uh um i apologize for not speaking in english but you have translation and everything but um a uh um a problem um a a thank you very much sandro for that lovely and and very thoughtful introduction uh and thank you very much for for coming this afternoon i must say it's it's an enormous pleasure uh to be here in trento for this economics festival first of all it's just an astoundingly beautiful place look at this look at this hall it's it's a pleasure just to sit in and look at the ceiling look at the walls but then you go outside and you see the mountains you see the the buildings of trento uh what a lovely setting for uh for any kind of event but on top of that we have an economics festival here which for an economist like me uh is is a real treat i mean imagine a whole town being turned over to economics not not something that happens every day but perhaps should happen more often and i'm and i'm glad that that trento is is setting such a good example uh i hope you will forgive me for for speaking in english this afternoon but uh my italian is very far from being up to this task the topic as sandro already explained is is procrastination and so let me let me begin uh with with an example that refers to the united states in particular but which i think we are all familiar with in one way or another so imagine that it's the month of february and we know that in april we have a painful task facing us and we have two options we can either do it by april 1st in which case it's going to take five hours or we can wait all the way to april 15th in which case it's going to take even longer it's going to take eight hours and the reason for picking april 15th is because in the united states that is the deadline that is the last day for submitting your tax return to the governments um unfortunately uh most people and i and i i'm not an exception here wait till april 15th even though even though it's more painful if you wait till april 15th and let me explain how it happens that we end up waiting till april 15th uh if we were deciding in february when to do it of course we would say april 1st because uh then it's only five hours we get it over uh in less time but as april first gets closer and closer we have we make excuses for ourselves we we think well maybe maybe it's not so bad putting it off a few days and then we put it off a few more days and finally april 15th comes along and we can't put it off any longer we've been procrastinating and now the deadline is reached now the way that an economist would explain this or or describe it is to say that when we're thinking about future pain that the pain that we have to experience when we're when we're doing our tax return as as we get closer and closer to uh the deadline we discount future pain less and less sorry we discounted more and more uh so that we are apt to do it now uh with smaller and smaller uh likelihood we are more apt to procrastinate because we are uh putting less and less weight on the on the future pain uh so put it slightly differently the the the more heavily we discount future pain the more likely we are to to postpone that pain let me give give you another example and sandro also touched on this in his introduction it's the idea of saving money for christmas uh in the united states in england in a number of other countries people have developed this very peculiar device for saving money lots of people at the beginning of the year uh think that they are going to this year finally uh save an adequate money a an adequate amount of money for christmas but later they discover that their intentions uh are not carried through there are other nice opportunities that come up perhaps they'll spend the christmas money on their summer vacation perhaps they'll spend it on children's clothes when the children go back to school when christmas comes along they don't have enough money for for christmas and the way to explain this is that as the year progresses they are discounting the future in this case christmas uh more and more uh they are neglecting the future more and more they are becoming more and more impatient they are putting more and more weight on consumption now rather than later the the future is being discounted now uh of course after this happens a few times people recognize that uh that this is human nature and and that they're probably going to do it again next year so the the the way the problem has been solved in the in the us is by uh the creation of what is called a christmas account in a christmas account you every every month money is automatically deducted from your salary and goes into the bank you are paid no interest at all so it doesn't sound like a very good deal and furthermore you are not allowed to take your money out until a few weeks from christmas so so it it sounds uh like something that no one want would want to do nevertheless uh it's it's been extremely popular and the reason why it's popular is that it basically forces you it commits you to do to uh to do some long-term planning to to have enough money for christmas so in both the tax example and the christmas example the the idea is that as time goes along the future is being discounted uh reduced in importance more and more that's economists call that hyperbolic discounting and this leads to problems unless you take corrective action such as creating christmas accounts now uh perhaps uh tax deadlines and christmas spending are not uh problems of the first magnitude so you might ask well why why are economists interested in this phenomenon and and uh sandro explained that the the reason why uh this procrastination is so important is that it interferes with something which is important to every economy which is saving and long-term planning for example we all know that we should be saving for our retirement or for for our children but lots of people probably far too many people don't actually save adequately for these purposes but they what they say to themselves is well i've still got time i'll do it later i won't do it i won't do it now and uh this has ends up having disastrous consequences now one way that that this problem has been partially solved on a social level is through forced savings programs such as social security and pension plans under social security and pension plans again the money is taken out of your salary automatically you don't get to choose that and is put in some kind of retirement account or pension plan or goes to the government it and goes into a social security account now these plans are often justified for all by all sorts of reasons but in fact the main justification is human nature the main justification is that on our own we are just not going to do this adequately for ourselves so we so we voluntarily submit to having other people force us to do it uh if if we did not procrastinate we would not need social security we would not need pension plans we we could make all of the decisions on on our own as private individuals now one point uh that that is interesting is that we are not the only species that procrastinates uh i've been talking about human nature but in fact it's not just human nature other uh creatures do this too and in fact there have been some interesting experiments with birds with pigeons and starlings which demonstrate that they procrastinate and let me explain how we know this the the the the way that the typical experiment works is that a bird will be offered a choice between either a reward in the relatively far future for a bird 30 minutes is pretty long so uh a a reward 30 minutes from now uh and let's say that it's a big reward uh of ten ten seeds or it could have a smaller reward three seeds but it only has to wait 10 minutes now the way that the bird makes the choice is that there are two keys on a on a keyboard and the bird can peck uh either of the keys with its beak and that makes the choice now of course birds have to be trained a little bit to to learn how to do this but they but they but they learn how after a few hours training now here's what happens many birds initially go for the big reward the reward that they have to wait for for 30 minutes the the the 10 seeds but after some time has elapsed they switch to the earlier options so after say eight minutes has gone by the birds become very impatient they know that if they peck the uh the the three seed uh key they will only have to wait for two more minutes so so they they switch from being patient to being impatient uh and this is a very consistent finding in fact there's an interesting twist to this experiment sometimes in the experiment there is a third key that is introduced and all that this third key does is to make one of the other keys non-functional uh the third key makes the early option key the three seed key not work anymore uh and and what we see is that many birds that's that uh in early experiments switch from the late to early option the the 10 seed to the three seed option eventually start pecking this key and what what they're doing in effect is committing themselves not to switch they they see from their past experience that they've switched they don't like the fact that they've switched they don't like the fact that they become more impatient and so they they commit themselves not to switch it's it's the same thing as committing yourself uh to save for christmas so here is the the deep question why do we do this why do birds do it why do we do it there must be some reason because after all our actions the actions of of birds are governed by urges instincts inclinations and these urges and instincts and inclinations must come from some place they're they're not completely arbitrary there must be a reason for them the the reason i would like to suggest today is that these uh behaviors are genetic that is they are shaped by the forces of evolution uh now this is a little bit controversial because of course in the case of of our species we are able to to calculate we don't act entirely on the basis of instincts and furthermore we can we can learn from experience in in a deeper way than birds can we can be brought up by our parents for example to to to learn to not procrastinate or at least our parents could try to teach us not to procrastinate that's why i find that the the bird evidence is especially interesting because in the case of birds we know that their behavior is much more genetically driven than in our case and in our case it's it's more complicated so so if birds do this then and and we understand we we come to understand why they do it that probably will tell us something about why we do it too and i what i'm going to do is to suggest that in fact there is a simple evolutionary story a simple genetic story which explains the bird behavior why the bird has this urge to become more and more impatient and switch from the big option which it has to wait longer for to the early option so and and the explanation is that it that's uh that this behavior actually has survival value it it helps an animal a bird or a human survive uh longer than than or with higher probability than than would otherwise be the case so i'm going to get that to that in a minute first let me deal with a with a simpler question which is why do we why do we discount the future at all that is uh we get we can get rewards now we can get rewards later why is it virtually a universal tendency to put less weight on the future to discount the future uh more and it turns out that there are uh two answers to this question two related answers the first is that in general the the future is uncertain uh and and there's a there's a phrase in english uh that uh that gets at this uh at this principle it's it's called it goes uh a bird in the hands is worth two in the bush the idea being that if you have a choice if a bird has a choice between one seed now and two seeds after five minutes it might very well go for the one seed now because if it waited the five minutes for the two seeds perhaps perhaps they won't be there anymore uh or perhaps just one seed will be left or perhaps the bird won't be there after five minutes so so there there's uh because of this uncertainty if given a choice between now and later you will choose now uh but there's another reason for choosing now and and that is that there is a cost to waiting uh if you if you wait you you use up energy there's so there's a physiological cost uh just waiting uh until for the bigger reward involves burning up calories and so we we have to take that into account and that's another reason for going for earlier rather than later options i i uh also there's an economic reason there's an economic cost involved in waiting which is that uh if you're if you're waiting for something you are typically passing up other opportunities so you have to take those other opportunities into account and that's another reason for for acting sooner rather than later so so i've explained why there's discounting but i haven't yet explained why as time goes on we discount more and more which is which is the key idea behind procrastination or uh hyperbolic discounting um and the explanation for this also has to do with uncertainty uh and and the idea is that uh that a bird for example faces uncertainty not just about whether the reward will be there in the future but also when the reward will be there in the future i've talked about 10 minutes versus 30 minutes but typically the the decisions that a bird makes are not so definite that is it's not 10 minutes versus 30 minutes there's there's uncertainty about uh uh the exact time that a reward will be realized and let me give you an example uh imagine that you're a black bird and you're waiting for the fruit on a raspberry bush to ripen uh there there's no point in eating the fruit now before it's ripe because uh you won't get very many calories you want to wait until the the fruit is ripe and is is is right uh but you don't know when the fruit will be ripe but you're pretty sure the raspberries will be ripe by tomorrow morning but there's some chance that they will be ripe earlier or there's some chance that they'll be ripe later uh you don't know uh and that's and that's the key idea so uh that means that you have to form some kind of average uh you have to calculate the average time that it will take for the raspberries to to ripen uh if if or uh you you have to calculate the average return the average payoff that you will get from some kind of from some kind of decision so what do i mean by average uh well if if you're facing a prospect where there's a 20 chance that you will get five and a thirty percent chance that you will get ten and a fifty percent chance that you will lose six well then the average value is twenty percent times five plus thirty percent times ten plus fifty percent times minus six so so the average value the expected value of this prospect is one it all it all averages out to one uh so if you chose this prospect over and over again on on average each time it would make you richer by one by one dollar or one euro and and so prospects with higher expected values are better than prospects with lower expected values with lower average values so let's look at this from the uh bird's point of view imagine that there are two prospects one is a uh a raspberry bush and another is a blackberry bush and but there's a waiting cost uh you the bird has to use up one calorie for every hour that it waits uh now the raspberry bush gives the bird uh fewer calories raspberries are not quite as nutritious as as as full of calories as blackberries you get say four calories if you eat raspberries uh and let's suppose that the bird uh must wait for up to two hours for the raspberries to to ripen the other alternative uh is the blackberry bush blackberries give the bird uh more calories say 5.2 calories but the bird has to wait up until four hours for the uh for the blackberries to to ripen um for each hour that goes by let's suppose that there is uh a 20 chance that the berries will ripen in that hour so so that this is this is uh uh uh a very uh important uh ingredient to the story i i uh the with raspberries the the bird has to wait up till two hours with blackberries up to four hours but there is some chance that the berries will ripen earlier uh the the the time of of ripening is uncertain so that means that from raspberries the expected payoff when we do the calculation including the uncertainty about when the the ripening will occur the the expected uh calorie net calories that the bird will get is 2.2 of the expected net calories that the that the bird will get from the blackberries is 2.4 which is bigger so so that means that the bird should initially choose blackberries however let's imagine that an hour has gone by and and the berries haven't ripened now the bird can redo the calculation of course the bird is not really doing this calculation but it's its instincts are urging it to act as though it's doing the calculation and now uh the average net calories from raspberries are three calories the average net calories from blackberries are 2.8 so so by after this hour the raspberries are now more attractive than the blackberries so the so the bird will switch from uh from blackberries to raspberries after an hour that this is exactly the behavior that we see in the laboratory this is exactly the the sort of behavior that we do ourselves we we become more impatient we switch from the higher paying option to the lower paying option and the idea when as far as raspberries and blackberries is that the the bird originally chose blackberries because they have more calories and also because there's some chance that the blackberries will will be ripe early but after an hour has gone by the chance that the blackberries will be ripe early is lower of course the chance that the raspberries will be ripe early is also lower but it doesn't matter so much with the raspberries because they're expected to ripen sooner anyway they're expected to to ripen with two within two hours anyway and so uh that is the implicit reasoning behind why the bird should switch from blackberries to raspberries uh and i've illustrated this uh by this raspberry blackberry example but actually the the logic is very general and it applies to many many situations that that it is a good idea uh for getting more calories to uh or a higher payoff to become more impatient however uh this depends critically on uncertainty about when the payoffs will occur uh this reasoning all depended on the uncertainty about when the berries would ripen and since the since the switching helps the bird gets more calories we should expect that a bird who has the urge to switch uh would be favored by natural selection and and and that's why uh uh and that's why i argue that this is a genetic explanation for this behavior but but i'm not quite done because although i've explained why birds become more impatient why there's a genetic reason for birds becoming more impatient i still haven't explained these christmas accounts and i haven't explained why birds peck this third key uh why why does that happen the the reason why that happens seems strange because if if switching from blackberries to raspberries is such a good idea if becoming more impatient to such a good idea why do we have to commit ourselves not to do it uh and here here's the answer the answer is that the urge to switch from blackberries to raspberries works very well for the typical choices that the bird faced or the typical choices that we faced thousands and thousands of years ago when we were living in a very uncertain world when there was a lot of uncertainty about when payoffs would be realized when payoffs would occur but in the modern world in the case where we're saving for christmas there's no uncertainty about when the payoffs will occur we know when christmas is going to occur it's it's not going to suddenly happen earlier this year uh and therefore uh it doesn't make sense in the case of christmas for us to switch similarly for the pigeon uh in in these experiments with seeds um there's no uncertainty about when the pigeon gets the seeds it's either at ten minutes if it pecks that key or at two minutes if it pecks the other key uh so in the experiments that the pigeon faces or in the modern world that we live in the the the rationale for switching for becoming more impatient is lost nevertheless we are stuck with our instincts we can't get we can't suddenly get rid of human nature and the pigeon can't suddenly get rid of pigeon nature uh so all we can do is to try to trick our ourselves uh we can't stop the instincts but we but after learning from experience we can try to take stop we we can try to take steps which stop us from from from switching so that's where the christmas accounts come in that's why we commit ourselves to save for christmas and that's why pigeons commit themselves not to switch in the seed experiments uh and and and the key to this is that that both we and pigeons are able to learn from our past bad experiences we learn from past years that we're not very good at saving for christmas on our own so we put our money into the christmas accounts pigeons learn that they that they're not very good at waiting for the 10 for the 10 seeds so they disable the ability to switch to the to the 2 seed key and that suggests that when talking about evolution uh we have to be careful about which scenarios which problems we face are normal or or were normal over the thousands and thousands of years that our instincts uh evolved and which fall outside of normal evolutionary experience it it also suggests that that if the theory that i'm suggesting is rights we can we can test it by introducing uncertainty in these pigeon experiments about when the seeds are are being realized and i'm happy to say that that these experiments are are now being done it will be very interesting to see the results because once we introduce the once we put uncertainty about when seeds when the pigeons actually get the seeds back into the problem then switching becomes reasonable again and we should stop seeing the pigeons pecking the third key well i have talked about pigeons i've talked about humans uh i hope i've persuaded you that uh procrastination is a problem we should take seriously and i hope that i persuaded you that the psychological uh or evolutionary story behind uh procrastination makes sense uh and i hope you will agree uh that uh all this discussion is not entirely for the birds thank you very much it's a pleasure to to make your question to ask you something a friend of mine he lives in texas and when he visited me here in italy he was really surprised when me and all my italian friends we always got money from our parents and we always paid like the coffee a beer with cash because he told me that in the us he always pay with credit cards and then i thought that when we buy something we compare the the the happiness we we get when we we we satisfy um our uh our desire we compare it with the pain we receive when we we pay the we pay something in the u.s right now there is a huge private debt due to these credit cards and it's a really a perfect mechanism to um to increase the the consumes has it something to do with your theory thank you thank you very much for that question actually you've raised an excellent issue uh and i credit cards and credit card debts are are a perfect illustration of the problem of uh of procrastination if you pay for something with a credit card you are postponing the pain that you will feel when you actually have to uh give up your money you hold on to your money until the until the bill comes in um and i have to i i should first say that uh credit cards have uh to some extent destroyed christmas accounts it used to be that christmas accounts were very very popular in the u.s they're still used but they're not as popular as they used to be and that's because credit cards have enabled people to avoid the commitment device of the uh christmas account it's it's it's true uh you uh you you have less money because the the the money is being taken out of your salary automatically and is being put into the account but if you've got a credit card you can spend anyway and that's what and that's what people do if people are too impatient if they procrastinate too much which is what uh i have been suggesting in which all the experiments suggest that uh tells us that with credit cards where it's very easy to postpone payments we will have a tendency to to uh accumulate debts which are too big uh that's what's happened in the united states and and that's why we see that people who get into credit card trouble sometimes cancel deliberately cancel their accounts because they know very well that if they don't give up their credit cards they're going to use them and if they use them their debt is going to get even even higher so canceling credit cards on your own is a commitment device uh for avoiding uh unmanageable debts unfortunately in the united states not a p not enough people have used that device great yes i as you suggested uh the term social security may be maybe a little bit misleading maybe social security is not so secure um after all but as to what the what the alternatives might be well the the the ideal uh would be for us as individuals to save ourselves when we are young rather than relying on the uh relying just on the system uh to to do it for us because as you say perhaps perhaps the system will fall apart and that perhaps there won't be uh a uh as large uh a nest egg for us when we retire as we were counting on so so so uh the the best thing for uh for a young person to do uh if he or she can is to is to uh uh to save on their own uh to uh to put at least some money away uh so that even if the uh even if the public system turns out not to be so secure they they will have something um just a small question and i apologize for being unsavvy in economics i'm not into economics at all but i was wondering if um let's say the relief that you feel of from a task done might be in a way might be beneficial to economics and if economics explore this relief and like as if it was beneficial in a way to it so the relief kind of from um you perceive from something you do and is done is it explored by economics and in which way so thank you you you raise an an interesting psychological point and in fact there are two forces which push us in opposite directions when it comes to accomplishing difficult tasks one is the force that i emphasized in the lecture which is the urge to postpone because because it's painful but the other uh which you're referring to is the satisfaction that we get when we've managed to put something uh painful in the in the past uh and uh there there's an english expression for that too i i i said that uh uh to explain discounting we can use the the term a bird in the hand is worth two in the bush to explain the phenomenon you're referring to we can use the um we can use the expression business before pleasure you you you get the business out of the way first so you can enjoy what comes after it more the unfortunate fact is that the first force the urge to procrastinate is typically stronger ah it's true that there's something which partially counteracts it but uh but in fact procrastination is such a strong urge that for most people most of the time it wins you you describe examples in which the ordering over future action actions or outcomes changes if i consider them today or later on and that is powerful impact in our explanation of positive behavior not the clear what are the normative implications that is what is the point of view i should take knowing that the preference and evaluations changes according to the time when i take a decision that uh that's a very good and and sophisticated question and not not one that i touched on the let in the lecture uh uh i would so so so the question that's being asked is uh if if you're a uh a blackbird and you're you're considering uh switching from uh from blackberries to raspberries uh do we look at this at the beginning of the problem before any time is elapsed at all or do we look at it after an hour when the calculation has has changed uh and in general the answer to that is uh is is not so clear uh so so the so the noise so the normative question in general is quite complicated however in the examples i've been talking about uh it's clear that you should that the proper vantage point is looking at it at the beginning and the reason why that's the the right time to look at it is because in in the case of christmas accounts and in the case of the pigeon experiments the urges to switch are misguided that they are being applied to a different problem they're not being applied to the problem at hand and and and therefore uh it's not valid to look at it after uh after some time has gone by because our instinctual calculations are not uh well geared to the to the problem that they that the bird or or that we are actually facing uh so uh for the case of uh uh saving for your retirement saving for christmas uh for choosing between ten seeds and two seeds it's the initial calculation which is the correct one the later one is being distorted by evolutionary urges which are not appropriate you have explained the theory of procrastination as applied to individuals animals birds or humans do you think this theory could be also applied to complex organizations like corporations government nations and does the current crisis tell us something in this perspective well i was debating whether or not to bring that up but since you've asked this question uh let let me say it uh the the answer is yes and and what we've seen in europe i think is is all too clear a case of procrastination the leaders of europe have been putting off and putting off a definitive resolution of the si of the series of debt crises which they've been facing now for several years and i think the the the reason for this procrastination uh is is pretty clear they're hoping that it will go away by itself just as uh uh when when we uh when we put off doing a painful task we hope that for some re somehow someone else is going to do it for us and we and by putting it off we won't have to do it ourselves unfortunately in the case of europe no one is going to do it for europe europe is going to have to do it for itself but there there is a very strong psychological reason why the leaders of europe postpone nevertheless and just a comment on this uh concept i would say that um this situation can be when individuals have a particular behavior when they are in a strategic game like institutions like for instance a monetary institution against government they strategically interact so maybe it's a problem of credibility credibility in this case i mean that government are intended to postpone and the problem is that the design of threat in this case is was mistaken yes well i i i i think there there's a uh a serious argument that for example uh uh the european monetary union was misdesigned uh it was misdesigned in the sense that uh that it centralized monetary policy uh in the hands of the european central bank and it did not at the same time centralize fiscal authority uh that that is uh uh the ability to tax and spend and as a result uh european uh decisions about uh taxing and spending and debts uh have all had to be negotiated among the leaders on whenever they arise and there's a strong uh there there's a strong uh rationale for those for those decisions to be uh to be postponed uh uh as you were suggesting so so so it's a it's a design flaw uh uh sandro said that uh that uh procrastination uh can be thought and dealing with procrastination can be thought of as a mechanism design problem there was a design problem uh in the formation in the initial formation of europe by the way it's not too late to correct it it it it could it could still there are steps that still could be taken uh to put europe back on the right track but it's much more difficult to do now than it would have been 10 years ago you said that that in an institutional life when the the possibility of the the possibility of of the cost to pay is a is a fix it the the probability don't change it's not rational to use the the pro the procrastination like for taxes but what in the in the social events like uh like we we borrow some money to a person then we don't um then we procrastinate giving it back and then we both for for for get about this borrowing so the procrastination in this in this case is as a as an effect and maybe is it possible that these cases have a bigger reward on our instinct of a procrastination yes you're right that that although i was talking specifically about cases where procrastination is not uh an optimal response to the problem problems we face there there are cases where where it is it is quite a rational thing to do so so for as you say if if you've borrowed money from someone uh you may uh you may delay paying it back uh because there's some chance he may forget that he's lent you the money in which case you won't have to pay it back uh the the the the problem is that uh although there there are such cases uh in the modern world uh they are much fewer than was the case thousands and hundreds of thousands of years ago when we were evolving so yes there are cases where procrastination makes sense but most of the time unfortunately it does not it works against us and it certainly works against governments so we ha i think we have to do a better job of designing our way around this uh this instinct to procrastinate first of all i would like to thank you for this large amount of information on this topic i would like to go out a bit from the economic part and start a little society problem this additional festival is speaking about generations so my my grandmother and my grandfather told me that there are some some phrases like why you you can do something tomorrow when you can do it now so now we procrastinate how how can you how could you think that in the future our child and our grandchild can can do they can return to to the top as our grandfather or is worse every time worse than worse and worse till the end i i think history shows that these that these things work in cycles uh that that we're not doomed to procrastinate more and more that that we can learn um in a cultural sense from past experience and let me give you um let me give you an example uh about why uh i have at least some optimism that matters will will uh improve in the 1930s there was a devastating depression which affected europe affected the united states it was actually much worse than the than the current situation uh and and and that and that was of course extremely unfortunate but it did have a good side and the good side was that uh people learned from their from the experience of losing all of their money of losing their job uh that it's uh it was important to to save uh and the succeeding decades the 40s the 50s and the 60s were were periods where savings rates uh were were much higher than they had been say in the in the 20s uh for that matter we also learned from the 30s that financial regulation was important because the the depression of the 1930s was like the the most recent recession a consequence of of a financial meltdown and for a number of decades there was quite good financial regulation banks were regulated and there were essentially no financial crises for a number of uh decades even though there was pretty good growth so we can learn from that from bad experiences and we can improve our behavior after bad experiences the problem is that we don't learn these lessons forever there there will probably come a time maybe 50 years from now 60 years from now when the the lessons that we have learned in the past five years will have been forgotten again and we'll have to relearn them that's why i say so social movement tends to be cyclical rather than all straight up or straight down hello thank you very much for your presentation was very much interesting um i have just a small question i i was thinking about what how do i behave when uh when i make choices or when i make or make no decisions and um i was thinking not just about the fact of procrastinating studying or something small but as well my behavior when i am a consumer for example i do know that it's bad for environment and therefore i'm indirectly for myself in future that i consume meat but i keep on eating meat and at the same time i know that there are some products that are more ecologically sustainable but at the same time even if i had money i would keep on choosing maybe the cheaper option so what i was thinking was if and once it is confirmed what you have explained about our sort of um natural uh drive towards these tendons of procrastination do you think that for example would be good that policymakers uh decide for example to um establish that each person has to meet this amount of meat or as to consume this certain product on that that the flip side would be definitely as well some paternalistic behavior from policy makers so what do you think about this thank you economists tend to be a little bit skeptical about paternalistic behavior because they're not so sure that the that the paternalists the ones doing the decision making decisions are that much better at making decisions that than individuals uh however your your your question um points uh points to uh an important role for for public policy and that is uh when individual behavior creates an externality has an effect on other people which the individual doesn't take into account uh so for example uh if if i drive my car uh you know i've got my car runs on on on petrol on ga on gasoline uh if i drive my car one of the side effects of of doing that is that i'm burning the the gasoline and carbon dioxide is being emitted into the atmosphere that affects not just me it affects it ultimately affects everybody through through uh climate change through through global warming in fact it not it affects not just uh current generations but it has a potential for affecting future generations as well but i don't i don't take that into account i don't have an incentive to take that into account even if i'm very environmentally caught very environmentally aware i don't have the incentive to fully take that into account when i drive my car so what is the uh what is the way to to deal with global warming well one way is for for government to introduce a higher tax on gasoline uh that uh that that is not um paternalistic and i still have the option of buying the gasoline if i want to but it is appropriate that i should pay more for it because of this externality because of the damage that is being done to to generations of people in the future so correcting externalities is is uh is is a proper and important role for uh government policy uh and uh even uh even strongly anti-paternalist economists would agree with that i'd like to ask you if you ever think about how can you use this your theory for borrowing an investment mechanism i mean imagine the procedure of a bank which uh borrow money and lend it to firms of course a firm will tend to procrastinate the payback of the loan if it can or to roll over that at the same time the uh the household uh hyperbolically discount the future so they withdraw money or there is the risk that they withdraw their money and in the same way uh when a firm issue some bonds and make an investment decision there is a i mean there is the risk of a mismatch in borrowing and landing decision and it will it can affect the long-term investment in a sense so how can your theory be applied to financial crisis uh broadly speaking or to to cover this mismatch in a also in a sense in a balance sheet approach thanks well you're you're absolutely right that uh that the uh tendency to postpone repayments uh is a problem with in in many kinds of uh lending arrangements uh and and but there are various mechanisms uh that can be used to counteract that effect and one important mechanism uh is collateral so so if if you're a bank and you've lent me money uh so that i can buy a house one way of ensuring that that you're going to be able to get me to repay is by using that very house as collateral if i don't repay you can take over the house and and and we see the same kinds of uh collateralized debts uh in in uh business loans as well so so collateral is is an important tool for overcoming the the incentive not to not to repay or not to repay on time uh good afternoon uh i was wondering why you were talking about the fact that uh if you don't do one thing now you don't even know when you may do this in the future but uh and this is good for individuals and for for birds as well but don't you think there's also um a thought and this is for individuals i guess only that if you don't buy something now for example you might disappoint someone or not just for example a parent that doesn't buy something to its child so if i don't do that i might disappoint my child uh so i tend to buy it now but also in a negative way so if i don't buy this i may ruin my image let's say don't you think there's also this that doesn't work for birds thanks sure you're you're absolutely right there there can be other reasons uh or there can be other considerations than uh than just discounting uh which affects the decision of whether to buy now or or buy later um but but it's interesting that you should use the example of uh buying something for your child now because otherwise the child will be disappointed uh because in fact one something that that parents often try to do not necessarily completely successfully uh is to uh deliberately not buy something now in the effort to try to teach the the the child patience one thing that does not come naturally to children as as i'm sure the parents and the audience know is waiting uh nevertheless in the modern world where so much investment is long-term education for example is a long-term investment your success depends on your ability to to wait and there's some very interesting experiments that have been done with young children um uh there there was an experiment done in which a child was told that uh uh she could either have one piece of candy now or if she waited for the experimenter the experimenter that then left the room she was told if if she waited until the experimenter came back into the room she would get two pieces of candy these experiments were done many years ago and the children were followed in later life as as they grew up and it turns out that the children who waited for the two candies had significantly more uh success in their in their career which all goes to show that first uh patience is a virtue that that we already knew that we already knew but that pa that that patience is something which has learned very early in in one's life and and so so it really makes sense for for children uh for parents to to instill that in their children whether or not they can do it successfully is another matter but it's understandable that at least they should try thank you very much to uh eric again you