The US ideology of independence greatly hinders fiscal responsibility.

Question: Are American saving habits different from those in other countries?

Dan Ariely:So, the question is, are Americans different than other people? And I think in some sense we are and in some sense we aren't. I don't think we are different people: we are wired the same way, we're very similar. In fact, most of the research we do, we show that people are the same everywhere. There are really small differences.

Where we are different is in the social norms. So, if you grew up in another country and your parents tell you, "Little Johnny," or a different name, depending on the country, "When you get a paycheck, you save 30% of it. You save 25% of it." Parents tell you what to do. There's almost a rule of what to do. That's not clear of the right approach. It's not clear of the right number to save. But parents tell you what you are supposed to be doing.

In the U.S., I think there is an ideology of not telling kids what to do. Nobody to tell you who to marry, not tell you what job to pick. You're your own person. You have the freedom to choose, including the freedom to fail in magnificent ways. And I think that's the big difference. In other countries there is basically a social norm about saving that is passed from generation to generation. In the U.S. there isn't.

Now, one other interesting thing that is happening is what's happening now in terms of savings and saving rates are increasing up, now quite dramatically. And part of it is because people have lost trust. I mean, who would you trust right now? Which bank would you trust? Which investment would you trust? Do you really want to put your money; do you want to suffer more of these losses that we just had? You know, these volatility that we see is just unexplainable by any rational standards. Nobody has any clue about how to explain this, and nobody wants to experience that. So, we hold more money back, we don't necessarily want to invest in the market and by default, people are saving more.

Now, the interesting question is whether we will develop habits of savings. And I am actually quite optimistic about this because if you think of people as making decisions actively, every time we think about the cup of coffee, we say, "How much will I enjoy the cup of coffee, what else could I not do in the future because I buy this cup of coffee? These are incredibly hard decisions. So, people don't do them and instead they rely on habits. These habits fuel our decisions even when the underlying causes are irrelevant.

So the one question about now is whether people would start saving, whether we would get in the habit because of this, mostly because of the fear of putting money in the stock market, and actually they will keep on doing it even when it's not necessarily the greatest strategy in the world, but will develop a habit for doing so. And this will happen for the depression era and I think it will happen now again.

Recorded on November 16, 2009