that stack of hundred dollar bills is
measured not in inches not even in feet
its measured in miles and this is for
the United States one of the richest
nations in the history of the world how
badly does it reset your mental model if
you realize that China’s median
household is almost exactly where our
poverty line is that is half the
households in China are living on less
than that two thirds of an inch and
China’s doing pretty well actually the
Democratic Republic of the Congo is
ninety five percent lower than that the
median household in the DRC is living on
three hundredths of an inch $800 a year
and those are dollars corrected for
purchasing power parity it really is as
if they’re living on $800 a year how is
that even possible I would argue it
forces you to reset your assumptions it
forces you to rethink your mental frame
what do you need and what do you want it
forces you to get really simple if you
only have $800 a year
it forces you to think very clearly
about what it means to be rich about
what it means to be hungry about what it
this mind resets this checking of your
internal assumptions is something I
would encourage you to do not just now
but regularly you see the theme of my
talk is simplicity and we make simple
assumptions all the time why well partly
because it’s fun who doesn’t like to
make a paper airplane simple models have
a have a joy about them they have a
finiteness about them they have a toy
like quality about they make life easy
they’re also extremely dangerous because
simple assumptions are contextual they
depend on the audience while this is a
great model for my children it would be
a horrible model for planning new
traffic patterns at O’Hare Airport think
about your assumptions before you
address the problem or the audience so
in the context of today’s suite of TEDx
talks I would encourage you to mind the
gap not just in terms of boarding a
subway train mind the gap between your
assumptions and reality mind the gap
between rich and poor think about the
gaps in electrical coverage in parts of
the world that you and I have not
visited think about the gaps in the
roads that have been washed away think
about the gaps in the availability of
clean water or vaccinations mind the gap
because it’s huge do you know for
example that the median household
globally earns ten thousand dollars a
year that’s a household folks if your
household earns more than thirty four
thousand dollars a year you’re in the
richest 1% so
do you mind the gap I would encourage
you to mind it daily and yet don’t mind
it so much that you can’t collaborate to
close it that you can’t reach a hand
across it mind the gap so that it
bothers you but doesn’t paralyze you
keep the simple model when you need it
but remember to constantly refresh check
verify your assumptions do I mind the
gap every day that’s what gets me up and
makes me go to work but in my mind the
gap is important because it’s worth
bridging mind the gap and let’s get out
there and build bridges thanks
[Applause]
you [Music]