The wit and wisdom of Richard Thaler

Richard Thaler is the author of numerous articles and the books that include Misbehaving: The Making of Behavioral Economic and Nudge: Improving Decisions about Health, Wealth and Happiness (with Cass Sunstein) as well as The Winner’s Curse, and Quasi Rational Economics, and was the editor of two collections: Advances in Behavioral Finance, Volumes 1 and 2. He also wrote a series of articles in the Journal of Economics Perspectives called: “Anomalies.” He is one of the rotating team of economists who write the “Economic” View column in the Sunday New York Times.

Credit: Getty Images

* * *

o The lesson of my field, behavioral economics, is that we need to understand the ways in which we differ from the rational human assumed in standard economic theory.

o For many people, being asked to solve their own retirement savings problems is like being asked to build their own cars.

o Academia does not provide many opportunities for immediate gratification. You work for two years on a project, it takes two more years to get it published, and then you start hoping someone might read it.

o Even a mother – Jewish or not – can’t worry about everything. So it is important that we limit our worries to real as opposed to imaginary risks.

o I don’t think it says anywhere in the Bible that tithing should be calculated on a before-tax basis.

o As a general rule, the United States government is run by lawyers who occasionally take advice from economists. Others interested in helping the lawyers out need not apply.

o We humans actually need help controlling our impulses – nudges.

o As both a consumer and producer of newspaper articles, I have no beef with pay walls. But before signing up, I read the fine print.

o Real people have trouble balancing their checkbooks, much less calculating how much they need to save for retirement; they sometimes binge on food, drink, or high-definition televisions. They are more like Homer Simpson than Mr. Spock.

o When employees are first eligible for a retirement savings plan, they should be enrolled unless they choose to opt out. Richard Thaler It makes sense for social scientists to become more involved in policy because many of society’s most challenging problems are, in essence, behavioral.

o A nudge is some feature of the environment that changes the behaviour of humans but would not change the behaviour of rational economic agents, what we call Econs.

o Social Security may be the most beloved of all the government’s programs, partly because it requires so little thinking. You pay taxes while you work, then you and your spouse collect until you die.

o God did not say that you should be able to borrow one hundred percent of the price of a house.

o Fortunately, economists open to new ways of thinking are finding novel ways to use supposedly irrelevant factors to make the world a better place.

o In the 1940s, economics started getting highly mathematical. It was basically because economists weren’t smart enough to write down models of real behavior that they started writing down models of highly rational behavior – and they kind of forgot about humans.

o It is true that I am one of the co-authors of Nudge, and I am a behavioral economist, but it does not mean that everything we write about in that book is behavioral economics, nor does it mean that my co-author, the distinguished legal scholar Cass Sunstein, is a behavioral economist.

o “Fun money” is another term that makes no sense to traditional economists. Because there’s just money; there’s no “fun money.” It’s all supposed to be the same.

o Leaders are important but not omnipotent. Richard Thaler You can’t make evidence-based policy decisions without evidence.

Morality aside, there are other factors deterring ‘strategic defaults,’ whether in recourse or nonrecourse states. These include the economic and emotional costs of giving up one’s home and moving, the perceived social stigma of defaulting, and a serious hit to a borrower’s credit rating.

Countries all around the world, starting with the U.K., have started behavioural insight teams, often referred to as nudge units. And they seem to be doing lots of good.

It’s essential that we understand things like the free-rider problem, but we also need to understand that, fortunately, humans are a little nicer than economists give them credit for. Some people actually leave money at roadside fruit stands; some people give money to NPR so we can listen to it.

Many problems are so complex that even if we had the money to fix them, we wouldn’t know how to do it. Fixing inner-city schools, reducing obesity, creating peace in the Middle East are just a few examples.

Traditional economics is based on imaginary creatures sometimes referred to as ‘Homo economicus.’ I call them Econs for short. Econs are amazingly smart and are free of emotion, distraction or self-control problems. Think Mr. Spock from ‘Star Trek.’

There can be legal conflicts over whether registering intent is enough to qualify you as an organ donor or whether a doctor must still ask your family’s permission.

The more we turn down questionable offers like trip insurance and scrutinize ‘one month’ trials, the less incentive companies will have to use such schemes.

When it comes to assessing the chances of some complicated combination of events, gut feelings are pretty much useless.

Payroll savings plans are vital because they are essentially the only way that middle-class Americans reliably save for retirement.

Many Americans say they want to be organ donors, but they just don’t get around to acting on their intentions. Helping these potential good Samaritans overcome their inertia could prolong thousands of lives a year.

The Nobel Prize is going to be ‘fun money’ – for an occasion, when my wife and I want a $50 bottle of wine.

When it comes to my health, I would rather my doctor base her decisions on science rather than what she, or some lawyer, thinks will stand up in court.Share this
The supply price and the demand price should be roughly the same. You’re not supposed to have two different prices. According to economists.

The good thing I will say about the Chicago School is that it was always about the world, not about the abstract.

We should at least make sure that patients are given the opportunity to opt out of spending their final days in a hospital, hooked up to tubes and running up enormous bills.

* * *

Richard H. Thaler is the Charles R. Walgreen Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago’s Graduate School of Business where he director of the Center for Decision Research. He is also a Research Associate at the National Bureau of Economic Research where he co-directs the behavioral economics project. Professor Thaler’s research lies in the gap between psychology and economics.

To learn more about him and his work, please click here.

 

Posted in

Leave a Comment





This site uses Akismet to reduce spam. Learn how your comment data is processed.