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Well, did you know that there's an element of psychology in that comes into play when you think about how we think
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about paying our taxes, especially when you look at things like losses and gains. Warren professor Alex Reese Jones
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has taken a deeper dive into this component of taxes, and he joins me here in studio to talk about it. Great to see
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you again, to see you. I'm doing great. How are you? Thank you. Uh, what was it
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that first got you thinking about this component of psychology in taxes? Well, uh I mean this is a little dated now,
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but when I was in graduate school in like the late 2000 as I was very interested in behavioral economics,
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which is an area of economics that's all about trying to build more models from
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psychology into the way we do kind of regular economics. uh and at that stage that was a very well-developed field but
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it wasn't yet like as successful as it could be because a lot of it was focused
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on say small lab experiments and there weren't an enormous number of demonstrations of this stuff being
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really useful to think about big economic behaviors and so a thought I had is that no I I think people uh could
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be influenced quite a lot by psychology when thinking about taxes and if that's
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true that would count as a big economic behavior and understanding how to model it better through psychology would be
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really useful just for doing regular economics. Um that turned out to be right I think and uh and there's been
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many other examples like that in the years since but that's what initially was my like point of entry into the
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field. And so I mentioned at the top that component of losses versus gains. I I know you wrote about it in in part
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about the losses component about how we think about working the losses that we have you know kind of in our tax
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preparation every year. Yeah. So yeah, let me let me summarize the the idea and how you know losses and gains are you
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know map into it. I mean the the thing I was trying to get at in this study was how uh you know the idea of loss
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aversion would play out in tax settings. Now the term loss aversion sounds pretty
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general. you know, you can imagine it uh applying to a bunch of things, but when
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behavioral economists use it, they mean a very particular thing. And they're
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referring to this reproducible finding that people seem to value uh slightly increasing a gain less than slightly
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decreasing a loss. So like to illustrate like let's say I'm asking you how much
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you value a dollar that I'm holding and you think about it and you know you would hope you'd say, "Oh, a dollar is a
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dollar. I'll think of my value for that." And then to put in different frames, I could say, well, what if I
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already owe you $10? So this dollar is getting mixed in and turning 10 to 11. Or I could say, what if you already owe
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me $10, and so this is turning you paying me nine or 10 into you paying me nine. And in either case, I'm just
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giving you an extra dollar. A dollar is a dollar. But the thing you see very reproducibly is that people care a fair
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bit more about making the loss a little bit smaller compared to making the the gains bigger. And you know, that's not
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so surprising to many people, right? Like people people don't like losing. People don't like losses. Thank you for
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