Motley Fool Money - Motley Fool Money: 08.22.2014

Episode Date: August 21, 2014

On this week’s show, Motley Fool CEO Tom Gardner talks with Zillow CEO Spencer Rascoff about the big business of real estate. And we revisit our conversation with Think Like a Freak co-author Stephen Dubner. Learn more about your ad choices. Visit megaphone.fm/adchoices

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This week we'll revisit my conversation with Stephen Dubner, the co-creator of Freakonomics. But we kick things off with Zillow CEO Spencer Raskoff. Our own Tom Gardner sat down with Raskoff to talk about the growing online real estate industry and the business of Zillow. Okay, so compare and contrast Zillow and Trulia, like what does Trulia as a brand bring that Zillow didn't have? Well, Trulia has a very different design, for starters. So it's a different color palette, but more importantly, it's more of a list-based view.

Zillow is more of a map-based view. And you'd be surprised among real estate shoppers how passionate people are with a preference for one or the other. Trulia has also done a good job of going deeper on some local data at the property level, crime data, for example, something that truly is really advanced and done a better job of focusing on than Zillow. Zillow's point of differentiation has always been the fact that it's all homes, that your house is there and my house is there, everyone's house is there, not just those that are currently

on the market. And so that, we think, allow Zillow to be relevant during more stages of the homeownership life cycle, not just when you're in the throes of a transaction, but when you're a homeowner or a renter or just sort of vaguely interested in the market, you might also look at Zillow as a way to keep track of your most valuable investment in real estate. Do you think that there are more acquisitions like Trulia, or that's the big win in this zone? Well, this definitely won't be our last acquisition.

This Trulia will be number nine, and we continue to look at others even as we speak. It's certainly our largest by far, and there's a lot of work to do, firstly just to get this deal to close, which will take some time. But then once it closes, there's a lot of work to do to make sure that the benefits that we think will will come from the acquisition actually come.

But we'll continue to look at other. Is there an acquisition that helps people come online? If such a small percentage of the market is online doing this, and obviously the future is all pointing this direction, is there something that accelerates that? I mean, not a particular company, but just a category or zone. Well, I mean, we're riding the coattails of the mobile revolution. So what's good for Apple and Google and Microsoft is good for Zillow,

because more and more people using smartphones and tablets, clearly Zillow as the mobile real estate leader is the beneficiary of that. So every time I read more data about how many more smartphone handsets are shipped, how many more tablets are shipping, that's all goodness, Zillow benefits from that technology revolution. Okay, don't say anything and give any secrets away. Just look at me straight on and don't even answer this one. When are you going to buy a house? No comment.

Although I think you did ask me on air several times when I was going to buy Trulia. before it actually happened. But houses a great company, and I love their product. When I walk into Whole Foods, I see a whole bunch of product from a bunch of different suppliers, and then I see the 365 brand. Don't you think it's possible that down the line... See, when I walk into Target, I see up in a way, which is their in-house brands. Okay, got it.

I guess we're in a different price. Okay, that's fine. When I walk into the dollar store. Costco, you see Kirkland. But go on. I got it. Okay, good. So when I see that, isn't it possible over the next 20 years that Zillow will have a brokerage brand?

And isn't there a component inside Trulia? No. No. No, they have a software technology that they sell the real estate agents. But the reason it's not possible is because buying cereal or diapers or an airline ticket is a commoditized purchase. And buying a home is not a commoditized purchase. And it's complicated and it's required sophistication and it's infrequent, it's emotional, it's expensive. And for all those reasons, I think there will always be.

a practitioner in the transaction and there will always be real estate brokerages that those practitioners work for either as an employee or a contractor and zillo has no designs on that space we're a media business we sell ads not houses and that that won't change so as our business the motley fool we're long term we're not interested in what's happening today your earnings report congratulations that's great that's just the tiniest little blip on the screen for us we're the guys out the marketplace saying 10 years from now 20 years from now so as we widen the lens on the market opportunity, are there adjacencies to what you're doing? Do you foresee circling 360 degree around the entire home?

Interior designers, contractors, services into the home, potential retail partners like container store. When you buy a home, why not have it outfitted by the container store to be organized for you once you arrive? Are those all open on the table for you? They are. They are. I think a little bit more in the here and now are things like rentals and mortgages,

and here in New York, the Street Easy property, all of those are businesses, especially rentals and Street Easy, are things where we have a large audience and we haven't really monetized it yet. So in the case of rentals, we have 15 million people that use Zillow every month to shop for a rental. And we also have hot pads, and we also power my new place, which is Real Pages, Rentals site. And so charging for inclusion among those listings, charging multifamily property owners and building managers to access that audience is something that we're just starting to do. So rentals is going to come on as a big part of our business over the next couple of years. Likewise, here in New York, we acquired Streetsi a year ago. We spent the first year focusing on the product and improving its mobile experience and growing its audience.

And I think in 2015 and 2016, we'll focus quite a bit more on monetization of Streetsing. Got it. Do you foresee using different currencies in the future acquisitions that you're making? Or do you see stock as the best alternative for the way your business is set up? Or is there something circumstantial now? You're looking at the valuation. You're like, hey, we're pretty richly priced out here. Stock is a little bit more attractive to use than cash or debt.

But in different scenarios, we might use those. We've used cash in most of the nine acquisitions. We've used cash or at least some component of cash. In the case of the Trulley acquisition, it was all stock, primarily because the Trulia Board wanted Trulli shareholders to benefit from the combined company, from the future earnings potential of the combined company. They want a truly shareholders to own stock in the combined company and ride the upside.

So that's primarily, and in addition, it was a large deal, which we wouldn't have had enough cash to use for the whole deal, but we certainly could have used part of the deal. We could have funded with cash. Can you talk a little domestic versus international and what your view is, like, looking out many years? So to date, we've been totally focused on the U.S. real estate opportunity because there's so much work to do.

The opportunity here is so large, and it's still so early and so fragmented. I still feel that way, and I feel like the next year or two, have a lot of work to do to make sure that the benefits of the Trulia acquisition bear fruit. But the Trulia acquisition does allow us to start thinking about international sooner rather than later. And that certainly is one of the many benefits of the announced transaction with Trulia is that international becomes more realistic. Now, Zillow shareholders, Zillow employees, as evidence on Glass Door, Zillow stakeholders love Spencer Raskoff. So how old are you now? 38. Yeah, you're late 30s.

And when you talk about a 10-20-year vision, you presume you think about that as a role that you're playing in leadership of this company. I hope so, unless you know something I don't. Well, no, I mean, it would only, I think at this point it would come down to your energy and enthusiasm for what's happening. Both are very high. I love my job. Would you say that Zillow, from a financial standpoint, is using something of an Amazon approach right now. Essentially, really bottom line earnings, like the world's out there, the media

is constantly saying it every article on you says you're not profitable without in any way evaluating the ad spend that you're putting in to grow your market. So when you, I mean, when you talk about Amazon strategy, there are lots of pieces of it. One is sort of working, you know, the Hichette book dispute, kind of taking at least publicly somewhat adversarial relationship with your partners, that's not our strategy. But if by the Amazon playbook, you mean sacrificing near-term profit in order to grow market share and kind of postpone profitability to a later date. Yeah, I'll take that criticism. So, oh, and I'm not even lobbying as criticism.

That's a strategy. But I think that, in other words, you would foresee that, hey, we may not have income statement earnings for a long time at this business. That's not the measurement of our success. It comes back to the size of the address of market. And here is where Amazon certainly has it right. I mean, if Amazon over the long term wins the international retail e-commerce pie, then they will have more profits than they will know what to do with.

And they think that by investing today in things like big distribution centers and free shipping and other price subsidization to the consumer, they will earn more of the e-commerce pie. In the case of Zillow, the investments that we're making are in product development, hiring a ton of engineers to build great products, especially on mobile, and advertising. So last year we spent $35 million in advertising. This year we were on track to spend $65 million. And based on the early results of 2014, we increased it to $75 million in advertising this year. Is it possible that you'll look back and say we probably could have even upped our ad spent even more?

We would look at the balance sheet, looking at the success we're having. You're definitely breaking new ground by doing this, certainly in this market, and you're having success with it, and you're moving it up each time. Is there a chance that you're leaving some on the field? Although, as I was talking off camera with some of your people, it's not like anyone else is stepping in and taking that portion. of the field. Yeah, I mean, at this point, we're spending a lot on advertising, and it's hard to productionalize those extra expenses.

I mean, if I came in tomorrow and said, you know, I think we should lean forward and spend $175 million in advertising. That probably wouldn't even be possible. So we're spending a lot on advertising. I feel like it's the right amount relative to the return that we're able to measure in the near-term and relative to a longer-term value that we ascribe to these new users that we acquire today. and relative to the impact that it's having on our brand awareness. The backdrop of all this is that even though Zillow is a large real estate site, the largest,

we feel like we still have a very long way to go in terms of making Zillow truly a household name on par with companies like Netflix and Facebook and LinkedIn and Google, companies that have nearly 100% brand awareness in the U.S., we have a long way to go to get there. And so that's what your targeting is awareness. Like a lot of your ad spend is not performance-based transactional conversion. It's un-aided awareness. Let's get that. We do both.

We do both based on channel. So online, for example, we do a lot of performance marketing where we buy clicks from search engines. We spend money buying display advertising. We buy mobile and social media advertising. All of that's highly measurable and more performance-oriented. TV is also measurable, but in a different way. It's harder to attribute certain user behaviors on a website to TV advertising, although you can try and we do. But it also drives other metrics like brand awareness and brand affinity and brand recall.

And you're tracking those and you're seeing progress to justify that. That's been awesome. Okay, I've got to close our brief time here together. I've got some zingers. This is where you run for political office by dodging. You answer the question you want to rather than the one I asked. Okay. Would you be willing to buy and sell properties in your own portfolio exclusively based on this estimate price?

It depends where. And I will tell you a very quick story, which is an investment property. I bid a particular price. They counted at another price. I bid at another price. They counted it at a very odd number down to the dollar and asked my agent, what's that number? He said, you dummy, that's the zestimate. And I agreed to hit the bid. So, yes, I have in one case. He paid the Zestment, but there are other examples where the Zestim's okay. Awesome. Would you renegotiate if you were working with a real estate broker?

Their six percent fee. Again, you can just go. Okay, good. You can dodge anyone you want to. What do you think is the single most irreplaceable thing about a real estate broker? The comfort that they provide in the transaction when a consumer is over one. and scared about whether they're making a big financial error. Will acquisitions lead to the methodical increase of executive compensation at Zillow? No. Yeah. Right.

Hopefully the company's performance will... Will justify it through ownership. Every reward for shareholders and executives, but not... Can you rank these three things in terms of the priority that you set on them in your daily work? Bottom line earnings, new agent acquisition, company culture. company culture, new agent acquisition, bottom line earnings. Right on. Spencer Raskoff, Zillow, Trillo, Trillo, Zulia.

Congratulations on everything that's going on with Zillow. We wish to the best of the luck in the long term. Thank you very much. Interviews with business leaders and CEOs is one of the many features in Motley Fool One, our premier all-access service headed up by Motley Fool CEO, Tom Gardner. To learn more about Motley Fool One and claim a bundle of free gifts from Tom in the process, just visit fool one.com. Up next, Stephen Dubner will help you think like a freak.

This is Motley Fool Money. Welcome back to Motley Full 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 best-selling 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 Full Money. His latest book with co-author Stephen 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 incy-weensy, teeny part of 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, you said, what's that? I have to say football. 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 obviously soccer is an interesting sport for a lot of reasons. But we look at. 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 of leagues, you find that 75% of them are successful, which is pretty good. So we ask 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, it turns out that that is about, you have about a seven percentage point. better chance to succeed by kicking straight down the center. So one, I like the metaphor of this because sometimes in life, you know, 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, and 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, 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 creatively, more rationally? and 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 Full Money. Welcome back to Motley Full 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 touch 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 better, 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, you know, I mean, we write about this at some length in Think Like a Freak. And, you know, 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 in 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, 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, you know, 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 Full 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 economists. 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 it 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 brain power CPU. There's a lot of factors in it. 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 and 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, best-selling 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, you know, 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's 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, you know, I might pay a thousand dollars for a purse by some fancy designer that, no, will not be, you know, a hundred times better than a purse by, you know, a lesser known designer. Personally, I don't know if I'd, even if, I don't

know if I'd ever pay even $100 for a purse if I were the kind of people, 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, 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. Give me that wine. Oh, give me that wine.

Yeah, give me that wine. Because I can't cut loose without my juice. Welcome back to Motley Full 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 Lombardy'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 miss quote. 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, 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. 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've 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, you know, it's a pretty cheap game. If however you think about it as an investment, it's a terrible investment because you expected value is about negative 40%. Okay? Because the lottery does not pay out very well. And yeah, a lot of 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 a thousand dollars 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 divied into a prize pool and distributed. and maybe I get to win $10,000 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 principle. 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 like you have that thing where you're talking, you're listening, and then you come in like half a degree, half an octave lower and you listen. It's just like, it's such a good signal. It's like a good reset. You know, 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 palette of the ear called, you know?

I don't know. I'm still trying to figure out your use of the word punity. So, yeah, I think I made the, 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, you know, I know them pretty well. And, you know, he talks about the kids quite a bit. But I don't really know the for instances. But I know, like, with my kids, like, they couldn't care less that, you know. 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 kind of give that advice in this book is that we should all think like a child more. And it was more about the kind of, you know, practical structural end, which is 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. a droid more 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, slow, steady decline, which we kind of know. We fake it. You know, 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.

You know, as one child psychologist I interviewed recently put it to me, you know, we're kind of, adults are kind of like the marketing and sales. divisions of the human team, and the kids are the hardcore R&D. And you've 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, you know, parenting and say, oh, I don't think that's a very proper idea for you to have. But, you know, 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 Levin. It might not be around much longer, and it will 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 ourselves 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 Matt Greer. I'm Chris Hill. Thanks for listening.

We'll see you next week.