The Bad with the Good: With Guests Uzma Khan & Gustav Källstrand

Katy Milkman: A study called "Fit and Tipsy" was published in a leading sports medicine journal in early 2022. Researchers found a surprising relationship between people's levels of exercise and alcohol consumption. Essentially, they found that higher fitness levels were often linked with drinking more booze.

It's strange to think that people who generally take better care of their physical health, by going to the gym or playing sports, would also drink more, given the well-known adverse effects of alcohol on health. Though maybe it's not so strange when you imagine football tailgates or weekend baseball tournaments.

Maybe you've seen this kind of contradictory behavior in other places as well. The coupon cutter who takes exorbitant vacations, or the dedicated recycler who drives a gas guzzler. In this episode, we look at a phenomenon that can set us up to behave better or worse in the future. And I'll speak with University of Miami marketing professor Uzma Khan about the pitfalls of good behaviors when they empower bad ones.

I'm Dr. Katy Milkman, and this is Choiceology, an original podcast from Charles Schwab. It's a show about the psychology and economics behind our decisions. We bring you true stories involving dramatic choices, and then we explore how they relate to the latest research in behavioral science. We do it all to help you make better judgments and avoid costly mistakes.

This is Gustav.

Gustav Källstrand: Hi, my name is Gustav Källstrand. I'm a senior curator at the Nobel Prize Museum in Stockholm. Alfred Nobel was born in Stockholm, grew up very poor. His father was an inventor who lost all of his money and moved to Russia to escape his creditors.

Katy Milkman: After losing everything, Alfred Nobel's father managed to build a fortune by inventing a deadly weapon.

Gustav Källstrand: His father invented sea mines that he sold to the Russian Navy. So during the Crimean War, he made a fortune out of those because they wanted to block the harbor to St. Petersburg from the British. This is the mid-19th century. So, when he was rich, the father sent for Alfred and his brothers.

Katy Milkman: Alfred Nobel was nine years old. He moved from a life of poverty to a life of privilege in St. Petersburg.

Gustav Källstrand: St. Petersburg was this cosmopolitan city. Alfred spoke Swedish, Russian, English, French, Italian, German, and Esperanto. And he dreamt of being a poet, but his father said, "Well, you should be an engineer."

Katy Milkman: Nobel read and wrote poetry throughout his life, but he heeded his father's advice and pursued a more technical career. He would become an inventor like his dad.

Gustav Källstrand: His driving force was to invent, and have new ideas, and to improve things.

Katy Milkman: He set his sights on improving the utility and practicality of a certain explosive.

Gustav Källstrand: Nitroglycerin. Nitroglycerin was a powerful explosive that was much more powerful than gunpowder. But the problem is that it's difficult to get it to explode when you want to. If you leave it lying around, it'll be unstable, and then it will explode. It was dangerous to make, it was also dangerous to transport because it's unstable. So it got a really bad reputation even from the start when he started manufacturing nitroglycerin in Stockholm.

The first factory, right in the middle of Stockholm, blew up, killed a lot of people. One of them was one of Alfred Nobel's brothers. So they were forced to manufacture it outside of Stockholm after that. And when you shipped the nitroglycerin, very often, the ships, when they arrived at their ports, the nitroglycerin would explode. So it got a bad reputation and it was almost useless.

And Alfred Nobel then got the idea, OK, so "I have to make this more useful. I have to make this better and safer." And that's how he came up with the idea for dynamite. Because dynamite is basically nitroglycerin, this liquid, very unstable explosive, mixed with some absorbent material to make it into a solid, which made it much safer to use. You could just light it with a fuse, then it would explode when the fuse had burned down and so on. So it became much safer.

Katy Milkman: Dynamite became the new standard explosive in construction. Everyone wanted to use it. And Nobel built factories in countries around the world to capitalize on this demand.

Gustav Källstrand: He wasn't one of these inventors who make an invention and then someone else makes a business, or he wasn't employed by someone. He invented dynamite, and then he created the different companies that sold dynamite. So even though there were other people involved, he was the one getting rich from dynamite.

Inventing dynamite changed Nobel's life. It changed everything. It was a really good product, and it made him rich. He was, well, more or less constantly traveling. He had factories in all different continents. Victor Hugo, the French writer, called him Europe's richest vagabond.

Katy Milkman: Nobel's invention was an extremely useful industrial product and a huge financial success. But some people began to use dynamite for more nefarious things.

Gustav Källstrand: Dynamite during the late 19th century was really the weapon of choice of terrorists. The big thing that people were scared of when it came to terrorism in the late 19th century were anarchists. Anarchists killed at least one czar In Russia. They killed one empress in Austria-Hungary. President McKinley in the United States was murdered by an anarchist. In Paris, during trial of terrorists who had thrown dynamite in the theater, killing a lot of people, the judges talked about him belonging to a dynamite club. That's sort of the nickname that they gave to this terrorist activity. So dynamite was known for something really scary at the time, basically.

Katy Milkman: You can't really blame Nobel for the fact that some used dynamite for violence. But it was a side effect of his invention, and he held some complicated views about war and peace.

Gustav Källstrand: On the one hand, we know that he believed in progress, the progress of humanity. And technology and science would make humankind better and the world a better place. And he wrote lots of letters, and he talked to people about this. He said that "I like peace, but I think that the peace movement, who wants to have peace through conferences and negotiations, I think they're on the wrong track. I think that peace will come when both sides in the war have weapons that are powerful enough that they can destroy each other. That's when we'll have peace." So he said that my weapons factories will end war sooner than your peace talks.

Katy Milkman: By the time he was in his sixties, Alfred Nobel was well established as a businessman and had seen great success.

Gustav Källstrand: So this is the late 1880s. So he lived in Paris, at a quite grand house in the expensive part in Paris, were he had a winter garden, he had a nice wine cellar. He loved to have guests, and he gave them nice food and nice wines. He was known for being generous, so lots of people visited him.

Katy Milkman: It was a charmed life. But one day Nobel noticed something strange outside his window.

Gustav Källstrand: One morning, lots of people turned out outside of his house because they had read in the newspaper that he had died. So he had to come out and say that "actually, no, I'm, I'm still alive." So he checked the newspaper himself, and the great Parisian newspaper said that he had died.

What had happened was that his brother had died, but the newspaper got the name wrong. So Alfred Nobel had the unpleasant experience of reading his own obituary. And it wasn't a very flattering obituary that said that he was a merchant of death who had manufactured weapons and that Alfred Nobel was someone who certainly cannot be called a benefactor of mankind.

We don't know exactly what his reaction to this was. I think it may have been a shock. Because he really believed that by making dynamite, he had made the world a better place. He had made possible tunnels and canals. I mean, steel in Europe that were building railways and buildings came from mines that were blasted out with his dynamite. And he also knew himself that he was a friend of peace. He was an educated person who wrote philosophy. How could people portray him almost like a monster?

Katy Milkman: Nobel didn't want to be remembered that way. So he set out to burnish his legacy. He wrote a new will and asked some Swedish businessmen in Paris for their thoughts on his plan.

Gustav Källstrand: He met them at a gentlemen's club in Paris and showed him his will. And he said that "I want to create this fund where I give out prizes to people who have done something good for mankind."

Katy Milkman: The surprising part came when he told his fellow businessmen how much of his wealth would be dedicated to this fund.

Gustav Källstrand: He was one of the richest men in Europe. But basically, really everything went into this prize. It was a substantial fortune.

Katy Milkman: The three-and-a-half page will began by giving small sums to his nephews and his brothers.

Gustav Källstrand: And then it says that everything of the rest of our fortune should be sold and made into a fund. And the interest from that fund should go to prizes to the people that have conferred the greatest benefit to humankind during the preceding year. And then it specifies different categories.

So this should be for someone who conferred benefit in the field of physics, chemistry, physiology or medicine. So that's one category. And then those are the three science prizes. And then there's literature and peace.

Katy Milkman: Nobel kept this new version of his will a secret until he died about a year later at 63 years old. Many in the public were very surprised by the will.

Gustav Källstrand: People were incredulous. How could someone who invented dynamite and gunpowder create a peace prize?

Katy Milkman: But the international nature of the prizes lent them enormous credibility over time.

Gustav Källstrand: People who maybe weren't that interested in the prize from the beginning, they thought it's flawed because of who Nobel was, once someone from their country got the prize, that sort of changed because people tended to be positive.

People were really into this comparing nations and competing with the nations, the progress of nations and who had the best industry and so on. And the Nobel Prize was just perfect for that. It was so useful for everyone to have. And Alfred Nobel as a person sort of faded out a little bit.

Katy Milkman: So why did Alfred Nobel establish the peace prize?

Gustav Källstrand: We don't know exactly why he wanted the prize at all, but he probably wanted to show people that he wasn't this materialistic person who just thought about money. He was wanted to show that he had broad interest and he was interested in progress and being the idealist. It's more about changing how the world viewed him, to make the world view him the way that he did himself.

The fact that it worked out, that's the most fascinating thing of all, in one way. That people in Sweden actually agreed to give out these prizes, that they managed to transform this into a working foundation. And that 120 years more after his death every year on December 10th, the day that he died, there's an award ceremony where the King of Sweden gives a toast to Alfred Nobel. They have a statue of him in the city, or they'll give a toast to him, to the great donor Alfred Nobel. And it's still his money. It's the interest from his money that is still being given out.

I think that the way that the prize turned out exceeded all Nobel's expectations. And I think that, especially in Sweden, he's regarded as a visionary and someone who's a friend of science and peace and literature, of course. What that has done, however, is of course many people have forgotten, especially outside of Sweden, have forgotten the fact that he was ever a businessman and inventor. Because the way that he improved his reputation was to become this philanthropist. So he's known now as one of the really great philanthropists of all time. And well, that's not a bad way to end up, so he would probably be happy.

Katy Milkman: Gustav Källstrand is the senior curator at the Nobel Prize Museum in Stockholm. You can find more information about Alfred Nobel and the Nobel Foundation in the show notes and at schwab.com/podcast.

Since 1969, there has also been a prize in economic sciences. It wasn't actually in Nobel's will but comes from the same institution that awards the other prizes. In fact, we've had two economics Nobel laureates as guests on this show: Daniel Kahneman and Richard Thaler, both of whom won the prize for their innovations in behavioral economics.

While Alfred Nobel didn't set out to do harm with his invention of dynamite, his reputation and self-image certainly suffered due to dynamite's association with terrorism and war.

You'll recall that the premature newspaper obituary called him a merchant of death. Nobel apparently decided that he needed a different legacy, and that philanthropy was a good way to achieve his goal, even though it wouldn't undo the negative aspects of his invention. We see a similar type of compensating behavior in many situations. Sometimes it's public-facing. Say, a corporation that made ethically questionable business decisions strives to make it known that it's supporting various charities. Or maybe it's a politician who's been associated with scandals and attempts to burnish their moral standing by visibly attending religious services.

Sometimes it's more private. You do something you're not proud of and then decide you should volunteer more, and that will clear your conscience. Or you mistreat one person, and then turn around and bend over backwards to help someone else. In behavioral science, this phenomenon is known as moral cleansing. It's where people imagine that they might make up for some bad or unethical thing they've done by doing something ethical or good to balance the ledger.

The reverse is true as well, that by doing something positive or charitable, we allow ourselves more freedom to behave badly later. This is known as moral licensing. Uzma Khan is an expert on moral cleansing, moral licensing, and the related licensing effect. She's an associate professor of marketing at the University of Miami.

Uzma, thank you so much for joining me today. It's such a pleasure to have you here.

Uzma Khan: It's my pleasure, Katy. Thank you for inviting me.

Katy Milkman: Uzma, what is licensing? Could you just define the term?

Uzma Khan: So licensing, or self-licensing as it is also commonly referred to, arises when doing something good allows people to do something bad, something that they would otherwise feel guilty or a little uncomfortable doing.

And the logic behind this phenomenon is that our behavior does not arise in a vacuum. In fact, it is influenced by how we arrive at it. So, our actions, our choices, our decisions are all influenced by what happens before we arrive at these choices. So, when we do something good, that gives us, so to speak, a non-conscious rosy lens through which we then view our behavior later on.

Katy Milkman: Could you describe some of the earlier work on moral licensing that first got you interested in this subject?

Uzma Khan: Yes. So, I think one of the earliest demonstrations of the licensing effect was in the moral area, in the political area, where they looked at people's expression of prejudice. And these studies showed that if people expressed a non-prejudicial view, then subsequently they were more likely to express prejudice. And the idea in these studies were that people feel more licensed to express morally prejudicial views if they somehow feel that they have expressed themselves and they have built their credentials as being non-prejudicial.

Katy Milkman: That's really interesting. And what made you think that that particular phenomenon might extend outside of the domain of thinking about prejudice and gender and race to consumer preferences?

Uzma Khan: Right. So we see these rather quizzical behaviors all the time in consumption domain. So you see people who would recycle religiously, and yet they would drive around in their gas-guzzling SUVs. So, you can see that they care about the environments, and yet they would not compromise on their comfort. You see people wearing these expensive, exquisite ballroom dresses to their galas, which are charity events. You see people, and I'm also guilty of this myself, that they order their diet sodas only to later supersize their fries and go for an extra-large piece of pizza.

So we saw these consumption patterns around us all the time. And we thought that, well, this effect that has been observed in the moral domain probably occurs in everyday consumption as well.

Katy Milkman: That's really interesting. I'm wondering if you could describe some of your studies that explored this in consumer settings.

Uzma Khan: So when we first started to look at the licensing effect, we explored it in the domain of luxury consumption. And the idea with luxury consumption is that, while we all want these luxury items, they also make us feel a little bit guilty to buy these items. Because these are driven by hedonic pleasures. We want them, and yet we feel maybe we shouldn't spend so much money on these Prada shoes and these Louis Vuitton handbags. Because this money can be either spent better on achieving some more practical goals, or we can just save it for our future needs.

So people often feel guilty indulging in luxury products. And taking this logic of licensing, we felt that licensing would argue that people would feel more liberated to buy these luxury items if they had initially established themselves as non-indulgent and more responsible consumers. So we started off with very simple studies.

I'll give you an example of one study where we gave people a choice between a relative luxury and a relative necessity. And the specific choice was, we asked them to choose between a pair of designer jeans and a vacuum cleaner. And what we found was that some people who were given, prior to a choice between the vacuum cleaner and the designer jeans, they were given a choice to pick between two charities where they would like to spend some time volunteering.

And this was a hypothetical choice. We had told people, imagine that you have decided to volunteer some time. Which of these two charities would you like to donate your time to? And these people who had expressed a choice between these two charities were later more likely to pick the designer jeans compared to a control group that did not make that initial virtuous decision.

Katy Milkman: That was a great example. One thing we haven't talked much about is why people do this, and I suspect you've thought a lot about that. So I'm curious what you think is leading to this pattern of behavior. Why do people engage in licensing?

Uzma Khan: Right. So I think it's a very interesting question. So behavior is a signal to us about who we are. So we look at our behavior. If I see myself eating ice cream, I say, "Well, I must be the kind of person who eats ice cream." Now, the interesting thing is that this could lead to two completely different subsequent downstream behaviors.

So if I see myself as, "I'm the kind of person who eats ice cream," I might eat more ice cream later on. And that's what old research had shown. That if I see myself as, "I'm this kind of a person," I'm more likely to behave consistently. We find that there are situations where that doesn't happen because when we have conflicting goals, so let's say I do want to learn and read about good educational, culturally enriching things. But I also want to enjoy myself and read the popular media and gossip.

So, when you have these multiple goals, then making progress towards one goal can allow you to actually quit that goal and start making progress towards the other goal. So we feel that licensing happens through that route. That I want to be environmentally friendly, and yet I do want to have my cushy, luxurious SUV. So, by recycling, now I have established that I care about the environment. And that then allows me to buy my SUV without reflecting poorly on me.

So it is really, in these cases where we see the licensing effect happening, people take their behavior as a signal of who they are and establishing credentials for who they are. And then their subsequent behavior, though inconsistent with their image, doesn't seem as bad.

Katy Milkman: Uzma, I'm curious if you have any advice on what we can do to avoid feeling licensed by the things we do on social media or the other small acts we do that are good, and make sure that we still actually double down and do the more important good behaviors like eating healthy and driving the right kinds of cars and so on.

Uzma Khan: I think yes, there are a couple of things I could suggest. So first is, we know in our behavioral decision-making area, pre-commitment devices are very powerful. And I think here as well, they can serve quite a useful role here, where if we say that, "OK, during any week I am going to eat so much fish, so much vegetables, so much fruit, and it doesn't matter what I eat today."

Or I would actually recommend that people should set shorter and shorter timeframes for their goals. If you set daily goals, then even if you get license to eat unhealthy at dinner, that's fine. That just means you ate healthy at lunch. So I think balancing is a great thing. The problem that arises is that people don't balance out when they think that, "Oh, I just ate unhealthy, I should eat healthy later on." And they often think, "Oh yes, tomorrow I'll eat healthy, but they don't." So I think encouraging people to establish shorter and shorter goals can help.

Another thing that can really help is if we ask our friends and family and people around us to hold us accountable. And I say that because we have some data where we find that while we see our virtuous actions as reasons to license our vices later on, others don't. So, in fact, in some studies we find that if others observe you doing something virtuous, they expect consistency from you. They will raise the demands of virtue on you. Whereas, and it's sort of a moral hypocrisy, that if I do something virtuous, I lower the demands of virtue on myself. But if you do something virtuous, I raise the demands of virtue on you. But this moral hypocrisy can also help us if we ask others to hold us accountable to our goals.

Katy Milkman: I'm curious if this research has changed your own decisions at all.

Uzma Khan: In some areas, yes. In others, no. I still get my Diet Coke and my supersized fries. And I know what I'm doing, which just means that for the next week I would try to stay away from fast food. And I know that it just makes me feel better, instead of just going with a regular Coke. But in other areas, it has made me quite cognizant of the fact that, "Look, I just did something good here, or something virtuous here." And who am I kidding? This is not enough. So I think it has made me more consistent as a person. And this is also something we found in our data that it seems to be more of an unconscious effect. If people become conscious of it, they can correct for it.

Katy Milkman: That's really interesting. Uzma, how would you say this all relates to self-control and people's challenges with self-control?

Uzma Khan: I think it relates to self-control directly, and also to ourselves not being any one self all the time. So we have one self that is now, and then our future self is different. And preferences of the future self are very different than the preferences of the current self. In our studies, people always say, "Well, yes, in the future I'm going to watch the documentaries. I'm going to eat healthy in the future. I'm going to have my plain, fat free yogurt. But right now, my preference is to go for that cookie and to watch Oceans 11."

And this is a struggle that the self has, that the self has to balance between the preferences of the current self and the preferences of the future self. And we want to make sure that the wants of the current self are balanced out by what the future self should be doing. And licensing is just a tool through which we allow our current self to not feel bad about letting that future self down.

Katy Milkman: Uzma, thank you so much. This was really, really interesting.

Uzma Khan: Thank you for having me, Katy. It was so fun talking to you.

Katy Milkman: Uzma Kahn is an associate professor of marketing at the University of Miami. She's an expert on consumer behavior, marketing management, and decision-making. You can find links to her research in the show notes and at schwab.com/podcast.

Uzma Kahn talked about self-control struggles—and the positive impact on our decision-making when others hold us accountable. Saving money is one area where people too often favor current desires over future needs. On the Financial Decoder podcast, host Mark Riepe and his guests often discuss strategies to help you create and stick to a financial plan—one of the best tools to help you stay accountable to your future self. Check it out at schwab.com/financialdecoder or wherever you get your podcasts.

Our tendency to treat our acts of morality and self-control as if they are credits in a ledger against which we can borrow or make loans is just fascinating. I'm certainly guilty of indulging in more sinful desserts on days when I make it to the gym, and of excusing my very occasional acts of incivility by pondering all of my other acts of kindness.

Nobel laureate Richard Thaler calls it mental accounting when we label money and time and treat these fungible resources as if they belong in their own accounts. Isn't it interesting that we apply the same reasoning to morality and exertions of self-control? Whenever we create imaginary balance sheets in our head, and behave as if keeping score matters, we're engaging in a kind of tracking that can be useful. It's useful when we'd be tempted to overindulge in bad behaviors like overeating, overspending, and excessive immorality without any boundaries in place.

But licensing can also have perverse consequences, causing us to feel like the time has come to cash in if we've controlled our spending, diet, exercise, or immoral impulses for a long time. Uzma's finding that other people don't see licensing as acceptable means that our friends, family, and colleagues can help hold us accountable if we're worried about sliding into bad patterns after a period of good behavior.

And it's also noteworthy that we're less likely to engage in licensing when it's brought to our attention. Just learning about this tendency may help you avoid abusing it. So the next time you think your workout means you're due for a wild night out, or that your diligent savings plan allows you a spending spree, maybe you'll think again.

You've been listening to Choiceology, an original podcast from Charles Schwab. If you've enjoyed the show, we'd be really grateful if you'd leave us a review on Apple Podcasts. You can also follow us for free in your favorite podcasting app. And if you want more of the kinds of insights we bring you on Choiceology about how to improve your decisions, you can order my book, How to Change. Or sign up for my monthly newsletter, Milkman Delivers, at katymilkman.com/newsletter.

In two weeks: the remarkable story of Dr. Franz Mesmer, Benjamin Franklin, and the experiment that changed science forever. I'm Dr. Katy Milkman. Talk to you soon.

Speaker 4: For important disclosures, see the show notes or visit schwab.com/podcast.