The transcript from this week’s MiB Judd Kessler, Lucky by Design, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
[00:00] Barry Ritholtz: This week on the podcast, another extra special guest, Judd Kessler, Wharton professor, author of Lucky by Design, tells us about market design, how we allocate scarce resources for everything from Taylor Swift tickets to kidneys. I thought the book was really interesting, kind of wonky economic analysis, but fascinating and the conversation absolutely fascinating.
Also, with no further ado, my interview of Professor Judd Kessler. So I found the book to be really fascinating. Look at market design, which is an area that we don’t usually think about. We’ll talk about the book in a few moments. I wanna start with your background. Bachelor’s, master’s and PhD from Harvard, but that wasn’t enough.
[00:49] Judd Kessler: You get a master’s in philosophy from Cambridge. What, what was the career plan? So the career plan was to go to college and then find a career, not in academia. That was not something that I even thought of as an option. I was an econ major. I thought I’d be a consultant. I accepted a Bain New York offer to take after graduation, but senior year of college, I wrote a thesis under a supervisor named Alvin Roth, and I loved it.
It was my first experience doing research, and I thought, this is really fun. I’m on the cutting edge of this topic that I chose that interests me, and so that made me think, all right, maybe I should give it a shot. So that was the trip to Cambridge, England was me doing an M fill in economics to see. is this something that I might want to pursue as a career?
I didn’t love the pedagogy in England, so I, the courses I wasn’t enjoying. But every day I’d come home and think, oh, there’s some research questions that, that lecture prompted. And I realized, oh, the research is keeping me engaged in this program. Even though I don’t love the coursework, I probably should be doing this full-time.
[02:14] Barry Ritholtz: What was the research topic in your senior year that led you to heading to England? So it was a experiment. So I’m an experimental economist. Most of my, not all of it, but most of my research is experimental, meaning undergrads are coming into the lab, playing a game I’ve designed, or, we’re doing some experimentation in the field where people are going about their lives.
[02:40] Judd Kessler: They don’t realize that half of them are getting one version of an experience and half are getting the other, and we’re seeing what the effect is. So my undergrad thesis was trying to understand how pairs of people could. Contribute to public goods, to things that benefited both of them. And I learned about everything that I could learn about public good provision.
And I varied both the structure of the game and how the benefits of the public good were split across people. And this, was something that had never been done before. And my advisor, Al, was very encouraging, enthusiastic, funded the research study. And I had this experience of looking at the data and thinking, this is the, the first, I’m the first person I’m on the frontier.
I’m, I’m not, I’m never gonna be a, an astronaut, but I’m on the frontier here exploring the answer to this question that interests me. ,I’m looking at the data and discovering the answer. So this sounds like it’s a cross section of game theory and behavioral economics. Fair, fair description. Exactly right.
And. It w it was, it’s a paper. I, I’ve since become an academic and I’ve been writing research papers for a long time. This one was never published. And the reason was that in my twenties and even into my thirties, I didn’t really know how to motivate it. I didn’t know what it was about.
[04:15] Barry Ritholtz: at a deep level. I knew what I had done, and I knew that it was new and different. ,but I finally cracked the code in my late thirties, because what I had studied, unbeknownst to me was how couples allocate effort to construct, public goods in their household. Does that mean who cooks?
[04:37] Judd Kessler: Who cleans, who gets the kids, who basically pays the bills? Is it just that simple? Exactly. Well, it’s, it’s, the game was we each put in some effort. Sometimes the production is split evenly between the two, and sometimes it’s split unevenly. So one person gets more of the output and some per, and the other person gets less.
And what I found was that. In some structures where we each have to match each other’s contribution to generate an output, then the inequality didn’t matter. Pairs of people, these are random strangers, they’re able to contribute at high levels. It’s when we’re contributing to the public good and one of us can cut back and kind of free ride off of the other one, when we split it equally, we’re able to sustain with the pair high levels of contribution.
[05:33] Barry Ritholtz: But when we’re split unequally and one of us can free ride off each other, the contribution collapses. I was gonna say that sounds like a rep recipe for a divorce. Well, I I, the reason I was able to later understand what I had studied in, in my twenties was those are the situations where my wife and I have conflicts when we both need to contribute for the public good to be provided.
[06:03] Judd Kessler: Like we both have to be diligent with. Bedtimes with our kids because if one of us slips, then the kids schedule slip, run ’em up, slip up, then it doesn’t matter if I care more about that or my wife, we kind of both realize we have to be at the same level or, or we both lose. Where, where does it sort of, where does that gap between effort Yeah.
Show, how does that manifest? So if one of us cares more about, say, the kids eating vegetables, right. So for hypothetical, keeping the house neat, but Yeah. Yeah. The, for us it’s the, the health healthful eating one of us might care more than the other. And in that case if my wife cares more and I free ride off of her, she fed them a healthy lunch, say yesterday, then I can feed them a less healthy dinner when it’s my turn.
[07:06] Barry Ritholtz: That’s where the recipe for disastrous, those, those are omissions. What about commiss missions? How, what about doing things positively where one of you might slip? How does that manifest? most of the things I’m thinking of are like, are we giving them too much screen time? Oh, I guess we could, it could be, reading them books at night.
[07:30] Judd Kessler: so we both care a lot about this, so, we’ll, we’ll do it. But if if one of us cared more, that would be a recipe for disaster because that person would read to the kids and the other person would say what? Like, oh, you got read to last night, I won’t do it. Right. And that’s when the, the trouble, yeah.
That’s when trouble started. So I, that was my, my first academic research was exploring those kinds of dynamics in two person games. How do you go from that to studying market design? So this was, Alvin Roth, the, the, mentor that I mentioned. He was my undergrad thesis advisor. And when I was getting my PhD, I committed a kind of sin of ac academic sin, which is, you’re not supposed to go back to the institution.
[08:29] Barry Ritholtz: You did your undergrad degree right. To get your PhD. But I wanted to work with Al, so I kind of, I cheated a little bit. I, I went back to Harvard, but it was technically a Harvard Business School, PhD joint with the econ department. So I pretended, oh, I’m getting a different angle on this. Right. I ended up being helpful because being at the business school helped me transition to my current job as a Wharton professor.
[09:00] Judd Kessler: But I went back to work with Al and he was doing both, he was doing experimental work and he was doing market design work, and I had gotten exposure to both of them, in his course courses as an undergrad and, and, early PhD student. And the research that kind of transitioned me was on Oregon.
Donation and organ allocation. The book has some fascinating data points on that. We’ll talk about that in a bit. I wanna stay with your background. You end up winning the Vernon Smith Scholar Prize in 2021. What work was that for? So that was for a line of work, starting with this organ allocation work.
[09:43] Barry Ritholtz: Because that was, both a public good study, like I described in the, the earlier work, and policy relevant. And so the Vernon Smith Prize is for somebody who’s contributed with experimental research in a bunch of areas. And I had I’d done that, I’d done that in organ allocation, I’d done that in course course allocation.
[10:07] Judd Kessler: I had done work on summer youth employment, but kind of always with this experimental lens to try to understand. what the effects were. And what’s kind of fascinating is you’re clicking off a lot of chapters in the book, which are, how do we allocate scarce resources when there are a variety of different ways to do it?
Sometimes it’s lottery, sometimes it’s effort. sometimes it’s people paying more to get it, which really is, I, I never thought of those things as market design. And yet most people look at those things as just, Hey, you got lucky. You, you got the summer job or the course you wanted. Yep. Or the kidney you needed because you signed up.
A big theme of the book is, Hey, this isn’t luck. This is recognizing all of these. Market design structures and figuring out the rules and playing them as well as you can. Exactly right, and I, in the book, I call these hidden markets because they’re not the markets that we always think of when we think of markets.
[11:18] Barry Ritholtz: We think of the farmer’s market where you’re paying a price for produce. We think of the stock market where you’re paying a price for equity and publicly traded companies, but there are all of these markets where you’re trying to allocate a scarce resource. You might have a price that gets paid, but it’s not doing all of the work.
[11:42] Judd Kessler: There’s something else that is deciding who gets access to the scarce resource. And then there are markets where there is no price. We’ve decided that we want to do the allocation without having folks pay. We wanna distribute it in some other way. And these are areas that market design thinks about, but that a standard econ class, like the ones I teach to my undergrads, or MBA students or executives.
Would not necessarily cover. So other than the students in your Wharton class, how can individuals become more aware of all of these hidden market mechanisms and use them to their best advantage? Yeah, so the first step is recognizing that these things are markets. You want access to something, it’s scarce.
There is a limited amount that can be allocated, and you’re competing with lots of other people who want them. Examples might make it more concrete because we’re thinking about things that people participate in every day, these markets. So you wanna get a reservation at a hot restaurant, you want to get a ticket to a live event.
You want to get a product that is hard to come by either a clothing special clothing drop, or this summer it was labu boos, the, ugly, cute stuffy dolls. But you could think of Beanie babies or, or cabbage patch dolls. If you’re as old as me and. In these cases, there is a price that you pay, but there’s also some other ordeal that you may have to go through to get access to those scarce resources.
[13:25] Barry Ritholtz: Same thing with benefits or or services provided by the government. You want to get your kid into public elementary school, you wanna get a library book, you want to get a lifesaving organ transplant. These are environments where you have to understand, okay, what is the rule that is doing the allocation?
[13:45] Judd Kessler: And then how can you use your knowledge of that rule to figure out the right strategy? Y your daughter trying to get into her favorite afterschool program really resonated. ’cause it, it was such a little niche thing. ,it’s just one of those everyday life frictions. You don’t really think of those as markets that have been designed, but you do a really nice job explaining.
Any allocation of scarce resources is a market decision. Exactly. And that one is one of the bains of my existence. I have to, it’s a first come first serve race, which is what I call the experience that folks have on a regular basis of there is a scarce resource. It is being made available at a point in time and whoever clicks first gets it, whoever calls in first in, in different market structures, is the one who can claim that scarce resource after school programs.
[14:45] Barry Ritholtz: At my daughter’s elementary school, this is what the kids are doing between two 30 when school lets out and five 30 when working, parents can pick them up. There are some very popular classes, for the kids to, to do during those hours, but there are a lot of kids who want to participate in them. And so every semester they will say, okay, on June 12th at 10:00 AM we’re gonna release all of the fall semester courses and whoever.
[15:18] Judd Kessler: Clicks to claim the spots in those classes first will get them and everybody else will be disappointed. And it is a first come, first serve race. And I, I like the race, analogy because I don’t do a ton of cardio and this is where my heart races faster than this is fight or flight because I know I’m competing with all these other parents who want to get their kids into these classes.
[15:48] Barry Ritholtz: And if my daughter gets what she wants, mornings are wonderful. And if she doesn’t, it’s I don’t want to go to school today. There’s some, you, you seem to have an advantage. ’cause there are some fascinating strategies here. Hey, maybe you don’t start with the Monday classes. Maybe you do Tuesday, Wednesday, Thursday.
[16:10] Judd Kessler: Because they’re gonna fill up while everybody’s racing again Monday. And if you’re disappointed in Monday, but you’ve locked in the three ones for the rest of the week there, there’s an advantage thinking about how the rest of the participants are playing the game. This is exactly right. So the, the all game theory, all it’s all game theory.
And I wrote a book about game theory. I didn’t use the term game theory ’cause I didn’t wanna scare people off, but it’s, it’s, it’s thinking about what it is that you want and then what it is that other folks might be going for and developing the, the right strategy for that. Now first come, first serve races.
There’s a bunch of strategy that is kind of maybe obvious when you think about it, of, okay, you have to know that it’s a race. You have to know that this is a situation where you need to be available to click as fast as you can at that time. Right? When, when I get the email and it says June 12th at 10:00 AM is when registration opens.
Even if I’ve never participated. In the registration for these afterschool classes. The 10:00 AM tips me off that something is going on. At my son’s school where the classes are not as demanded. There is no 10:00 AM there might be a time when the registration begins, but nobody really cares about it because you can go whenever you want that day or later in the week and there’s plenty of options available.
[17:54] Barry Ritholtz: But at this market, the 10:00 AM tells you, alright, by 10 0 1 or 10 0 2, the good stuff might be taken. Did your wife ever get to the French laundry in Napa? This was a first come first serve race that I, talk about in the book. ,it’s four milestone birthdays only ’cause it’s so expensive. So little pricey.
[18:18] Judd Kessler: Yeah. In the book, I, I talk about how we did not get it, for her 40th birthday, so she will try again when she’s 50. I, I was reading that and using your strategy immediately, thought, oh, you’re flying out just for a weekend. Four o’clock is essentially seven o’clock in New York. Why not do four or four 30 and bang, they’re, they’re good to go.
This is exactly, so the, the strategy to play there is to think about what I call settling for silver versus going for gold. So the settling for silver strategy is that seven o’clock or seven 30 is the most desirable time to eat, at least for regular people, not in retirement communities.
That’s the, the ideal time. If you’re gonna go on a Saturday, that is what most people are gonna be aiming for. When I went for her 40th birthday to try to register, I knew it was a race. I knew when the starting gun was going off, I was there, my heart was beating fast, and I went first for the seven 30 reservation page, reloads.
I don’t get it. And I see that four 30 is still available. So I click for four 30 thinking it’s better than nothing. And the page reloads and that is also gone. So struck out there. That’s why we’re waiting a decade. To your point, if I had, I was doing it as a surprise for my wife. If I had planned and talked to her about it in advance, we might have recognized four or four 30 is just, is nearly as good.
If you’re an east coaster, it’s nearly as good as seven 30. Right? And that’s the kind of situation where you want to settle for silver, where you want to go for something where there’s less competition. Again, the game theory coming in, fewer people are gonna be going for 4, 4 30. That is something that you actually have a much better shot at if you go for it first.
[20:33] Barry Ritholtz: You have to act as if that is what you wanted all along, right? Because when the page reloads the first time, four 30 is still available. Meaning if instead of going for seven 30, I’d gone for four 30 initially as if it was my first choice. She would’ve been able to cross French laundry off the bucket list.
[20:56] Judd Kessler: There you go. Aside from the East coast, west coast, difference. Post pandemic. My wife likes to point out that you use apps like OpenTable or Resi, and she says six 30 is the new seven 30. ’cause everybody wants to get home and stream whatever they’re streaming. It’s so different than it was in the 2010s.
And I’m like, am I just getting old? Are we gonna start going to the early bird specials? She’s like, no, no one wants to have dinner at 10, 9, 10 o’clock at night. I, I believe that. And at the French Laundry, the meals take forever. So getting out of there early four 30 gets you out at nine, 10 o’clock.
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[22:35] Barry Ritholtz: lotteries wait lists, queues, scoring rules, algorithms. Norms. Explain this concept that luck by design may really be based on some hidden economic rules. Yeah, so the way the markets operate, there’s a set of rules that decides who gets what. So we talked about. First come, first serve races. But as you point out, there’s first come, first serve waiting lists.
[23:00] Judd Kessler: There’s lines, there are lottery systems where you’re putting your name in the hat and we’re pulling people out. And then there are centralized clearing houses where you might rank your preferences over ,things you want. And then there’s some priorities or rules in, in the background. And I have this sense that people look at these systems and they don’t have a framework for thinking about them.
And so when they participate in these markets, they don’t really realize they’re doing so, and then the outcomes seem like they’re based on chance, or they try to understand them and they struggle and they feel overwhelmed and stressed out, and then play a strategy that might not be right for them.
And then they look around and they think, oh man, that person got what they wanted. I didn’t, they must have been lucky. Because if you don’t understand the system, then it all seems. Like it’s happening by chance. But by understanding the rules that are applying in each market, you then can recognize, okay, this is a situation where it’s a first come, first serve waiting list.
So I have to put my name down early. Then I have to think about the strategy I’m gonna play when it’s my turn. Do I take what’s offered to me? Do I keep waiting? And you have a, develop a framework for, for that. Even in lottery allocations, which we often think of as being the ones that are based entirely on chance.
If you understand the rules, you can develop strategies that help you do better. So you want to go see a theater production and there’s gonna be a ticket lottery. You can go, you can enter your name for two tickets, but maybe you can bring your friend that you’re gonna go see the show with, or your partner and you both enter.
[25:04] Barry Ritholtz: Now you have twice as many chances. Maybe you get a bunch of friends who work nearby to enter maybe it’s online, they enter for you. If they lose, they lose. But if they win, they come down to the theater, pick up the tickets and give them to you, all of a sudden now you’ve dramatically increased your chances of winning.
[25:29] Judd Kessler: These are technically allowed often by the rules. Sometimes you can enter a lottery in years you intend to lose because the system rewards you in subsequent years for prior losses. It’s trying to be fair over time. And so the rules are if you have lost nine years in a row, then in your 10th year you’ll get 10 entries or a hundred entries or a thousand entries relative to someone who’s entering for the first time.
[26:01] Barry Ritholtz: Or maybe you win the lottery in a year, you don’t want to win, and you defer what you get for a year. And now you basically get to enter this year in the hopes of deferring for next year. And if you lose this year, you get to enter next year for the chance of getting whatever it is next year. So you’ve gone to school at Harvard and Cambridge, you teach at University of Pennsylvania.
[26:31] Judd Kessler: When we look at college admissions mm-hmm. Yeah, that seems to be like a mess of everything. Some credentials, some skill, some checking the boxes. Yeah, a little bit of lottery, a little bit of early admission. First come, first serve. What do you think of that entire college admission process? What’s driving that design?
Yeah, so that is what I call a choose me market. It’s a two-sided market where it’s, as you point out, it’s not as simple as any one rule. It’s not like whoever applies first to the school gets it, or they’re, they’re gonna totally pick people by lottery. They have a strategic decision. As an institution, I, maybe I should say we as a employee of one of these, ,institutions, but the features of a Choose Me market of a two-sided market are that there are market participants on both sides.
So for college admissions, there’s applicants who are trying to get into the colleges. And then there are colleges who, that are deciding, who am I gonna admit? We’re trying to make a class of smart motivated, well-rounded or very pointy people who are gonna make the class, a rich, fun environment.
And the dynamics are about are we both succeeding in getting what we want? So I think the, the thing that people think of is, okay, is the candidate strong enough? Do they have good enough grades, good enough SAT scores, good enough extracurriculars, but something that we think less about as an applicant, say, because it requires thinking about the other side of the market is how do the universities or colleges feel about the applicants?
[28:22] Barry Ritholtz: Well, one of the things that, that they value is high yield. We want the people who we admit to enroll in our school, we want them to matriculate. When I was applying to college that yield that fraction of folks you admit, who come was in the US News and World Report rankings of best colleges and universities.
It’s not anymore, but it’s still a matter of pride and reputation. ’cause it’s hard to say you’re one of the best schools in the country if half or two thirds of the people you admit choose to go somewhere else. And so when you mentioned early admissions, early decision or early action, that is where this kind of yield question comes into play.
[29:10] Judd Kessler: So the way that it works with early decision is when you apply, say to Penn, where my employer early decision, if you do that, you are committing to come. If we admit you. So that’s great for our yield because now you’re guaranteed to come. And lots of schools do this. They have an early admission deadline.
[29:34] Barry Ritholtz: There’s also early action where you’re not committing, but you can only apply to one school early action. And so it has similar properties where you’re kind of giving up, applying elsewhere early. And the kind of deal is that admission standards appear to be a little lighter. And so researchers have estimated, it’s kind of worth about a hundred SAT points really to, if you apply early, it’s kind of, we’re gonna, we’re, we like the idea that you want to come, we like that you’re gonna help us with our yield.
And so we’re gonna kind of be more open to having you enter. Now I should say I don’t work at the admissions committee, so this is right. This is as an outsider doing looking at the research about it. But all of a sudden then it becomes a strategic decision as you, as an applicant. So you have one shot in the early decision game, where do you wanna apply?
Yeah, we talked a little bit about going for gold or settling for silver. Do you go for the thing you really want the seven 30 reservation at the hot restaurant, or do you go for something there where there’s less competition like a four 30 and the early decision game? That strategy, that settling for silver strategy might be a smart play because if the place you really want to enroll that gold medal option for you is too far out of reach, that even if you apply early, you’re, you’re, you’re not gonna hit that admission cutoff, then you’re essentially wasting that application in that, in that school and you should be applying instead to a place where if you applied early, you would actually get in, but if you didn’t apply early, you wouldn’t.
[31:32] Judd Kessler: Some place where you’re kind of more on the market, that’s a very narrow little slice you have to figure out exactly. What your odds are. Yeah. What you can do with research, with talking to other people seeing how does your SAT score compare to the ones that are published on the website?
the people who went to your high school in prior years, who succeeded in getting in. What were their grades like, what were their extracurriculars like? So when these, when it matters for you, the, the research that you do to figure out how to succeed in these markets will inform what strategy you should play.
Huh. Really interesting. Let’s talk about the three E’s. You discuss what’s equitable, efficient, and easy when people are designing various types of market mechanisms. Give us a little overview of that core framing device. Yeah, so the, the three ees are about how well a market operates. So you mentioned them, efficiency, ease, and equity.
Equity is about fairness. It’s about are we treating the market participants? Equally if, if that’s our goal, right? If we want everybody to have an equal chance at getting the scarce resource, is our allocation mechanism are our market rules allowing us to do that? Efficiency is about making sure that we’re not wasting any scarce resources and whether the scarce resources that we’re giving out are being put to their best possible use.
So if there’s someone who really wants something, are we recognizing that and saying, oh, actually the, as a society, we’re better off if we give that scarce resource to that, that person. And then ease is the one that think standard Econ doesn’t think that much about. And the reason is that. Prices are easy to work with.
You might not love that. You have to pay a lot of money to buy something, but the actual process of buying something in a market where price is doing all the work is trivial. You go to the website, you click a button and the thing is shipped to you, or you walk into a store or you pay a price, or you go online and, and execute some trade or call your broker and do it.
It’s very straightforward to work with prices. So let’s, let’s talk a little bit about one of the most fascinating market mechanisms that’s out there, which is live performance tickets. You use the example of Taylor Swift who could have charged a whole lot more for her tour, which still made billions of dollars.
but lots of other artists charge less than the market bears. why do these artists not go for revenue maximizing? What’s the downside of that? Yeah, so I, when I think about sellers deciding. Should I set a price below the market clearing price? The price that I would teach in my econ class is, is gonna be the best for the here.
Here’s the price, here’s the demand. Where that intersects is your profit maximizer. But they don’t do that. Yeah. So before we get to Taylor Swift, let’s think about the restaurant that is letting there be a line around the block or the fad product that is, making it hard to get access to their to, to what they’re selling.
In those cases, I think one of the reasons is to bolster future demand. I see a line around the block for a restaurant I walk by, I might have never heard of the restaurant before, but I look and I think, oh man, that restaurant must be really good. Look at that line that. Might mean that I get turned into a future customer, or at least somebody who’s interested in going when the line might be a little shorter.
[35:45] Barry Ritholtz: Lots of buzz, lots of pr. Yeah. Just by the virtue that it looks like more people want a limited scarce resource. Correct. And that we see that throughout, with lots of fad products or with scarcity driving interest in demand. Now, I don’t think Taylor Swift has to do that. I think we all know who she is.
[36:09] Judd Kessler: I her fans are famously loyal and she doesn’t have to worry so much about getting more people to be interested in her as an artist. So she might have other considerations. She might think more about the equity and the efficiency of the allocation of her scarce resource. And one reason she might not charge very high prices, which might be hundreds of dollars for the cheapest ticket and thousands for the, the kind of closer to the stage seats is that she’s a billionaire.
Her Swifties, I’m sure she has billionaire fans ’cause she’s such a great artist. But most of her fans, a few thousand dollars is gonna be a big chunk of their, of their income for that month or, or more. And so it might not be a great look if she’s charging, what would be market clearing prices?
So for the Errors tour, she charges \$49 for the cheapest seats. The average ticket price was just above 200. And so at those prices there’s gonna be massive excess demand. but she might think that that’s more fair, that that might be not just ’cause it will make her look bad, but also, right.
She might want her fans to be able to come and only have to pay 49 or 99 or \$199. It, it might also be that those folks really, really want to go. So you think about efficiency, right? There’s no guarantee that the person who can pay the most actually values go into the concert the most. If her. Biggest fans have less income than the, the fans who can pay more, they’re gonna get pushed out whenever the market is relying exclusively on prices and you end up with a series of rentiers and, and middlemen that arguably contribute nothing positive to society.
And just exact a cost in the book. I don’t remember, was it the UK or or Europe, EU that they banned places like StubHub and those sort of ticket middlemen? Yeah, so this is one of the super interesting things about these hidden markets is that whenever you are giving folks access to a scarce resource at a below market price, and there is the opportunity to resell it, you will get middlemen, you will get speculators or brokers who come in exclusively to.
Try to extract surplus from the fact that the market is, letting the price kind of low initially. Now, there are economists who say, oh, that’s how it’s supposed to work. We’re supposed to get to market clearing prices. But that’s not what I argue because the seller has decided that she, in this case, wants to keep the price low.
She wants people, regular people to be able to buy for 49.99, \$199. So the middleman becomes a problem that the market has to address. One way to do that is ban resale, but then you get situations where this was the, London Olympics where there were seats that were empty to see some of the events when there were people standing outside the stadium who would desperately want to get in.
But because there’s no way for the tickets to be redistributed. you end up with empty seats, which is clearly inefficient. Well, you could redistribute them at a 10% markup or something like that. So there’s, and only once, you can’t just go 10, 10, 10, 10, 10. So this is the, the question is how do we innovate in this market?
So, in the book, I have some ideas about how to do it. I think one key problem with how a lot of live event tickets are being allocated is that they’re relying on first come first serve. ,first come, first serve races is the way that we do it on the internet now, and that allows the ticket brokers to program bots that will race faster than any human can.
And that is going to mean that the folks who are building the bots with the intention of getting a bunch of tickets and reselling them, are going to be at an advantage and be able to extract surplus. The FTC sued Ticketmaster a few months ago about this issue, basically letting. There be bots on the platform that extract too much, including their own bots that then resell at higher prices?
[40:59] Barry Ritholtz: Well, this is part of the problem, which is the, the secondary market platforms, the ones that are facilitating the trades between the, the brokers or, or regular people who buy tickets, but then can’t go and have to resell them. Those platforms are benefiting from the sales. They get hefty fees. I bought tickets recently and my calculation was that Ticketmaster, where I was reselling them, I was buying them and then I, I had friends who canceled.
[41:31] Judd Kessler: I had to resell them, was getting 30% of the transaction price. You would think the artists would be the one that should garner those gains. I’ve, I’ve heard, I, I love the expression, crypto is a solution in search of a problem. One would imagine that if the tickets, and I’m not a. Bitcoin, bro, but if you could sell tickets on the blockchain and there’s a smart contract built into that, that the artist gets half of the resale price, it changes the dynamics there a lot.
[42:07] Barry Ritholtz: So you could do that, but of course, if the artists wanted more, they could just raise the prices, right? They, they don’t need, they don’t need the resale market to extract. Surplus. Right, right. The, what I describe in the book, it doesn’t, you don’t need to go all the way to the blockchain for it. You do need names on tickets, meaning, oh, really?
[42:33] Judd Kessler: Yeah, because, right. So it’s ticket and Id not just a stand or, but yeah. And it seems complicated. ’cause then it’s like, oh, I’m going to the, it’s like going to the airport. I don’t wanna go to a concert to be like going to an airport. Although last concert I went to, I had to go through security anyway.
Right. So yeah. You from metal detector in Madison Square Garden for a Knick game. So, exactly. But, but no, your phone can identify who you are. If I tap my tickets through my phone, right. It can validate who I am. Facial recognition is getting very good. And so there’s clear the, service you use at the airport, if, if that’s something you’ve subscribed to.
They have similar style products that get used at venues. ,major League Baseball has had a version of this that they, rolled out at some point. And so validating that you are named on the ticket is easy to do, or getting easier. If you don’t have that, then you could put some cap on resale. But then it doesn’t, nothing stops anybody.
[43:48] Barry Ritholtz: If they have a physical ticket from doing what used to happen, which is standing outside the venue and selling them or, or selling them on some third party platform, that’s not tracking how much more the, the ticket is being paid for. Right. If it’s in cash, there’s no way to validate that.
[44:10] Judd Kessler: It’s only 10%. And then the other thing you have to do, and this is trickier, it is a different type of change, is get away from first come first serve. Because even if you have names on tickets, but you’re doing a first come first serve race, the folks who program the fastest bots are still gonna be able to extract surplus.
So could someone like Taylor Swift with an army of swifties, Hey, sign up here and it’s two tickets per name, and you have to be in their system for that long. And so at least. What is Madison Square Garden? 25,000 people, at least the first 10,000 tickets are gonna go to local people who are our fan base.
So the, for the Aris tour that I, that we started talking about, they did something similar where they did a, verified fan process. We had a validate who you were, and then folks came to the, website if they were lucky enough to, after being verified to win a lottery ticket. So, still a lottery, still a lottery, but then, then, but a fairer lottery.
Fairer lottery among people that they thought were, were real folks rather than, brokers. And then you had to wait. In a virtual queue and, and wait for some people hours, right? So what ended up happening was, they claim there were a lot of bot attacks. Try people that didn’t have the verified fan code that they needed to buy.
The tickets were coming and the systems ground to a halt and they crashed and people were waiting for hours. And so all of a sudden you had a first come, first serve line built into the system that was supposed to be a lottery, right? Where now you’re going through an ordeal. We talked about is the market easy?
It’s not easy if you have to wait online in front of your computer for hours. It’s almost as painful as having to wait outside the box office, which we used to do for hours. And so I think the solution is to actually lean more on the lottery and basically say, look, at some point we’re just gonna have you put your name in, say what your preferences are, what shows you want to see her perform at, which sections you’d be willing to buy tickets for.
And you’re gonna enter yourself in and we will tell you whether you won. But you don’t have to be there and pick the specific seats, right? You can say, I want, I prefer to be in the center and I’m willing to pay more, whatever. But, but that would make the participation in the market way easier. You could run whole tours or sections of tours at once.
You could reward folks who are more flexible. If I’m willing to see Taylor Swift perform at any venue on the East Coast, and I’ll go to any show and sit in any section, I am revealing myself to be a very big swifty that there is a, or a broker that wants to flip the ticket. Well, but if the names are on it, then I’m stuck.
[47:41] Barry Ritholtz: If I have to return, if I can’t go, I have to return it to the, to to Swift and she can give it to somebody on the wait list. But on the randomized wait list, right, like you could design this system to basically cut out. The brokers altogether. So the craziest thing about the brokers in the US, I heard stories from several people who said, rather than pay the markup in the US it was cheaper to secure tickets in Paris or London.
Fly over there, stay in a hotel for a few days, go to the show and go home. That was less expensive than paying full boat to any of the SeatGeek StubHub middlemen that they charge what the market will bear. They charge what the market will bear. They don’t add anything to the production. And yeah, it couldn’t be and you get a vacation out of it.
[48:43] Judd Kessler: You go to Paris to see the show coming up. We continue our conversation with Judd Kessler, professor at the Wharton School discussing Lucky by Design, the Hidden Economics. You need to get more of what you want. I’m Barry Ritholtz. You’re listening to Masters of Business on Bloomberg Radio.
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[49:25] Judd Kessler: So let’s talk a little bit about some things that are, are lucky by design. one of the things that, slightly before my time but certainly resonated was what took place during Vietnam with the draft lottery. some of the data was pretty shocking. At the time. African Americans made up 11% of the population.
They were 22% of the people. The, that were drafted and, and, and 22% of the casualties, two x the representative population, why did that go down that way? Yeah, so the situation that arises when you have these hidden markets is whoever’s in charge of the market gets to pick the rules and they might not be equitable or efficient or easy.
And the Vietnam draft before the lottery, which was introduced, to kind of correct some of these issues, had a bunch of loopholes in them in the system. So you could get a deferment for a various reasons. You could have some, some of your friends or family members, lobby folks on the local draft boards that were gonna decide which men of that age were gonna be sent to be known.
[50:41] Barry Ritholtz: So if you were politically connected, you had a better shot, politically connected, wealthier, whiter, those were the things that let. Folks, so, so you could have a medical disability, you could be in college or grad school and you could go to the National Guard. So you would be kind of stay stateside and not everybody gets, gets admitted to the National Guard.
[51:05] Judd Kessler: Correct. So having a, a kind of way to circumvent what would have been the task of going overseas. The loopholes were kind of played by a few, and, and a bunch of folks did not. Either have the means or have the connections or kind of know that this was a way out, did, did the lottery, and, and I, I learned a lot more than I knew about it in the book.
[51:34] Barry Ritholtz: So they just randomly picked birth dates, your month and day of birth, and that was the order in which people were drafted. How did that impact how things, yeah, so they proceeded, they, did it have the desired effect? Yes. Well it had the desired effect. There were still loopholes that you could use to get out of service, but it had the desired effect of 366 possible birth dates, including February 29th, because you didn’t wanna, leave those folks out.
[52:06] Judd Kessler: they got pulled in order randomly, one at a time. And then the way the lottery worked was they were just called down the number. So folks who were old enough to remember this at my father’s generation, this was a big deal. And you wanted to have a later, your, have your birth date picked later, so you were less likely to be called.
Now, again, still loopholes, but folks looking back, histor at at history say this helped facilitate the anti-war movement that eventually got the US out of Southeast Asia, because when you have well-educated, wealthier kind of folks who have a little bit more socioeconomic status, a little more power in society, when their sons started getting called up and this was a fair system and so it was harder to get out, then you saw a bunch more kind of influential folks saying, no, no, no, this is not a, a war we want to be in for the long term.
H,really, really interesting. Let, let’s talk about the area that you spent so much of your career on, which is organ donation and what those rules look like. To start, I have to ask about the numbers. There are a hundred thousand Americans. On an organ waiting list, organ transplant waiting list. I was shocked to read of a, that a hundred thousand 90% are waiting for a kidney.
That, that’s amazing. Yeah. so the, the reason for that is that there is dialysis for kidney failure, which can keep you alive for, for five or more years. the, you want to get a kidney as soon as possible. Dialysis is time intensive. It’s painful, it’s expensive. Although the cost is born by Medicare primarily after, a certain number of months that your, insurance, your private insurance covers it, and then it, it hand gets handed off to Medicare.
So there’s a lot of costs that go into it. But of course, if you don’t have a kidney that you can get as a, a recipient if there isn’t a donor kidney available, this is your only option. But this is why the waiting list for kidneys is so long, because folks can kind of wait for an extended period of time.
Think about another organ, like a liver. There is no dialysis. So at some point, if your liver function gets bad enough, you either need a transplant or done. That’s it. So this is why the, the kidney list goes on for so long, but it’s also a major financial burden in addition to all the emotional and, and, physical burden that the folks, the patients and their families face.
[55:07] Barry Ritholtz: the estimate suggests that it’s basically 1% of the federal budget is spent on end stage renal disease on, on folks who have kidney failure because Medicare is covering it. Medicare, a big chunk of the federal budget, and, this in particular, this line item is very expensive. And, and the crazy thing about this, the another data point that shocked me is sometimes an imperfect match shows up and you have the option of.
[55:37] Judd Kessler: rolling it over and saying, I’ll wait for the next one. 20% of the donated kidneys are just thrown away. This is the nature of these first come, first serve waiting lists. So there’s, when an organ becomes available, there’s a list that’s generated. It’s based on how close you are to the transplant center on the medical match between the organ donor and the recipient.
So there’s a bunch of considerations that come in, including how long you’ve been waiting. So if you’ve been waiting many years on dialysis, you’re gonna be closer to the top of the list. So an organ becomes available and you as the patient, with the help of your doctor, have to decide, is this gonna be an organ I take or not?
Some of the information about whether it’s a good match for you, we only can learn after the organ has been removed from the donor who’s passed away. And so. Now we have testing that’s getting done on the organ and there’s only so much 20 hours. Yes. You, you. So we have this testing getting done and folks are getting are learning or this, it could be this organ that you take or we can keep waiting and if you’re at the top of the list, maybe you get offered a bunch of organs.
And so it is hard to get through the whole list of 90 makes sense. 90,000 folks waiting for the organ. And so if the organ’s not great and we can’t identify somebody who might take it, gets wasted, gets escorted. I was kind of fascinated by the example you describe of what they do in Israel that if you check, I’m willing to be an organ donor three years prior, you are higher on the recipient list.
The theory being, hey, if everybody understands this, there’s that many more organs available for transplant. How has that, tested out in real life? And are any states here, putting that into work? Yeah. This, this was the research that got me into market design in particular. I was working with Al We started thinking about Oregons.
It’s, it has this nice feature of being a public good. If I agree to register as an organ donor, hopefully I won’t be in this situation, but my organs are available for transplant if I die in a way that that makes them available. When folks agree to register, they are making this scarce resource, the organ, they’re making it be less scarce.
[58:28] Barry Ritholtz: There are more organs available in expectation if folks are registered. So a bunch of countries, including Israel, but also Chile, China and Singapore, have built into their allocation rules an incentive to get people to provide this resource, to make it less scarce. And as you said, they. In Israel it’s three years.
[58:49] Judd Kessler: But can think about doing it different ways where if you are 18 years old and you’re going to the DMV and it’s the first time you’ve ever been asked, do you want to be an organ donor? You are rewarded if you say yes insofar as 50 years later, if you end up needing a kidney, you are gonna get priority over someone that’s kind of in the same situation as you.
[59:18] Barry Ritholtz: But when they were 18, said, no, no, no, I don’t wanna help out other people. And so we saw when we did our research that this incentive of being given the option to, to be a donor so that you can have priority later on, induced a lot more people to say they wanted to donate in a game that was modeled on that decision.
We looked at Israel and we saw when Israel implemented it, our estimate suggests about a hundred thousand more people. And Israel’s a small country, so. Right. That’s a lot. Yeah, it’s a lot. Signed up in the runup kind of before the, they, they had, they announced it and, and they were letting people sign up and, it was the date when if you signed up before you’d immediately have priority.
Oh, really? Otherwise you’d have to wait the three years to avoid the three years by the way, is, is to avoid a loophole where, right, I get sick, I need a kidney, and I go sign a donor card and then I have priority. That would totally undermine defeat the whole purpose. Right. Which we have research showing that that it would in fact undermine it.
[60:41] Judd Kessler: So, yeah. So then they, they implemented it and, and it seems to work. have any places in the US adopted this yet? No. So it would have to be, this is not a state by state thing that Oregon allocation systems are national, and so you would need the country as a whole, the, to have a, a change in the allocation rules.
So I have been advocating for that since we did that research over a decade ago. ,but we have not yet had movement on that, although I remain perennially optimistic because. It’s been many years and the problem isn’t getting better. So basically anything we can do to make this scarce resource less scarce is valuable.
I’m, I’m recalling Richard Thayer’s book Nudge, I think he co-wrote that with Kas. Sunstein. Yep. And there was questions about opt out, opt in, in other words, if everybody by default is an organ donor, but you have to opt out the, the reasons people didn’t want to do that, religious reasons and other, but, is that a potential solution?
So that was, there, that was like a, a great hope of behavioral economics was that these kinds of nudges in this space choice architecture. Yeah. So this is a ca There are many places where it works well. This is a case where it doesn’t, and the reason it doesn’t is that if you are. Say it’s an opt out system, so I should pause and say, we don’t, we can’t do that in the US without a major law change because Oregons fall under the gift act.
[62:29] Barry Ritholtz: So you have to actually make an affirmative statement that you want. Got it. you could make it salvage law, so if you’re not using it, we can take it. Right. But that’s, people might not wanna do that, but, but in the, in the countries that use these opt-out systems. The next of kin are still consulted.
[62:54] Judd Kessler: Right. So what the, the next of kin are told is that the person did not opt out and it def defaults basically to the next of kin to decide. And so what the research shows is that there just isn’t a delta between the countries that use opt in and the countries that use opt out because it always goes to, that affirmative decision.
Yeah. And when, when I’ve opted in I, I might be special ’cause I talk about it a lot. Right. But, but if you’ve opted in, then the next of kin see that, and, and they know that it was your wish, right? You did. You said at some point, yes, I want to register. They know that, that you want to do that.
And so if you pass away, they know that they should donate your organ. So they’re not gonna stand in the way. it, it is a binding agreement to be an organ donor, but of course if the next of kin don’t want it, right, they, they’re the only ones who are left around to sue the doctors. Right? Right.
[64:10] Barry Ritholtz: So, so, so, but it ends up being the case if you register. the vast majority of folks, who register have their organs, recovered. I, I found a lot of the book had really surprising themes and data. Doing your research, what’s the thing that surprised you most about market design? What, what sort of things did you go, huh?
[64:34] Judd Kessler: That, that doesn’t make any sense. ,so in the, at the end of the book, I talk about how you are a market designer. We’ve talked about you as a market participant. We’ve talked about others as market designers, but, hidden market is one where there’s a scarce resource that needs to get allocated without prices being what determines who gets what.
And if you think about it that way, you are a market designer for things like your time and attention, which lots of people want. They wanna have you respond to their emails, they want to get on your calendar, and you have to decide who you serve and who you don’t. That’s the, the preface. The thing that I learned was a set of market rules that I thought made no sense, which was how we used to a.
Water from the Colorado River Uhhuh. So for, for many years, the, the rule was first in time, first in right, which meant that the first folks to tap the river, to take water out to divert for their own purposes, kind of always got their allotment. So that was California in 1901, where they diverted water from the river to, turn a desert into farmland.
And then decades later when there was a drought and there was less water coming down the Colorado, the California got to keep the exact same allotment. And folks who tapped the river later, like the city of Phoenix, Arizona, which in 1901 was 10 or 15,000 people, but it’s now a million and a half, they had to cut back, even though for them it was drinking water.
[66:23] Barry Ritholtz: And for California it was to grow alfalfa to feed to. Livestock. So I looked at that and I thought, oh man, what a terrible, it’s not efficient. It’s not equitable. The race that determined who got what was run centuries ago. Yeah. A century ago. And, so I’m thinking, I’m feeling like, oh man, isn’t it great that we don’t use these kinds of systems anymore?
[66:51] Judd Kessler: And then I looked at my calendar and I saw my recurring meetings on there, and I thought, that’s first in time, first in, right, right. I’m doing what they were doing with the Colorado River, a meeting that I put on my calendar two years ago that takes Thursday at 11:00 AM every week, Thursday at 11:00 AM is being allocated to this, this project, even if it’s not the most efficient or equitable use of my time.
And I realize like, oh man there’s some stuff that’s sacrosanct like my teaching, but a lot of these recurring meetings, right. It, it’s not adhering to the efficiency and equity. Standards that I would want for for my allocations. Huh? Having read the book, I keep coming across things. As I was reading it, I was thinking about different things, and then either yesterday or this morning, I saw a Wall Street Journal piece.
The new mayor elect in New York wants to freeze prices, not just on apartments, but at Yankee Stadium on hotdog and beer. And there’s a couple of interesting issues that, hey, are people gonna get too drunk? But some other stadiums have done this and it’s worked out really well. When we look at price controls, how do you think about rent control for apartments or.
[68:19] Barry Ritholtz: Capping the price of hot dogs. Costco very famously Yeah. Has the dollar 50 hotdog for 36 years. how do you think about those different price mechanisms really as a form of branding or marketing? Yeah I, I love the Costco hotdog, so I can see the branding and marketing benefits there. I have thought a bunch about this because it is, it has the potential to create hidden markets or exacerbate hidden markets that are already there.
[68:51] Judd Kessler: So I recently wrote a piece about, affordable housing lotteries. So this is in New York City, and, and a bunch of major, cities around the world do this where they’ll, a new development will be built and you’ll have 30% of the units that are built are gonna be designated affordable.
Meaning folks are only expected to spend 30% of their income on housing, but there are. So many people who are finding rents hard to bear in New York City, in these other big cities that the lotteries get flooded. So in a last full year, there were about 6 million applicants for about 10,000 units.
So each lottery entry has a one in 600 chance of winning. And so as a result, folks are kind of constantly applying to these lotteries because that’s the only way that you’re gonna have a chance of getting something is if you’re applying to every possible lottery. But then there’s all these inefficiencies that can crop up.
Maybe I win a lottery, I get really lucky, but it’s, it’s not in my desirable, desired neighborhood. It was still a good lottery to enter ’cause better to get affordable housing than not. Maybe you win, in the neighborhood that I want and there’s no way, but there’s no way for us to switch. Right, right.
It’s kind of like golden handcuffs if you, for getting an affordable place. And the same thing with freezing rent, where the folks who are in. A rent controlled, a rent stabilized apartment that are going to be able to kind of keep paying that low rate. that’s great for them, but that doesn’t solve the bigger problem, right?
It’s, it’s affordability for the, the lucky few, but not for other folks who are moving to the city for the first time and, and want to make a life here. And so I, I can see why folks are eager to do that, but it’s hard to think about how to solve that problem without broader changes. Right? It doesn’t move the needle on the broader underlying problem.
It just, for that handful, it kind of raises the issue of, of nimbyism and just not building well since the great financial crisis, we’ve wildly underbuilt. Single family homes, affordable housing, go down the list. The focus has been on luxury properties. ’cause hey, there’s the most amount of economic benefit for the builders to put their time and energy into.
But this is definitely a supply and demand problem. Yeah. If you, if you want to bring cost down, you have to increase supply. And as an economist, we are trained to kind of think one step further. So I’d have to read the specific policy about the Yankee stadium, concessions.
[71:59] Barry Ritholtz: Right. But my, my first instinct would be, oh, if you cap the price of concessions, the logical next step is that the ticket price goes up a little bit. Right? Because like now all of a sudden it’s cheaper to go to to have the full night out at the city field or at Yankee Stadium. and so is there also gonna be a price control on the ticket or, or not?
[72:30] Judd Kessler: And then are we actually getting the gains that we want or. are we, are we getting nice sound bites? The, the thing about constructing your own market design is kind of interesting. I have a friend, Dave, who comes to New York a couple of times a quarter, works in finance, comes down from the Berkshires, and since he’s one person and doesn’t care which Broadway show he goes to, his market design hack is, he waits to, depending on the day, five minutes to seven or five minutes to eight.
The prices plummet. Yeah. ’cause they’re about to expire. Worthless. Oh, Hamilton, for half price. Let’s go. Wicked Half price. And he’s seen half the stuff on Broadway at shockingly reasonable prices. So as I was reading this, I, I thought about that and then I just hadn’t experience up in Newport. My first time visiting.
You wrote about this in the book about the restaurant reservations. And the waiting list. So we stayed at this hotel and there’s a super hot restaurant there, which I didn’t even know about. We made other reservations, for the weekend, and we stop in and there’s a line of people at five o’clock.
Waiting to sit at the bar. I said, we’re on the waiting list. He’s like, well, we have like a hundred seats, and the waiting list is about 400 long. I’m like, oh, forget it. And I said something to the Matre D and he said, why don’t you come down later and see what the line looks like? It usually moves pretty, and it was beautiful out.
You could see it at the bar. It was outdoors. So it was like we had a seven o’clock reservation. The, the, the gold. The gold, well done. and we walked and we were gonna walk to the restaurant. So we come down like six 30, no line at the bar. So I said, Hey, you’re not seeing people at the bar. He goes, no, there’s no line.
Get over there. And it was just simply being nice to the mare d and asking a question was, was that behavioral hack? Th this is learning about the market and the market rules and getting inside information about when, when is there less demand? What, what is the optimal strategy in this environment?
[75:05] Barry Ritholtz: It requires. Often doing a little bit of research, but it’s not unattainable. We all have the ability to think about the market rules, think about who will know the mare d if, if you’re polite to him or her, they might want you to come and give you the, the inside tips. ,but you have to, you kind of have to either do your own research or, or have folks advise you that you trust.
[75:35] Judd Kessler: and yeah, you can, you can often succeed in markets where other people fail. So I only have you for another 10 minutes, so let me jump to my favorite questions. Great. I ask all my guests. Starting with, tell us about your mentors who helped shape your career. Yeah, so the main one already mentioned him, so you can see how big an influence is.
Alvin Roth. So he took me in as a undergrad mentee. I, I had this story in the book and then it got cut for space. So I put it in the acknowledgements because it was such a formative experience for me where I was taking his PhD class. ,as a senior in undergrad. And so I was kind of a little bit out of place already and I wanted to write a senior thesis, the thing that kicked me off to this career and put me at this table talking to you Now, I had procrastinated asking him to be my advisor ’cause I was a little intimidated.
I felt a little outta place. ,and I came up to him on the day the form was due and I said, I wanna write a senior thesis. I would really like for you to advise it. the form is due today, but and this is the commitment. He was like, all right, why don’t I sign the form and we’ll see how it goes.
And he signed the form and the rest is history. but it was both the idea that I could be involved in learning new things that people didn’t know before, and do it with somebody who was willing to mentor me. That was a real, real big impact. Yeah, I can imagine. What are some of your favorite books?
What are you reading right now? So there, this is a, a pop econ book, my book, lucky by Design. It’s in the spirit of. ,another pop econ book about market design, which Al wrote, which is called Who Gets What and Why. And so for a while I didn’t wanna write another pop, market design book.
’cause I didn’t wanna step on his toes as, as a, that’s a great title. Who gets what, what and, and why. Yeah. And there’s a little in the text of my book and kind of, I dropped that every so often, that kind of question, that wording of that question. So that was an idea for me. This idea that you can communicate these market design concepts to regular folks.
I recommend my book, but also that book for folks who are interested in this. My colleague, whose office is next to mine, had a book that came out a few weeks before mine. It’s called Having It All Uhhuh. So my colleague is Corin Lo and I’m really enjoying that book. I’ve, I’ve heard about everything that was in it along, along the way.
[78:56] Barry Ritholtz: But, she writes about the time that. Women and their partners spend in doing household production and how society has progressed over decades where women have entered the workforce, but the norms at home about how time is household chores are split. ,it has not changed. So women end up really, yeah, the data in that book is quite shocking.
I had been hearing about it, as, as she was doing the research, but women, even in households where they earn more than their male partners will still be doing more household labor, all of that stuff in at home. So that in, in my book, I talk a little bit about how my wife and I manage our household, responsibilities using the concepts of market design to kind of avoid some of these systematic.
Problems that, that on average couples display. Huh? Really? I love to cook, but I tend to make a giant mess and my wife is convinced that it’s a purposeful strategy. So she cooks and it’s, I’m like, honey, we’re married 30 years. me. Is this how I roll? you gotta, yeah. Sometimes this is the, just my technique, but, but one of the things that, I talk about in the book and, and mu must you pour from so high, it’s olive oil splatters everywhere.
[80:27] Judd Kessler: It doesn’t, it doesn’t need that height. No. You gotta get that. You’re not aerating it. It’s, it’s part of the fun. ,but no, we, one of the strategies is having one person be in charge of the whole task from conception to execution. So that means if you are a cooking. You are also cleaning, right?
Would be part of that, right? ’cause then the incentives are aligned when, exactly. When you don’t do that, the person who cooks can leave a giant mess. The other person cleans that. That seems fair. But the decisions, the resentment comes in and why are you making such a big mess? And so it turns out it might be more efficient and equitable if.
One person does that whole task and somebody else does a whole other task. Right? You, you cook and I’ll do the laundry and clean the floors and that, that’s the the, the split. That might be fair. I’m usually out the door early or if I’m home, I’m at the desk writing. So she takes care of the dogs and during the weekend I try and give her a break and, and feed and walk the dogs early.
we’ve never discussed it. It just kind of worked out that way that sometimes that’s how it happens. But, be for those who are not finding it that easy, talking it out and kind of splitting the tasks is, is a, a effective strategy. Tell us what’s keeping you entertained these days? What are you watching or listening to?
Either podcasts or, or Amazon Prime, Netflix, whatever. So, I am a major fan of The Simpsons. Get outta here. Really? Yeah. I have always loved it. What are we up to? Season 40 something. It’s crazy’s almost. Yeah. And, but what has been great I found. Throughout my life rewatching old episodes that I kind of get jokes that I didn’t get before, which makes sense, right When I started watching.
Well you’re, it’s one of those things that works for just both kids and adults at the same time. Exactly. And so what has been phenomenal for me is exposing my kids to it for the first time. And I’ll say, I’ll make some reference to something and my kids will be like, what are you talking about?
[83:04] Barry Ritholtz: And then I’ll pull up the YouTube clip, I’ll show it to them, and then they’ll be like, oh, can can we watch that episode? So that has been phenomenal. Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either market design or economics or academia?
[83:27] Judd Kessler: Yeah, so academia, there is a path forward for folks who have just graduated college and are thinking about this and that is to get some experience doing research to see if you like it, because the market for. Tenure track academic positions is getting tightened. We’re feeling the political wins as well as other things that’ve kind of, demographically there’s slightly smaller admission classes and I just read 17% drop in international students.
That’s a big number for a lot of the universities that have big PhD programs. The budgets for things like the PhD program will depend on their revenue streams. And foreign students coming for undergrad or for master’s degrees is a big revenue source for a lot of institutions. So all of that is to say that academia remains a great option for folks who are interested in it, but it’s getting harder and harder.
but if folks are interested getting, and they have not yet done it, they may have done it in undergrad, getting exposure to the research experience. There are predoctoral programs for folks who work with. Academic researchers on their projects and kind of get a sense of what it’s actually like. there are master’s programs that folks can participate in to see what the coursework is like.
[84:51] Barry Ritholtz: so that is definitely one way to go. There are kids who start earlier who start in college, but I, I was not one of them. Right. I told the story about senior year kind of realizing, oh, I want to do academia. So I hadn’t done any research assistant work until after I graduated, but that is, that was the next step for me was saying, okay, I want to see what this is like.
so it is a, is a path to do, but, but you should only do it if you really want to have a job that only someone with a PhD can have, because there are a lot of great jobs out there for folks interested in these topics. ,but not in academia. So, final question. What do about the world of market designs and economics or even academia that would’ve been useful 20 plus years ago when you were first getting started?
Yeah, I think. ,something I’ve recently developed in, in part researching for the book is just how diverse the hidden markets are that we participate in every day. As a young economist being trained in how markets worked, I thought basically exclusively about prices and the price mechanisms. That, that was how I was taught, that those were the markets I looked at.
And it’s only recently that I’ve realized markets are much broader than that, and thinking through the rules of those markets, how we could design them better, so that they’re more equitable and efficient and easy for participants. I, I think there’s a lot of gains for us to have as a society, so I’m excited to be working on it for the next 20 years, but if I, if I could go back 20 years and say, Hey, maybe focus on these markets a little bit more because there’s a lot of low hanging fruit where we could be making things better for everybody.
I, I, I wish I knew that and I, I want others to kind of look at these markets and say, yeah, this could be better. Fascinating, professor, really enjoyed the conversation. ,we have been speaking with Judd Kessler, professor of Behavioral Economics and market design at Wharton at the University of Pennsylvania, and author of the new book, lucky By Design, the Hidden Economics.
You need to Get More of What you Want. I would be remiss if I failed to thank the crack team that helps me put these conversations together each and every week. Alexis Noriega is my video producer. Sean Russo is my research assistant. Anna Luke is my producer. I’m Barry ols. You’ve been listening to Masters in Business on Bloomberg Radio.
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