Tuesday, August 22, 2023
HomeFinancial AdvisorTranscript: Cass Sunstein - The Big Picture

Transcript: Cass Sunstein – The Big Picture


The transcript from this week’s MiB Cass Sunstein on Decision Making, is below.

You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.


ANNOUNCER: This is “Masters in Business” with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, what can I say? Cass Sunstein is an intellectual force in American jurisprudence, law, behavioral finance, public policy. I don’t even know where else to go. What a fascinating career and really incredibly interesting person.

I guess life is easy when your co-authors are all Nobel laureates or George Lucas. He’s just done so many amazing things in a career that spans everywhere from the Supreme Court to the Chicago School of Business and the Chicago School of Law, Harvard Law School, and just multiple public policy positions, public service positions for the White House, for the Attorney General’s office, for the Pentagon. I mean, his influence is just so far-reaching and fascinating. You kind of forget that he also teaches law at Harvard.

I found this conversation to be delightful, entrancing, and fascinating. And I think you will also, with no further ado, My sit down with Harvard Law’s Cass Sunstein.

Cass Sunstein, welcome to Bloomberg.


RITHOLTZ: Thank you so much for joining us.

So you co-author two books with two Nobel laureates and you practically write a third one with George Lucas. How much fun is that?

SUNSTEIN: Well, I’d say it was amazing. Writing on Star Wars was crazy fun –


SUNSTEIN: — and also a very unlikely thing for a law professor to do.


SUNSTEIN: Writing a book with Dick Thaler was not crazy fun, but was really fun because he’s fun.

RITHOLTZ: There’s nobody in the world of economics or behavioral finance like Dick Thaler. He’s one of my favorite people.

SUNSTEIN: Agreed, he’s unique and writing with him was a joy and a laugh a minute. Writing with Danny Kahneman was astonishing. He’s the most creative person I’ve ever met. He’s also immensely self-critical. He’s almost as critical of his co-authors as he is of himself, and it was a roller coaster and an incredible learning experience, and his integrity and sense of, “We can do better,” kept me up most nights.

RITHOLTZ: He supposedly agonizes over every word, every sentence. Nothing gets published without being looked over nine ways from Sunday.

SUNSTEIN: That understates it. So you get an email maybe at four in the morning saying, “This chapter is horrible. I don’t know how we could have written it. In fact, the whole book is horrible. I don’t know why we decided to write it.” And then two hours later, he’d say, “I see the fundamental flaw and we have to give up.” And then an hour later, maybe 4.45 in the morning, he’d say, “I might have a way to correct the fundamental flaw but I don’t think so.” And then at 5.15 in the morning, he’ll send you a note saying, “I have a glimmer of an insight. It’s probably going to fail, but I’m going to try it.” And then at 5.45 in the morning, he says, “I have a new draft of the entire chapter. which was a catastrophe, and I’m sure this is very bad too, but it’s less catastrophic.”

RITHOLTZ: (LAUGHTER) That sounds like, just skip to the last one and read that. So we’ll get into a lot of your writings a little later, but before, I want to dive into your background. You graduate Harvard with a BA in ’75, Harvard Law School in ’78. I assume the 1970s were very different than the ’80s and ’90s when so many people at places like Harvard Law wanted to go to Wall Street, what was that era like at an Ivy League law school?

SUNSTEIN: It was the aftermath of the 1960s. So it was later than all the civil rights and Vietnam stuff, but it was like a wave that was starting to recede, but extremely visible.

So there were people who wanted to have great careers in whatever they could find. There were people who thought, I want to make the world better. There are people who thought, I’m kind of sick of people who want to make the world better, I don’t want to be like that. And there were different categories of types. There was a lot of intensity, there was a sense that our country had been through something very traumatic and thrilling. And the question is, in what direction are we going to go? It was pre-Reagan era. And you could kind of see the dawn of the Reagan era in some of my classmates. And you could see even the dawn of some of the woke stuff today in some of my classmates.

Critical race theory was kind of about to be born, and you could see the origins of it there, as well as you could see the Federalist Society, which is the conservative movement that’s had amazing influence. That, the theoretical foundations were kind of being laid by 20-somethings in the ’70s.

RITHOLTZ: Interesting.

So you clerk for Justice Benjamin Kaplan on the Massachusetts Supreme Court, and then you clerk for Justice Thurgood Marshall at the Supreme Court of the United States, and this is ’79-’80. Tell us a little bit about what those experiences were like.

SUNSTEIN: Well, Justice Kaplan on the Massachusetts Supreme Court, he’s not in the history books, but he could be. He was a person who was fair and rigorous, and it’s almost like there’s one word for Kaplan, fair and rigorous. And he was a little like Danny Kahneman in the sense that he’d obsess over every word. He also was very critical of himself, and he could be very critical of his clerks. At one point, I was told before I started, he was going to take you in the equivalent of woodshed and kind of threaten to fire you, and sure enough that happened, and I reacted with fire.

I said to him, “This is unfair.” And it was quite an encounter. And the next day he said, “Are you still mad at me?” Which was a recognition of my humanity. And I said, “I still think you were unfair.” And we became great friends, and I learned so much from him. He had been a Harvard professor, maybe the best Harvard professor of his generation, and he was an extraordinary judge. Marshall was the historic person and larger than life and full of humor and wit and moral commitment that was never drawing attention to itself. It was more about the people. It was never about himself. And what I learned from Marshall is where lawyers typically, at least at the Supreme Court level, focus on paper and think, is the argument solid? Is the other paper better paper? Who’s, which lawyer has the better of the argument on precedence and on statutes.

Marshall, of course, thought about all of those things, but he saw behind the paper people. And that was an enduring lesson for me, that there was someone vulnerable or not vulnerable, but who was a person who was at risk in a case.

And he always wanted to know who were those people and what were the actual stakes for them. and of the thousands or millions of similarly situated, they might be investors, they might be workers, they might be companies, how would they be affected? And more than any justice at the time, and I think maybe more than any justice in history, that’s what he put his finger on.

RITHOLTZ: So you finish up your clerkship and you go to the University of Chicago, where you end up staying as a professor for 27 years. That’s a heck of a good run. What made Chicago such a special place to teach at?

SUNSTEIN: I did have something in between, I should say, which wasn’t like a vacation in Paris or a time being a shoplifter.

I had a time at the Department of Justice…


SUNSTEIN: Where I worked for a year in an office called the Office of Legal Counsel under both Carter and Reagan, which advises the president on the legality of what he proposes to do.

RITHOLTZ: So not like the Solicitor General that’s arguing in front of the Supreme Court, this is working directly with POTUS.


RITHOLTZ: And his staff.

SUNSTEIN: Well, when you say directly, that’s true, except the number of meetings I had with President Reagan was zero. The number of mediated interactions I had with President Reagan was about five, and the amount of work that I did for the president was basically every day.

So the Solicitor General’s office argues the cases in front of the Supreme Court, the Office of Legal Counsel resolves conflicts, e.g. between the State Department and the Defense Department, or if the President says, “Can I make a treaty, or can I fire the air traffic controllers, or can I do something about civil rights?” The Office of Legal Counsel is the one that answers that question.

And I think it’s at least as interesting as the Solicitor General’s office, because you’re not pleading to a court, “Please agree with us.” you’re actually resolving a controversy. And it’s kind of in between being a judge, you write opinions, kind of like a judge, and you are part of a political operation that is the executive branch. And if the president wants to do something, you’re not indifferent to the fact that the president wants to do that. But saying no is a very honorable tradition in that office. And we said no plenty. And one reason you say no is the president has an obligation to take care of the laws be faithfully executed.


SUNSTEIN: And that’s solemn.

RITHOLTZ: Do we still do that anymore? Have we kind of waved that off?

SUNSTEIN: No, that still happens. So under recent presidents, all of them, the Office of Legal Counsel has occasionally said no. Now in some times, the Office of Legal Counsel is more politically, let’s say, what’s the right word?

RITHOLTZ: Compromised?

SUNSTEIN: I want to use a softer word, but that’s not a bad word.

RITHOLTZ: I don’t have to. I have no ties to the legal community, so I could drop whatever bombs I want. I know you need to be a touch more circumspect than I.

SUNSTEIN: I think it is correct to say that the legal independence of the Office of Legal Counsel varies over time.

RITHOLTZ: Okay, that’s fair.

SUNSTEIN: But by tradition, it is not just a lackey. And then, as you say, I went to the University of Chicago. I went there because I was fearful that being a professor would be like retiring in your 20s. And I thought, that’s not what I want to do.

RITHOLTZ: The last landed gentry in America are tenured professors, I’ve heard someone say.

SUNSTEIN: That’s what I was fearful of. So I thought, you know, I was in the Justice Department, I clerked for the Supreme Court, I had career plans, and the idea of just sitting in an office and thinking, what ideas do I have, that didn’t feel really like living. It felt more like stultifying.

But at the University of Chicago, the faculty was full of dynamism and energy. And whether they were producing new ideas about the economic analysis of law or new ideas about what freedom means or new ideas about the securities law, it was like, it was electric. It was like Paris. And the University of Chicago Law School at that time was as lively an intellectual community as, They say Vienna at one point was like that, and Berlin at one point was like that, and Cambridge and Oxford at some points have been like that, Chicago was like that.

RITHOLTZ: Are you still a quote “Chicago person through and through?”

SUNSTEIN: I wouldn’t say that. I think that everyone is themselves, rather than a Chicago person or a New Yorker, forgive me for those who consider themselves New Yorkers, you’re yourself. But I was certainly inspired by and influenced by the fact that at Chicago, there was and is intense curiosity and a sense that trying to figure out what’s true is thrilling and noble.

So I saw Gary Becker, who won the Nobel of the great Chicago economist who was almost a law professor, who was around all the time. Man, did he think I was full of nonsense.


SUNSTEIN: And when he would ask me questions in his workshop, the feeling of you are wrong was combined with a feeling of respect that I’ll never forget. He was a giant and I was a nothing.

RITHOLTZ: Wait, wait, wait, I have to interrupt you here. So you come out of clerking not for one Supreme Court, but a state and the Supreme Court, then you are serving the White House in the Office of General Counsel, and suddenly you’re a 1L being pulled on again, feeling that panic rise, am I going to get this wrong and be embarrassed in front of everybody?

SUNSTEIN: Well, a little like that. So I was in my 20s, mind you, and I remember a dinner that Dick Posner had for me as a newcomer to the University of Chicago and George Stigler, who was also a Nobel Prize guy, was there and he asked me what I taught and I was teaching welfare law. And that was one of my courses.

RITHOLTZ: In Chicago.

SUNSTEIN: In Chicago, and it was about social security law and anti-poverty law. George Stigler said, “Why would you teach that? “There aren’t any poor people in America.” And he had written a paper showing that if you earn $6 a week or something, purporting to show, I should say, if you have $6 a week, you’re going to be fine. And my reaction to that was, your name may be Stigler and you may have been a Nobel, but I don’t believe a second that that paper is correct. And he was much smarter and more learned than I was. And it was a terrible dinner.

But I did have back then, maybe now, a sense that I’m going to give it my best shot. And I didn’t have a sense that I was necessarily wrong. And I remember Stigler’s fierceness, and he was, Becker was a great man who was respectful as well as skeptical. Stigler was contemptuous as well as curious about who was this young fool who was at our dinner party.

But Dick Posner, who was there, who was also a giant, was, at that dinner, he was kind. So he saw I was in trouble because Stigler was so amazingly smart and quick. And Posner, who agreed with Stigler, came to my defense, and that was the start of a great friendship.

RITHOLTZ: That’s really quite interesting. And thank goodness there are no poor people in America, because just think about how uncomfortable it would be to see homeless in big cities and people unable to pay for medical care. I mean, what sort of a country has that sort of thing? I mean, thank goodness he was right.

SUNSTEIN: Yeah, we probably need a progressive income tax or something and jobs programs and educational opportunity.

RITHOLTZ: So here is the fascinating irony about your career starting in Chicago and now you’ve been at Harvard for quite a while, back and forth to public service, but still at Harvard Law School for quite a while. It seems like those are the end points on the intellectual spectrum, at least in terms of legal thought.

Am I overstating that or is that fair?

SUNSTEIN: It’s a great question. So Chicago when I was there was the center of right of center legal thought. It had a very large percentage of the most influential right of center people and they were fantastic and they continue to be great friends. Harvard was the place where critical legal studies was born. It’s kind of not a thing anymore, but that was the left of center to law and economics, which was the right of center.

I thought even when I was at Chicago, though, I wasn’t right of center. I thought law and economics was extremely important and kind of on the right track. And I thought critical legal studies was a bunch of adjectives and nouns and not really adding up to much. But I admired at Harvard the constitutional law people who were fantastically clear-headed about the law for sure. And I admired the students at Harvard who were so diverse in terms of intellectual interests and intellectual background and politics and everything. Chicago has intellectual diversity too, but it’s just smaller.

So I felt that Harvard was a little like New York City and Chicago was a little like Boston. Smaller, more tightly connected, everyone to everyone else, and I love them both.

RITHOLTZ: So you work at Harvard with some just legendary professors. Did you overlap with Guido Calabresi when he was, I think, dean of-

SUNSTEIN: You know, he was at Yale, and I know him very well, and I love him dearly, and he’s 90-something now, and he was a great influence on me, and Harvard and Yale often have intellectual interactions that are breeding a friendship, and Chicago and Yale also, and Calabresi was a founder of economic analysis of law, and a little more, let’s say, focused on poor people, and people are struggling, then Chicago Economics, so there’s a Yale school and a Chicago school, and Calabresi, I can’t quite say he was a mentor, but he feels like that to me.

RITHOLTZ: And Lawrence Tribe, probably the preeminent constitutional law scholar in the country, is that, am I, again, am I overstating that, or is that a fair-

SUNSTEIN: I think it’s a little like basketball, and some people like Michael Jordan, and some people like LeBron James, and some people-

RITHOLTZ: You can’t go wrong with either, right?

SUNSTEIN: And Bill Russell, of course, was the greatest winner of all time. Tribe was my teacher.

RITHOLTZ: Oh, really?

SUNSTEIN: And he was maybe of the three, the most like Michael Jordan. His intellectual athleticism was and is…

RITHOLTZ: Next level.

SUNSTEIN: Next level. And when he was my teacher, he was charismatic, he was clear, he was bursting with ideas. He was writing his great treatise at the time. And it was a bonfire of thinking, in a constructive, bonfires destroy, Tribe didn’t destroy anything. And I thought he was dazzling. And he wrote a letter for me actually for my Supreme Court clerkship with Justice Marshall, which I’m very grateful for. He’s still a great friend. And, you know, he’s in many ways, he’s different from me in the last years, particularly. He’s more politically engaged in a way that is not my typical style, but I’m full of admiration for him.

RITHOLTZ: Really, really quite interesting.

So let’s talk a little bit about this program. What leads to something like this coming about? It doesn’t sound like your typical law school sort of class.

SUNSTEIN: Completely. So there has been, as I think everyone’s aware now, an explosion of work in behavioral economics and behavioral science about human behavior. So we know how people depart from perfect rationality. So people are often focused on short-term, not the long-term. They’re often unrealistically optimistic. Their attention is limited. They can be manipulated because they’ll focus on one or two features of, let’s say, a product rather than seven. And that means they’ll get two features they like and five that they in the long run will despise. So we know a lot about that.

This has major implications for law. So with respect to fiduciary obligations, let’s say of a fiduciary, what do they have to tell people and what do they have to make clear to people and not just tell people? And behavioral science tells us a lot about that.

If we’re thinking about free speech law and we’re thinking about the marketplace of ideas, behavioral science, behavioral economics might tell us something about how people get confused or fooled. If we’re talking about property law, tort law, or contract law, there has to be a sense of how people are going to react to what the law is doing. So if the law has a default term, let’s say, that you have to perform in a reasonable time, and let’s say the company that’s doing the performance thinks a reasonable time means maybe next year. What does the law do about that? And so there are a zillion questions. Algorithms and AI are kind of top of mind now for the law to try to figure out that have a behavioral feature. And that’s kind of what we’re doing with our program.

RITHOLTZ: That sounds really interesting.

I’m assuming since you co-authored “Nudge” with Dick Thaler, which came first, working with Thaler or the program on behavioral economics and public policy?

SUNSTEIN: I’ll tell you a story. Before I met Thaler, I was overwhelmed in the best way by the work of Kahneman and Tversky and Thaler. So I thought, this is the thing. And I started to work on some papers, one of which was called “Behavioral Analysis of Law.” And then Thaler came to the University of Chicago and we started having lunch together. And I started working with him when he was working on a paper with a law professor named Christine Jolles that I thought was going too slowly. And I said, “If you don’t write that paper, “I’m going to write my paper, and it might steal your thunder. It won’t be as good as yours, but it’ll be earlier.”


SUNSTEIN: And Dick said, and this was a fantastic moment for me, he said, “Why don’t you join us?” And we wrote it together. So I was intrigued by the behavioral stuff before I met Thaler, after I met Thaler, I had the world’s best partner on this stuff. And then when I went to Harvard, our program that followed, and some of it involves nudges, some of it has nothing to do with nudges, but all of it has to do with behavioral science.

RITHOLTZ: So you also co-wrote “Noise” with Danny Kahneman. It seems that there’s a theme in all your books, “Nudge”, “Noise”, “Sludge”. You’re constantly looking at the decision-making process and not just from an academic perspective, but how it affects people in the real world, how it affects organizations, how it affects individuals. Tell us a little bit about the integration of behavioral finance and behavioral economics with law.

SUNSTEIN: Okay, well, let’s talk a little bit about groups, shall we?


SUNSTEIN: If you get a group of like-minded people together, they typically end up thinking a more extreme version of what they thought before they started to talk. So if you get a group of people who tend to think, you know, we ought to invest in X, take your pick. Soap, there’s a new kind of soap. We ought to invest in X. That’s the average view. Soap, everyone needs to be clean. And with climate change, soap is going to be crazy. Soap companies. If that’s the average view, but I’m starting to convince myself, by the way, to invest in soap companies, which is probably not necessarily right, let’s put it that way.

If people talk with one another and they start with an initial disposition, they tend to think an extreme version of what they thought. They become more confident, more unified, and more extreme.

This is a real problem for companies. It’s a real problem for law. We have data suggesting if you get three judges who are let’s say Democratic appointees on a court of appeals, not two Democratic appointees and one Republican, three Democratic appointees, the likelihood of a left of center opinion shoots up really dramatically. That’s a crazy finding, because if you have two Democratic appointees on a three judge panel, they have the votes. They don’t need that Republican appointee, but they are much more moderate, and it’s symmetrical. Three Republican appointees are much more right wing in their voting patterns than two Republican appointees on a panel with one Democratic appointee.

RITHOLTZ: So groupthink, even amongst judges, is worse if there’s three of them and no countering voices versus, hey, we have a majority and we’re going to sign how we want, but everybody kind of wants to be rational and cooperative? Is that the suggestion?

SUNSTEIN: And here’s the really cool thing. There was a book called “Groupthink” a few decades ago. It’s a fantastic term. It’s not clear what groupthink is, and if we clarify what it is, it’s not clear whether it exists. So the rigorous efforts to test groupthink have a bunch of question marks. But there’s something like groupthink which does exist, which is a testable hypothesis, which is if you get a group of people, it will end up after deliberation in a more extreme point in line with its pre-deliberation tendencies. So that’s a mouthful. But let’s suppose you have a group of six people deciding whether to invest in soap or instead electric cars. Those are the options. So let’s say four of them think soap and two of them think electric cars and they think the same thing, they think what they do with equal intensity.

At the end of the discussion, the prediction is the group is going to go soap, soap, soap, soap, soap, and it’s going to do that with a considerable confidence as well as unanimity. That will be the statistical regularity. And I’ve done work on political issues, climate change, affirmative action, same sex stuff, where if you get a group that has a conservative disposition, they go whoosh to the right after they talk with one another. If they have a left of center disposition, they go whoosh to the left after they talk with one another. And Kahneman and I did a study with this on punitive damages, jury awards, where if a jury’s mad at a company, they’re going to be super mad at a company after they talk with one another, which helps explain why punitive damages are both unpredictable and often really, really high.

So that’s the logic.

RITHOLTZ: So let’s take that basic concept and apply it to online, where you have social media and all sorts of trolling activities and you end up with conspiracy theories like QAnon. How should public policy deal with these sort of things between anti-vaxxers and anti-democratic election deniers. This is a genuine threat to the health and safety of the country.

SUNSTEIN: So back in 2000, I agreed to write a book for Princeton University Press called “Republic.com.” And I had a title, but I didn’t have a book. And I had six months of failure, like unbelievable failure, like either nothing or it was terrible.

RITHOLTZ: You sound like Danny Kahneman.

SUNSTEIN: I was worse than Kahneman because what he didn’t like in his own work, his work is actually good. What I produced in those six months was in fact horrible. I still have it somewhere. But then I thought, okay, the real problem is echo chambers and the absence of shared exposure to things. And then when I thought echo chambers, shared exposures, I sketched out nine chapters and I wrote a chapter a day and I had a book after nine days. I’ve never had anything like that. It was like a frenzy, a happy frenzy of book writing. And that book has now gone through three editions. It was first called “Republic.com.”

RITHOLTZ: “Hashtag Republic Divided Democracy In The Age Of Social Media”, that one?

SUNSTEIN: That’s the very recent one. And it’s exactly on your point. So what should be done by various actors I think is a really hard question, but the existence of the problem is palpable. If you’re thinking about yourself just as an individual, to try to be exposed to diverse ideas is a really good idea. There are apps, there’s one, I don’t know if it still is working, I hope so, it’s called “Read Across the Aisle”, where you can tell whether you’re just reading one kind of thing or another kind of thing. So there’s self-monitoring. I know that some social media platforms have thought hard about how to handle the echo chamber phenomenon, and hard also about how to think about the misinformation problem.

And there are various things that behavioral scientists would counsel consideration of, including warnings, including reduced circulation levels, including in extreme cases, very extreme cases, taking things down, not through government, because then there’s a First Amendment issue, but through voluntary action. And one size doesn’t fit all, but I agree this is a very serious challenge.

RITHOLTZ: So a different book, I assume, is “On Rumors, How Falsehoods Spread and Why We Believe and What Can Be Done”. It seems like we are very predisposed to believe nonsense if it confirms our prior beliefs. We believe what we want to believe and who cares about the facts?

SUNSTEIN: Okay, so here let’s talk about three things, might we? The first is if I tell you that it’s raining outside right now, you aren’t going to think “He’s fooling me, it’s sunny and beautiful outside.” You’re probably going to think “Maybe I should get an umbrella.” So when people hear something, and there’s probably a good evolutionary explanation for this, under ordinary circumstances, they think it’s true. And that truth bias, as it’s sometimes called, is essential if we try to live in a world in which we thought everything people said was false, we couldn’t get through a day.

RITHOLTZ: Cooperative primates in a social group provide a survival advantage, so you’re not inclined to disbelieve someone looking in your eye and telling you something.

SUNSTEIN: Completely, but truth bias can lead us in really terrible directions, and that’s independent of motive. So I don’t need to want to think it’s raining to think if someone tells me it’s raining, it’s umbrella time. That’s one, truth bias.

The other thing is confirmation bias, where if we’re told things that fit with what we think, we tend to like that, and we tend to believe it because it fits with what we think. And that can aggravate the problem of echo chambers where people’s confirmation bias is being catered to.

So if you think the thing is your investment in X is really going great, even though all the indication is that it’s risky, the confirmation, the confirmatory material will have credibility.

We have recent data suggesting there’s a third thing, which is I think cooler than truth bias or confirmation bias, its name is desirability bias. And it’s like confirmation bias, except it’s different. And maybe I like it because of the phenomenon it draws attention to, because I find it desirable in a way that indicates it’s fun.

RITHOLTZ: So the desirability bias appeals to your own desirability bias.

SUNSTEIN: Yeah, it does because it fits with my conception of human nature.

RITHOLTZ: Oh, so a little confirmation bias there, wow.

SUNSTEIN: Both, but let’s pull them apart a bit. So desirability bias means that people believe things if they find it enjoyable to believe them, where enjoyable is a big concept. So it might mean it makes them smile, it might make them feel secure, it might mean it makes them feel pleased, it could make them feel grateful, it can be any number of things. But desirability bias and confirmation bias are emphatically not the same thing.

You might hear something that fits with your belief, that is like you’re really sick, but you don’t want to believe that because you don’t want to believe you’re really sick. And so if something is disconfirming but desirable, the data we have suggests that the desirable will beat the confirmatory. So if you think the economy’s going to go sour and then you learn that’s not true, you might well be extremely credulous, meaning willing to believe the happy thing, even though it’s disconfirming of your belief.

So desirability bias means things that please us we will tend to believe, even if they are disconfirming of what we start believing.

RITHOLTZ: That’s really intriguing. What I find so fascinating about confirmation bias is the underlying investment in the model of the world our brains create. I think our brains consume 25% of our daily energy. And so the models we create over time, we are so reluctant to challenge. We don’t want to look for disconfirming evidence because hey, we have all these sunk costs over here to bring up another fallacy. Tell us a little more about how you test for desirability bias and how it manifests in things like public policy.

SUNSTEIN: Okay, so let’s talk a little bit about confirmation bias.

If I believe that the Holocaust happened, if I read something saying it didn’t happen, I will dismiss that, not because I’m pleased that the Holocaust happened, but because I am so clear that the Holocaust happened, that the information that’s inconsistent with my belief has no credibility. So it’s Bayesian. It’s not about motivation. So I believe that dropped objects fall. If a magician comes to me and says, “You know, you’re not quite right on that,” I will think, “Magician, you’re pretty good at your job, but I really believe dropped objects fall.” It’s not about my motivations. It’s just what I start with.

So a lot of what we call confirmation bias is Bayesian updating, given our priors, we dismiss what is disconfirming on the ground that how can it be true that dropped objects don’t fall? Or how can it be true that Bill Russell isn’t the greatest winner in the history of organized sports? I have actually an emotional investment in that.

RITHOLTZ: I was going to say, one sports opinion which is emotion, the other is physics, but hold that aside. So desirability bias, even if disconfirming, seems to have a great resonance within ourselves, why do we think that is?

SUNSTEIN: Okay, so that’s about motivation. Desirability bias isn’t about rational updating, it’s only about motivation. Here’s something that pulls them apart, I’m going to give a simplified version of the best data I’m aware of on this, where people in the 2016 election who favored Trump or Clinton also had predictions about whether Trump or Clinton would win before the election.

Let’s take Clinton voters. If they thought that Trump would win, and then they were given information that suggested Clinton would win, they found it particularly credible. Now, that was disconfirming information. It suggested what they believed would happen was false, but it was pleasing information. It suggested that the information they were receiving would make them smile rather than suffer. And it worked exactly the same for Trump voters who thought that Trump would lose, but then when they got information suggesting that Trump would win, they thought, I’ll believe that. And it’s because it was desirable.

So we’re just learning about desirability bias. It has an overlap with optimism bias. It has implications for law. So in law, among real lawyers, you can create something pretty funny instantly, which is you tell them, you know, imagine you’re representing the plaintiff in a lawsuit. What are the chances the person will win? They say really high. If you ask the same kind of people you’re representing the defendant, what’s the chance the defendant will win? They say the chances are really high. So you can instantly put people in the role of plaintiff’s lawyer or defense counsel, and that their predictions about outcomes will fit with what they think is desirable, given the role they assumed 30 seconds ago.

RITHOLTZ: So that’s kind of interesting. Let’s relate this to another book, “How Change Happens.” When we look at things, sexual harassment, smoking, white supremacy, gay rights, climate change, seems like there’s been an ongoing evolution. Some of these things are very gradual. Even things like seatbelts took suddenly, I think the number today is something like 10 or 15% of people don’t use seatbelts, but the number was 40% to 50% for long, long periods of time until we started with the beeping to nudge them to do that. So tell us a little bit, how does social change happen? Is this Hemingway-esque or is it continually gradual and not all at once?

SUNSTEIN: Well, okay, so to understand this, we need to have some moving parts.

One thing is that people have in their heads beliefs and desires that they don’t tell anyone about. So you might think, I think that violence against people of color is pervasive and horrible, or you might think, I think meat eating is a really bad idea, or you might think, I think gun rights are very important and it’s terrible that there are people in the United States who are seeking to disarm the American public.

Okay, people who think all of those three things at some point over the last 50 years have shut up, thinking if they say any of those things, they will be ostracized or disliked or something.

Think of political correctness writ large. Sometimes what happens, and this is the first moving part, is that people are given a permission slip. So it might be that a political candidate says, “Black lives matter.” Or it might be that a prominent female actor says, “I was sexually harassed, and if you were too, say #MeToo on Twitter.”

Or it might be that someone says, “I think people should be allowed to get married, regardless of whether they want to marry a man or a woman, regardless of their gender, and it’s a free country” go for it. And then people will feel licensed to say what they had shut up about.

And for many social movements, the fall of communism is an example, the rise of the Federalist Society in the United States is another example, I saw that in real time, the success of President Trump, the success of President Obama, for all their differences, those all involved in significant part, people being given a permission slip that they never had before.

A second thing that matters is that whether we want to participate or endorse a social change depends on what our threshold is for doing that. Now, it might be a threshold for becoming active. It might be a threshold for just voting for someone. It might be a threshold for saying something. And we all have different thresholds and we probably don’t know what they are. So if you think of some movement for something, a lot of people participated in it, maybe the civil rights movement that Martin Luther King helped lead.

And there were people who had a very low threshold, they were just going to go for it. And there are others who would join if a certain number of people joined. And the thresholds really matter and we don’t know what their distribution is in advance and it has to play itself out. So that happened with seatbelt buckling.

And the third thing, which is maybe most important, is social influences. So you might buckle your belt if everyone else is buckling their belt. There are other people who won’t buckle their belt if no one’s buckling their belt. I remember a time when if you buckled your belt, you were saying that the driver is extremely dangerous or you were saying that you were yourself really cowardly and timid. And who wants to buckle their belt and accuse a friend of being an unsafe driver or disclose that you’re a terrified, scared rabbit? And now buckling a seat belt doesn’t accuse the driver and doesn’t confess timidity and the social norm changed.

RITHOLTZ: Can I share a quick story? I had Bob Schiller on the show a couple of times and once he had to go someone from here and we took a cab together, I think it was to the New York Times building. And we got into the back of the cab and Bob buckles his safety belt in the back of the cab.

I’m like, well, here’s a guy who studies behavioral finance and is an economist, I hadn’t really, I always wear my seatbelt when I’m driving, or in the front seat, you get into the back, you don’t even think about it. Maybe I’ve been overlooking this. Because of who he was and all the social proof involved, it changed my perspective on wearing a seat buckle, seatbelt in the back of a car. It was just like exactly what you’re describing, suddenly the whole framework completely shifted.

SUNSTEIN: Yeah, that’s fantastic. That’s a great example. And something like that is happening, you know, for non-political issues, for economic choices, for investment decisions. And it happens really fast. So you can see a flood of movement towards something or away from something just because people think that other people are joining that flood.

RITHOLTZ: Let’s talk a little bit about this book. I’m kind of intrigued by the idea that you started writing this in the 1990s. Is that possibly correct?

SUNSTEIN: That is correct.

RITHOLTZ: 30 years, I thought you were so prolific. Why so long?

SUNSTEIN: It’s a slow burn. This book is a slow burn. So I thought the idea of how we decide how we decide, it’s one of the most fundamental things of all. And I thought there should be a book on this and I co-authored a paper on it in the 1990s, but I never figured it out until yesterday.

RITHOLTZ: So how has your thinking about decision-making evolved over that time?

SUNSTEIN: I think the fundamental idea, which was developed in a paper with a philosopher named Edna Ullman-Margalit, is that we have an identifiable set of strategies. It’s going to be very intuitive when we’re stuck. So we might flip a coin. We might decide who’s an expert. I’ll trust the expert. We might decide, I’m not going to marry her, I’m going to live with her. That’s like a really small step.

We might decide that, you know, I’m just going to opt, where it’s not about flipping a coin, it’s not like picking, flipping a coin, it’s like I’m going to do something really big, like jump over a chasm. Or it might mean we might think that we’re going to adopt a rule. No liquor ever, except maybe Saturday night. And if you think about business decisions, each of these strategies is used all the time, sometimes deliberately. The head of a company will say, “Here’s our rule,” or will say, “If we’re stuck, “we’re going to go to this person,” or will say, “You know, it’s a coin flip.” And we’re not as disciplined sometimes as we should be in thinking about these, but that’s the basic framework. What I hadn’t thought through was, how do we decide whether to acquire information? How do we decide what to believe? How do we think about algorithms? How do we think about freedom?

And these questions, which are all basically part of the same thing, were stirring around in the head and I kind of figured out at least provisional responses to the questions in the course of the book.

RITHOLTZ: So opt, delegate, no, believe are the four big frameworks. But given your background in behavioral finance, let’s talk a bit about biases. how should we contextualize heuristics that can derail our cognitive processes when someone is trying to make a rational decision? Maybe they do, maybe they don’t.

SUNSTEIN: Okay, so one bias is present bias, where today really matters, and the future is a foreign country called later land, and we’re not sure we’re ever going to visit. And that actually has roots in the brain, present bias. And we know if we’re making investment choices, if we think what we want to really maximize is wealth this week, that’s probably dumb. It’s going to produce a lot of problems. This is your field, of course. And we might decide we’re just going to adopt a rule for investments which will counteract our own present bias.

Or we might think in state government, let’s say, that unrealistic optimism is part of the human species. Thank goodness for that. If you’re being chased by a lion, you ought not to think the lion’s faster than I am. I’m going to die soon. You ought to think I can really run. That’s optimistic. It’s probably unrealistically optimistic.

RITHOLTZ: Or just run faster than the guy you’re with, right?

SUNSTEIN: Completely, completely. And then the lion will eat that other person who is profoundly to be hoped is not a dear friend. So optimistic bias can create problems.

So we might think that given unrealistic optimism with respect to medical decisions, we’re just going to rely on the doctor. That’s one thing you might do.

Or you might think if you’re a judge, you might think I’m prone to mistakes with respect, this might be the future, I’m prone to mistakes with respect to dealing with certain kinds of people, let’s call them criminal defendants, and sentencing, I might be biased against one group or another, I don’t even know, and I’m going to rely on the algorithm.

RITHOLTZ: I’m always fascinated by the sentencing studies that show the longer a judge is sitting on the bench that day, the closer we are to lunch, the worse the sentences are. It seems almost as if they’re not algorithms, they’re fallible humans making decisions, some of which are not great.

SUNSTEIN: Yeah, the most fun of these kinds of studies is if the judge’s football team won over the weekend, the judge is more lenient on the next day than if the football team lost.

RITHOLTZ: Amazing.

So let’s talk about some other influences. We’ve talked about social media and mass media and there’s misinformation is ripe. There’s even propaganda on social networks. How does that impact our decision-making process? Especially if it seems the people most affected are the least aware of these very, very below the radar or not so below the radar influences?

SUNSTEIN: This is a fantastic question. And here’s something over the last maybe 15 years, when Dick Thaler and I started working on “Nudges” we were, and we remain, very upbeat about the potential use of GPS-like things. to help overcome people’s biases. When I say GPS-like things, I mean a GPS device, it’s a nudge, it helps you get you where you want to go, it gives you the best route. If you don’t like what it says, you can ignore it, so it’s completely freedom producing, or freedom maintaining.

And then there are other things like a package that says “This has shrimp in it” I personally am allergic to shrimp, so hooray for that disclosure. or you can have something that tells you a warning about side effects and they might be relevant to your choices. These are all nudges.

Okay, and they are designed to help people deal with their cognitive limits. They might involve a bias, they might involve an absence of information. But we know, and this is what at least I wasn’t sufficiently alert to in 2008, that self-interested or malevolent types can use behavioral biases to manipulate people.

So you might use present bias to try to get people to buy some product where the long-term economic effects are horrifying, though the first week is going to be pretty good, or you might get people to buy some product where you’d have to be crazy optimistic to think it’s a sensible thing to do because the risks associated with it are horrible, or, and I think this is the most fiendish of all, you might use people’s limited attention to get them, let’s say, to opt into something, which is going to be really hard to opt out of, and once they’ve opted into it, they’re stuck with something that’s going to be very expensive and not beneficial.

So the manipulation of people, we’re just talking about the economic sphere right now, poses a very serious challenge and social media, et cetera, make this unprecedentedly doable. I’ve worked with private sector entities which are trying to use behavioral stuff to improve outcomes for their customers and their investors, and that’s fantastic.

But there are others who are trying to improve outcomes for themselves, which is also fantastic, but not if it’s at the expense of the most vulnerable.

RITHOLTZ: So you mentioned present bias, I love this Danny Kahneman quote, “Nothing in life is as important as you think it is when you’re thinking about it.” That really says everything. Talk about present bias. In the moment, it’s very hard to let anything else come into the picture. How should we act around that? And how should public policy be set up to not let people’s wetware be taken advantage of?

SUNSTEIN: No, that’s fantastic. So the only exception to Kahneman’s phrase, nothing in life is as important as you think it is when you’re thinking about it, is that statement. That statement is as important as it is when you’re thinking about it.

So it might be that policy makers can put on people’s view screens things that they’re not thinking about. So let’s say you’re buying some product and that there are add-on fees of various kinds that are findable but not really there and people aren’t thinking about them. To put those add-on prices on people’s view screens is a really good idea for companies actually to do that and use competition to promote fuller clarity on the part of consumers. That’s a really good idea. I think for securities, the securities laws, there’s a lot to say about them. But insofar as they’re trying to prevent people from falling victim to present bias or limited attention or unrealistic optimism, That’s an extremely worthy goal.

RITHOLTZ: Really quite intriguing. So I love this line in the book, “Get drunk on wine, poetry, or virtue,” in “Decisions About Decisions.” Tell us what that means, wine, poetry, or virtue.

SUNSTEIN: Okay, so that’s from a poem by Baudelaire, which is the improbable spirit guide of the book. And the title of Baudelaire’s poem is “Get Drunk.” And for a law professor to celebrate a poem with that title is a little unlikely, but I’m going to own it, where what Baudelaire says by “Get Drunk” is basically take life by the horns and be thrilled by it. And there’s also something about human diversity that what makes you get thrilled, maybe wine, good, Don’t overuse it, but go for it. If that’s what gets you thrilled, or if it’s poetry, go for that. Or if it’s virtue, good works. That’s admirable, of course, and if it also is for you, like wine, hooray.

Now, of course, we’d want to say, I think, that maybe a little more in the way of good works and a little less in the way of wine is a good thing, but that’s a buzzkill on my part, And the point of this part of the book is when we’re making about decisions, about decisions, think about what makes life fabulous. That’s really important. And I think the behavioral types, including yours truly, often may be overweight a little bit. What makes life long and underweight a little bit? What makes life fabulous? So the first generation of behavioral work is really healthier, wealthier, safer, more prosperous, and those are really important. But also, kind of better days. And Baudelaire, get drunk, he’s all over that.

RITHOLTZ: So I interpreted Baudelaire as consumption, art, and intellect. Those are the three broad topics, which seem to cover a lot of human behavior. But let’s stick with happiness. You referenced some surveys that show people are less happy than ever, even though by any objective measure, whether you’re looking at crime or healthcare or longevity, except for the past couple of years, post-pandemic, or poverty or literacy, or just go down the list, by just about any measure, Americans and humanity as a whole are better off than they were 20, 40, 60 years ago. Why do surveys say people are unhappy? Is there a problem with the survey? Is it 24/7 social media, or do we just not know how good it is?

SUNSTEIN: That’s a fantastic question. So let’s think about two things. First, day-to-day experience. Are people thinking, that was a great day, Monday was terrific, Tuesday was good, Wednesday not so much. That’s one thing. The other is not day-to-day experience, but what kind of lives are people having? Are they going to the doctor a lot? Are they learning? Are they being treated with respect? People care about two things that happiness doesn’t capture. One is how meaningful their life is, and the other is how much psychological richness or let’s call it diversity in their life they have. So they might have a meaningful happy life, but they might be doing the same thing over and over again. People don’t like that. A lot of people don’t like that so much. They want to do something else.

So happiness, meaning, psychological richness. And it’s important to say that day-to-day happiness is really important, but it isn’t everything. Now, with the surveys suggesting that some people in some populations, maybe America is less happy now than it was at a certain point. I don’t know whether it’s an expressive statement that pandemic time, terrible, or political polarization, I’m not liking that, or whether instead it’s actually, my life isn’t so good. So I don’t think we’ve gotten to the bottom of what the data actually shows about the happiness part. If it is the case that people actually are less happy, if that’s true, that’s a very serious, not good thing and we want to figure out why.

When I was in the White House under President Obama, we did, as the government always does do, cost benefit reports, cost and benefits of regulations, and we added stuff on happiness, on subjective well-being. the UK government, they’re very concerned about this. And I do think it’s an important field of endeavor to try to figure out, are people thinking life is great or is it not so great? And is that translated into depression and anxiety, et cetera?

RITHOLTZ: So let me push back a little bit on the use of surveys and Amazon’s Mechanical Turk and all these things. So the granddaddy of this in my field is when you are setting up a portfolio for an investor, “Hey, tell us about your risk tolerance. So you conservative, are you moderate? Are you aggressive? What’s your investment posture?” And whatever they tell you is a lie because all they’re really telling you is, here’s how the market has done over the past 90 days. And if it’s gone down, I’m very risk averse. And if it’s gone up, I’m very aggressive.

Every time I see a survey, I can’t help but think, “How much are you going to spend on Christmas gifts this year? What is the direction of the economy? Are we on the right track or on the wrong track?” I love the surveys right after the presidential election where, what’s the state of the economy? Suddenly the Democrats were here, the Republicans were there, their guy loses, it flips. And then the next election, the same thing happens.

So what is the value of surveys when people really don’t know what they think, hardly know what they feel, and have no idea what’s going to happen in the future?

SUNSTEIN: That’s also a fantastic question. I’m doing surveys right now, that is right now, on whether people like algorithms. And so I’m asking people, would you choose an algorithm or a person with respect to an investment decision? Or an algorithm or a person with respect to a vacation? Where are you going to go? or algorithm or a person with respect to health decisions. And I’ll tell you what makes me think that the very preliminary results, you’re going to be the first person to hear it, are not useless. That if you tell people things about the algorithm, which give people clarity on the data on which the algorithm is relying, and like there’s a lot of it.

RITHOLTZ: Like the MRI or CAT scans that the algos clearly do better than the humans?

SUNSTEIN: Yeah, it’s in the direction of that, what I did. then the percentage of people who embrace the algorithm jumps dramatically. And if you tell people things about the human alternative, like this is a doctor who’s been a specialist in this for 30 years, then the interest in the human being increases significantly.

So the direction of the results in the survey about which you would rely is consistent with thinking people are attentive to whether the algorithm is just a thing or whether it’s got a terrific data set and whether the person is just a person or someone who has 30 years of experience in the vacation sector, let’s say. So that survey, and it’s top of mind for me because I’m working on it now, seems instructive. And TBD, this might be a book in the fullness of time.

RITHOLTZ: I would expect nothing less.

SUNSTEIN: With respect to happiness, let’s consider three things, shall we? Efforts to measure people’s experience in real time. So like on a scale of one to 10 right now, I’m approximately 10 because I’m really enjoying talking about this. I find that 10, of course I would, but I find people’s answers, how happy are you right now? How anxious are you? How stressed are you? How angry are you? Angry, zero. Stressed, me right now, two. Anxious, me right now, one. And these are all credible in real time. That’s one way of doing it that seems pretty good at getting how people are. If people are in the midst of dealing with a really angry and difficult young child, people will give answers.

I’m really not having a great time right now. And that’s credible about their emotional state. Then there’s at the opposite spectrum, how satisfied are you with your life? And these are crude because it might be that if people had a really good date the night before, they’ll say, and so, but there is stability on these things and there are within nation differences that are interesting and seems to be telling us something. So there’s a lot of work on whether life satisfaction is kind of crude but directionally informative. I tend to think yes.

And then there are things in between where you ask people at the end of the day, and Danny Kahneman has pioneered this, called the day reconstruction method. You ask people, “How were you?” This is less demanding for the experimenter than trying to ask people every second, “How are you?” And if you ask people that enough, they’re going to say, “I’m really irritated “because you keep asking me how I am.”

So Kahneman asks at the end of the day, “How were you when you were taking care of your kids? “How were you when you were on social media? “How were you when you were at work? “How were you when you were commuting?” And the results are pretty credible. People really don’t like commuting, and they really do like, let’s call it intimate relations.

RITHOLTZ: To say the very least, right.

SUNSTEIN: That’s the people are very, very positive about that.

RITHOLTZ: That’s quite fascinating. Which leads us to talk about the book you wrote on Star Wars, “The World According to Star Wars.” This became a New York Times bestseller, great reviews. What led a Harvard Law professor to write a book on Star Wars?

SUNSTEIN: My son, who was six or seven, got obsessed with Star Wars, and we watched it together, and I thought, you know, I like Star Wars. At that point, I wasn’t crazy about Star Wars. And I thought, what is it about Star Wars so that my young boy would go nuts for it when it’s a long time ago?

And so I got focused on its enduring appeal. And then I thought the idea of writing a book about it was too crazy not to go forth with. And no publisher for a long time had even a little bit interest in it.


SUNSTEIN: So I almost thought I was going to publish it myself as a something. I talked to my literary agent about publishing it myself, which I’d never done before, because I enjoyed it so much. And then at the last minute, a prominent publisher thought, we’ll give this one a try.

RITHOLTZ: We’ll circle back to that concept of people in industries not knowing what works. But right in the beginning of the book, you drop a number that is mind-blowing. The Star Wars franchise has earned $42 billion worldwide. That’s an insane number. How has a movie earned that much money?

SUNSTEIN: It’s probably a lot higher now.

RITHOLTZ: Well, you have the Mandalorian and Boba Fett and all of the streaming versions and countless, countless animated things. Plus the Disney rides. It really is its own industry.

SUNSTEIN: Completely. And one thing is that success breeds success. The other thing is that it’s amazing. So the George Lucas ones, especially, I say, apologies, Disney people.

RITHOLTZ: You’re right with that. You’re okay with that.

SUNSTEIN: Thank you for that. And he did something incredible. So it had a foundation, but he also benefited from a lot of serendipity. That helped.

RITHOLTZ: So let’s talk a little bit about a concept I love from William Goldman, who wrote “Princess Bride,” and he was the script doctor on “All the President’s Men” and “Butch Cassidy and Sundance Kid.” just a legend in Star Wars and his concept is nobody knows anything, certainly not about the future, about what might resonate with the public. All the studios originally passed on “Star Wars”, they passed on “Raiders of the Lost Ark”, almost all the publishers rejected J.K. Rowling. You referenced the Sugarman documentary, which was really quite fascinating. So it really leads to the question, what makes a form of entertainment have this sort of cultural resonance? You mentioned Lucas got lucky. Still, it’s more than just dumb luck. There’s got to be some level of quality there, right?

SUNSTEIN: It has to be great. So another example, I’m writing a book right now called “How to Become Famous”, and it’s about exactly this. And it was inspired by the Beatles, where the Beatles, everybody turned down to the Beatles. They wrote letters to Brian Epstein, the Beatles guy, agents saying, “The boys won’t go.”

RITHOLTZ: Guitar music is over.

SUNSTEIN: Yeah, and the Beatles themselves said, “We’re in big trouble, we can’t get a record deal.” They became the Beatles. Did they come close to failing? Maybe.

Okay, so clearly you’re right, you need quality. But consider the following fact, that John Keats, often thought to be the most beautiful poet in the English language, died at the age of 25. He was very ambitious, he thought he failed, and he put on his grave something like he whose life was written in water. And Jane Austen, maybe the most beloved novelist, was not thought to be the greatest novelist of her time. She wasn’t thought to be the greatest female novelist of her time. How she became Jane Austen is a very complicated story.

The story of John Keats and Jane Austen is across generations, I think the story of the Beatles and Star Wars within a compressed period where something catches a wave. Now it has to be great to catch a wave. If it’s just someone who doesn’t know how to surf, they’re going to fall. So it has to be great. But what happened with Star Wars, we can talk a bit about the merits, But I think what really happened was social influences, which is not to diminish the amazingness of the “Star Wars” movies, but people wanted to go see “Star Wars” because everyone was going to see “Star Wars.” And that happened early on. So the people thought not to see “Star Wars” is to miss out, it’s like, who do I think I am on this earth not to go see “Star Wars.” I remember that by the way.

And that wasn’t because it was fantastic, though it was fantastic, it was because other people thought it was fantastic.

Taylor Swift is a current example. I think Taylor Swift is completely amazing, but her amazingness does not account for the fact that she’s so famous. It’s that people love her. And even people who don’t love her are interested in her or pretend to love her. I’m here to say I’m not pretending to love her. I really loved her. I thought her music was great, even before she was quite what she is now, because Neil Young, who’s one of my heroes, said Taylor Swift is the real deal, and I thought I have to listen to Taylor Swift.

So this is all around us, and there are people who are not like George Lucas, or not like Taylor Swift, or not like the Beatles, who maybe were about as amazing, but something didn’t happen for them, and we’ve never heard of them, or we will hear of them. Day after tomorrow.

RITHOLTZ: There’s a fascinating section in Derek Thompson’s book, “How Hits Happened”, about how the impressionists were essentially more or less ignored. I think Van Gogh never sold a painting in his lifetime. But one of their members who came from a wealthy family left a whole run of these Impressionist paintings with the edict that left it to the French government and this has to be displayed on the museum and if not, you can’t have them. And very unhappily, the French government did and suddenly it became a sensation. But for that, who knows, Monet, Manet, Pissarro, go down the whole list, may not be part of the pantheon that we look at today.

SUNSTEIN: Completely. I love Derek Thompson’s book, and I think that’s a fantastic example. So one way to think about it is that the phenomenon of power loss is highly relevant to success and failure, where we tend to think of things as linear with respect to growth, but that’s not true for video games, it’s not true for films, it’s not true for novels, it’s not true for art. It’s a power law, this is very slightly technical for yours truly, the English major, not technical for you, the math guy. But if we understand the phenomenon of power laws and how they work, then we’ll get real clarity on spectacular success, including that of Star Wars.

RITHOLTZ: Very much a winner take all sort of phenomena.

So let’s bring Star Wars back to behavioral economics. You note in the book whenever people find themselves at some sort of a crossroad within Star Wars, the series proclaims you are free to choose. This is the deepest lesson of Star Wars, which kind of reminds me of you and Thaler’s work in “Nudge” in terms of setting up choice architecture. Was that a conscious explanation?

SUNSTEIN: Well, Thaler and I were very focused on preservation of freedom and continue to be. And some of our friends on the left are mad at us because we’re pro-freedom. That’s probably a self-serving way to describe it, but I’m sticking with it.

The thought of some of our friends on the left is that we need much more in the way of coercion and mandates, and of course they have a role. But Thaler and I are very big on investor freedom, consumer freedom, America, exclamation point. Star Wars is similar. It’s art, it’s not social science. And as between art and social science, at least my current mood, I go for art. And I love them both, but Lucas is an artist. And it’s his soul that’s speaking. And I don’t know how conscious he was about this, though I can tell you a little story if you want.

RITHOLTZ: Go ahead, sure.

SUNSTEIN: Okay, so freedom is the theme. Darth Vader, who’s the worst person in the universe, maybe the second worst, at the crucial moment exercises his freedom because he believes that saving his son is more important than fidelity to the emperor, and he sacrifices everything. That’s his choice, and that saves him. So it’s in some ways a spiritual, even a Christian book about freedom, and this is what makes it, I think, transcendent. My story is that after I did the book, the one person who I was most terrified to see was George Lucas, whom I knew a tiny, tiny, tiny bit. And I was at a big event with maybe 300 people, and there in the distance was George Lucas, and he started walking toward me.

RITHOLTZ: Beeline, you see him coming toward you.

SUNSTEIN: Yeah, and I thought, he was walking fast, but steadily, and I thought, please God, let Harrison Ford be right in back of me. Please God, let someone whom he knows be in back of me, please God, let him not be walking toward me. But he’s continuing to walk toward me and it’s about 200 yards and now he’s 150 yards away, now he’s 100 yards away. And I thought maybe I can be like some character in Star Wars where I can make myself meld into the floor.

RITHOLTZ: This is not the law professor you’re looking for.

SUNSTEIN: No, no, no, no, I thought can I do a mind trick so he doesn’t know it’s me? Or can I make myself really tiny or can I make myself pure liquid? But he’s walking toward me. And then he said the most terrifying words I’ve ever heard. from a human being, which is he said, “I read your book.” And I thought, oh my gosh, what’s going to happen?

RITHOLTZ: Here it comes.

SUNSTEIN: And then he paused and he said, “Without any sense of pleasure,” he said, “I liked it.” And then he said, without any sense of pleasure, no smile. He said, “It’s good.” Then he paused and said, with no smile at all, he said, “You got what I was trying to do.” And then he paused and he said, start to smile. And he said, “But the other books on Star Wars, they’re terrible.”


SUNSTEIN: And then he got a big smile and got really happy. And he said, “And you made mistakes.” I loved him so much that he wasn’t going to flatter me, he wasn’t going to say anything, you know, you wrote a good book. But he was as nice as he could be, and he has become a friend. And we talked a bit about the book, and he said at one point, “You have no idea how much work I put into the prequels.” And I said, “Don’t you know who you’re talking to? I wrote a book on this. I know how much work you put in the prequels” and he smiled.

And then he described one of my alleged mistakes, and I’m not going to disclose what it was because that would be violating of confidence, but I don’t believe it was a mistake at all. I think he was retrofitting something in the genesis of the Star Wars movie.

RITHOLTZ: Which he has been known to do.

SUNSTEIN: Which he has been known to do.

RITHOLTZ: Very often he engages in little revisionist


RITHOLTZ: Literary history.

SUNSTEIN: And I think that’s great for a great artist, writer. This was a private conversation where he had no stake in anything, but we argued a little bit. I thought this is pretty surreal that I’m telling George Lucas about the genesis of the “Star Wars” movies, that I’m believing myself rather than George Lucas, and that might have been motivated recently.

RITHOLTZ: Hey, if George Lucas said your book on “Star Wars” was good and the rest of them were not, that’s a giant win. You can’t do much better than that.

SUNSTEIN: I think what he, I like to think-

RITHOLTZ: It’s pretty clear that the book, so this is a, your regular books are academic and deeply researched, and they’re not lightweight. This on the other hand is a fun, I don’t want to say it’s a lightweight read, but it’s an easy read, and it’s clear a lot of thought depth went into it to say what is the genesis of “Star Wars”, not just the Joseph Campbell man of a thousand faces, but what are the philosophical motivations of Lucas, what is he trying, you know, the relevance about Nixon moving to authoritarian and the freedom, like it’s clear thought went into this and he picked that up.

SUNSTEIN: Yeah, thank you for that. Thank you.

RITHOLTZ: So I only have you for a few minutes. Let me throw you a couple of curveball questions, and then we’ll quickly do our speed round on our favorite questions.

So you were a professor at University of Chicago, where Richard Posner was also a professor. He once was the most cited law professor in the US until you came along. Tell us a little bit about your relationship with Posner.

SUNSTEIN: It was very good. So early on he was a giant and he was very skeptical of some of the things I thought, but he was very engaged and very collegial. So it was all substance, not personal. And I just learned so much from him. His comments on my papers, which he thought were bad papers, were instructive comments and they made them less bad papers. Engaging with his thinking was a gift to me and I think as skeptical as I was of maybe 90% of what he thought, I ended up agreeing with maybe 40% of what he thought and I think he wouldn’t want to think of himself as a mentor of mine, but he was.

RITHOLTZ: So let’s address some of the things he thought of. Law and economics initially was considered fairly radical and an extra legislative backdoor to affect the judicial process. Tell us a little bit about his philosophy, which in small measure he recanted after the financial crisis.

He said, “My core belief is the company’s own desire to preserve their reputations should have prevented them from doing what took place during the financial crisis.” I don’t know how much of a, if that’s a full recant or just a post-financial crisis, what the hell happened, but tell us about his theories.

SUNSTEIN: So I think the largest contribution Posner made was to think, what are the consequences of law for people and how can we be empirical about that? So is the law contributing to well-being? Is it leading to economic growth? Is it destroying wealth? Is it helping consumers and investors or is it hurting them? And that insistent focus on what are the consequences of law, that was for me then, and I’m smiling now, it was like a breath of fresh air. When I was in law school, we never asked about that. We asked what was analogous to what? And Posner just said, “What does this mean for people?” In a way that had no sentimentality to it, it had numbers. And that’s amazing.

Then there was the idea that the common law is efficient. So he thought the law of private property, contract, and tort in England and America just is efficient. That’s how he made his reputation. I don’t think that survived, but it’s not crazy false. It’s not wildly inefficient and it’s pretty efficient. So I think that was a fundamental contribution.

His kind of Chicagoist skepticism about the role for government regulation and such, I think that was really a third order idea. The more fundamentalist think about the consequences. I don’t know what to think about recantation by him. It may be that just under the spell of a horrible economic downturn, he thought there were some things I thought that weren’t right. But more fundamental was his focus on evidence and data than his thinking that I am a Chicago school person.

And on behavioral economics, my own focus, he really did shift. And he wrote me a note saying he shifted. In the early days, Thaler and I gave a talk at Chicago in which he was fiercely skeptical and he wrote about behavioral economics in a way that was full of dismissiveness and he ended up being, I think the word a convert is accurate and that’s because he thought the evidence supported it.

RITHOLTZ: Well, when you look at the original pre-behavioral model of economics, the fundamental premise is false. Humans are rational profit-maximizers, we’re not. And if your foundation is false, well, how high can that building on top of it go?

All right, so I only have you for a few minutes. Let’s jump to our favorite questions, our speed round that we ask all of our guests. And let’s start with what’s been keeping you entertained? What are you either listening to or watching these days?

SUNSTEIN: There’s a show on Netflix called “Vortex,” which I love, love, love, love. It’s French, it’s about time travel.

RITHOLTZ: Oh, really?

SUNSTEIN: And it’s about romance, and it’s about the economy, and it’s about heroism, and it’s about the future and the past, and it’s not to be missed, “Vortex.”

RITHOLTZ: We’ll definitely check it out. Do you speak French or are you just a Francophile or?

SUNSTEIN: Je parle un très petit peu.

RITHOLTZ: Un peu. If you haven’t seen “Call My Agent,” strong recommend. It’s absolutely delightful. So you’ve mentioned several mentors. Who helped guide your career?

SUNSTEIN: I would single out a recently deceased law professor named Lloyd Weinrab who taught a course at Harvard on law and philosophy in undergraduate course, which I took on a kind of flyer and it alerted me to a world I had no idea existed. So I would single out Lloyd Weinreb.

RITHOLTZ: What are some of your favorite books? What are you reading right now?

SUNSTEIN: My favorite book of all time is “Possession” by A.S. Byatt. It’s the greatest work of fiction in the English language.


SUNSTEIN: And I reread it every few years, and it’s completely great. Reading right now, John Stuart Mill’s “The Subjection of Women,” which, because I’m writing about liberalism as a political theory and where it came from, and Mill on equality and liberty is relevant, let’s say.

RITHOLTZ: Just to say the very least. What sort of advice would you give to a recent college grad interested in a career in either law or behavioral finance?

SUNSTEIN: Find things you love and focus on them because even if you don’t succeed spectacularly, at least you will have loved not succeeding spectacularly. And if you focus on the things you really enjoy and love, the chance that you’ll succeed skyrockets.

RITHOLTZ: And our final question, what do you know about the world of law, constitution, nudges, sludges, noise, behavioral finance today that you wish you knew 40 or so years ago when you were first getting started?

SUNSTEIN: Well, I wish I’d known about the horror of sludge understood as administrative burdens, waiting time, long forms, in-person interview requirements, things that make it so that if you’re kind of doing well in life, but you need help of one kind or another, it’s really hard to get it. Or if you’re struggling in life, let’s say you’re old or you’re sick, or you’re poor, or you’re struggling, you’re lonely, the various administrative burdens we impose on people, they are like a wall that our society erects often inadvertently. Take down that wall, Mr. Whomever.

RITHOLTZ: Quite fascinating. Cass, thank you for being so generous with your time.

We have been speaking with Cass Sunstein, whose career is just legendary in the fields of law and publishing and behavioral finance and public service.

I don’t know what else to say other than thank you. If you enjoyed this conversation, be sure and check out any of the 500 previous discussions we’ve had over the past eight years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Sign up for my daily reading list at ritholtz.com.

Follow me on Twitter @ritholtz, although that account was hacked and in the meantime, I’m using @Barry_Ritholtz until I get it back.

Follow all of the Bloomberg family of podcasts on Twitter @podcast.

I would be remiss if I did not thank the crack team that helps with these conversations together. My audio engineer is Justin Milner. My producer is Paris Wald. My project manager is Atika Valbrun. My researcher is Sean Russo.

I’m Barry Ritholtz. You’ve been listening to “Masters in Business” on Bloomberg Radio.


Print Friendly, PDF & Email


Please enter your comment!
Please enter your name here

- Advertisment -
Google search engine

Most Popular

Recent Comments