there’s a burgeoning need in America for
greater understanding of economics our
collective lack of knowledge about
topics such as finance markets public
policy resulted in an economic growth
rate that is too low to meet our
nation’s needs our economy is also
failing to provide equitable wealth
distribution to our citizens our
economic problems are big and complex
and if we are going to solve them in a
framework of a democracy and free market
capitalism then individuals acting as
citizens and consumers must make good
choices now I believe that democracy and
free markets are the most powerful
systems ever devised for meeting
society’s needs but a large-scale
improvement in our decision-making
ability will only be achieved through a
greater focus on choice making at the
secondary school level therefore I
propose the development of a three year
course of study based on behavioral
economics and that this course be made a
requirement for graduation for all
American high school students a rich
understanding of behavioral economics
will empower individuals to make better
personal choices and empowered citizens
making good choices is a necessary first
step in resolving our nation’s most
critical problems on this slide I have
listed some of our most pressing
national economic issues this is not an
exhaustive list I just ran out of room
but I think you get the idea there are a
lot of them
and they are all quite complex on this
slide I’ve listed some individual or
household economic issues you may have
noticed that healthcare makes both lists
total spending on health care in this
country accounts for 18 percent of our
total gross domestic product that’s over
3 trillion dollars every year or more
than $10,000 for every woman man and
child in our country and these numbers
are rising rapidly the trade association
representing the healthcare industry
estimates that fully 70% of all of this
money goes to treat conditions that are
caused by lifestyle choices put simply
vast resources are being allocated to
pay for the results of bad decisions the
point here is that health care and all
of these other national and personal
issues are not only economic in nature
they are also behavioral and that is why
I’m promoting a study of behavioral
economics at the high school level
now behavioral economics has enjoyed a
surge in popularity recently Richard
Taylor a behavioral economics professor
from the University of Chicago was
awarded the Nobel Prize in Economics
last year Taylor’s work is heavily
influenced by the work of Daniel
Kahneman in his longtime collaborator
the late Amos Tversky
Hahnemann is a psychologist who never
took a course in economics nevertheless
he was awarded the Nobel Prize in
Economics in 2002 now these researchers
have extensively demonstrated that we
consistently make decisions that are
opposed to our own economic interests
and in many cases we’re making these
decisions all the while believing we are
being totally rational at the time these
researchers have also extensively shown
that many of these bad decisions are
predictable
and I argue that if their predictable
and shouldn’t we learn to be able to
avoid many of them or maybe make better
account for them or maybe just increase
our sensitivity to our own shortcomings
so behavioral economics starts with the
premise that humans are not rational
this is a big departure from the
traditional approach to the subject of
economics you see the cornerstone of
traditional economic thought is
something called rational agent theory
this is based on the premise that humans
are rational consistent over time and
mostly selfish rational agents are good
predictors and they use good judgment
they behave in a way the results in the
best personal economic outcomes like mr.
Spock the Vulcan from Star Trek they are
completely logical
Thaler refers to these theoretical
agents as econ’s now we all know that
humans are afflicted with bias seeds and
blind spots and we’re bad intuitive
statisticians and unlike mr. Spock
sometimes we behave irrationally it’s a
universal fact of the human condition
that many of our most important choices
in life will be unduly influenced by
factors that are utterly on console to
our situation at the moment let me give
you a couple of examples of how all this
stuff works the first comes from Duke
University a business professor randomly
assigned two versions of a course
evaluation questionnaire to his students
Duke routinely uses these questionnaires
to measure the effectiveness of its
teachers these questionnaires were short
and they were identical except for one
question toward the end half the forms
asked for the students to provide two
ways in which the
course could be improved and at left
space for two answers the other half of
the form asked for 10 ways the course
could be improved and at left room for
10 answers all students were then asked
to rate the course overall using a scale
of 1 to 7 the students that were asked
to provide 10 answers consistently rated
the course higher than those who were
asked to provide only two answers you
see making a list of 10 improvements is
mentally difficult the subconscious
effect was since it was difficult to
fill in all of the blanks the course
must be pretty good
so they rated the course higher on the
other hand filling in two blanks is not
that difficult and the subconscious
effect was that it’s since it’s so easy
to come up with two answers to this
question the course must need some
improvement they rated the course lower
now there are two takeaways they’re very
important from this the first is this
type of question on a short
questionnaire should not have affected
the overall evaluation of a student in a
logical world in a second and I think
more interesting takeaway is that by
asking for more criticisms the professor
could predictably garner a higher
evaluation score the second example
comes from Thaler early in his teaching
career he gave a midterm to his
economics class that made all of his
students mad at him he wanted to
identify three categories of students
the Stars at the top who mastered the
material the middle group who grasped
the basic concepts and then a third
group who just didn’t get it at all he
devised a test with a hundred points
possible that accomplished his goal the
problem with it is the average score was
only 72
and this made all of the students upset
Thaler explained he would use a generous
kerb when applying grades that any score
above an eighty would garner an A and he
score about sixty five would get a B and
any score above fifty would get a C
nevertheless all categories of students
thought that the torte the test was too
difficult and unfair
Thaler was a young teacher at the time
and worried about job security he was
motivated to avoid some of those bad
course evaluations himself so for the
next exam he devised a test that had a
hundred and thirty seven points possible
this test also achieved the goal of
identifying the three categories of
students the average score in this test
was 96 the students were delighted this
test was actually harder than the first
test because 96 out of 137 is 70% the
same students who were upset about
getting a 72 we’re quite happy about
getting a 96 out of 137 the second time
around I can hear the excited phone
calls to their parents now mom dad I got
a 96 on my econ exam now Yukons would
never behave this way but college
students studying economics at a good
college predictably behaved this way
year after year I think we can all
identify with these two groups of
students like many of us or you they did
well in high school they went to a good
college where they were studying
Business and Economics so they had some
exposure and experience with
quantitative reasoning nevertheless they
exhibited biases that were subconscious
counterintuitive and ultimately
predictable this is only a tiny sampling
from the literature
but I hope you see that behavioral
economics is interesting and it’s
accessible that’s even fun because we
are finally finally studying us
ourselves not theoretical models and
agents we should use statistical tools
to augment our study we do live in the
age of big data but behavioral economics
is not based on difficult mathematics
this is the approach they’re similar to
that of Adam Smith the father of
capitalism Smith was not a mathematician
that he was an astute open-minded
observer of human behavior now to be
fair economists have always known deep
down in their heart that humans aren’t
really rational I should say at this
point that marketers pollsters
politicians lawyers judges doctors the
police and criminals they also know this
too they rely unpredictable
irrationality the ply their various
trades and not always for the cause of
good but somewhere along the line
mainstream economists became enthralled
with mathematics and while this may have
made the field less crowded it became a
big barrier to entry into a field in
which all of us must engage at some
level so acknowledging that human
behavior is not rational it’s not a
revolutionary idea but it has tremendous
potential as yet untapped to educate our
citizens especially when they are in
those precious years of early adulthood
you see we may be irrational
but we are teachable presently economics
is a typically offered as a one-year
elective in high school if is if it is
offered at all the most rigorous courses
such as the AP economics class offered
here at Deerfield will resemble the
first-year introductory college course
the textbook used in these classes
typically resembles the classic tome
economics written by the venerable
economist Paul Samuelson this textbook
was first published in 1948 and it
stayed in print for over 50 years it is
by far the largest selling textbook ever
written in any subject Samuelson was the
first American to win the Nobel Prize in
Economics in 1970 New York Times
referred to him as the foremost academic
economist of the 20th century
clearly he left his mark but this is no
longer the 20th century and the
mathematics and tensy principles
espoused by Samuelson and the other
Giants in the field which I toiled as a
student may have gotten us to where we
are today but they real equipped to
propel us forward
I’ve studied economics for over 40 years
and I believe that now is the time to
redefine its foundational principles
this will give us the opportunity to
redefine our national educational
objectives in a way that immediately and
profoundly affects and benefits
individuals in society right now as you
know high school students are required
to take English almost every year that
they’re in high school they’re also
required to take history and math and
science all of these are important
courses I am a fervent advocate of a
liberal arts education but if we look
closely at ourselves in our culture no
subject is more relevant at this time
than an enlightened approach to
economics
and we can’t afford to wait for our
citizens to study it in college because
many of them never get to college but
the rights and responsibilities of
citizenship are conferred upon us all
therefore we must make economic literacy
at the high school level a top national
priority this makes this a big idea but
it will be less costly and vastly more
effective in the long run in maintaining
the status quo or trying to devise
policies and regulations that mandate
the way we behave if you’ve heard of the
recent initiatives to promote stem based
courses you know that the effort to
redefine high school education are
already underway there’s also an
initiative in my home state of Kansas
that promotes vocational training and
decreases the requirements for subjects
such as the humanities the stated
objective of these initiatives is to
train suit citizens to become marketable
suppliers of labor to the economy of the
future to close the skills gap in other
words and to do so without necessitating
the cost of a college degree closing the
skills gap merits consideration and I
argue that none of our most imminent
threats to our national well-being can
be resolved by a greater understanding
of engineering and technology if we
cannot first learn to make good choices
I’ve heard many times the objective of a
liberal arts education stated as helping
students learn to how to think this is a
really good description I’ll stick with
that but our standards for thinking
constantly need to be updated and
revised and redefined behavioral
economics offers us the opportunity
to do just that I invite you to join me in making this choice thank you
greater understanding of economics our
collective lack of knowledge about
topics such as finance markets public
policy resulted in an economic growth
rate that is too low to meet our
nation’s needs our economy is also
failing to provide equitable wealth
distribution to our citizens our
economic problems are big and complex
and if we are going to solve them in a
framework of a democracy and free market
capitalism then individuals acting as
citizens and consumers must make good
choices now I believe that democracy and
free markets are the most powerful
systems ever devised for meeting
society’s needs but a large-scale
improvement in our decision-making
ability will only be achieved through a
greater focus on choice making at the
secondary school level therefore I
propose the development of a three year
course of study based on behavioral
economics and that this course be made a
requirement for graduation for all
American high school students a rich
understanding of behavioral economics
will empower individuals to make better
personal choices and empowered citizens
making good choices is a necessary first
step in resolving our nation’s most
critical problems on this slide I have
listed some of our most pressing
national economic issues this is not an
exhaustive list I just ran out of room
but I think you get the idea there are a
lot of them
and they are all quite complex on this
slide I’ve listed some individual or
household economic issues you may have
noticed that healthcare makes both lists
total spending on health care in this
country accounts for 18 percent of our
total gross domestic product that’s over
3 trillion dollars every year or more
than $10,000 for every woman man and
child in our country and these numbers
are rising rapidly the trade association
representing the healthcare industry
estimates that fully 70% of all of this
money goes to treat conditions that are
caused by lifestyle choices put simply
vast resources are being allocated to
pay for the results of bad decisions the
point here is that health care and all
of these other national and personal
issues are not only economic in nature
they are also behavioral and that is why
I’m promoting a study of behavioral
economics at the high school level
now behavioral economics has enjoyed a
surge in popularity recently Richard
Taylor a behavioral economics professor
from the University of Chicago was
awarded the Nobel Prize in Economics
last year Taylor’s work is heavily
influenced by the work of Daniel
Kahneman in his longtime collaborator
the late Amos Tversky
Hahnemann is a psychologist who never
took a course in economics nevertheless
he was awarded the Nobel Prize in
Economics in 2002 now these researchers
have extensively demonstrated that we
consistently make decisions that are
opposed to our own economic interests
and in many cases we’re making these
decisions all the while believing we are
being totally rational at the time these
researchers have also extensively shown
that many of these bad decisions are
predictable
and I argue that if their predictable
and shouldn’t we learn to be able to
avoid many of them or maybe make better
account for them or maybe just increase
our sensitivity to our own shortcomings
so behavioral economics starts with the
premise that humans are not rational
this is a big departure from the
traditional approach to the subject of
economics you see the cornerstone of
traditional economic thought is
something called rational agent theory
this is based on the premise that humans
are rational consistent over time and
mostly selfish rational agents are good
predictors and they use good judgment
they behave in a way the results in the
best personal economic outcomes like mr.
Spock the Vulcan from Star Trek they are
completely logical
Thaler refers to these theoretical
agents as econ’s now we all know that
humans are afflicted with bias seeds and
blind spots and we’re bad intuitive
statisticians and unlike mr. Spock
sometimes we behave irrationally it’s a
universal fact of the human condition
that many of our most important choices
in life will be unduly influenced by
factors that are utterly on console to
our situation at the moment let me give
you a couple of examples of how all this
stuff works the first comes from Duke
University a business professor randomly
assigned two versions of a course
evaluation questionnaire to his students
Duke routinely uses these questionnaires
to measure the effectiveness of its
teachers these questionnaires were short
and they were identical except for one
question toward the end half the forms
asked for the students to provide two
ways in which the
course could be improved and at left
space for two answers the other half of
the form asked for 10 ways the course
could be improved and at left room for
10 answers all students were then asked
to rate the course overall using a scale
of 1 to 7 the students that were asked
to provide 10 answers consistently rated
the course higher than those who were
asked to provide only two answers you
see making a list of 10 improvements is
mentally difficult the subconscious
effect was since it was difficult to
fill in all of the blanks the course
must be pretty good
so they rated the course higher on the
other hand filling in two blanks is not
that difficult and the subconscious
effect was that it’s since it’s so easy
to come up with two answers to this
question the course must need some
improvement they rated the course lower
now there are two takeaways they’re very
important from this the first is this
type of question on a short
questionnaire should not have affected
the overall evaluation of a student in a
logical world in a second and I think
more interesting takeaway is that by
asking for more criticisms the professor
could predictably garner a higher
evaluation score the second example
comes from Thaler early in his teaching
career he gave a midterm to his
economics class that made all of his
students mad at him he wanted to
identify three categories of students
the Stars at the top who mastered the
material the middle group who grasped
the basic concepts and then a third
group who just didn’t get it at all he
devised a test with a hundred points
possible that accomplished his goal the
problem with it is the average score was
only 72
and this made all of the students upset
Thaler explained he would use a generous
kerb when applying grades that any score
above an eighty would garner an A and he
score about sixty five would get a B and
any score above fifty would get a C
nevertheless all categories of students
thought that the torte the test was too
difficult and unfair
Thaler was a young teacher at the time
and worried about job security he was
motivated to avoid some of those bad
course evaluations himself so for the
next exam he devised a test that had a
hundred and thirty seven points possible
this test also achieved the goal of
identifying the three categories of
students the average score in this test
was 96 the students were delighted this
test was actually harder than the first
test because 96 out of 137 is 70% the
same students who were upset about
getting a 72 we’re quite happy about
getting a 96 out of 137 the second time
around I can hear the excited phone
calls to their parents now mom dad I got
a 96 on my econ exam now Yukons would
never behave this way but college
students studying economics at a good
college predictably behaved this way
year after year I think we can all
identify with these two groups of
students like many of us or you they did
well in high school they went to a good
college where they were studying
Business and Economics so they had some
exposure and experience with
quantitative reasoning nevertheless they
exhibited biases that were subconscious
counterintuitive and ultimately
predictable this is only a tiny sampling
from the literature
but I hope you see that behavioral
economics is interesting and it’s
accessible that’s even fun because we
are finally finally studying us
ourselves not theoretical models and
agents we should use statistical tools
to augment our study we do live in the
age of big data but behavioral economics
is not based on difficult mathematics
this is the approach they’re similar to
that of Adam Smith the father of
capitalism Smith was not a mathematician
that he was an astute open-minded
observer of human behavior now to be
fair economists have always known deep
down in their heart that humans aren’t
really rational I should say at this
point that marketers pollsters
politicians lawyers judges doctors the
police and criminals they also know this
too they rely unpredictable
irrationality the ply their various
trades and not always for the cause of
good but somewhere along the line
mainstream economists became enthralled
with mathematics and while this may have
made the field less crowded it became a
big barrier to entry into a field in
which all of us must engage at some
level so acknowledging that human
behavior is not rational it’s not a
revolutionary idea but it has tremendous
potential as yet untapped to educate our
citizens especially when they are in
those precious years of early adulthood
you see we may be irrational
but we are teachable presently economics
is a typically offered as a one-year
elective in high school if is if it is
offered at all the most rigorous courses
such as the AP economics class offered
here at Deerfield will resemble the
first-year introductory college course
the textbook used in these classes
typically resembles the classic tome
economics written by the venerable
economist Paul Samuelson this textbook
was first published in 1948 and it
stayed in print for over 50 years it is
by far the largest selling textbook ever
written in any subject Samuelson was the
first American to win the Nobel Prize in
Economics in 1970 New York Times
referred to him as the foremost academic
economist of the 20th century
clearly he left his mark but this is no
longer the 20th century and the
mathematics and tensy principles
espoused by Samuelson and the other
Giants in the field which I toiled as a
student may have gotten us to where we
are today but they real equipped to
propel us forward
I’ve studied economics for over 40 years
and I believe that now is the time to
redefine its foundational principles
this will give us the opportunity to
redefine our national educational
objectives in a way that immediately and
profoundly affects and benefits
individuals in society right now as you
know high school students are required
to take English almost every year that
they’re in high school they’re also
required to take history and math and
science all of these are important
courses I am a fervent advocate of a
liberal arts education but if we look
closely at ourselves in our culture no
subject is more relevant at this time
than an enlightened approach to
economics
and we can’t afford to wait for our
citizens to study it in college because
many of them never get to college but
the rights and responsibilities of
citizenship are conferred upon us all
therefore we must make economic literacy
at the high school level a top national
priority this makes this a big idea but
it will be less costly and vastly more
effective in the long run in maintaining
the status quo or trying to devise
policies and regulations that mandate
the way we behave if you’ve heard of the
recent initiatives to promote stem based
courses you know that the effort to
redefine high school education are
already underway there’s also an
initiative in my home state of Kansas
that promotes vocational training and
decreases the requirements for subjects
such as the humanities the stated
objective of these initiatives is to
train suit citizens to become marketable
suppliers of labor to the economy of the
future to close the skills gap in other
words and to do so without necessitating
the cost of a college degree closing the
skills gap merits consideration and I
argue that none of our most imminent
threats to our national well-being can
be resolved by a greater understanding
of engineering and technology if we
cannot first learn to make good choices
I’ve heard many times the objective of a
liberal arts education stated as helping
students learn to how to think this is a
really good description I’ll stick with
that but our standards for thinking
constantly need to be updated and
revised and redefined behavioral
economics offers us the opportunity
to do just that I invite you to join me in making this choice thank you
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