Tim FerrissRichard H. Thaler — The Winner’s Curse and Going Against the Establishment (with Nick Kokonas)
CHAPTERS
- 0:00 – 1:41
Cashew nuts, removing choice, and why “more options” isn’t always better
Richard H. Thaler opens with the dinner-party cashew nuts story: people keep eating, he removes the bowl, and the guests thank him. The moment becomes a challenge to a standard economics intuition that more choice is always better, highlighting that people sometimes prefer constraints.
- •Thaler describes hiding the cashews to protect dinner appetites and being thanked afterward
- •Nick Kokonas frames the move as “removing choice”
- •The group’s economist instinct objects that fewer options should make people worse off
- •Thaler emphasizes the underlying principle: sometimes people prefer not having options
- 1:41 – 4:45
What economics models: markets, “agents,” and the postwar push for math-heavy rigor
Asked to start from first principles, Thaler explains economics as people interacting in markets, but notes that modern textbooks often replace “people” with “agents.” He traces how economists after World War II moved toward rigorous mathematical models, often by assuming people behave perfectly.
- •Economics framed as people interacting in markets, then formalized as what the “agents” do
- •Post–World War II shift toward more mathematical, rigorous models
- •Textbooks commonly encode behavior with “max” (maximize) as a simplifying assumption
- •Thaler says economists admired physics-style precision, even when human behavior is harder to model
- 4:45 – 9:12
“Max” vs. “Meh”: shortcuts, fairness, and self-control missing from standard models
Thaler critiques the idea that rationality in economic models means solving problems like an economist would. He argues real people use shortcuts (“meh” rather than “max”), and that assumptions of selfishness and perfect self-control omit central drivers of behavior.
- •Rationality in models defined as solving problems the way an economist would
- •Most people use shortcuts rather than optimizing complex problems
- •Standard models assume selfishness, even though people give to charity and care about fairness
- •Standard models assume no self-control problems (eating, exercise, and other temptations)
- •Thaler notes the implication: if agents truly maximize, they wouldn’t need advice
- 9:12 – 11:20
What the “rational” framework gets right—and Milton Friedman’s “as if” defense
Thaler concedes some core economics remains useful, like supply and demand, but argues “smarter agent” models can lose realism. He describes Milton Friedman’s defense that people act “as if” they were optimizing, and positions much of his career as debating where that claim fails.
- •Supply and demand still works as a foundational tool
- •Thaler describes a norm where models competed by making agents “smarter and smarter”
- •Milton Friedman’s argument: behavior can be modeled “as if” people maximize
- •Thaler identifies the central dispute: whether real-world behavior is close enough to justify the assumption
- 11:20 – 15:37
From anecdotes to evidence: retirement saving and why defaults change behavior
Thaler returns to the cashew story as a starting point, then pivots to showing similar patterns at scale—especially in retirement saving. He argues many Americans don’t save unless money is taken from paychecks, contradicting theories that people naturally choose optimal lifetime savings paths.
- •Thaler describes building a list of “weird” behaviors and then seeking ways to test them
- •Retirement saving example: many people don’t save unless it’s payroll-deducted
- •He contrasts this with theories implying people save the “right amount” via ongoing re-optimization
- •Nick highlights the challenge: adding humans and psychology without abandoning rigor
- 15:37 – 20:23
Why economists resisted behavioral ideas: psychologists laughing and the limits of “expert” analogies
Thaler recounts academic resistance, including giving a talk in a psychology department where the audience laughed at an economics savings theory. He also responds to Friedman’s billiards-player analogy by distinguishing experts from ordinary people and questioning whose expectations are being modeled in policy settings.
- •Thaler recalls thinking “the emperor has no clothes” while economists accepted implausible theories
- •At Cornell, psychologists laughed at the described savings model; an economist had to confirm it was real
- •Thaler argues economists often study regular people, not expert performers
- •He challenges macro discussions of “expectations” by asking whose expectations they mean
- 20:23 – 22:05
Loss aversion and the gap between willingness-to-pay and willingness-to-accept
Thaler introduces loss aversion through an early survey on a small risk of death, comparing how much people would pay to remove the risk versus how much they’d demand to accept it. He notes standard theory predicts similar answers, but real responses diverge dramatically.
- •Thaler’s lecture-risk “cure” question: how much would people pay to eliminate a small risk?
- •A second version asks how much people must be paid to accept that same risk
- •He states economic theory predicts the two amounts should be about the same
- •Observed responses are far apart, illustrating buying vs. selling price asymmetry
- 22:05 – 24:06
Endowment effect in the classroom: the Cornell mug experiment and reduced trading
Thaler describes a classroom experiment run with Danny Kahneman and Jack Knetsch using randomly assigned coffee mugs. People who receive a mug demand much more to sell it than non-owners are willing to pay, even after holding it briefly, implying less trade and slower change than standard theory expects.
- •Mugs are randomly assigned in a classroom setting
- •Owners state selling prices; non-owners state buying prices across offered amounts
- •Owners demand roughly twice as much to give up the mug as others will pay to get it
- •Thaler links the pattern to reluctance to give up what one has, reducing trading
- 24:06 – 29:16
Deposits, fairness, and backlash: restaurant reservations, snow shovels, and surge pricing
Nick connects behavioral concepts to his restaurant reservation experiments: a small deposit dramatically reduced no-shows. Thaler ties this to fairness research (like post-blizzard snow shovel pricing) and discusses how perceived unfairness can make “profit-maximizing” tactics backfire, using surge pricing and a 9/11 thought experiment.
- •Nick reports a reservation deposit reduced no-shows sharply compared to no deposit
- •He describes economists criticizing the approach and suggesting auctions instead
- •Thaler discusses fairness judgments using the snow shovel price hike after a blizzard scenario
- •Thaler argues surge pricing needs limits and offers a 9/11 hypothetical as a reputational stress test
- •They summarize the business lesson: customers and employees are people, not “agents”
- 29:16 – 35:34
Nudges in practice: 401(k) auto-enrollment, making things easy, and nudge durability
Thaler explains a signature nudge: changing retirement enrollment from opt-in to opt-out, which greatly increased participation. He and Tim discuss how long nudges last, using examples like the urinal “fly” and Chicago road markings that create a speed illusion, while Thaler emphasizes the general rule: if you want action, make it easy.
- •Thaler contrasts old pensions with 401(k)-style plans requiring employee decisions
- •Auto-enrollment (opt-out) boosted participation compared to opt-in systems
- •Tim raises whether nudges lose power as people habituate to them
- •Thaler describes Chicago road lines that create an illusion of speeding up and induce braking
- •Thaler’s rule: simplify actions; complexity reduces follow-through
- 35:34 – 38:20
Choice architecture’s dark side: casinos, online gambling, and investing-as-a-game
Thaler notes nudging wasn’t invented by academics and can be used to exploit people as well as help them. He points to casinos and newer digital environments, arguing online gambling and app design can make betting effortless and investing feel like casino play.
- •Thaler says human nature and “hucksters” predate behavioral economics
- •He argues product design can use behavioral principles for good or harm
- •Casinos are designed to encourage more betting and disadvantageous bets
- •Online gambling lowers friction: betting becomes possible instantly on a phone
- •He mentions Robinhood making investing feel more like gambling through gamification
- 38:20 – 52:11
Teaching decision-making with stories: the winner’s curse jar demo, ARCO, and the NFL draft
Reflecting on decades of teaching, Thaler says students remember stories and demonstrations, not formulas. He explains the winner’s curse with a jar-of-coins auction and traces the idea to ARCO engineers bidding on oil leases, then applies it to sports decisions like NFL draft pick trading.
- •Thaler says nobody thinks they need a class in decision-making because they assume they’re good at it
- •He argues stories and demonstrations are what students retain
- •Winner’s curse demo: auctioning a jar of coins leads someone to overbid, making the professor money
- •He credits ARCO engineers for identifying winner’s curse dynamics in oil lease auctions
- •In the NFL draft context, he suggests trading down to convert a high pick into multiple picks
- 52:11 – 1:06:56
Frictions for everyday habits—and mental accounting, sunk costs, and why prepaid commitment works
Nick asks how behavioral insights translate into daily life; Thaler returns to the “cashews” logic: make temptations harder to access and good behaviors easier. The conversation expands into mental accounting and sunk costs, including why prepaid commitments (like tickets or deposits) can strongly shape follow-through.
- •Thaler: to do less of something, make it harder; to do more, make it easier
- •Nick discusses restaurant-industry adoption challenges and business-owner psychology
- •Thaler introduces mental accounting: money is labeled in categories rather than treated as a single pool
- •They discuss sunk cost fallacy with examples like desserts and expensive wine you wouldn’t buy again
- •Nick explains how reservation prepayment/commitment became central to his reservation platform idea
- 1:06:56 – 1:09:54
Using biases for good: commitments, paying to show up, and “temptation bundling”
Tim shifts from avoiding biases to using them constructively. Thaler endorses commitment devices and describes examples like paying for appointments and pairing entertainment with exercise—highlighting a treadmill-only audiobook experiment as a way to make the “hard” behavior more attractive.
- •Tim describes using prepayment as a self-imposed commitment to follow through
- •Thaler supports commitments and notes paying adds “pain” that increases adherence
- •He mentions a paper titled “Paying Not to Go to the Gym” in the context of gym attendance
- •Thaler describes Katy Milkman’s experiment: audiobook access only while exercising
- •They label the approach “temptation bundling,” pairing a treat with an effortful task
- 1:09:54 – 1:22:57
Big data, replication scrutiny, and how Thaler built the field (summer camp + readable “anomalies”)
Asked about modern experimentation, Thaler says findings once limited to labs can now be tested in real-world datasets, offering a gasoline “premium upgrade” example during the financial crisis. He then explains his pragmatic strategy for spreading behavioral economics: train younger scholars and write accessible anomalies that people actually read and cite.
- •Thaler says big data enables field validation of lab-style behavioral findings
- •Example: when gas prices fell during the financial crisis, people upgraded to premium fuel instead of reallocating savings elsewhere
- •He notes companies constantly run experiments and cites Amazon employing many economics PhDs
- •Thaler describes “corrupt the youth” as a strategy: a two-week behavioral economics summer camp funded by the Russell Sage Foundation
- •He recounts writing an “Anomalies” column for an accessible journal and emphasizes citations follow readability
- 1:22:57 – 1:28:25
Kahneman & Tversky’s influence: systematic bias, availability, and the “models are brilliant” trap
Thaler explains that Kahneman and Tversky provided the conceptual breakthrough he needed: mistakes can be predictable and systematic, not random noise. He uses availability bias (homicides vs. suicides) and an Amos Tversky dinner story to show how economists may call real people irrational while assuming hyper-rational agents in their models.
- •Thaler credits Kahneman and Tversky as central to why behavioral economics developed as it did
- •He defines systematic bias as predictable error patterns arising from shortcuts in a hard world
- •Availability example: people overestimate homicides relative to suicides because homicides are more salient
- •He recounts Amos Tversky leading an economist to admit everyone around him is “dumb,” while models assume brilliance
- •Thaler reiterates that the goal isn’t calling people dumb; it’s understanding predictable mistakes
- 1:28:25 – 1:35:31
A personal detour: Kahneman’s assisted suicide decision and peak-end reasoning
Nick raises the topic of Danny Kahneman choosing assisted suicide, and Thaler describes the conversation and their final time together. Thaler links Kahneman’s decision-making to Kahneman’s own “peak-end” idea and explains that Kahneman wanted control and feared future cognitive decline more than death itself.
- •Thaler describes Kahneman as a best friend for decades and recounts the call announcing his decision
- •He references Kahneman’s peak-end finding and Kahneman’s concern about losing control of the “end”
- •Thaler describes trying to persuade him, including traveling to see him and sharing a special dinner and wine
- •Kahneman’s stated motive: deciding while still fully capable and avoiding cognitive decline
- •Thaler says he respected the decision, even though he wanted more time
- 1:35:31 – 1:44:40
What keeps Thaler motivated: rewriting The Winner’s Curse, audience goals, and parting recommendations
Thaler says what energizes him is revisiting earlier work under today’s standards, including replication concerns, by updating his 1992 book with a younger co-author. He explains who the updated book is for—students, economists, and general readers—and recommends accessible reading via the Journal of Economic Perspectives, closing with final wrap-up.
- •Thaler says “corrupting the youth” and interacting with students still motivates him
- •He describes updating his 1992 work with Alex Imas to see what holds up under scrutiny
- •Nick notes the book’s chapter endings separate takeaways for economists and for everyone else
- •Thaler describes giving university talks as a better “tour” than bookstores because of the student audience
- •He recommends the Journal of Economic Perspectives as an accessible resource and also mentions The Undoing Project
