Key Moments
Master Economist on Strategic Quitting and Valuable Decisions on the Margin — John List
Tim FerrissKey Moments
Economist John List discusses incentives, behavioral economics, strategic quitting, and scaling ideas.
Key Insights
Clawback incentives, which involve an upfront reward that can be revoked for non-performance, are highly effective due to loss aversion, even in personal and professional settings.
Incentivizing inputs (controllable actions) rather than outputs (results potentially influenced by external factors) is often more effective, especially in educational contexts.
Tipping behavior differs significantly from charitable giving; anonymity on platforms like Uber leads men to tip more than women, contrasting with face-to-face charitable donations where women tend to give more.
Scaling ideas effectively is not about a 'silver bullet' but a 'weakest link' problem, requiring careful attention to five vital signs: avoiding false positives, knowing the audience, understanding the situation, managing spillovers, and addressing supply-side costs.
Marginal thinking, focusing on the cost and benefit of the next unit rather than averages, is crucial for optimal decision-making in resource allocation for businesses and governments.
Strategic quitting, reframed as 'calling an audible' or 'pivoting,' is essential for maximizing life satisfaction and career success, requiring regular assessment of opportunities and comparative advantages.
Building a positive organizational culture, or 'Kouboucho,' can be influenced by subtle but impactful changes, such as explicitly stating that wages are negotiable, to promote equality and fairness.
THE POWER OF CLAWBACK INCENTIVES
John List introduces the concept of clawback incentives, a reversal of traditional reward systems where an incentive is given upfront and can be taken away if performance targets are not met. This method leverages the psychological principle of loss aversion, making individuals more motivated to retain what they've been given. List shares successful applications in Chinese manufacturing plants, preschools with teachers, and even with his own children, demonstrating its effectiveness across diverse groups by encouraging harder work and better outcomes for all parties involved.
INPUT VS. OUTPUT INCENTIVES AND LESSONS FROM CHARITY
List distinguishes between incentivizing inputs (actions within an individual's control, like study hours) and outputs (outcomes that may be influenced by external factors, like exam grades). He advocates for input incentives in personal development and education, whereas output incentives are necessary in professional settings where inputs are hard to monitor. His research into charitable giving, initially prompted by a request to fundraise, revealed that anecdotal wisdom often lacks data, highlighting the importance of field experiments in understanding generosity and donor behavior.
THE NUANCES OF TIPPING AND CHARITABLE GIVING
Comparing charitable giving and tipping, List notes a surprising divergence: while women give more than men in charitable donations, men tend to tip more than women in anonymous settings like the Uber app. This highlights how context and anonymity influence behavior. He also reveals that only about one percent of Uber riders tip every trip, with roughly 60% never tipping, underscoring the complexities of incentivizing tipping behavior.
THE SCIENCE OF SCALING IDEAS: BEYOND THE SILVER BULLET
In his book 'The Voltage Effect,' List argues that scaling successful ideas is not about finding a 'silver bullet' but identifying and overcoming 'weakest links.' He introduces five vital signs for scalability: ensuring results are not false positives, understanding the target audience ('know your audience'), grasping the situational context, managing unintended consequences ('spillovers'), and addressing the supply-side costs. The polio vaccine's success, for instance, is attributed to its integration into existing healthcare systems, demonstrating masterful navigation of these vital signs.
MARGINAL THINKING AND THE ART OF OPTIMAL QUITTING
List emphasizes the importance of 'marginal thinking,' urging decision-makers to focus on the costs and benefits of the next unit or action, rather than relying solely on averages, a concept often misunderstood in basic economics. He also advocates for 'optimal quitting,' reframing it as a necessary pivot or 'audible' to pursue better opportunities, rather than a failure. This involves understanding opportunity costs and having the courage to move on from endeavors that are no longer aligned with one's comparative advantages or passions.
BUILDING CULTURE AND LESSONS FROM THE FIELD
The final chapter discusses building organizational culture, drawing parallels between workplace environments and societal structures, as seen in his research on Brazilian fishing communities. List highlights how seemingly small changes, like explicitly stating 'wages are negotiable' in job ads, can significantly impact equality by encouraging women to negotiate and achieve fairer compensation. This underlines the profound influence of culture on individual behavior and broader societal outcomes, stressing the importance of intentional design for fairness and inclusivity.
Mentioned in This Episode
●Products
●Software & Apps
●Companies
●Organizations
●Books
●Concepts
●People Referenced
Charitable Giving vs. Tipping by Gender
Data extracted from this episode
| Category | Women's Giving | Men's Giving | Context |
|---|---|---|---|
| Charitable Giving | More than men across all income buckets | Less than women, focused on tax advantages | Face-to-face or recognized giving |
| Tipping (Uber app) | Less than men | More than women, especially to younger female drivers | Anonymous, after-ride tipping |
Uber Tipping Statistics
Data extracted from this episode
| Metric | Value |
|---|---|
| Riders who tip every trip | 1% |
| Riders who never tip | ~60% |
| Average percentage of trips tipped | ~15% |
| Average tip (conditional on tipping) | ~10-12% of fare |
| Younger female drivers earn more in tips than males | ~6% more (driven by male riders) |
Common Questions
A clawback incentive is a scheme where a bonus is given upfront, and then taken away if performance goals are not met. It leverages loss aversion, a psychological principle where the pain of losing something already owned is felt more strongly than the pleasure of gaining an equivalent amount, thus motivating harder work. John List has used this successfully with his children, teachers, and manufacturing plant workers.
Topics
Mentioned in this video
The book Freakonomics, co-authored by Steven Levitt, often discusses how incentives can lead to unexpected behaviors, aligning with John List's work.
A new show based on the book about the early tumultuous days of Uber, which John List mentions as reflecting the rocky period he experienced there.
John List jokingly requests that Matt Damon play him in the TV series 'Super Pumped'.
A well-known and aggressive poker player whom the host interviewed previously. John List mentions him as one of the players from the 'World Series of Poker' era.
Mathematician known for his work on fractals. The host discusses a documentary about him and questions the application of fractals to economics.
Founder of Amazon who attempted to hire John List as their chief economist, discussing "the cloud" and the importance of an economics team.
Co-founder and former CEO of Uber, who recruited John List to help with driver retention during the 'Delete Uber' campaign and was open to publishing John's research findings.
The director of 'A Beautiful Mind', who John List playfully cuts a break for the inaccurate depiction of Nash equilibrium.
A PGA Tour player whom John List played against in high school and describes as a significantly better golfer, influencing List's decision to pivot from a golf career.
A professional baseball player whose early stats from age eight were part of the data John List scraped for his White Sox draft model.
Co-author of Freakonomics and a renowned economist at Harvard, who collaborated with John List on the Chicago Heights preschool project and a coin-flip experiment on quitting.
An old mathematician who started game theory, famous for his work on the Nash Equilibrium as depicted in the movie 'A Beautiful Mind'.
Venerable coach of the Green Bay Packers, famous for the quote 'Winners never quit and quitters never win,' which John List was raised on and had to challenge to make an optimal life decision.
A legendary basketball player, used as an example to illustrate recognizing when one is not at the top tier of a field, and also referenced playfully by John List about retiring on a high note in poker.
A famous economist at Harvard who partnered with John List to start a preschool in Chicago Heights.
Scientist responsible for the polio vaccination, whose work exemplifies successful scaling by checking all five 'vital signs' of scalability.
Another professional golfer whom John List played against in high school, further reinforcing List's realization that he was not at their level.
The author of 'Anna Karenina', whose famous opening line is used by John List to articulate his theory of scaling.
Former CEO of Intel, who reportedly asked about unintended side effects or perverse behaviors when implementing incentives.
Known as the father of economics and an early behavioral economist, author of 'Wealth of Nations' and 'The Theory of Moral Sentiments'.
A theory in economics for modeling strategic interactions between decision-makers, which John List applies to critical thinking and predicting others' reactions.
Financial technology, which John List and his team are exploring for new breakthroughs and to address regulatory challenges.
A broad concept for the next generation of the internet, with discussion focusing on NFT marketplaces as a new data-rich field for behavioral economists.
Jeff Bezos offered John List the Chief Economist position at Amazon, but List declined due to the inability to publish his research.
Used as an example of a product benefiting from positive network externalities, where value increases with more users.
Used as an example of a company that started with one idea, pivoted, and then found massive success, illustrating the importance of 'optimal quitting'.
The company where Andy Grove, a former CEO, focused on understanding unintended consequences of incentives.
Used as an example of an advertising platform where Lyft spent money to acquire new drivers, highlighting the importance of marginal thinking in ad spend.
John List served as the chief economist at Lyft, applying his knowledge of incentives to their workforce.
John List served as Chief Economist at Uber starting in 2017, where he led the Ubernomics team in rolling out tipping features and researching the economics of apologies.
John List began his academic career as an assistant professor at the University of Central Florida, where he started his research agenda in charitable giving.
John List built a draft model for the White Sox, which he called 'Moneyball Infinity,' using extensive data on young athletes.
John List mentions starting his academic career from the University of Wyoming, which was considered a lower-ranked school and initially hindered his job applications to top universities.
John List was the department chair of the economics department at the University of Chicago.
John List used IRS data to study charitable giving patterns across different income percentiles and genders.
The NFL team coached by Vince Lombardi, whose philosophy influenced John List's early views on perseverance.
A government team in the UK that uses behavioral insights to improve public services. John List cites their work using non-financial incentives.
Where John List received a partial golf scholarship, marking the beginning of his personal journey with 'optimal quitting' when he decided to pursue economics.
John List's new book, which addresses the science of scaling good ideas and why many successful pilot projects fail at scale due to specific 'vital signs'.
Leo Tolstoy's novel, cited by John List to explain that scaling is not a 'silver bullet' problem but rather an 'Anna Karenina problem' (scalable ideas are all alike, unscalable ones are unscalable in their own way).
Another work by Adam Smith, recommended by John List for those new to economics as it delves into behavioral economics principles in a more accessible way than 'Wealth of Nations'.
John List published a paper in this journal in 2006 titled 'The Behavioralist Meets the Market', examining social preferences and reputation in actual transactions.
A film about John Nash, which John List noted depicted the Nash Equilibrium incorrectly in a bar scene.
Adam Smith's seminal work, which John List advises against reading in its original form due to its arduous writing style, suggesting 'The Theory of Moral Sentiments' as a more accessible alternative for non-experts.
A concept of using data-driven analysis to build competitive teams, which John List refers to as 'Moneyball Infinity' for his advanced draft model for the White Sox.
A book about blackjack that was later adapted into the movie '21', showing real-world applications of strategy and skill in games.
An online ticket marketplace described by John List as a favorite app and an 'economist's playground' due to its dynamic supply and demand pricing.
A documentary series that featured a program on fractals by Benoit Mandelbrot, prompting the host's question about fractal applications in economics.
Digital platforms where non-fungible tokens are traded, offering a transparent and data-rich environment for behavioral economists due to blockchain records.
A community where John List started a preschool from scratch that showed great results but struggled to scale due to the 'silver bullet' fallacy.
John List helped the tax authorities in the Dominican Republic raise an extra $100 million through non-financial behavioral interventions.
Mentioned as an example where the medication itself works but faces challenges in delivery and adherence, contrasting with the successful distribution strategy of the polio vaccine.
The vaccination developed by Jonas Salk, used as a successful example of an idea that scaled brilliantly by leveraging existing healthcare systems.
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