Motley Fool Hidden Gems Investing - Motley Fool Money: 05.16.2014

Episode Date: May 16, 2014

Freakonomics co-author Stephen Dubner talks about his new book, Think Like a Freak.   And our analysts discuss Wal-Mart, Coca-Cola, SodaStream, and some of the week's other business news. Learn more about your ad choices. Visit megaphone.fm/adchoices

Going on vacation? We're here for it. With kids? Who turn the backseat into a courtroom drama over whose tablet is louder, whose charger is faster, and why watching the same cartoon for the hundredth time is a human right? Yep, we totally have vehicles to handle that. Because whether it's a road trip or a business trip,

where your flight's delayed, your phone's at 2% and your dinner is whatever's open, yep, here for that too. Enterprise. We're here for it. Chris Hill. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill. Joining me in studio this week from Motley Fool One, Jason Moser. From Motley Fool Income Investor, James Early. And from

million-dollar portfolio, Ron Gross. Good to see you, gents. Good to see you, Chris. We've got the latest deals in the beverage industry, the restaurant industry, and more. We've got Freakonomics author Stephen Dubner as our guest this week. And as always, we give an inside look at the stocks on our radar. But we begin this week with retail. Big cross-section of retailers reporting earnings this week, including Nordstrom, JCPenney, Kohl's, and Kate Spade, as well as the biggest retailer of them all, Ron, Walmart. Shares down this week after first quarter profit fell 5%, and maybe more troubling, fifth straight quarter

of same-store sales in the U.S. falling. You can't blame that on weather. Well, you can partly, but retail's tough right now. Definitely almost across the board, but perhaps Walmart is the poster child for it. Continuing, as you said, quarterly declines, especially the U.S. business, really, really weak. They're making moves to try to right-size the business by going to some of those smaller stores to try to compete better with the dollar stores or the drug stores and some of the more discounted stores. But it is tough. They have a lot of competition, online competition, chief among them, and it's not going to be easy to right-size that big a ship.

Are you going to do your part, Ron, and actually go into a Walmart? For new listeners, Ron has never been into a Walmart. You've been in a Kmart parking lot once. I bought something from Walmart.com just last week, so I am a customer of Walmart. I just have not been in the store. JCPenney is surprising a lot of people, Jason. Or maybe it shouldn't be a surprise with shares up, because expectations for JCPenney have been rock bottom. Yeah, I mean, rock bottom as in literally rock bottom. I mean, they were coming off of a comp last year where the comps fell 16.5%.

So, they didn't have to do a whole heck of a lot, really, to impress this quarter. And, I mean, I give them credit. It was actually a pretty respectable quarter. You know, I think comp sales up a little bit more than 6%. Next quarter, they are going to be coming off of a little bit of a better situation from last year. So, they are going to have to kind of clear a little bit of a higher bar here progressively throughout the year. And I think that's really where I'm still pretty skeptical about JCPenney's prospects. I mean, I think if you're long going into this earnings quarter, you have to pull a Steve Miller band and, you know, take the money and run. I think you've got to get on out of here.

We've talked about this before. I mean, I don't know that the world really needs JCPenney. And, you know, I mean, I think Ron keyed into something there with Walmart, not having been into a Walmart, but ordering something on Walmart.com. How easy it is to find what you want to find online. It's simple. But if you've ever been into a Walmart, Ron, if you ever go into a Walmart, I mean, it's confusing. I mean, it takes you a while just to figure out what in the world you want and where to get it. So, I think that really that e-commerce model is going to start shining, I think, as the core is going on.

He'll be packing heat today. To Walmart's credit, they are attacking that. I think online was up 27% for them for the quarter. So, good for them. They certainly recognize the need to be there. JCPenney, not so much. The good news for them is they're changing the way they do comp store sales going forward. I saw that.

They will no longer be counting liquidation sales in that calculation. so they'll be a bit higher going forward. So, looking through that call, I was pleased to see they at least didn't use the phrase total liquidity once. Because when you hear that, that's like the biggest red flag in the world, that these guys are really facing some serious headwinds. First quarter results for SodaStream were much better in Europe than in the U.S., where revenue was down 28%. How much trouble is SodaStream in, Jason? Well, they're not in trouble from the perspective that they have a very robust business,

internationally speaking, as you mentioned. The opportunity that we've seen with SodaStream for the past year and beyond really has been the domestic market here. That's sort of their emerging market. And it's just not taking hold as quickly as I think they would like. It's hard, I think, to change consumer behavior. I think that the soda lovers, they're going to tend to buy those Diet Cokes or what have you in the cans and put them in their homes. SodaStream provides, I think, an interesting little value proposition, certainly for people who are looking to maybe have less of an impact on the environment. But they are facing this big hurdle of trying to get those machines into people's homes, really. It's a great model, in theory, that

razor and blade model, where you get the razors, the machines in people's homes, and then they just sell those flavors and the CO2 refills. And that's where they made their money this year, this quarter, at least. The CO2 refills were up 22%. But they need a partnership to really validate this. I didn't even know that they were so popular internationally. I mean, it's kind of like the David Hasselhoff of beverage, right? Like, popular abroad, but we know it's not that cool here, you know? I think that's a relatively apt comparison.

Their device sales fell 69% this quarter, which the company attributed to disappointing Scarlett Johansson ads. So they're actually blaming it on her. That's just unfair. It's fair. I'm sure they paid her a lot of money. Sticking with the beverage industry, Keurig Green Mountain Coffee up big on Tuesday after Coca-Cola increased its investment in the company to 16%. I know they got the money, James, but is that the kind of bet you'd like to see Coca-Cola making as opposed to just upping their dividend? Well, I guess Coca-Cola saw that SodaStream was flopping so well they wanted a piece of that action.

So, yeah, they got more. They're planning to release their machine, I think, next year by the time the U.S. consumer is finally completely sick of this at-home carbonated beverage market. It's a non-exclusive deal, by the way, for Green Mountain. Yeah, I think it's the cost of a year's soda via this little K-cup thing compared to just buying it. It's like twice as much or more than twice as much. I was reading some ads. So it's clearly a gimmick. You know, you have your family, your friends over, if you have friends, and you show them your device, you know,

and it's cool for a few months, and then you kind of forget about it. And that's what I see happening here. I do like the eco thing, but that's a down-the-road factor. Speaking of Coca-Cola, Warren Buffett owns 9%, and he has been publicly critical of excessive compensation plans for CEOs and executives. James, what happened? Because recently, Coca-Cola had a pretty robust compensation plan up for vote, and Warren just kind of abstained, didn't he? Yeah, we all have our moments, Chris, when we kind of rise to the occasion and moments when we don't. And this was Buffett's don't

moment. I mean, he basically, for years, he said, look, we as investors, as shareholders need to know when to speak out and speak up against excessive management compensation, except now when you're Warren Buffett and the management is Koch's management, apparently. So yeah, he has called their plan excessive. His son Howard, who is on the board of Coca-Cola, has voted in favor of the plan, but Warren himself did not have the bravery to actually vote against the plan. Rather, he simply abstained. And if you watch him talk about this in TV interviews, you can see kind of the equivocation and the pausing, or maybe I'm just reading into it. I'm not very good at it. I specialize in misreading emotional cues, my wife tells

me, but I do think he is sort of hedging on that. So, it's a disappointing move for Buffett. Nell Minow will be our guest next week. We'll get her thoughts on that. Ron, did you want to weigh in on Buffett? I don't think it's a matter of bravery, quite frankly. I just think he wasn't in the mood for a fight. He certainly is a tough businessman. What's the fight? He votes no, and that's it. He makes acquisitions. He put capital at risk all the time. He's not risk-averse. You know, he just wasn't in the mood. Like, let it go.

Back in December, Darden Restaurants announced it would spin off Red Lobster, in part to boost its own stock price. On Friday, Darden agreed to sell Red Lobster to a private equity firm for $2.1 billion. And, Ron, shares of Darden Restaurants down. What happened? This was supposed to boost the stock. What's going on here? There were a couple of activist investors in there, of which I know them quite well. One is my former firm, Barrington, and the other one is Starboard Value, who I've done many transactions with. They had plans to enhance shareholder value even more. The company

wasn't interested. They went through with the transaction anyway. I guess the street was hoping that we'd see some more shareholder-enhancing things at work in the future, and that just didn't happen. And Darden owns Red Lobster, no longer, but still owns Longhorn Steakhouse, Capital Grill. And the beloved restaurant of our man behind the glass, Steve Roido, the Olive Garden. Steve, are you excited about the prospect that now Darden has even more time to focus on Olive Garden? Just keep the salad and bread sticks coming. $2 billion for Red Lobster is not too shabby.

I know the market doesn't like it that much, and they're selling the stock off. But $2 billion is not too bad. And you can see most of the value there is in the real estate, because as part of this transaction, the private equity has done a $1.5 billion sale leaseback transaction. So $1.5 of the value of the $2 billion deal seems to be in the real estate. Which doesn't say much for Red Lobster. Let's get to the stocks that are on our radar this week. And it's a special edition of Stocks on Our Radar.

It's the birthday edition, because today's the birthday of our man behind the glass, Steve Broida. Woo-hoo! Happy birthday, my friend. Thank you all very much. Drop us an email, radioatfool.com. We will pass along your birthday wishes to Steve Broido. Ron Gross, what do you got? I got Whole Foods, WFM. Stock got slammed last week, down 20% on some disappointing results and some disappointing guidance.

We took it as an opportunity to establish a position. We like very much what we see. We understand price competition is coming. It may hit margins, but we think the stock looks real cheap right here. For disclosure, I need to mention, John Mackey, co-founder of Whole Foods, does sit on our board of directors. Steve Brito, do you have a question about Whole Foods for Ron? Do you think Whole Foods can have a footing in the healthcare sector anywhere? Well, they certainly have a portion of their store that is healthcare and beauty aid related.

I've never actually stopped in that aisle, quite frankly. I passed right by it. So, I don't think that would be a major growth area. You're looking for maybe a surgery aisle? Natural doctors, that sort of thing. Just a thought. Growth opportunity. Keep thinking. James Erling, what do you got this week?

I am going with Coach. It's literally on my radar. It is a buy recommendation, an income investor, but it's something that I'm watching quite closely because it has been dropping like a rock at the hands of Michael Kors and Kate Spade, who apparently are getting all the buzz on Pinterest and Instagram, these things that guys like me don't follow well enough. So they've got a new designer, Stuart Weavers,

who is supposed to be really a hot shot in September. This new line is coming out, so all eyes are on that. And the ticker symbol for Coach? C-O-H. C-O-H. Steve Broido, question about Coach? I just haven't ever seen Coach. Just give me one thing about Coach that makes you think it's incredible.

I mean, you've got some new designers coming forward. They're doing great in Asia, Steve, and in terms of man leather products, not like suspenders that you wear with no shirt. I mean, like briefcases and wallets and that kind of stuff. So, the question is, the core handbag market, though, is declining. So, that's the big question. But they've got a lot of cash. The model itself is very cash generative.

The issue is just how many people are coming through that model. Jason Moser, what do you got this week? Yeah, one I've tapped here before a while back, Craft Brew Alliance, ticker is BREW. And the stock has recently pulled back, I think, based on just some general headwinds in the cost structure of the company. They've seen some increases in their input costs, but it's encouraging because they are continuing to grow their annual barrels of beer shipped in a craft brew segment that is taking up more and more of the overall beer market every year. So, while we're very familiar with Boston Beer and the position that it holds in the

craft brew segment, Craft Brew Alliance is a small but up-and-coming player there with a unique uh portfolio of beers in his portfolio there and i think uh it stands to to do pretty well steve what about home brews is that for you is that what you're i i hear all about this going on people brewing their own beers steve i cannot get behind home brews enough i actually brewed beer for a few years in college in the house we rented and uh i gotta say it was it was like alchemy i mean we were just turning nature's ingredients into liquid gold i think we know what we're doing after the show. All right, guys, thanks for being here. Coming up, bestselling author Stephen Dubner will teach you how to think like a freak. Stay right here. This is Motley Fool

Money. Welcome back to Motley Fool Money. I'm Chris Hill. Joining me now from Freakonomics Studios in New York City is Stephen Dubner. He is the co-author of the bestselling Freakonomics books. He's the host of the Freakonomics radio podcast, which with 4 million downloads a month makes it just a little bit more popular than Motley Fool Money. His latest book with co-author Steven Levitt is Think Like a Freak. Mr. Dubner, thanks for being here. Hey, Chris. Thanks for having me. Let's jump right into the book because this new book is all about helping us retrain our brains to think like a freak. I don't know if it is by mere coincidence that the release of this book

comes just a few weeks before the start of the World Cup, but you kick things off in the book with an example from soccer. Can you walk us through thinking like a freak when it comes to taking a penalty kick? Yeah, sure. So this is, you know, one eensy weensy teeny part of, you know, any given soccer scenario, or I've now been trained, my 13 year old son is a fanatic. So he doesn't let me say the word soccer anymore. When I say soccer, he said, What's that? I have to say football, football. And when I then when we talk about the NFL, which we're big fans of, I have to say American football. So if I slip and say football, you'll know I'm actually talking about soccer. Okay, but I'll try to say soccer. So. So obviously, soccer, soccer is an interesting

sport for a lot of reasons. But we look at one very minor instance in which a thought process, rethinking your thought process can help, and that's the penalty kick. So as most people probably know, penalty kicks in soccer are not that common. Scoring in soccer is pretty low, ergo penalty kicks tend to be really important. And especially if you're in a shootout, which doesn't happen that often, but it can in the World Cup where there's a draw and you need to have a series of penalty kicks to decide who's actually going to win and lose. So if you look at the data on all penalty kicks at the elite level, which we did for a couple leagues, you find that 75% of them are successful, which is pretty good. So we asked the question,

you know, if that's your baseline, if you want to think like a freak and you want to try to increase your odds a little bit, might there be a way toward thinking your way to greater success? So then we look at where penalty kicks tend to be aimed. So most kickers are right-footed, which makes the left corner of the goal their strong side target. For those kickers who are left-footed, obviously the right side of the goal is their strong side target. And so because of the nature of a penalty kick, it's you standing there just I think 12 yards from the mouth of the goal with the keeper ready to try to stop you. But he's going to fail three times out of four. So what he's got to do to try to stop you is guess which corner you're going in and jump in that direction, because if he waits until after you kick it to try to jump and stop it, he's too late.

So usually what you see is a kicker will get up, start to kick, and as he starts to kick, the keeper will leap either left or right. So as it turns out that the keeper leaps to your strong side, the left corner, I think about 47% of the time, leaps to the other side about 41% of the time, and he almost never stays in the middle. So then we say, well, what would happen if you, rather than going for a corner, which seems to be a much smarter kick, actually kick it directly in the middle? What happens in cases where the kicker actually does that? And it turns out that even at the elite level, a soccer player who takes a PK directly at the center, right where the keeper is now standing but where he'll soon vacate, turns out that you have about a 7 percentage point better chance to succeed by kicking straight down the center. So one, I like the metaphor of this because sometimes in life, going straight up the middle is kind of the boldest move of all. You think, why don't people do it all the time? Well, it's because if you kick center and fail, you kind of look like an idiot.

You know, kicking to a corner and being stopped is sort of a noble failure. Kicking center and being stopped would be a pathetic failure. And so we argue that this is one, again, really small example of how if you want to think like a freak, you'll think about what's my real incentive here? If my incentive is to win the match for my team, then I want to go center because the numbers say that's better. If my incentive is to protect my reputation personally, kind of the private incentive versus the public incentive, then I'll kick corner. And so we use this as an example to show how much – how very much of our behavior, which we think is meant to be kind of good for everybody or pro-social or whatnot, that in fact, you know, we're pretty self-interested animals.

Now, that's – I'm not saying that as a bad thing or a good thing. It's just a thing. It's the way that humans are. We respond to incentives. So if your idea is to solve problems in life and to help more people do better, and that's kind of the message of Think Like a Freak, how can the average person help solve a bunch of problems, whether for him or herself or for everybody else? You know, what are some ways to think a little bit more productively, more creatively, more rationally? And that's the story. that's the story. Coming up, what you need to know before buying that next bottle of wine.

More with Stephen Dubner. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill talking with Stephen Dubner, co-author of Think Like a Freak. There are people making daily predictions about the market in general, about individual stocks. And you sort of touched on this, that the cost of coming out and saying, well, I don't know, is higher than the cost of being wrong, it's almost better to make a bold prediction. How should we weigh the daily predictions that people are making about the stock market? I think you should generally weigh predictions with a sledgehammer and just crush them. Because we write about this at some length in Think Like a Freak. And Nate Silver

wrote a really nice book called The Signal and the Noise. I think that was the right title, which is largely about prediction. And if you look at the data on predictions in various realms, stock market especially, and we write about that to some degree in this book, geopolitics, sports, you will find that even the, quote, best predictors, meaning the most pundity of the pundits are generally no better than chance at making predictions. So again, if you take a step back and think a little bit like a freak, you think, well, wait a minute, are they dumb? Does that mean that the experts are really dumber than the average person? The answer to that is probably no. But what is true is that the incentives to make bold predictions are really strong.

So if you think about it, let's say I – on this show right now, let's say, you know, Chris, I really see the Dow being at 30,000 by – and I'll give you some totally cockamamie number – 14 and a half months from now, just to make you think that I actually did some research, right? And let's say that happens to come true. I will be hailed as a wizard for a long time, and I will be talked about. I will be remunerated incredibly well. the next hundred things I have to say, people will tend to believe and so on. If, however, the market doesn't get to 30,000, it will generally be forgotten. And that's what you see is our media and our kind of whole prediction infrastructure rewards and remembers the big bold prediction. So, you know, one of my favorite examples of this is Joe Willie Namath

was famous for predicting that his underdog New York Jets were going to beat the Colts in the Super Bowl years and years and years ago. And guess what? They did. And now every year, Joe Namath gets to come on whichever network is broadcasting the Super Bowl and make his prediction for this year's Super Bowl, as if he's an oracle, right? Well, I hate to tell you this, but every year there's somebody on the underdog team, and there's always an underdog team, who says, hey, you know what? We're going to win. And sometimes they do, and usually they don't. That's what being an underdog is kind of all about. We tend to remember the big, bold, brash predictions that happen to come true and forget the rest. So predicting the future is incredibly hard. That

should not be a radical statement. That should be an obvious statement. But honestly, a lot of what we think of as thinking like a freak is trafficking in the obvious. It's kind of not being afraid to say, hey, you know what? I know all the smart money is here saying that we can predict X, Y, and Z really well. But if you think about it, if you think about what the future actually is, If you think about the stock market and how much not only real market forces affect it, but how much psychology affects it, you'd think, wow, no wonder that's really hard to predict. You're listening to Motley Fool Money, talking with Stephen Dubner, co-author of the new Freakonomics book, Think Like a Freak. You mentioned, and you're right, when it comes to the daily stock market predictions, most of those are forgotten, most of those predictions. But here's one that is not forgotten.

And it comes from Nobel Prize winning economist Paul Krugman, who in 1996 wrote, by 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine. Now, he's a smart guy, Stephen, and that's about as wrong as you can possibly be. So I'm curious what your thoughts are on how someone that smart can be that wrong. Yeah. So first of all, yeah, Krugman's a really smart guy, really good economist. He doesn't really do much economics anymore. He's moved into the public, you know, punditry sphere where he's gotten much more involved in, you know, policy, often very partisan, which makes people who used to love him as an economist not like him so more. I would say that, honestly, I think it's a lot easier for smart people to make predictions that turn out to be wrong than people who are not so smart. And the reason I say that is because when you're smart, which is a combination of, you know, a lot of things, education, knowledge acquisition, otherwise, you know, general, you know, brain power, CPU, there's a lot of factors. And when you're smart, you have a lot of experience with being right generally and a lot of people telling you you've been right and marking your papers of having been right and rewarding you for being right. So it's kind of natural that you'd think, well, of course, I'm going to be right about the next thing I say.

And so you see that that kind of assumption, which can feed in, which can bleed into arrogance, could make it a lot easier for smart people to make predictions that turn out to be not right. And in fact, a fellow named Philip Tetlock, who's a political scientist now at Penn, who's done great research on predictions and how generally poor they are over many, many years, very nice empirical work. When I asked him once, what would be a characteristic of someone who turns out to be a particularly poor predictor? And he said, oh, that's easy, dogmatism, you know, being locked into your position, knowing how right you are, having a great amount of certainty and so on. So I think, you know, look, the lesson here is not to be dummies. The lesson is not to not learn. The lesson is to be humble about what we can and can't know. Work like dogs to figure out what we don't know and appreciate that there are some things that we will continue to not know because the future isn't as knowable as we'd like. Let's talk about wine for a moment. Absolutely. Nassim Taleb, bestselling author of the book The Black Swan, was on this show a while back.

And one of the things I asked him about was wine because he's a connoisseur. He knows a lot more about it than I do. And he basically said to me, never pay more than $15 for a bottle of wine. Just don't ever do it. And I thought that was just someone smarter about wine than me giving me his best advice. But in your book, Think Like a Freak, you guys actually have the data that backs up what Nassim Taleb said. We do. So honestly, I didn't know that he's a wine guy. I know him a little bit, and I love his brain.

He has got a ginormous and very unusual brain, which I love to listen to. and I happen to in this case yes run very parallel so we've done you know my co-author Steve Levitt did a little bit of an experiment and then we interviewed on Freakonomics radio two guys another one of whom did a little experiment but one guy Robin Goldstein his name is who did a big experiment of blind wine tastings and this was really nicely done I'm sure there are I know there are wine people who argue with it because they feel they're ticked off at what he found. But the question he was basically out to ask was, do more expensive wines taste better? So if you think about that, you know, if you think about do more expensive

X's, are more expensive X's generally better than less expensive ones? You know, we think we have a pretty good grip on what function price serves in modern society. Things that cost more are generally better than things that cost less. And we also understand that there's such a thing as style and trend. And I might pay $1,000 for a purse by some fancy designer that, no, will not be 100 times better than a purse by a lesser known designer. Personally, I don't know if I'd ever pay even $100 for a purse if I were the kind of person who uses purses. But that said, we tend to think that price correlates pretty well with quality. In the case of wine, however, wine is one of those things where there's a lot of mysteries, a lot of intimidation, and there's a lot of subjectivity.

And so what Robin Goldstein did is ran a ton of blind tastings with expensive wines, medium-priced wines, cheap wines, red, white, rosé, on and on, people who were experts, people who were novices, people who were wannabes. And at the end of the day, the long story short is that no, more expensive wines do not taste better. Therefore, if you want to reach a conclusion from this research, you probably couldn't do any better than what Nassim says, which is don't spend more than $15. Because the chances that you're going to get a great bottle of wine just because it's expensive are pretty slim. And the chances that you might get a pretty good one for $7 are pretty good. And therefore, drink what you want, what you like, and don't be intimidated by the kind of unicorn quality of the correlation between price and quality. Coming up, we'll talk about the upside of quitting. You're listening to Motley Fool Money.

Welcome back to Motley Fool Money. Chris Hill talking with Stephen Dubner, co-author of the new Freakonomics book, Think Like a Freak. The legendary American football coach Vince Lombardi said that winners never quit, quitters never win. You guys write about the upside of quitting. It's a good thing Lombardi's not still around. He might have issue with that. He'd beat the crap out of us. We should say he didn't invent that phrase. That actually came from, I want to, I'm probably going to misquote. I think it came from a fellow named Nathaniel Rich. And I may have that wrong off the top of my head. A guy who was writing kind of advice books in the early part of the 20th century and kind of feeding off Andrew Carnegie's gospel about how to, how self-made people and so on. But yeah, so Lombardi was famous. A winner never quits. A quitter never wins. Churchill famous for, I believe the quote was, never, never, never, never, never, never give up. And then he went on to say in matters large and small and so on. And you know what? If you're Winston Churchill and you are the prime minister of a great nation that is literally facing extinction at the hands of the German Nazi government, then I would say, yeah, not giving up is the way to go. But most of us, the stakes aren't so high. Most of us are in situations routinely, whether it's a job or a career or a startup or a project or a relationship or whatever it is, where we're afraid to quit because we've been told that quitting is bad and we are failures for doing so.

And so we make the argument that if you want to think like a freak, you should see the upside of quitting. What is the upside of quitting? The biggest one is that, you know, every time you do something, there's something else you can't do. It's known as opportunity cost. So for every dollar or hour or brain cell I spend on something, that's an hour or dollar or brain cell I can't spend on something else. And so the upside of quitting can be real. But, you know, I appreciate that's not necessarily the sensible or an easy thing for a lot of people to do. And you guys also provide the Freakonomics approach to helping people save money because, let's face it, saving money, not nearly as much fun as spending money.

Not nearly, yeah. So I love this story. I should say a lot of these stories I'm telling you are based on, and I hope I'm making this clear, based on research and projects that other people have done. It's not like we're running around solving the world's problems. We're not that good. You know, if we're good at anything, it's finding people who are good at that and writing about them. But in the case of saving money, yeah, so this is a tradition in many countries, but there are some folks who have been trying to bring it to the U.S. And the generic name for this is called a prize-linked savings plan.

And the idea is this. People love to gamble, love to play the lottery. But if you look at the lottery and how much Americans love it, we spend, I want to say, $60 billion a year. although I may be wrong on that number. We love it. I think it's actually $20 billion. Sorry, I think it's $20 billion a year on lottery. But if you think about it as a game, it's a pretty cheap game. If, however, you think about it as an investment, it's a terrible investment because the expected value is about negative 40%, because the lottery does not pay out very well. And yet, a lot of people, particularly a lot of lower income people, literally view the lottery as

their best chance ever to gain a large amount of money. And so this idea of a prize-linked savings is kind of marrying the excitement of a lottery payout with the safety of a savings plan. So what happens is I deposit my money, let's say $1,000, into a special savings account. And instead of the bank paying me the 1% or whatever they're offering, which is pretty good these days, they'd offer me, you know, 0.75%. So what happens that extra quarter of a percentage point of interest, it gets pooled along with the interest from all the other depositors. And once a month or once a week or whatever, that money is randomly divvied into a prize pool and distributed. And maybe I get to win 10 or $100,000 or maybe even more. So it's never going to pay off as much as

the lottery because the lottery is paying off all those other suckers' principal. This is paying off all the other depositors' interest, a shard of it. But it is a creative, clever, fun way to think of a policy that will help people by having fun while doing what is for them the right thing. And that's really thinking like a freak is super, super concentrated on if you want to get people to do the thing that's good or right, make it easy. Make it fun. Don't preach at them. Don't tell them how bad and stupid they are for not doing the right thing. You're listening to Motley Fool Money talking with Stephen Dubner, co-author. I love how you say that. You just bring on this radio guy voice. I want to learn how to do that. What are you talking about? You do that every

week. Yeah, but I'm a total amateur with the radio. But you have that thing where you're talking, you're listening, and then you come in like half an octave lower and you listen. It's such a good signal. It's like a good reset. I feel it's a palate cleanser. That's what I'm trying to do. I'm just trying to cleanse the palate of the ear before we move on to the final topic. What is the palate of the ear called? I don't know. I'm still trying to figure out your use of the word pundity. Yeah, I think I made that up. Sorry. I think you did. you and your co-author Steve Levitt you are both married

you both have kids I am curious as your kids are getting older and this is now your third book I know what your son thinks of your use of the word soccer but what do your children to the extent that they are thinking about what you and Steve do for a living

and Freakonomics I'm just curious I'm assuming as they are getting older they are starting to pay attention and possibly even, unbeknownst to them, helping you in your research? Oh, honestly, they do. And it is my favorite thing. So Levitt's kids, I can't really speak so much. I don't know. I know them pretty well. And he talks about the kids quite a bit. But I don't really know the for instances. But I know with my kids, they couldn't care less. I mean,

they like that I do this thing I do. And once in a while, they come and they're guests on the podcast. So my son is going to be a guest on an upcoming World Cup episode we're doing. And my daughter almost made this episode. It was great, great, great tape, but the lawyers wouldn't let us use it for reasons that I better not get into. But she didn't do anything wrong. But I do love, you know, I love how children have ideas that are so native to them and which don't seem at all amazing to them. They're just ideas. And to us, they seem so fresh. And that's partly because we get conditioned out of thinking like kids. You know, we get conditioned out of bringing up those crazy suggestions or asking those wild questions because, you know, we think that someone will

think we're not so sophisticated or smart. And so it is just one of the great joys in life is when your kids will just have an idea that just, you know, it may work or it may not work, but it just shows that like the synapses are firing. And in fact, you know, we do we do kind of give that advice in this book is that we should all think like a child more. And and it was more about the kind of, you know, practical structural end, which is what I what I was saying a minute ago. Kids ask questions that we may not. They make observations we don't. But as we went on and you begin to look at the brain science of it, you see that the human brain is never more is never sharper, you know, more perceptive, more cognitively adroit, faster than between the

ages of, I guess, roughly, you know, let's say 13 to 24, let's say. So, you know, the bad news is that everybody on the other side of 24, we're all just in a state of slow, steady decline, which we kind of know. We fake it. We cover it up with experience and BS. But we're getting dimmer by the day. And the good news is that for the kids, not only are they really good at thinking, but we should exploit them more. So I think rather than looking at kids as kind of inchoate, sloppy, inattentive versions of ourselves, I think we should look at them as kind of better, wilder versions of ourselves. As one child psychologist I interviewed recently put it to me, adults are kind of like the marketing and sales divisions of the human team, and the

kids are the hardcore R&D. And you got to give them the room to do what they do. And so I try to do that with my kids. I'm sure I fail a lot because once they go really off the rails, I get all parenty and say, oh, I don't think that's a very proper idea for you to have. But the older I get, the more I try to catch myself doing that stupid stuff in reverse field. Think Like a Freak is available everywhere. So pick up a copy because who knows, depending on how the book tour goes, Steve Leavitt might not be around much longer and it'll really be a collector's item. Stephen Dubner, thank you so much for making the time. Chris, my pleasure. This was a lot of fun. Thank you.

As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this week's Motley Fool Money. The show is mixed by Rick Engdahl. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.