Richard H. Thaler — The Winner’s Curse and Going Against the Establishment (with Nick Kokonas)

1. 0:00 – 0:46

   Preview.

   1. RTRichard H. Thaler0:00

      There's a story I tell about a dinner party. I bring out a bowl of cashew nuts. People started eating, nibbling as they do. And at some point, I realized their appetite was in danger, and so I grabbed the bowl of cashew nuts and went and hid them in the kitchen. People thanked me.

   2. NKNick Kokonas0:20

      So you removed choice.

   3. RTRichard H. Thaler0:22

      And then, because this is a group of economists, somebody mentions that, "Well, we're actually not allowed to be happy about that because more options is always better, and we used to have the option of eating nuts, and now we don't." Well, you can imagine. The principle is interesting, that sometimes we prefer not to have options.

2. 0:46 – 2:33

   First principles: What is economics, really?

   1. NKNick Kokonas0:46

      I'm excited to dive in, and I thought, Nick, we would let you take the reins because you had this idea of starting from first principles or at least fundamentals, and I think that is a great place to start because maybe the things we think we understand we don't understand, or the things we think we've defined for ourselves we haven't defined. When I got to college at a liberal arts college and didn't know what I was gonna study, but I knew I enjoyed business, quote-unquote, or might work in business of some sort, you're left with the study of economics there. Like you're not getting an undergrad MBA or something. So you get to economics class, and it's not that at all. You know, it's a bunch of models. It's a bunch of all that. So I thought what we would start, which is first principles, what is the study of economics? And we're going to the best source in the world on that. But it's really basic, yet I think fundamentally misunderstood.

   2. RTRichard H. Thaler1:41

      I think that's actually a great place to start, and especially it's not really possible to talk about what behavioral economics is without understanding what economics is. Economics is really two things. It's people interacting in markets, and then what are those people doing? And what happened is sometime right after World War II, economists started getting interested in making their models more rigorous and more mathematical. And the easiest model to write down of what somebody's doing is to write down a model in which they're doing it perfectly.

3. 2:33 – 4:45

   The “max” assumption and agents as optimizers.

   1. RTRichard H. Thaler2:34

      So if you open up any economics textbook, you'll see the three letters max, and that's short for maximize. And all models start with that. So we assume that when Nick goes to the grocery store, what he chooses is the best things he could choose. And that's a simplifying assumption. It's simplifying for the economist because that's the easiest model to write down.

   2. NKNick Kokonas3:09

      And so what are they modeling, though? Like even-

   3. RTRichard H. Thaler3:11

      Well-

   4. NKNick Kokonas3:11

      ... more fundamentally.

   5. RTRichard H. Thaler3:12

      What they're modeling is whatever you do. So what route do you take to drive from home to the golf course? The best route. Which home do you choose to buy? The best one. What mortgage do you choose? The best one.

   6. NKNick Kokonas3:28

      Yes.

   7. RTRichard H. Thaler3:29

      Look, economists are jealous of physics.

   8. NKNick Kokonas3:32

      [laughs]

   9. RTRichard H. Thaler3:34

      And they're jealous of physicists. Many economists started out in school as a math major or physics major or engineering major and then decided, "Oh, this is too hard." But they kind of admire that. So they want a model that's as accurate as the model you use to send up a rocket. And the, the problem is that that problem is solvable. How much stuff do you need to get a rocket to go up there? That's a solvable problem. Figuring out what people do, if you open a book, an economics textbook, you actually don't see the word people.

   10. NKNick Kokonas4:15

       Right.

   11. RTRichard H. Thaler4:16

       You see the word the agents. Economics starts with Adam Smith, seventeen seventy-six, and it's that way about until nineteen fifty. Now, we have an equation that says exactly what a smart person is going to do. And so the agents in these models are getting smarter and smarter because the norm is, "My model is better than your model if my agents are smarter than your agents."

4. 4:45 – 5:39

   Rationality in models: Solving problems like an economist would.

   1. NKNick Kokonas4:45

      And so what does it mean to be rational within those models?

   2. RTRichard H. Thaler4:50

      Well, it means to solve the problem the way an economist would.

   3. NKNick Kokonas4:54

      [laughs]

   4. RTRichard H. Thaler4:55

      And I don't mean that economists think that they're the smartest, though they may. But if it's an economic problem, like how to adjust your thermostat so you're comfortable and spend the least money, right? That's a little practical economic problem. And an economist and an engineer might solve it. And knowing you, Nick, you, you could easily get absorbed with figuring out how to really do it. But most people can't figure out how do you use that easy using thermostat in their house, much less solve it themselves. So people will take shortcuts. And,

5. 5:39 – 6:12

   “Meh” vs “Max” — shortcuts instead of optimization.

   1. RTRichard H. Thaler5:40

      you know, my joke is instead of writing down max, suppose we wrote down meh, because what people are doing isn't really max, right?

   2. NKNick Kokonas5:49

      [laughs]

   3. RTRichard H. Thaler5:50

      It's, "Uh, you know, I'll do something." Where I come in on that part of the story is, okay, if people are not capable or interested in solving- And they're doing something else, taking some shortcut, then, then what? So that's principle number

6. 6:12 – 8:08

   Selfishness, fairness, and self-control in economic models.

   1. RTRichard H. Thaler6:12

      one. Principle number two is economists, again, for simplicity, have assumed that people are selfish. Most of us care more about ourselves than anybody else, maybe our family, some family members, you know.

   2. TFTim Ferriss6:26

      [laughs]

   3. RTRichard H. Thaler6:27

      But we give money to charity. You know, NPR collects money.

   4. TFTim Ferriss6:33

      Yeah, we-

   5. RTRichard H. Thaler6:33

      Churches collect mon- Right?

   6. TFTim Ferriss6:34

      We might care about fairness.

   7. RTRichard H. Thaler6:35

      We might care about fairness, right. I'm sure we're gonna have a discussion about fairness, and we might care about being treated fairly. And so that was left out of the model, again, because it seemed like a simplifying assumption to just start out with this ex-

   8. TFTim Ferriss6:54

      Yeah, you're making the rocket equation, and you don't really care about the astronauts at this point.

   9. RTRichard H. Thaler6:59

      [laughs] Right.

   10. TFTim Ferriss7:01

       You just gotta get the rocket in space.

   11. RTRichard H. Thaler7:02

       You gotta get the rocket up. I'll mention a third thing, which is these agents don't have any self-control problems. So they eat just the right amount. They exercise just the right amount. We wouldn't need these new fat drugs because people would already be-

   12. TFTim Ferriss7:22

       Well, be optimizing for their health.

   13. RTRichard H. Thaler7:23

       Yeah.

   14. TFTim Ferriss7:23

       Yeah, of course.

   15. RTRichard H. Thaler7:23

       They would be perfectly fit, and you wouldn't have sold half as many books, Tim.

   16. TFTim Ferriss7:28

       [laughs]

   17. RTRichard H. Thaler7:30

       If people were those agents, and, you know, even the other kinds of things you're interested in, implicitly in this idea that the agents are maximizing means they don't need any advice.

   18. TFTim Ferriss7:43

       Mm-hmm.

   19. RTRichard H. Thaler7:44

       They're doing it right. They're getting the labor leisure trade-off right. They don't need any help in getting along with their spouse because they're, they're maximiz-

   20. TFTim Ferriss7:55

       I've optimized. I've-

   21. RTRichard H. Thaler7:56

       Right.

   22. TFTim Ferriss7:56

       I optimized my marriage.

   23. RTRichard H. Thaler7:57

       Right.

   24. TFTim Ferriss7:57

       It's perfect.

   25. RTRichard H. Thaler7:58

       And, and in fact, our wives would be happy to testify-

   26. TFTim Ferriss8:01

       Yes

   27. RTRichard H. Thaler8:01

       ... that we are both-

   28. TFTim Ferriss8:02

       They've done a wonderful job. [laughs]

   29. RTRichard H. Thaler8:03

       We're both perfect-

   30. TFTim Ferriss8:04

       Yeah
7. 8:08 – 10:38

   Milton Friedman’s “as if” defense.

   1. TFTim Ferriss8:08

      I've been looking forward to this conversation that I've always sort of furrowed my brow at the agents all as rational and selfish because I just don't see that behavior if you look at your neighbor or your friend or someone else. So my question, though, is not so much to dive into that. We could, and the, the story of your friend who got hay fever, Richard, when he mowed his lawn, is a pretty funny one from New York Times. [laughs] Maybe we'll bring that up. But suffice to say, people self-sabotage, they care about fairness. There are all these things that seem to invalidate getting the rocket to the moon or that approach to economics, and I'm wondering, were they just force-fitting precision to something in order to defend it as more rigorous, and it was a waste of time? Or was it more like Newtonian physics versus quantum mechanics, where it's like, well, you could actually use Newtonian physics for a lot of good things. Is there anything productive that came of these incorrect assumptions about all agents being rational and selfish as a bedrock assumption?

   2. RTRichard H. Thaler9:12

      I would say sure. Supply and demand still works. All economics starts with supply and demand. If you raise the price, you're gonna sell less, almost always. When you write down these more formal models and make more precise predictions, then the question is, are you adding predictive power through that? And I think what happened is, as this norm, we're starting in the '50s, and I would say rationality peaked in the '90s maybe, where this norm that a model with really, really, really smart people is the best possible model. Eventually, people start to realize, well, maybe there's some drawbacks to that. But you can argue, and of course, I've spent my career arguing about how wrong this is. You know, the great Chicago economist Milton Friedman had this defense. He would say, "Look, I just want a model that people are behaving as if they were maximizing." So he would say, "It doesn't matter if they literally know how to do it, if their behavior is close enough." And so the real debate over my career has been about

8. 10:38 – 12:05

   The cashew nuts story: Origin of behavioral economics.

   1. RTRichard H. Thaler10:38

      that question.

   2. TFTim Ferriss10:39

      Well, let's go back to the start then, I think, of sort of your origin story and thus the origin story of behavioral economics itself. Because at some point, psychologists start getting involved, and they start looking at these models, and they start saying, "Yeah, but people don't really act this way." And so this could be great in a laboratory or on a piece of paper in a spreadsheet, but it might not work in the real world, and there's real consequences to those things. So let's go back to when you were a young academic and started coming across those ideas.

   3. RTRichard H. Thaler11:20

      Yeah, I guess this is, like, in grad school. So there's a story I tell about a dinner party with some other economics graduate students, and there's some roast in the oven. It smells great, and there's some adult beverages, and I bring out a bowl of cashew nuts, and people started eating, nibbling as they do. And at some point, I realized that their appetite was in danger, and so I grabbed the bowl of cashew nuts and went and hid them in the kitchen. And then I came back into the living room, and people thanked me. "Oh, thank God you got rid of those nuts. We were gonna eat them."

9. 12:05 – 13:04

   Removing choice and status quo bias.

   1. TFTim Ferriss12:05

      Yeah, so you removed choice.

   2. RTRichard H. Thaler12:06

      Yeah, I removed choice. And then, because this is a group of economists They start analyzing it. There's a rule of thumb, you don't want too many economists at any dinner party. And this is a good example of it. Somebody mentions that, well, we're actually not allowed to be happy about that because more options is always better, and we used to have the option of eating nuts, and now we don't. Well, you can imagine. So but the principle, the discussion wasn't that interesting, but the principle is interesting, that sometimes we prefer not to have options. And so I started with this list of stuff like that, and then the work comes into, all right, well, how can you go beyond a story? So yeah, that's an amusing story, but so what?

10. 13:04 – 15:04

    The case for Americans needing forced savings.

    1. NKNick Kokonas13:04

       You wanna change the framework of economic theory without throwing out the rigor, but now you're introducing something super messy, which is humans and psychology and irrationality and all of those things. So how do you do that without getting rid of the rigor?

    2. TFTim Ferriss13:18

       Yeah, just to make sure I'm tracking, it seems like, so you've created this list of sacred cows that you would put on trial, but the question was how to do it quantitatively or in some way, like Nick said, rigorously, without just leaving it as an anecdote.

    3. RTRichard H. Thaler13:32

       Well, there are two parts to it. One is, can you show that people are really doing that?

    4. TFTim Ferriss13:37

       Mm-hmm.

    5. RTRichard H. Thaler13:37

       And then second, can you create rigorous models that describe that behavior?

    6. TFTim Ferriss13:45

       Mm-hmm.

    7. RTRichard H. Thaler13:46

       And I think we might as well stick to the demonstration part. So we can go from that, the cashew story, and say, "Well, what does that have to do with the real world?" And we can talk about retirement saving. As a first principle, Americans don't save unless the money is taken from their paycheck and put into a retirement plan. Now, economic theory would say it doesn't matter. People are gonna save the right amount. There have been two Nobel Prizes for theories that basically say people save the right amount. So they, they take their income and they s- decide, "Okay, I'd like this consumption path over my lifetime, and now how much do I have to save to get that? And, and then I keep reoptimizing. Market goes up, I can save a little less," and so forth.

    8. NKNick Kokonas14:40

       I mean, that seems so obviously wrong. So were you frustrated at this point? Like, I read some of your old papers in preparation for this, and I saw these little backhanded little mentions that were kind of snide. I mean, it's funny reading 40-year-old academic papers and reading the snark in them, right? I mean, there's actual snark in young Thaler, long before any of this.

    9. RTRichard H. Thaler15:01

       Never, it never escaped [laughs] .

    10. NKNick Kokonas15:02

        It never escaped. So,

11. 15:04 – 19:56

    Academic resistance: Psychologists laughing at economic theory.

    1. NKNick Kokonas15:04

       you know, tell me a little bit about that, because it seems to me like in hindsight, you know, the first time we met, we played golf together after, like, a Twitter exchange. And I remember thinking to myself as you were saying this, I would go like, "Yeah, well, obviously." And then you'd look at me like, "No, no, no, you don't understand. For 150 years, that wasn't obvious." And so within the context of this academic world, why was any of applying what seems to be pretty logical stuff, why was it resisted so much? Why is that system built like that?

    2. RTRichard H. Thaler15:37

       I can tell you while I was living through that, the emperor has no clothes was a recurring thought. Why am I seeing that and no one else does? And the no one else was just economists. I remember giving a talk in the psychology department at Cornell where I was teaching, and I was talking about this theory of how people save, and the audience just starts laughing.

    3. NKNick Kokonas16:05

       Yeah, that's what I did.

    4. RTRichard H. Thaler16:06

       And, and, and they-

    5. NKNick Kokonas16:07

       I was like, "This is pretty easy stuff"

    6. RTRichard H. Thaler16:08

       ... they're laughing. And one of my economist friends was there, and he had to assure them that I wasn't making this up and that this wasn't a caricature of economic theory. No, there are economists one floor up from here who actually believe this is the way people behave.

    7. NKNick Kokonas16:28

       But they didn't even think of it as an abstraction in the model. They actually thought like, "Hey, this is how humans go through life"?

    8. RTRichard H. Thaler16:35

       Or as if. Remember those magic-

    9. NKNick Kokonas16:38

       As if, yes.

    10. RTRichard H. Thaler16:39

        They don't have to know how to do a present value, but they're acting as if they knew.

    11. NKNick Kokonas16:45

        That's right.

    12. TFTim Ferriss16:46

        That has a bit of a, like, maxing works in mysterious ways type of ring to it.

    13. RTRichard H. Thaler16:52

        Yeah.

    14. TFTim Ferriss16:53

        Is that defensible as an argument, the as if, or is that just kind of a, a wiggle?

    15. RTRichard H. Thaler16:59

        Look, it was the winning argument when I started on this. And in fact, in my first paper, which was published in 1980, my first behavioral economics paper, it ends with a long response to Milton Friedman's as if. And he talks about a billiards player. It's an expert billiards player, I should point out, that he talks about. He says he may not know physics or trigonometry, but he acts as if he did.

    16. NKNick Kokonas17:29

        Is it really inferring that, like, the, like, law of large numbers or crowd intelligence or whatever you wanna call it, where you go like, "Well, it doesn't matter what the individual does," as an aggregate-

    17. RTRichard H. Thaler17:41

        Okay, so there-

    18. NKNick Kokonas17:42

        ... when we look at a model, it will average out that the smart people and the idiots all get to the midline, which is the model.

    19. RTRichard H. Thaler17:48

        There are two things here. One is when he talked about this expert billiards player, I pointed out in this article, you know, we actually study regular people, not experts. So you're a pretty good golfer. I'm a mediocre golfer. Neither of us play like Tiger Woods, right? So even though you're a pretty good golfer, we wouldn't want to predict the way you're gonna hit a shot by saying, "What would Tiger do?"

    20. NKNick Kokonas18:16

        A thousand percent. Yeah.

    21. RTRichard H. Thaler18:17

        That was my first point about the billiards player is let's just go to a bar and try to predict what this guy is gonna do. Is the model gonna be the one that is optimizing, or is it the model of the regular guy at a bar?

    22. NKNick Kokonas18:36

        Right.

    23. RTRichard H. Thaler18:37

        And if we're studying investors, they're not Warren Buffett. You know, they're pretty far from Warren Buffett. The second thing is, and it's sort of another version of the same thing, which is if we're trying to describe behavior, whose behavior is it? So, you know, there's a lot of discussion in, say, monetary policy about expectations. So the, the Fed will say, "We have to change interest rates because we're worried that if prices go up, people will expect them to go up further." I'm always asking my friends who are in that field, whose expectations are they talking about? If it's the, you know, guy walking down Michigan Avenue, they have no expectations about inflation. They may have impressions of what's going on now, like, "Oh, meat's high now."

    24. NKNick Kokonas19:37

        Eggs.

    25. RTRichard H. Thaler19:38

        Eggs are high, right.

    26. NKNick Kokonas19:39

        [laughs] Right.

    27. RTRichard H. Thaler19:39

        Gasoline.

    28. NKNick Kokonas19:40

        Right.

    29. RTRichard H. Thaler19:41

        You know, I have an electric car. Even I'm aware of the price of gas because it's posted in those big signs that you walk by, right? So we know kind of the level. Do we have real forecasts about the future? No.

12. 19:56 – 22:18

    Loss aversion: Disease cure experiment.

    1. NKNick Kokonas19:56

       Going back a little bit now, how did you then go about designing thought experiments, actual lab experiments, experiments out in the public to take these erratic, if you will, or non-optimal behaviors and go back to the models that you questioned and improve them, alter them, change them? If you could give a couple examples-

    2. RTRichard H. Thaler20:23

       Yeah. So let-

    3. NKNick Kokonas20:23

       'cause I think they're kind of fun too.

    4. RTRichard H. Thaler20:24

       Let's talk about loss aversion. Here's the first survey I ever... My, my thesis, which was a very traditional bit of economics, although on a kind of exotic topic, it was on the value of saving lives. So if we make a highway safer and we save ten lives a year, how much should we be willing to pay for that? And I decided it might be interesting to ask people a question. So I asked people, "Suppose by attending this lecture today, you've been exposed to a one in a thousand risk of dying. You have this disease, and there's a one in a thousand chance you're gonna die a quick and painless death next week. But I have a cure here that I can sell. How much would you pay for it?" That was one question. Another question was, "Over at the med school, we're studying that same disease. We'd like to know how much you would have to pay you to expose yourself to a one in a thousand chance of getting that disease, and there's no cure here." Now, economic theory says the answers to those two questions have to be the same. So the amount I'm willing to pay to get rid of it or the amount of, um, have to be paid to do it should be approximately the same. They're nowhere near the same. So people would say, "Oh, I'd pay one thousand dollars to get that cure. I wouldn't do that experiment for a million dollars." Now, they're lying because they drive, they-

    5. NKNick Kokonas22:03

       Yeah, they do all sorts of things. Yes

    6. RTRichard H. Thaler22:05

       ... but they wouldn't choose to be in that experiment for a million. So okay. So that's buying and selling prices are wildly different. Now, how do we get that down to something more real?

13. 22:18 – 24:05

    Endowment effect: Coffee mug experiment.

    1. RTRichard H. Thaler22:18

       You asked about an experiment. There's a, a famous experiment I did with my friend and mentor, Danny Kahneman, and our friend Jack Knetsch. And the way it works is, is very simple. We go into a classroom, and we did some of these at Cornell. We would go and put a Cornell coffee mug of the sort you can get at any campus bookstore. We put it on every other desk. And then we say, "All right. If you have a mug, we ask you each of the following prices are you willing to sell?" Start at ten dollars and go down. And if you don't have a mug, you get the same form and say, "At each of the following prices, are you willing to buy?" And now the mugs are assigned at random. People have had this mug for thirty seconds. It's not their grandma's mug. It's been in their possession for thirty seconds. And what do you find? Well, the people who have a mug demand twice as much to give it up than the ones who don't have a mug are willing to pay to get it.

    2. NKNick Kokonas23:26

       Why is that, do you think?

    3. RTRichard H. Thaler23:28

       Well, if I've got it, I don't want to give it up.

    4. NKNick Kokonas23:30

       That's it.

    5. RTRichard H. Thaler23:31

       But I wouldn't pay much to get it.

    6. NKNick Kokonas23:32

       Right. The variance between retaining something and acquiring it-

    7. RTRichard H. Thaler23:37

       Right

    8. NKNick Kokonas23:37

       ... are really wide. Like, what are the consequences of that?

    9. RTRichard H. Thaler23:40

       Well, it means there's much less trading and much less change than we would expect because we hold on to the stuff that we have because we don't like giving it up. But when there's a big fire like they had in LA last year, people are gonna have to decide, all right, now they don't have the option of moving into the old house. What

14. 24:05 – 25:26

    Restaurant reservations and the power of deposits.

    1. RTRichard H. Thaler24:05

       are they gonna do?

    2. NKNick Kokonas24:06

       The interesting thing about these is that the way that we met is that I was running experiments of loss aversion with a restaurant. So I had th- these restaurants. I had people making reservations, and if they had absolutely not a single penny in, they didn't care About anything. But you could take the richest person in the world, and once they had five dollars in for their reservation as a deposit, it took the no-show rate from fourteen percent to under three percent. And I wrote about that and published it, and these economists from Northwestern published an article saying that I was an idiot and I should just run an auction.

    3. RTRichard H. Thaler24:43

       [laughs]

    4. NKNick Kokonas24:44

       And I replied to them suggesting that maybe there's a little bit of human behavior and, and psychology involved in this, and I think that I've got it right, and I have hundreds of thousands of, of examples as to why this is working for my business. And Thaler read this and tweeted at me, but at the time I didn't know who he was. And so finally people said, "Hey, you know, you've got one of the best economics professors in the world who, who really wants to talk to you about this." And so I was just doing it out of intuition and experimentation, but they're the same sorts of experiments in a practical way that you are abstracting into these traditional models.

15. 25:26 – 27:11

    Fairness research: Snow shovels and blizzards.

    1. RTRichard H. Thaler25:26

       And Kahneman and I wrote another paper where we tried to find out what people think is fair.

    2. NKNick Kokonas25:31

       Yeah, fairness is a really interesting concept.

    3. RTRichard H. Thaler25:34

       And, you know, the Northwestern economists that were dumping on Nick thought that what he really should do is just auction off the tables at seven thirty on Saturday night for whatever price he could get.

    4. NKNick Kokonas25:48

       Because I'd be maximizing my utility.

    5. RTRichard H. Thaler25:50

       Well, no, you'd be maximizing your profits.

    6. NKNick Kokonas25:52

       Profits.

    7. RTRichard H. Thaler25:52

       Right.

    8. NKNick Kokonas25:53

       Yeah.

    9. RTRichard H. Thaler25:53

       And there is some rich guy who will pay two thousand dollars.

    10. NKNick Kokonas25:57

        For sure, especially then.

    11. RTRichard H. Thaler25:59

        You know, you wrote back and said, "Yeah, but they might not come back." The questions that we asked in this paper were scenarios like there's one, there's a hardware store that's been selling snow shovels for twenty dollars, and there's a blizzard, and they raise the price to thirty dollars. Is that fair? And people say, "No." You know, but there's one exception. You know there's a group that say absolutely yes, and that's business school students. So I teach a class in decision-making, and each week I show them, "Look, here's the data from some experiment. You think these people are idiots, but look, you do it the same. So they may be idiots, but so are you."

    12. NKNick Kokonas26:51

        What's the example?

    13. RTRichard H. Thaler26:51

        But any of them, any of these other experiment, except this one. On fairness, the business school students are different from the idiots because they think, "Of course you should raise the price of snow shovels after a blizzard. We learned that in micro."

16. 27:11 – 28:53

    Uber surge pricing and the 9/11 thought experiment.

    1. NKNick Kokonas27:11

       Yeah. Well, that's the Uber surge pricing. Tim, you know something about that.

    2. TFTim Ferriss27:14

       [laughs] Yep. Surge pricing, I know it well.

    3. RTRichard H. Thaler27:17

       Surge pricing, I thought at the time that there's nothing wrong with surge pricing, but you have to put a limit on it. And the example I gave, I tried to convince the owner of Uber of this. I said, "Suppose Uber existed on 9/11, and you had Ubers charge five thousand dollars to drive people back to Greenwich. How many days would Uber still be in business? Right? Minutes. You can't do that."

    4. NKNick Kokonas27:49

       You can't do that. And that's the fairness principle that-

    5. RTRichard H. Thaler27:52

       That's right

    6. NKNick Kokonas27:52

       ... that proves the rule that we are psychological, everyone is a psychological creature when it comes to markets and interaction.

    7. RTRichard H. Thaler28:00

       It might be the guys that are in that Uber for five grand, but even they are gonna be a little pissed.

    8. NKNick Kokonas28:07

       Yeah. Yeah.

    9. RTRichard H. Thaler28:09

       The thing is, at the time when they would have these surges like of 10X, they were not making any money off of that. It would be fleeting, so they'd make a little bit of money. Just like if Nick had sold one dinner reservation for ten grand, yeah, he'd make ten grand, but he'd have thousands of people writing articles.

    10. NKNick Kokonas28:36

        A thousand percent.

    11. RTRichard H. Thaler28:37

        So Uber was making a little bit of money and pissing off millions of people, and that was dumb in a business where they had to fight city by city to get permission to take people to the airport.

    12. NKNick Kokonas28:52

        Mm-hmm.

17. 28:53 – 29:16

    Behavioral economics in one sentence.

    1. RTRichard H. Thaler28:53

       And so I think the important lesson is that if you're doing business in the real world and you have customers and employees that are people, not agents, then you have to do things a bit differently. That's like the one-sentence summary of behavioral economics.

18. 29:16 – 31:50

    Nudges: 401(k) auto-enrollment case study.

    1. TFTim Ferriss29:16

       Richard, could you, for people listening and for me, give an example or, or two of how you take the research and then apply it in the real world? You mentioned effectively forced savings earlier. Maybe that's a domain we could explore.

    2. RTRichard H. Thaler29:34

       When my father worked, he was an actuary. He worked at a big insurance company. He had the pension that was prevalent at that time, defined benefit pension plan, the old-fashioned kind, where how much you got in your pension just depended on how long you worked and what your s- final salary was. No decisions. And we gradually started shifting over to the new 401 (k) type that's called defined contribution, meaning you put money in and invest it, and then you get what you have at the end. Now, when I started working in this area, one problem we noticed was lots of people weren't joining this savings plan even though Their employer was matching contributions dollar for dollar up to, say, six percent of their salary. That's like the stupidest thing you could ever do, right? You're making a hundred thousand dollars. They'll say, "I'm gonna give you six thousand dollars as long as you put-

    3. TFTim Ferriss30:43

       You save six thousand.

    4. RTRichard H. Thaler30:44

       Uh, yeah. In a tax-

    5. TFTim Ferriss30:45

       Tax-deferred.

    6. RTRichard H. Thaler30:46

       Right. So an economist would say, "Well-

    7. TFTim Ferriss30:48

       Hundred percent of the people are gonna do that

    8. RTRichard H. Thaler30:49

       ... everybody will do it."

    9. TFTim Ferriss30:50

       Yeah.

    10. RTRichard H. Thaler30:51

        And what we noticed is in a lot of companies, only half of new workers would sign up within the first year. So how can we fix that? Well, remember we talked about status quo bias. So here's a simple way. The way it worked at that time was in order to join, you have to fill out a form and choose some investments and then sign. And this was a piece of paper at the time. Said, "How about if we just change the form and say, 'There's this plan. We're gonna put you in unless you fill out a form saying you don't want it.'" Again, economic theory says that won't make any difference. Everybody's gonna join, and certainly just filling out a piece of paper-

    11. TFTim Ferriss31:33

        It's not enough friction to change things.

    12. RTRichard H. Thaler31:34

        Yeah. I mean, we're giving you six thousand dollars, right?

    13. TFTim Ferriss31:37

        Yeah, yeah.

    14. RTRichard H. Thaler31:38

        But the first company that did that, new employees now joined ninety percent instead of fifty percent. I wrote a book called Nudge, and that's an example

19. 31:50 – 33:10

    The fly in the urinal and nudge durability.

    1. RTRichard H. Thaler31:50

       of a nudge.

    2. TFTim Ferriss31:51

       I am fascinated by nudges, and tell me if I'm defining this correctly, but some feature of the environment that improves decisions but doesn't force anyone to do anything. Is that a fair-

    3. RTRichard H. Thaler32:00

       Yes.

    4. TFTim Ferriss32:01

       I think I'm trying to quote directly, [chuckles] so hopefully it's accurate.

    5. RTRichard H. Thaler32:04

       I'm pretty sure I wrote those words.

    6. TFTim Ferriss32:05

       [laughs] Yeah, I think you did. One of the examples that I've heard you discuss, I think this started in the Netherlands, but it is the fly etched or otherwise put inside of urinals to reduce spillage because a lot of guys are on autopilot. Turns out they like to aim at things. I love that that's what you... Of everything that you read, that's what you chose to pick. [laughs] Well, I picked it because at least most guys listening have seen this.

    7. RTRichard H. Thaler32:32

       Yes, a thousand percent.

    8. TFTim Ferriss32:34

       And my question is, is there a certain half-life to the effectiveness of nudges? Because I remember the first time I saw one of these, I was like, "Oh, I'm definitely gonna get that fly." I remember it. I... And then after a while I was like, "Okay, I realize this is just painted on enamel or etched into the enamel. It's no longer that interesting." And not to extrapolate from myself to everyone, but I'm wondering if you need to refresh nudges as you might refresh many other things that maybe Nick has experimented with in the realm of business. How do you think about the durability of these types

20. 33:10 – 35:28

    Lakeshore Drive lines: Making safety easy.

    1. TFTim Ferriss33:10

       of nudges?

    2. RTRichard H. Thaler33:10

       There's a good example of a nudge of that sort here in Chicago. When Nick and I drive back home, we're gonna go on Lakeshore Drive, and there's a bendy part, and it's beaut- beautiful road, and a lot of people wipe out around these bends. You really can't go more than about thirty, and it's a six-lane road, so people think they can go fast. So what somebody did around the time we wrote that book, a little before, is they painted lines on the road that get closer and closer together that gives the illusion that you're speeding up.

    3. TFTim Ferriss33:50

       [laughs] That's clever.

    4. RTRichard H. Thaler33:51

       And so you just instinctively tap the brake and then don't wipe out your car. That's good, right? Now, those lines, they keep repainting them.

    5. TFTim Ferriss34:03

       No one pays attention anymore. Yeah.

    6. RTRichard H. Thaler34:05

       Well, I don't know.

    7. TFTim Ferriss34:06

       I don't know either.

    8. RTRichard H. Thaler34:07

       I don't know. I think the fly in the urinal probably won't have any effect in the toilet you use at your place of work where, you know, you see it several times a day or whatever.

    9. TFTim Ferriss34:23

       Mm-hmm.

    10. RTRichard H. Thaler34:24

        But for the pension thing, if we only have to get you to sign up once, that's enough.

    11. TFTim Ferriss34:29

        Yeah.

    12. RTRichard H. Thaler34:30

        So yes, attention, it may be that we have to do something different to get your attention this time, but there's a rule which is if you want people to do something, make it easy. That's a rule. That's always true. The more complicated you make things, the less people are gonna do it. I think that's pretty much automatic. In terms of capturing attention, that's what the business of advertising is constantly trying to do, and, you know, clickbait on ads on social media-

    13. TFTim Ferriss35:13

        Social media itself is in the business of that.

    14. RTRichard H. Thaler35:14

        Right. Keep it simple is a formula that always works, and getting your attention always works, but it won't be the same thing that will keep getting your attention.

21. 35:28 – 36:37

    Choice architecture: Good nudges vs. malicious nudges.

    1. TFTim Ferriss35:28

       So this turned into a whole field from relatively simple concepts like that called choice architecture.

    2. RTRichard H. Thaler35:34

       Yeah.

    3. TFTim Ferriss35:34

       And you've done consulting with various companies, the NFL, all sorts of people. I don't even know which ones I'm allowed to talk about or not, [chuckles] so I have to be careful. But tell us a little bit about, like, when does that become a bad thing? Can you turn the nudge or can someone that's malicious turn the nudge into something that takes advantage of the lack of self-control in these models?

    4. RTRichard H. Thaler36:00

       Yeah, sure. We always say we didn't invent nudging. Adam and Eve, right?

    5. TFTim Ferriss36:05

       Yeah, yeah.

    6. RTRichard H. Thaler36:06

       Then the serpent, right? There was, you know, the apple. So human nature has been there all along. Hucksters have existed forever. Charles Ponzi didn't read our book, didn't read any of my papers, neither did Bernie Madoff. When we wrote Nudge, it was saying, "Look, here are some basic principles of human behavior." Can we use those to help people make better decisions?

22. 36:37 – 38:20

    Online gambling and Robinhood’s gamification.

    1. TFTim Ferriss36:37

       So practically speaking, how do you then go into one of the businesses that you've consulted for and come up with, through your framework, what they have overlooked?

    2. RTRichard H. Thaler36:48

       Well, you want people to do more of that, why are you making it hard for them to do it? I mean, right? That's the answer. But where I was going with that was the same principles can be used to harm people. So if you go into a casino, the whole casino has been designed to get people to bet as much as possible and to bet on things that-

    3. TFTim Ferriss37:16

       Have the worst possible outcomes.

    4. RTRichard H. Thaler37:17

       Right.

    5. TFTim Ferriss37:18

       Yeah.

    6. RTRichard H. Thaler37:18

       And now we have online gambling, and we have places like Robinhood that have made investing feel a lot like-

    7. TFTim Ferriss37:29

       Yeah, gamified it

    8. RTRichard H. Thaler37:29

       ... casino gambling.

    9. TFTim Ferriss37:30

       Yeah, they gamified it.

    10. RTRichard H. Thaler37:31

        Yeah. They're making it easy, right? They've made it easy to bet. It used to be you had to go find a bookie. Now you open your phone and you can bet on the game that you're watching, and that's very tempting. So the, the principles of understanding the customer and then designing the product can be used for good or evil. I take no responsibility for somebody optimizing an online gambling app to make it as attractive as possible for people to lose all their money.

    11. TFTim Ferriss38:12

        [chuckles]

    12. RTRichard H. Thaler38:13

        Don't blame me. That's what's gonna happen in a competitive market with consumers who are humans.

23. 38:20 – 39:18

    Lessons learned from teaching decision-making for 40 years.

    1. TFTim Ferriss38:20

       Richard, question for you. How long have you been teaching your, uh, or how long did you teach, it sounded like it was current day, the decision-making class?

    2. RTRichard H. Thaler38:28

       40 years.

    3. TFTim Ferriss38:29

       Okay. You've had time to work on your material. [chuckles]

    4. RTRichard H. Thaler38:31

       Yeah. I should be better at it, right?

    5. TFTim Ferriss38:33

       Well, I mean, uh, I wasn't gonna go that far. I was gonna ask you what seems to be the stickiest of what students repeat back to you from that class as concepts, frameworks, stories, could be anything at all. And I suppose the precursor question is, what are they hoping to gain from the class in the first place? What's the promise of the class? But I'd be, I'd be curious to know what sticks.

    6. RTRichard H. Thaler38:58

       First thing I will say is nobody thinks they need a class in decision-making.

    7. TFTim Ferriss39:03

       [laughs]

    8. RTRichard H. Thaler39:04

       Because they're great at decision-making. Why would they need a class in that? Do I need a class in breathing? Although, you're gonna tell me, actually, you don't know how to breathe right and-

    9. TFTim Ferriss39:13

       [laughs]

    10. RTRichard H. Thaler39:13

        Yeah, yeah.

    11. TFTim Ferriss39:15

        I've got a frictionless e-course for you with lots of in-app

24. 39:18 – 41:16

    Winner’s curse: The jar of coins demonstration.

    1. TFTim Ferriss39:18

       purchases. [chuckles]

    2. RTRichard H. Thaler39:19

       I do hear from people who took a class from me at Cornell 40 years ago, which is very gratifying. I'm glad that they even remember that they had such a class. What do they remember? They remember stories. That is the only thing people remember. They do not remember a formula. They don't remember some abstract concept. They remember a story or they remember a demonstration. Take the concept of the winner's curse.

    3. TFTim Ferriss39:54

       Mm-hmm.

    4. RTRichard H. Thaler39:55

       This is an obvious move on my part since I have a new book that's called The Winner's Curse, but let's talk about the winner's curse 'cause it's a great example. The way you do this in a class is you bring in a jar of coins and you say, "I'm gonna auction this off." You get the money in the jar.

    5. TFTim Ferriss40:12

       You mean like the high bidder gets the money?

    6. RTRichard H. Thaler40:14

       High bidder-

    7. TFTim Ferriss40:14

       Gets the money.

    8. RTRichard H. Thaler40:14

       Right. High bidder-

    9. TFTim Ferriss40:15

       Yeah

    10. RTRichard H. Thaler40:15

        ... gets the money. So there's $75 worth of-

    11. TFTim Ferriss40:18

        Yeah

    12. RTRichard H. Thaler40:18

        ... coins in there, and the high bidder gets 75 bucks, and they pay me-

    13. TFTim Ferriss40:22

        Something.

    14. RTRichard H. Thaler40:23

        Something.

    15. TFTim Ferriss40:23

        That's what we're getting to.

    16. RTRichard H. Thaler40:24

        Right.

    17. TFTim Ferriss40:24

        Yeah. Do they know that it contains 75?

    18. RTRichard H. Thaler40:26

        No.

    19. TFTim Ferriss40:26

        Or it's an unknown. It's like a jelly bean estimation or something.

    20. RTRichard H. Thaler40:29

        Exactly.

    21. TFTim Ferriss40:29

        Yeah. I got it.

    22. RTRichard H. Thaler40:30

        You can use jelly beans or whatever, paperclips. So what, what do you find in that? You always make money on this.

    23. TFTim Ferriss40:38

        The creator of the jar makes money.

    24. RTRichard H. Thaler40:40

        Yeah, the-

    25. TFTim Ferriss40:40

        Yeah

    26. RTRichard H. Thaler40:40

        ... professor always makes money.

    27. TFTim Ferriss40:42

        Yeah.

    28. RTRichard H. Thaler40:43

        Because you have this jar, it's worth $75. There will be somebody that'll bid 100 or 150. Uh-

    29. TFTim Ferriss40:50

        And they win.

    30. RTRichard H. Thaler40:51

        And they-
25. 41:16 – 42:20

    ARCO engineers discover the winner’s curse in oil bidding.

    1. RTRichard H. Thaler41:16

       this concept was not discovered by psychologists. It was discovered by engineers at ARCO, an oil company. They were bidding for leases in what I'm gonna insist on continuing to call the Gulf of Mexico. And what they discovered was the leases that they won had less oil than the engineers and geologists had told them would be there. And they said, "Gee, that's weird, 'cause we thought we had great geologists, and what's the problem?" And the, the problem they figured out was very subtle, which is that the auctions you win are not a random sample of the auctions you bid in. They're the ones where you're the highest bidder. And if you're the highest bidder, there's a good chance that-

    2. TFTim Ferriss42:18

       You bid too much

    3. RTRichard H. Thaler42:18

       ... you bid too much.

26. 42:20 – 44:36

    Writing papers as competitive strategy.

    1. TFTim Ferriss42:20

       That leads to an interesting conundrum or, you know, like, it's almost like War Games where the only way to win the game is not to play if you're ARCO, which means you should just go out of business. [chuckles]

    2. RTRichard H. Thaler42:33

       Well, so-

    3. TFTim Ferriss42:34

       You know, so how do you win that if you are in that market where you have to-

    4. RTRichard H. Thaler42:38

       Okay

    5. TFTim Ferriss42:38

       ... bid on these things?

    6. RTRichard H. Thaler42:39

       That's a great question.

    7. TFTim Ferriss42:40

       Yeah.

    8. RTRichard H. Thaler42:40

       So all right, it's 1970 or something, whenever they published that paper. They get this finding. What should they do? And right, one would be to go into some other line of business. Another would be to bid less, but then they're not gonna win very many auctions. They came up with a pretty clever solution, I think.

    9. NKNick Kokonas43:03

       Was it collusion?

    10. RTRichard H. Thaler43:04

        No. [laughs]

    11. NKNick Kokonas43:05

        'Cause that would work. But I bet it's something like that.

    12. RTRichard H. Thaler43:08

        Major League Baseball.

    13. NKNick Kokonas43:09

        Major League Baseball does that, yes.

    14. RTRichard H. Thaler43:10

        That was their solution.

    15. NKNick Kokonas43:12

        Yes.

    16. RTRichard H. Thaler43:12

        And they were outed on that. No, their solution was to write a paper. Think about it, you know? Um-

    17. NKNick Kokonas43:18

        So they made everyone aware of it.

    18. RTRichard H. Thaler43:20

        Right. So instead of going to all the other team owners and say, "Hey, guys, when Catfish Hunter becomes a free agent, don't bid," you know, that's illegal. But publishing a paper saying, "People are bidding too much, and the more bidders there are, the less you should bid," that's perfectly legal and useful. Now, it turns out that there's a funny story about this, which is the version of this book, The Winner's Curse, that I published in 1992, the editor who bought that went to Princeton University Press. And then when Nudge came along, there was an auction for the rights to bid it, and he-

    19. NKNick Kokonas44:06

        Did they pay too much?

    20. RTRichard H. Thaler44:06

        He... No, he didn't bid. And I said, "Peter, how come you didn't bid on this book? I think it's gonna sell." He said, "No, I read The Winner's Curse. I knew-"

    21. NKNick Kokonas44:16

        [laughs] I can't bid on your book.

    22. RTRichard H. Thaler44:18

        Yeah.

    23. NKNick Kokonas44:18

        Right, right.

    24. RTRichard H. Thaler44:18

        And no, don't bid in auctions. So I said, "Well, you know, maybe this one should've been an exception." I haven't forgotten your question. I don't know whether people will learn that theoretical lesson, but they'll remember the jar of coins, and they'll remember stories.

27. 44:36 – 45:44

    Amos Tversky’s note: People learn through stories.

    1. RTRichard H. Thaler44:36

       You know, I had two psychologist mentors, Amos Tversky and Danny Kahneman, now both dead. But Amos sadly died at fifty-nine. At his funeral, his son read a little note that Amos had given him that said something like, I'm not gonna get this exactly right, but he had cancer and had a few months where he knew he was dying and was spending time talking to his family about it. And he wrote a note saying that he thinks the time they've been spending talking has been useful and that he thinks people learn through stories. And I've put that little note in my first class ever since then, and I say to people, "Look, people will tell you, 'Don't take this class. All he does is tell stories.'" And I said, "That's true, and talk about sports. That's also true. But here's this line from Amos, smartest man on Earth. That's the way you learn. You're gonna learn through the stories."

28. 45:44 – 47:56

    Overconfidence: Amazon River and CFO predictions.

    1. RTRichard H. Thaler45:44

       We show people that they're overconfident and-

    2. NKNick Kokonas45:47

       In their decision-making and in-

    3. RTRichard H. Thaler45:48

       Yeah, or, or in judgments. I mean, you can... You ask people, what's the length of the Amazon River? And give ninety percent confidence limits, meaning give a high and low estimate so that you're ninety percent sure that the correct answer lies between.

    4. NKNick Kokonas46:07

       Is somewhere in... Yeah.

    5. RTRichard H. Thaler46:09

       And the right answer will be within it, not ninety percent, but, like, sixty percent.

    6. NKNick Kokonas46:15

       Yeah, I would not wager on that. I have no idea. [laughs]

    7. RTRichard H. Thaler46:18

       Yeah. So you know you have no idea, but still the limits are too narrow.

    8. NKNick Kokonas46:21

       Are too narrow.

    9. RTRichard H. Thaler46:23

       By the way, the same is true for CFO, CFOs of Fortune five hundred companies. I have two friends at Duke who do a survey twice a year of CFOs, and they're asked, "What's gonna be the return on the S&P five hundred over the next year?" And they are asked for a high and low estimate, and the correct answer comes out between those. I think they asked for eighty percent limits, and it's like-

    10. NKNick Kokonas46:55

        Yeah, no one knows

    11. RTRichard H. Thaler46:55

        ... a third of the time.

    12. NKNick Kokonas46:56

        Yeah, no one knows.

    13. RTRichard H. Thaler46:57

        And, uh, now, it's true that that's an impossible task, meaning nobody can predict the market, but you should know that you can't predict the market. So a correct answer for eighty percent is, well, it's gonna be somewhere between up twenty percent and down ten. That's a reasonable forecast.

    14. NKNick Kokonas47:17

        Yes, yes.

    15. RTRichard H. Thaler47:18

        But instead they say up ten-

    16. NKNick Kokonas47:21

        Yeah

    17. RTRichard H. Thaler47:21

        ... minus two.

    18. NKNick Kokonas47:22

        Or some range.

    19. RTRichard H. Thaler47:22

        Two percent.

    20. NKNick Kokonas47:23

        Yeah.

    21. RTRichard H. Thaler47:23

        There were-- There was a whole decade where the average downside scenario was zero.

    22. NKNick Kokonas47:31

        Well, it's a recency bias, right?

    23. RTRichard H. Thaler47:32

        Well, that-

    24. NKNick Kokonas47:32

        It's like whatever happened the last couple years, people tend to-

    25. RTRichard H. Thaler47:35

        Yeah

    26. NKNick Kokonas47:35

        ... extrapolate into the future.

    27. RTRichard H. Thaler47:36

        They were doing that right up until the financial crisis.

    28. NKNick Kokonas47:39

        Yes.

    29. RTRichard H. Thaler47:40

        Right?

    30. NKNick Kokonas47:40

        Yeah, yeah. Yeah.
29. 47:56 – 49:08

    NFL draft: 53% success rate (barely better than coin flips).

    1. NKNick Kokonas47:56

       [laughs]

    2. RTRichard H. Thaler47:57

       So the winner's curse sounds like a abstract concept, but Nick knows I wrote a, a paper about the NFL draft that applies exactly that concept. Teams really think it's valuable to have the first pick or one of the top ten picks.

    3. NKNick Kokonas48:18

       And then you just cited the Chicago Bears and their quarterback picks, and that's all you needed to do.

    4. RTRichard H. Thaler48:24

       Yeah.

    5. NKNick Kokonas48:24

       [laughs]

    6. RTRichard H. Thaler48:24

       I mean... And, you know, I think the Bears traded up twice to pick quarterbacks. At least-

    7. NKNick Kokonas48:31

       This is always... It's not just the Bears, though.

    8. RTRichard H. Thaler48:34

       It's not just the Bears.

    9. NKNick Kokonas48:35

       Right, right.

    10. RTRichard H. Thaler48:35

        No, it's not.

    11. NKNick Kokonas48:36

        Yes. Right.

    12. RTRichard H. Thaler48:36

        This is availability bias.

    13. NKNick Kokonas48:37

        We're just-- We live... Yeah, we live in Chicago.

    14. RTRichard H. Thaler48:39

        We live in Chicago. Right. But they're not the only team that does this. And my co-author and I, that paper, and, and somebody else have been- Again, updating that and nothing has changed.

    15. NKNick Kokonas48:56

        But then people actually then hire you to tell them this because for some reason they can't believe it.

    16. RTRichard H. Thaler49:04

        Yeah, but then the problem is that there's an owner.

30. 49:08 – 51:07

    Trading down in the draft as optimal strategy.

    1. TFTim Ferriss49:08

       Let me ask you, Richard, about the, the hiring just for a second, because the example with ARCO involved writing a paper that draws attention to the fact that if you bid the most, you're likely gonna be overpaying, which is a very interesting stratagem. I'm wondering in the case of, say, an NFL team, what is it that they can do? How can they change their behavior or bidding behavior based on you describing the winner's curse and sort of all the connective tissue around it?

    2. RTRichard H. Thaler49:36

       If they have a top pick, they can trade down.

    3. TFTim Ferriss49:39

       Mm-hmm.

    4. RTRichard H. Thaler49:40

       If you have the first pick, you can trade it for the seventh and eighth picks, or five, count them, five second-round picks. And those five players will cost you about the same-

    5. TFTim Ferriss49:52

       In dollars-

    6. RTRichard H. Thaler49:53

       In dollars

    7. TFTim Ferriss49:53

       ... in contracts. Yeah.

    8. RTRichard H. Thaler49:54

       Right. And if you look, I mean, any sports fan can rattle off the number of very high picks, quarterbacks and others, that have c- been complete busts. Here's the one statistic from that paper that I think is most compelling. Take the players at any one position, let's say running backs, and rank them in the order in which they were picked. So we have the first down to whatever. Now we ask, what's the chance the higher one picked is better than the next one? My co-author Cade and I used to ca- we called this the better than the next guy stat.

    9. NKNick Kokonas50:38

       Yeah, yeah. It's like a tennis ladder.

    10. RTRichard H. Thaler50:39

        Right? If teams are perfect at predicting, it'll be 100%.

    11. TFTim Ferriss50:43

        Yeah.

    12. RTRichard H. Thaler50:44

        Right? If we rank them-

    13. NKNick Kokonas50:45

        Number three guy is-

    14. RTRichard H. Thaler50:46

        ... tallest to shortest, that'll be 100%, right? If they're flipping coins, it's 50%.

    15. NKNick Kokonas50:53

        Sure.

    16. RTRichard H. Thaler50:54

        It was 53%.

    17. NKNick Kokonas50:55

        All that work, all of the prediction, all of the people, all of the scouting-

    18. RTRichard H. Thaler51:01

        Right

    19. NKNick Kokonas51:01

        ... all the combine, pretty much a coin flip.

    20. RTRichard H. Thaler51:03

        Yeah. It's pretty much coin flips. That means more picks are

31. 51:07 – 52:36

    Applying behavioral insights to daily habits.

    1. RTRichard H. Thaler51:07

       better.

    2. NKNick Kokonas51:07

       So Tim's podcast is really about taking, you know, as he always says at the beginning of every one, the high performers and the people who see things differently and trying to take the nuggets to, that people can apply to their lives.

    3. RTRichard H. Thaler51:20

       Mm-hmm.

    4. NKNick Kokonas51:20

       And so I know that, like, some of what you've studied and done, you've looked at people's habits, like we were saying at the very beginning, where everyone makes perfect deci- we live in this wonderful world where people make perfect decisions, and of course, that's not the case. And that's really what the whole podcast is about, how to change those bad habits into positive habits. And so what kind of frictions can we create in our lives where we can improve our decision-making, we can be more like that ideal agent that actually cares about our economic utility without, you know, going nuts and sitting in a room with spreadsheets? But how do you take these things that you've studied in human nature for 40 years and apply them, like, to my life normally?

    5. RTRichard H. Thaler52:11

       Let's go back to the cashews. This is stuff everybody knows. Your mother told you. If you're trying to quit smoking, you don't have cigarettes around. If you are drinking too much-

    6. TFTim Ferriss52:21

       Lock the wine cellar

    7. RTRichard H. Thaler52:22

       ... lo- yeah, lock the wine cellar. Make it harder to do the stuff you wanna do less of and make it easier to do the stuff you wanna do more of.

    8. NKNick Kokonas52:32

       Yeah. I mean, that seems obvious.

    9. RTRichard H. Thaler52:33

       Well, you know-

    10. NKNick Kokonas52:34

        Not so much for economists.

32. 52:36 – 55:02

    The law of one price and restaurant deposit resistance.

    1. RTRichard H. Thaler52:36

       Basically everything I've done has seemed obvious after the fact. Selling reservations at a restaurant instead of, as you used to say, having five people you pay to say no on the phone, that seems like an obvious thing to do.

    2. NKNick Kokonas52:56

       It does, but I will say that since I have sold the company, we'll talk about the law of one price, right? This pen, if it's identical, should cost the same kind of all over the place, and that's where arbitrage opportunities come from and all of that. And classical economics would say, well, those get scrubbed out, like, because of perfect information and all that. But as it turns out, you have to then convince business owners that, hey, this is not a controversial idea, and you can indeed charge a deposit and change the economics of your business. And I spent over a decade doing that, and it was very difficult, actually.

    3. RTRichard H. Thaler53:32

       Yeah.

    4. NKNick Kokonas53:32

       And no matter how easy we made that choice architecture for them as business owners, their psychology was that, well, this is a controversial topic. And then since I've left the company, what I've watched is that one of the big competitors is now simply going to other restaurants, some of the premier restaurants, and they're saying, "Well, we'll give you $10,000 to leave Tock upfront, cash." I would go, "Why would they want to give me free money? There is no such thing as a free lunch," but it works remarkably well. And that sort of thing is also an interesting psychological problem.

    5. RTRichard H. Thaler54:08

       You know this better than anybody, but people are good at something like being a chef. Many restaurants are run or owned by the chef, and being a good chef doesn't make you a good businessperson. And the same is true of being a coach. You don't get to be the coach of a team just by being smart. You almost always have to have played that sport, and that doesn't make you a good decision-maker. You know, it's interesting, the field of behavioral economics and the field of sports analytics You can think of, think of M- Michael Lewis's book, Moneyball. It's the same field. Why do I say that? Well, again, people optimize, right? So

33. 55:02 – 57:54

    Sports analytics: The three-point shot revolution.

    1. RTRichard H. Thaler55:02

       economists would say, well, teams are all going to do the strategy that maximizes their chance of winning. Let's take basketball. There was an innovation forty years ago, the three-point shot. Before that, all shots are worth two points. Now you have a shot that's fifty percent better. Now, every team had somebody who could make forty percent of their three-point shots. And teams average about half of their two-point shots. Now, Nick, see if you can keep up with the math here.

    2. NKNick Kokonas55:37

       [laughs] Yeah.

    3. RTRichard H. Thaler55:38

       Forty percent of three-

    4. NKNick Kokonas55:40

       Expected value

    5. RTRichard H. Thaler55:41

       ... is-

    6. NKNick Kokonas55:41

       Yeah. Right

    7. RTRichard H. Thaler55:42

       ... greater than fifty percent of two.

    8. NKNick Kokonas55:44

       Yeah. How long did it take them to figure that out?

    9. RTRichard H. Thaler55:47

       Basically forty years.

    10. NKNick Kokonas55:48

        That's right. Steph Curry. [laughs]

    11. RTRichard H. Thaler55:50

        Steph-

    12. NKNick Kokonas55:50

        Steph Curry, yeah.

    13. RTRichard H. Thaler55:50

        Well, right now I'm gonna say the words Michael Jordan. Give me your image that comes to mind, and I can tell you what it is. It's Michael taking some last-second shot somewhere mid-range with two guys hanging on him. Now that, even if you're Michael Jordan, that's a low-percentage shot. Steve Kerr, who's now the coach of the Warriors, was on the team with Jordan. For an entire year, his three-point shooting percentage was fifty percent.

    14. NKNick Kokonas56:27

        Was that true, really?

    15. RTRichard H. Thaler56:28

        Yes.

    16. NKNick Kokonas56:29

        I had no idea.

    17. RTRichard H. Thaler56:30

        And how many shots a game do you think he got?

    18. NKNick Kokonas56:32

        Like one and a half or something.

    19. RTRichard H. Thaler56:33

        Yeah.

    20. NKNick Kokonas56:34

        Yeah. [laughs] Right, right, right.

    21. RTRichard H. Thaler56:35

        Right? So if you have a, a look at a plot of three-point attempts over time, it's been going up, but very slowly.

    22. NKNick Kokonas56:45

        Yeah.

    23. RTRichard H. Thaler56:46

        And so I'm friends with Daryl Morey, who's the general manager of the 76ers. I always tease him that he got to be rich and famous because he was the first guy to calculate that point four times three was greater than point five times two. He's actually a really smart guy, but that's kind of true. [laughs]

    24. NKNick Kokonas57:09

        And then that happens everywhere around us.

    25. RTRichard H. Thaler57:12

        Yes. There are examples of that, and again, you know, [laughs] when I came from Cornell to Chicago, I came and gave a job talk, it's called, an interview, and you present a paper. And they were taking me to lunch, and we walk out the door, and there's literally a twenty-dollar bill lying on the... And people think I'm making up the story because it's sort of an apocryphal economic story that economists look to that, it can't be real, because otherwise somebody would have already picked it up. I picked it up. So economists really, they think there aren't these twenty-dollar bills on the street, and there kind of are.

    26. NKNick Kokonas57:53

        There

34. 57:54 – 1:02:38

    Mental accounting: Money in jeans feels like a windfall.

    1. NKNick Kokonas57:54

       are. But then what I was gonna say is where do you put that? So I wanna just touch on a little bit my favorite concept of yours of all, because it comes up in my household and in my businesses like once a week, and that is mental accounting.

    2. RTRichard H. Thaler58:07

       Oh, yeah.

    3. NKNick Kokonas58:07

       And if you could just go over, because I think this one might be the most applicable to every single person that I know, because people are incredibly irrational about this. Explain what that is.

    4. RTRichard H. Thaler58:20

       In economic theory, there's money, and it has no labels. There's just, you have wealth, W, and then you figure out-

    5. NKNick Kokonas58:32

       And then that's the variable in the equation

    6. RTRichard H. Thaler58:33

       ... and it doesn't matter where it is or how you got it or... That's it. Now, humans think about money as sort of coming in categories. And let's suppose you take out a pair of jeans you haven't worn in a long time, and you find there are three hundred dollar bills in there. You don't know exactly when you left them there. Oh, that feels like a windfall.

    7. NKNick Kokonas58:59

       Jackpot.

    8. RTRichard H. Thaler59:00

       Right.

    9. NKNick Kokonas59:00

       I can go have a nice meal.

    10. RTRichard H. Thaler59:02

        So again, the, the standard theory is money has no labels. Now, here's a policy version of this question. In the financial crisis, the Obama White House had to-- there was going to be some tax refund to stimulate the economy. And the question was, should we give it in a lump, or should we spread it out? Now, the economists will say, "Does it matter? It's W. That's it."

    11. NKNick Kokonas59:33

        Right. [laughs]

    12. RTRichard H. Thaler59:34

        Right? You know-

    13. NKNick Kokonas59:34

        Yeah.

    14. RTRichard H. Thaler59:35

        It matters. I'm not saying I know exactly what the right answer is. It, it's kind of a complicated question.

    15. NKNick Kokonas59:41

        But the point is, is that people take sort of money and how they acquired it matters to them.

    16. RTRichard H. Thaler59:49

        Right.

    17. NKNick Kokonas59:49

        Like if I win a hundred dollars off you at golf, I might go like, "Well, I'll buy a bottle of wine with that." But really it's just part of my-

    18. RTRichard H. Thaler59:56

        Right

    19. NKNick Kokonas59:56

        ... cumulative wealth, and I should have just done that anyway because I had another hundred dollars. But that comes true, like we're selling our house right now.

    20. RTRichard H. Thaler1:00:04

        Oh, yeah.

    21. NKNick Kokonas1:00:05

        And, and so-

    22. RTRichard H. Thaler1:00:05

        That money, I'm pretty sure you ought to just give that to me.

    23. NKNick Kokonas1:00:08

        So my house is gonna get sold, and so there's this concept now that, well, that's the money for the next house.

    24. RTRichard H. Thaler1:00:15

        Right.

    25. NKNick Kokonas1:00:15

        Or the, or the condo we're buying in Chicago as we downsize. Somehow the budget is tied from one house to the other, even though it's completely irrelevant. Like, the money's gonna come in from the house sale, and I can use any pool of... It's just in the big swimming pool. It doesn't matter which drop you take, right?

    26. RTRichard H. Thaler1:00:33

        Right.

    27. NKNick Kokonas1:00:34

        And in our companies, I think businesses do a terrible job of that. People get budgets, you know, they own that budget, and they look at tax savings that the company might get as completely different than earnings that they might get. And they spend it differently, and they think about it differently. And boards I've been on are like-

    28. RTRichard H. Thaler1:00:52

        Yeah. So-

    29. NKNick Kokonas1:00:53

        ... are talking about all this. And what we all said in our businesses, we tried to, Steve Bernacki, I'll give you a shout-out, every dollar spends the same. They're all the same.

    30. RTRichard H. Thaler1:01:01

        So I got to know the CEO of an airline, I won't mention which one, and I was trying to convince them before COVID that they should get rid of change fees. I think I was also lobbying for getting rid of baggage fees.
35. 1:02:38 – 1:05:34

    Sunk cost fallacy: The dessert we don’t need.

    1. RTRichard H. Thaler1:02:38

       part of mental accounting, probably the biggest mental accounting thing, is the so-called sunk cost fallacy. And the idea is if you s- paid for something... So we go out to dinner and we've bought some dessert, and we realize, you know, God, we're really full and neither of us need to weigh more. We'll just say that. But, you know, we paid 30 bucks for that dessert, so we gotta eat it, right? That's dumb. And again, every economist teaches that. And this is the s- sort of discussion I used to have in the old days. I said, "Look, why do you have to teach people the sunk cost fallacy and then assume they already know it?"

    2. NKNick Kokonas1:03:25

       Yeah.

    3. RTRichard H. Thaler1:03:25

       You know? People would say, "What do you mean? I can't waste that."

    4. NKNick Kokonas1:03:30

       I mean, I fully admit, your wine example, I do.

    5. RTRichard H. Thaler1:03:32

       [laughs]

    6. NKNick Kokonas1:03:33

       I fully admit this. And every time I do it, I think of the sunk cost fallacy because, you know, I've got this old bottle of wine. It's now worth five or $600. I would not pay five or $600 to acquire it, but I will gladly drink it. But I won't go buy a $500 bottle of wine.

    7. RTRichard H. Thaler1:03:49

       Right.

    8. NKNick Kokonas1:03:49

       And that's it in a nutshell, right?

    9. RTRichard H. Thaler1:03:51

       That's it.

    10. NKNick Kokonas1:03:51

        And that's literally, I built the whole company off that.

    11. RTRichard H. Thaler1:03:53

        Yeah. Yeah, yeah, yeah.

    12. NKNick Kokonas1:03:54

        Like, the, the entire company of Tock was built off that one concept.

    13. TFTim Ferriss1:03:57

        Wait, Nick, could you expand on that? How is that built off of that?

    14. NKNick Kokonas1:04:00

        Well, you know, the big friction in-

    15. TFTim Ferriss1:04:04

        And maybe you could explain it. I would've ex- mentioned it briefly in the intro-

    16. NKNick Kokonas1:04:08

        Yeah, totally

    17. TFTim Ferriss1:04:08

        ... but since it's come up a few times, the reservation platform at Tock.

    18. NKNick Kokonas1:04:11

        Yeah, yeah.

    19. TFTim Ferriss1:04:11

        Maybe you could just give a little bit of background.

    20. RTRichard H. Thaler1:04:13

        Well, he doesn't own it anymore now.

    21. NKNick Kokonas1:04:15

        No, no.

    22. RTRichard H. Thaler1:04:15

        So, you know, he doesn't need to plug it. [laughs]

    23. NKNick Kokonas1:04:17

        No, no, no. I'm not, I'm not trying to plug it. That's how we met. I got into the restaurant industry by accident in some ways, and then when I got there, I saw all of these sort of irrational behaviors, right? And one of them was that people would make reservations for restaurants and then simply not show up, and it's a big number. It's like 12, 14% of the people just wouldn't show up. And then even at a destination place like Alinea that I used to own, you know, six, seven, eight% of the people wouldn't show up. And what I realized very quickly was that if people had paid for it, they would show up, and they would show up at all costs. Like, the dog could have died and, like, you know, the snowstorm is happening, but they're gonna figure out a way to get there because they have paid some amount of money, whether it's the whole or the half, it doesn't really matter. And it's fascinating because if something more important lines up or something has more economic utility to you, you should, in classical theory, just go, "Well, screw it." Like, "That's already done. I've already spent that $300," or whatever it is.

    24. RTRichard H. Thaler1:05:24

        Yep.

    25. NKNick Kokonas1:05:25

        And now I have something that's more important or more valuable. But people cling to that thing very, very, very, very

36. 1:05:34 – 1:06:55

    Richard’s daughter and the baseball/concert tickets experiment.

    1. NKNick Kokonas1:05:34

       strongly.

    2. RTRichard H. Thaler1:05:34

       I'll tell you a funny story. My daughter lives in [censored] . There was a guy, a kid in the neighborhood grew up to be a pitcher for the Mets, and he was pitching in some first-round playoff game, and I noticed that and I said, "I think I can get you tickets to this game. Why don't you go? That'd be fun." And she said, "Oh, that's great. That's great." So I look online at one of these ticket sites, and tickets are... This was first round. It wasn't that expensive, so three or $400. But then I wasn't sure which ones she would want and how to get them to her, so I say, "Okay, I'll send you $1,000. You pick which tickets you want and take the rest to buy hot dogs."

    3. NKNick Kokonas1:06:24

       Yeah.

    4. RTRichard H. Thaler1:06:24

       So she texts me back-

    5. NKNick Kokonas1:06:25

       Now she has a choice. [laughs]

    6. RTRichard H. Thaler1:06:26

       She texts me back and says, "Oh, this is just like in your book. If you send me $1,000, I'm not gonna spend it on baseball tickets."

    7. NKNick Kokonas1:06:33

       [laughs] Right. Right.

    8. RTRichard H. Thaler1:06:34

       Just last week, I learned my lesson. We're David Byrne fans in my family, and David Byrne had a show where she was playing. I sent her the tickets.

    9. NKNick Kokonas1:06:45

       Yeah, yeah, yeah.

    10. RTRichard H. Thaler1:06:46

        And-

    11. NKNick Kokonas1:06:47

        Yeah, and then-

    12. RTRichard H. Thaler1:06:47

        She had no choice. They were free.

    13. NKNick Kokonas1:06:49

        Well, they're free. They're mentally accounted for as zero.

    14. RTRichard H. Thaler1:06:51

        Yeah. Right.

    15. NKNick Kokonas1:06:52

        Yeah.

    16. RTRichard H. Thaler1:06:52

        So that, she said that was the best gift ever.

    17. TFTim Ferriss1:06:54

        Yeah.

37. 1:06:55 – 1:09:55

    Temptation bundling: Using cognitive biases for self-improvement.

    1. RTRichard H. Thaler1:06:55

       [laughs]

    2. TFTim Ferriss1:06:56

       I'd love to talk about cognitive biases for a second.

    3. RTRichard H. Thaler1:06:59

       Yeah, sure.

    4. TFTim Ferriss1:06:59

       A few things have come up already. Sunk cost fallacy. I think maybe you were referring to something that I might put under the category of endowment effect with maybe the mugs.

    5. RTRichard H. Thaler1:07:09

       Yeah.

    6. TFTim Ferriss1:07:10

       I might be mixing that up. But my question is, what are good examples... I can think of a few for myself. Actually, as a backstory, I bought books on cognitive biases, and the framing around the reading for me was things to avoid, right? These are things that I want to avoid.

    7. RTRichard H. Thaler1:07:25

       Mm-hmm.

    8. TFTim Ferriss1:07:25

       These are yellow flags. But what I realized, at least for myself, and maybe I'm misapplying the term, but I could basically do what Nick did to his customers making reservations to myself. For instance, I could prepay for personal trainer or something like that, and it would make me more inclined to do the thing-

    9. RTRichard H. Thaler1:07:47

       Mm-hmm

    10. TFTim Ferriss1:07:47

        ... that I say I want to do that's good for me. I know of, actually wrote about the case of two engineers. They worked at tech companies. They made perfectly good money, but they bet each other, effectively it was a bet, one dollar, so it's kind of like trading places. But if they would show up at the gym at the same time to do something like fifteen minutes of treadmill, and if somebody didn't show up, they had to pay the other person a dollar. And these are two people who had failed at every e-exercise regimen prior to that, and they both ended up losing fifty-plus pounds, even though they didn't really know the nuances of exercise or anything like that. So I'm, I'm curious if any examples come to mind where you can actually use cognitive biases to your advantage.

    11. RTRichard H. Thaler1:08:35

        I'm a big believer in that, that, you know, a good way to get yourself to do something is have a commitment.

    12. TFTim Ferriss1:08:45

        Pay for it.

    13. RTRichard H. Thaler1:08:45

        And pay for it.

    14. TFTim Ferriss1:08:46

        But it's, it's a monetary commit-

    15. RTRichard H. Thaler1:08:47

        It-

    16. TFTim Ferriss1:08:47

        It's pain. It's a little bit of pain.

    17. RTRichard H. Thaler1:08:48

        Right. I have some young colleagues who wrote a paper called Paying Not to Go to the Gym.

    18. TFTim Ferriss1:08:55

        [laughs]

    19. RTRichard H. Thaler1:08:55

        So yes, I do Pilates, and if I make an appointment with my trainer, then I go. There's a clever experiment by a young colleague of mine called Katy Milkman, who's big in this behavior change space, and she has-- sh- ran an experiment with getting people to go to the gym, where what she did was she gave them The Hunger Games audiobook, and they could only listen to it when they were on the treadmill.

    20. TFTim Ferriss1:09:30

        [laughs]

    21. RTRichard H. Thaler1:09:32

        The idea is you pair something good with something that you don't wanna do.

    22. TFTim Ferriss1:09:37

        Mm-hmm.

    23. RTRichard H. Thaler1:09:37

        So if you go, then-

    24. TFTim Ferriss1:09:39

        You get to hear the next chapter

    25. RTRichard H. Thaler1:09:40

        ... you get to hear the next chapter.

    26. TFTim Ferriss1:09:42

        Yeah.

    27. RTRichard H. Thaler1:09:43

        And it's like if you're binging, imagine to watch the next episode, first you have to run around the block.

    28. TFTim Ferriss1:09:51

        [laughs]

    29. RTRichard H. Thaler1:09:52

        Temptation bundling, that's what you call it.

    30. TFTim Ferriss1:09:54

        That's it, yeah.

38. 1:09:55 – 1:10:40

    Big data and natural experiments in the real world.

    1. TFTim Ferriss1:09:55

       It strikes me that a lot of the experiments you've done required finding groups of people and then testing them methodically and then putting rigor to some things that were maybe a little amorphous and whatnot so that the, the academic community would accept them as rigorous enough to be its own, you know, department and ultimately win a Nobel Prize. And at the end of the day, that seems like those tests and experiments are so much easier now with social media, with the Internet, with the ability to engage with huge populations of people. Is that true? Has the field, like, sort of utilized that? I know you've cited eBay auctions in some of your papers.

39. 1:10:40 – 1:14:34

    Mental accounting in action: Premium gas during the financial crisis.

    1. RTRichard H. Thaler1:10:40

       Yeah. I think the big thing, as you know, I took on a task, a kind of a weird task of taking a book I wrote in 1992 and taking on a young co-author and going back and saying, "Did we make all that up or-" [laughs]

    2. TFTim Ferriss1:10:56

       How does it hold up? Yeah.

    3. RTRichard H. Thaler1:10:57

       How does it hold up? It holds up, and the kind of encouraging thing is that we can go from the lab and now to the field. So we were talking about mental accounting. Here's a funny mental accounting result. During the financial crisis, the price of gasoline fell, like by fifty percent. So what do people do? [laughs] Now, remember, it's a financial crisis, right? So people are tight for cash, but their gasoline budget is overflowing.

    4. TFTim Ferriss1:11:35

       They have a little compartment in their head-

    5. RTRichard H. Thaler1:11:36

       Yeah

    6. TFTim Ferriss1:11:36

       ... that's for gas.

    7. RTRichard H. Thaler1:11:37

       So let's say they spend a hundred bucks a week at the gas tank, and now it's fifty bucks. So what do they do? Well, they start-

    8. TFTim Ferriss1:11:49

       Vacation time

    9. RTRichard H. Thaler1:11:50

       ... they start treating their car to occasional tanks of high test.

    10. TFTim Ferriss1:11:55

        Oh, really?

    11. RTRichard H. Thaler1:11:57

        Now, that's really stupid. Your Honda Prius, it's not gonna do any better with-

    12. TFTim Ferriss1:12:04

        Premium gas

    13. RTRichard H. Thaler1:12:05

        ... with premium gas. It's made to run on regular. No matter what the gasoline companies are telling you, the more expensive gas isn't better for ninety percent of cars. But what they found was when the price went down, they would buy more expensive gas. Now, you know, you and I would say, if we're gonna do some mental accounting with that, we'd say, "All right, we could upgrade the wine."

    14. TFTim Ferriss1:12:32

        Yes.

    15. RTRichard H. Thaler1:12:33

        Right?

    16. TFTim Ferriss1:12:33

        Well, I, I always say that. [laughs]

    17. RTRichard H. Thaler1:12:34

        Yeah. No.

    18. TFTim Ferriss1:12:35

        That's always what my mental accounting-

    19. RTRichard H. Thaler1:12:36

        Well, yeah, we would always do it anyway.

    20. TFTim Ferriss1:12:38

        Yeah.

    21. RTRichard H. Thaler1:12:38

        Or they buy better olive oil-

    22. TFTim Ferriss1:12:40

        That's right

    23. RTRichard H. Thaler1:12:40

        ... you know, instead of the store brand. And the bigger picture is, that's kind of one of the lessons in this new book is all the stuff that we found in thought experiments and laboratories now because of big data You can find in the real world. And like this paper, they had data from millions of shoppers at a large box chain store, and so they could show not only are they upgrading the gas, which is stupid, but they're not upgrading the orange juice

    24. NKNick Kokonas1:13:17

        Or purchasing in bulk to save money during a crisis, yeah.

    25. RTRichard H. Thaler1:13:21

        Right. Right. You're right that it's much easier to run experiments now, and of course, companies are running these experiments every minute. The largest economics department in the world is now at Amazon.

    26. NKNick Kokonas1:13:37

        Mm-hmm.

    27. RTRichard H. Thaler1:13:38

        A hundred PhDs in economics working at Amazon.

    28. NKNick Kokonas1:13:42

        Which could be good or bad for them. [laughs]

    29. RTRichard H. Thaler1:13:45

        Well-

    30. NKNick Kokonas1:13:46

        According to you.
40. 1:14:34 – 1:16:30

    The pragmatic reason Richard invented behavioral economics.

    1. TFTim Ferriss1:14:35

       To rewind the clock quite a ways, you've done a lot of amazing things in your career. I was looking at an interview with you on nobelprize.org, and there's a line here I'd love for you to explain. "My thesis advisor famously said when interviewed about me of my time in graduate school that, quote, 'We did not expect much of him,' end quote." [laughs] So why is that the case?

    2. RTRichard H. Thaler1:15:01

       I was not the best grad student in my class, and I wasn't in the best department. Actually, I wasn't a great student in any way, but I certainly knew I was not the best grad student in my class.

    3. TFTim Ferriss1:15:19

       Why is that?

    4. RTRichard H. Thaler1:15:20

       I was good in math, but not as good in math as the people who go to get PhDs in economics.

    5. TFTim Ferriss1:15:28

       Mm-hmm.

    6. RTRichard H. Thaler1:15:29

       And I was better at noticing the problems with economics than you can think about it as you could be somebody who can draw perfectly, or you can be somebody who thinks of a different way of drawing.

    7. TFTim Ferriss1:15:55

       Mm-hmm.

    8. RTRichard H. Thaler1:15:56

       And I was more that guy. The only way I managed to succeed, even get a job as an economist and get tenure, much less get a Nobel Prize, which was certainly never on my radar when I was a young person, was to think of a different way of doing economics. And I more or less had to invent behavioral economics to have a career.

    9. TFTim Ferriss1:16:27

       Hmm.

    10. RTRichard H. Thaler1:16:28

        Otherwise, I would have done something else.

41. 1:16:30 – 1:17:46

    Strategy: Corrupt the youth, not change old minds.

    1. NKNick Kokonas1:16:30

       I was reading in preparation for this a bunch of his old source material papers. Like, I've read Nudge, I read Misbehaving and all of these, and I went back to some of the source papers, and I was literally laughing out loud. I mean, they were written thirty, forty years ago, and some of these same problems and the same human nature shows up again and again and again. And I-- it's just a fascinating thing that within this entire academic discipline for hundreds of years, no one said, "Well, the emperor doesn't have the clothes on this." And I think that's what you've done really, really well time and again.

    2. RTRichard H. Thaler1:17:04

       Hmm. Thanks, Nick. I always say that I never changed anybody's mind. What I was saying was heresy. It was, "The emperor has no clothes." I'm thinking, "Look, see that mole on his, on his belly? You know, you can't see that? You're talking about the three-piece suit?"

    3. NKNick Kokonas1:17:24

       [laughs]

    4. RTRichard H. Thaler1:17:25

       But sarcasm doesn't really convince people. So the strategy I adopted at some point, I mean, I had to write some papers, but the strategy I adopted to broaden the field, I always say, instead of changing people's minds, I would corrupt the youth.

    5. NKNick Kokonas1:17:44

       [laughs]

42. 1:17:46 – 1:18:52

    The behavioral economics summer camp running since 1994.

    1. RTRichard H. Thaler1:17:47

       One example of that is there's a foundation in New York called the Russell Sage Foundation, and they wanted to support behavioral economics when we were just getting started, and they gave us some money, and they said, "You can do whatever you want with it." And what we decided to do is start a two-week summer camp. That's not the official name, but everybody refers to it as the summer camp. So it's two weeks. We got thirty grad students from around the world, best students in the best departments, and we would teach them about behavioral economics. There are graduates from that. Graduates, I mean, attendees.

    2. NKNick Kokonas1:18:27

       Alums.

    3. RTRichard H. Thaler1:18:28

       Alums in the best economics departments around the world. They're editing journals now. The new chairman of the Berkeley Economics Department was at one of those. And I think it's still the truth that people my age, they never got convinced.

    4. NKNick Kokonas1:18:47

       [laughs]

    5. RTRichard H. Thaler1:18:48

       And it's the thirty and forty-year-olds.

43. 1:18:52 – 1:20:36

    The “Anomalies” column in Journal of Economic Perspectives.

    1. NKNick Kokonas1:18:52

       Mm-hmm.

    2. RTRichard H. Thaler1:18:53

       The other thing I did was there was a new journal called the Journal of Economic Perspectives, and it tells you something about economics that this journal had to be created. Journal articles had gotten so arcane and technical that- The papers were not understandable unless you were in the subfield. You know, a macroeconomics paper was not understandable to a labor economist or a finance professor. So they started this journal, and the idea was the articles would be written in a way that would be accessible to any economist or a grad student or even advanced undergrad. My friend Hal Varian, who was the chief economist at Google, he was an editor at this journal. And he and I were having lunch one day, and we got the idea they were going to have some regular features. And the idea was I would write a column in this journal on anomalies. So these were pokes. There was one on the endowment effect that we've talked about, that buying and selling prices are different. There was one about the fact that stocks that have gone down a lot do better than ones that have gone up a lot. So I started writing this when I was about 40, and it, it's kind of an old man thing to do, to write stuff like that. And there was a colleague of mine at Cornell who I overheard telling somebody about this journal, "Well, I don't know whether articles in that journal should count."

    3. TFTim Ferriss1:20:34

       [laughs]

    4. RTRichard H. Thaler1:20:35

       And

44. 1:20:36 – 1:21:09

    Citations matter: Writing articles people can understand.

    1. RTRichard H. Thaler1:20:36

       I'm thinking-

    2. TFTim Ferriss1:20:37

       What are they counting?

    3. RTRichard H. Thaler1:20:37

       Yeah, what are they counting?

    4. TFTim Ferriss1:20:39

       Yeah, right, right, right. Imaginary economist points.

    5. RTRichard H. Thaler1:20:42

       Right.

    6. TFTim Ferriss1:20:42

       Yes.

    7. RTRichard H. Thaler1:20:42

       You know, now there is something you can count, which is citations. Citation is if somebody else writes an article and cites your article. Those are counted. And actually, publications in this journal get a lot of citations because people read them.

    8. TFTim Ferriss1:20:59

       People can read them.

    9. RTRichard H. Thaler1:21:00

       Duh.

    10. TFTim Ferriss1:21:00

        Because they're readable. Yes, they can read them.

    11. RTRichard H. Thaler1:21:02

        Because, right. First idea-

    12. TFTim Ferriss1:21:04

        Yeah

    13. RTRichard H. Thaler1:21:04

        ... write an article somebody can understand.

    14. TFTim Ferriss1:21:08

        Make it easier. [laughs]

    15. RTRichard H. Thaler1:21:08

        Now,

45. 1:21:09 – 1:22:21

    Availability bias: Homicides vs. suicides.

    1. RTRichard H. Thaler1:21:10

       it is the case that if the article is too easy, we've mentioned my friends Kahneman and Tversky were writing the psychology articles that inspired me a lot. A lot of people would look at those articles and say, you know, "What's the big deal?"

    2. TFTim Ferriss1:21:26

       There just wasn't enough rigor to them within the-

    3. RTRichard H. Thaler1:21:28

       Yeah

    4. TFTim Ferriss1:21:28

       ... economics.

    5. RTRichard H. Thaler1:21:29

       And it seems, like, so obvious. So they have this idea, availability, that you're gonna think something is more likely if examples of it come to mind. So ask people, "What's the ratio of homicides to suicides?" And they think, like, two or three to one. Turns out there are twice as many suicides as homicides. But suicides are quiet, and I'm betting you know more than one person, either directly or, you know, in your community, who is a suicide victim, and the chances are you don't know any homicide victims.

    6. TFTim Ferriss1:22:08

       Yep.

    7. RTRichard H. Thaler1:22:09

       But nevertheless, you might give that same answer, and the obvious reason is that we read about homicides all the time, and suicides are kind of quiet. So the thing is, their papers look too

46. 1:22:21 – 1:23:41

    Kahneman and Tversky: The reason for everything.

    1. RTRichard H. Thaler1:22:21

       easy.

    2. TFTim Ferriss1:22:22

       I don't even know if you know this, Nick, but when I was at Princeton undergrad, one of the many ways that I got together little bits of money here and there was by volunteering at mostly Green Hall in the psychology department.

    3. RTRichard H. Thaler1:22:36

       Uh-huh.

    4. TFTim Ferriss1:22:37

       And I was a subject for some of Danny Kahneman's studies. [laughs]

    5. RTRichard H. Thaler1:22:42

       So you were there when Danny was teaching there?

    6. TFTim Ferriss1:22:45

       I was. Yeah, I was there.

    7. RTRichard H. Thaler1:22:46

       Did you take a class?

    8. TFTim Ferriss1:22:48

       I did not take a class with him, which is one of my great regrets.

    9. RTRichard H. Thaler1:22:51

       That was a bad move, Tim.

    10. TFTim Ferriss1:22:53

        I know. It was a bad move.

    11. RTRichard H. Thaler1:22:54

        Next time, get that right.

    12. TFTim Ferriss1:22:56

        [laughs] Yeah, exactly. And people may recognize the name popularly from Thinking Fast and Slow, which has been recommended by presidents and so on, but why is he so notable? What did he do or show or explain that made him so noteworthy?

    13. RTRichard H. Thaler1:23:17

        The early work was done jointly with Amos Tversky.

    14. TFTim Ferriss1:23:20

        Mm-hmm.

    15. RTRichard H. Thaler1:23:21

        And they are the reason why you're talking to me. Because I had that list of weird behavior, but I didn't know what to do with it. And then I went to a conference, and one of their students, this is back in the '70s, one of their students was telling me about the work they were doing.

47. 1:23:41 – 1:24:38

    Systematic bias vs. random errors.

    1. RTRichard H. Thaler1:23:41

       And I went back home and read a bunch of their papers, which you had to do by going to the library and finding the psychology section in the library, which I had never been to. And a big light bulb went on, and the light bulb was, it's the phrase systematic bias. So let me explain. To an economist, if people make a mistake, that's no big deal, because fine, they'll admit, and in fact, if you give economists, like, a half a glass of wine, they'll admit, even traditional economists, that most of the people they know are idiots. [laughs]

    2. TFTim Ferriss1:24:27

       See what I mean? [laughs]

    3. RTRichard H. Thaler1:24:29

       Certainly their students and their spouse and their dean and the president of the university and--

48. 1:24:38 – 1:27:38

    Amos’ dinner trap: Everyone you know is dumb, except your models.

    1. RTRichard H. Thaler1:24:38

       Actually, here, there's a funny story about Amos.

    2. TFTim Ferriss1:24:40

       [laughs]

    3. RTRichard H. Thaler1:24:41

       Amos and I are at this conference, and there's an economist at dinner, and he starts going into this rant about... Oh, Amos had set him off and said, "How's your wife's decision-making?"

    4. TFTim Ferriss1:24:53

       [laughs]

    5. RTRichard H. Thaler1:24:54

       And the guy starts telling stories. Then Amos asks him about the president of the university, and the president at the time, I don't remember who it was. We're getting, like, this half-hour-long rant about-

    6. TFTim Ferriss1:25:08

       The irrationality of all these people.

    7. RTRichard H. Thaler1:25:10

       Right.

    8. TFTim Ferriss1:25:11

       Yeah.

    9. RTRichard H. Thaler1:25:11

       And then it's like Amos is having him walk the ledge. [laughs] And then pulls it out and says, "See, let me see if I can understand this. So basically, everybody you know you think is dumb, but the people in your models are all brilliant."

    10. NKNick Kokonas1:25:30

        [laughs] So that's the systematic bias.

    11. RTRichard H. Thaler1:25:32

        Yeah, and the systematic bias is like back to the availability we were talking about, right? So the fact that I can ask you a question, are homicides or suicides, which is more common, I can predict that, right? And that's a mistake, and it's not a random error. So it's not that people are dumb. You know, I don't really think people are dumb. I think the world is hard. But people deal with this hard world using shortcuts and so forth, and the shortcuts are useful, but not perfect, and they lead to predictable mistakes, like the sunk cost fallacy. The more you paid for the play you were gonna go to, the less willing you are to skip it, no matter how good the alternative is. A friend you haven't seen for 20 years calls and says, "My flight got canceled. I'm in Chicago tonight for dinner."

    12. NKNick Kokonas1:26:34

        We bought, we bought tickets the day I started Tock. This is really true. We bought tickets to a movie with the kids that they wanted to go to, and I went on Fandango, bought the tickets. I don't like superhero movies. It was some superhero movie.

    13. RTRichard H. Thaler1:26:49

        [laughs]

    14. NKNick Kokonas1:26:49

        And I did not want to go. I would have easily paid the $150 to not go at nine in the morning.

    15. RTRichard H. Thaler1:26:55

        [laughs]

    16. NKNick Kokonas1:26:55

        Then I bought the tickets, and it was pouring rain outside at, like, six o'clock, and everyone's looking at each other, and they're comfortable on the couch, and everyone's like, "Do you really want to go out in this?" I was like, "We are going to that damn movie." Like, how can you not-- Literally that moment, I went, "We are putting deposits down on every damn person that goes to The Aviary." And I walked in, and, like, my CFO was like, "This is what I was talking about." [laughs]

    17. RTRichard H. Thaler1:27:22

        I hope you didn't go to the movie.

    18. NKNick Kokonas1:27:23

        We did go.

    19. RTRichard H. Thaler1:27:24

        Yeah, well-

    20. NKNick Kokonas1:27:24

        And I hated it. It was terrible.

    21. RTRichard H. Thaler1:27:25

        But that's because you didn't know me then.

    22. NKNick Kokonas1:27:28

        [laughs] But it is absolutely true that that is a real thing that we all succumb to.

    23. RTRichard H. Thaler1:27:34

        So that was the big idea from Kahneman and Tversky.

49. 1:27:38 – 1:28:25

    Michael Lewis’ The Undoing Project.

    1. RTRichard H. Thaler1:27:38

       And by the way, everybody knows Michael Lewis and Moneyball and many of his other books, like The Big Short, my favorite movie. People don't realize I'm a-- I have a cameo in that movie.

    2. NKNick Kokonas1:27:50

       [laughs]

    3. RTRichard H. Thaler1:27:51

       It's not the one with Margot Robbie. But an amazing book Michael wrote was about Kahneman and Tversky called The Undoing Project. And I kept telling him, "You can't write a book about two psychologists talking to each other." But he's an amazing writer, and it's an amazing story. So if you're curious about those two people who are two of the greatest twentieth century scientists, I recommend that book. It's an easy read and

50. 1:28:25 – 1:35:31

    Daniel Kahneman’s assisted suicide decision as peak-end rule applied to life itself.

    1. RTRichard H. Thaler1:28:25

       quite captivating.

    2. NKNick Kokonas1:28:25

       Can we bring up a, a, a difficult subject?

    3. RTRichard H. Thaler1:28:27

       Is there anything I could do to stop you from-

    4. NKNick Kokonas1:28:29

       Absolutely. You can say no.

    5. RTRichard H. Thaler1:28:31

       Oh, okay. Yeah, sure. Bring it up.

    6. NKNick Kokonas1:28:34

       Yeah, we can always edit it out as well. Yeah, no, I mean, look, I say it with respect, but, you know, so it became public, I guess, earlier this year, and I literally just found this out a couple hours ago, that Danny chose assisted suicide, and I've known that for a little while. But as a friend, as a mentor, that had to be incredibly difficult and something to struggle with when he told you that he was going to do this. Furthermore, he wasn't actually, like, tremendously ill or anything like that. Are you comfortable talking about that a little bit?

    7. RTRichard H. Thaler1:29:11

       He had been a friend and mentor. He was my best friend for forty years. Yeah, he calls me one day and says, "Ah, that's it." And he had just turned ninety. And, you know, one of his findings was that the-- our memory of an experience is determined by two factors, the peak and the end. Like, you go to one of those meals at a three-star restaurant. What was the best thing? That's the peak. And how was it at the end? I think those restaurants don't get the end part right because they give you too much food.

    8. NKNick Kokonas1:30:02

       Most don't.

    9. RTRichard H. Thaler1:30:03

       But anyway, Danny was concerned. He took this part seriously, and he was mostly-- he didn't want to lose control. And at ninety, I can tell you, he was still the smartest guy I knew. He had lost nothing. So we spent a week or so arguing, and I thought I was winning. And he said, "Okay, you're getting annoying." So I flew to New York. I was in California. I flew to New York, took him out for a good dinner, bought him a bottle of wine, nineteen ninety-eight La Mouline, that I thought this is worth living for. So that was my attempt. I wasn't allowed to try and argue with him anymore.

    10. NKNick Kokonas1:30:53

        Yeah, I figured he'd probably put the kibosh on that.

    11. RTRichard H. Thaler1:30:55

        Right. So no arguing, but we went out to dinner together. He did think the wine was good, but wasn't gonna change his mind. And then the next day, we spent figuring out how to manage the next month or so. And our goal was that the obits weren't about the way he died.

    12. TFTim Ferriss1:31:20

        And they weren't

    13. RTRichard H. Thaler1:31:21

        And they weren't

    14. TFTim Ferriss1:31:22

        Until that came out.

    15. RTRichard H. Thaler1:31:24

        So, yeah, then a year later, there was an article in The Wall Street Journal. I think the writer shouldn't have included the letter he sent to-- the email he sent to friends. But anyway, I mean, Danny had great ninety years, and he was great up until the end, and I would have liked a few more, but I respected the right to him to end the way-- I kept sending him emails saying, you know, "Tell me how the chocolates are in Switzerland," but he didn't reply.

    16. TFTim Ferriss1:32:01

        Richard, what was his argument for doing it? Did he feel like he was slipping? Did he want to just head that off at the pass altogether?

    17. RTRichard H. Thaler1:32:12

        He wanted to be able to decide when he was gonna do it. And his argument was, yes, he realizes that it's premature, but it would be premature whenever he decided to do it, and so he's gonna do it now. And I will say, like the last month of his life might have been his happiest. So maybe he got it exactly right. He went to Paris for two weeks with his partner, and then his Israeli family, his daughter lives in Tel Aviv, and she and her family came and spent a week with him in Paris, which is where he grew up as a kid. Then he went off to Switzerland. So yeah, I'm a greedy man. I would have liked a few mores, but I had forty-five years, so that's pretty lucky.

    18. TFTim Ferriss1:33:17

        I won't spend too much more time on this, but I am curious, what was his belief around death? Was it lights out? That's it, just like before you were born? Was it something else? Was he afraid of dying, or did he not have a fear of it?

    19. RTRichard H. Thaler1:33:32

        I think he had no fear of it. He didn't want to go through a phase where he didn't have his full faculties and-

    20. TFTim Ferriss1:33:48

        You explained to me when you first told me about this, because I think there's this innately human thing which, you know, Tim is reacting to as well, and I certainly did, which is we are so ingrained to protect life and the life of ourselves and others that we love no matter what, right? And he feared the cognitive decline. The thing he valued the most was wrestling with ideas. And you told me that he feared that more and the control over how that ended than anything else.

    21. RTRichard H. Thaler1:34:24

        It's not like he was worried about no longer being the smartest guy in the room as much as he thought that he might be slipping and then... I mean, my intervention and my attempt at an intervention was to create a group of people he loved and trusted to say, "All right. When certain steps are there, we buy you the ticket." But he wanted to be the one who got to decide when that was gonna be and, and that was with all his facilities, and so that was it.

    22. TFTim Ferriss1:35:10

        Yeah. Thank you, Richard. We can shift gears, but thank you for being willing to share that. I mean, I was taken aback when I read the piece and have just been very, very curious as someone who is in the same hallways but never took a class, which is a real shame on my part. In any case, thanks for, thanks for being willing to talk about that.

    23. RTRichard H. Thaler1:35:30

        No problem.

51. 1:35:31 – 1:37:00

    What keeps Richard going?

    1. TFTim Ferriss1:35:31

       What keeps you going, Richard? Like, what is-- what gets you excited?

    2. NKNick Kokonas1:35:36

       There's a transition, Tim. [laughs]

    3. RTRichard H. Thaler1:35:38

       Yeah. Yeah.

    4. TFTim Ferriss1:35:39

       Not saying you should buy a ticket to Switzerland. I'm just saying.

    5. RTRichard H. Thaler1:35:43

       Yeah.

    6. TFTim Ferriss1:35:44

       What is it that gives you the feeling of aliveness? Is it the wrestling with ideas? Is it something else? Is it corrupting the, corrupting the youth in productive ways?

    7. RTRichard H. Thaler1:35:53

       Corrupting the youth. I took on this possibly wacky task of rewriting a book I published in nineteen ninety-two about those anomalies columns.

    8. TFTim Ferriss1:36:06

       Mm-hmm.

    9. RTRichard H. Thaler1:36:07

       And part of that was there's something in, in psychology called the replication crisis-

    10. TFTim Ferriss1:36:14

        Mm-hmm

    11. RTRichard H. Thaler1:36:15

        ... that there are some experiments that just don't replicate, and there are some people that have been proven just to have made stuff up. And I wanted to see whether the stuff we had built everything on could stand scrutiny. So I corrupted a young colleague of mine, Alex Imas, who just turned forty, and we took some of those old things, two pieces I wrote with Danny and one with Amos and then some others, and then gave it the hard look. Does this hold up? Is it true out of sample? Is it true in the real world? And that's what keeps you thinking.

52. 1:37:00 – 1:40:12

    Why the updated version of The Winner’s Curse should appeal to economists and everyday humans.

    1. NKNick Kokonas1:37:00

       I like that in the book, at the end of every one of these chapters where they go through the rigor of updating it and seeing if it holds up, they also say, "For the economist," and it's like one sentence. Here's your takeaway if you're an economist. And then it's like, "For everyone else, here's one sentence that's a takeaway." You can read the whole book, but you could also read those and get an awful lot out of it, which is really good because those conclusions are the nuggets that, that kind of propel the book forward, I think, as well.

    2. RTRichard H. Thaler1:37:29

       The way we wrote it is, yeah, takeaway for humans And for economists. We don't say whether we think economists are not humans, but [laughs]

    3. TFTim Ferriss1:37:41

       That actually preempts in a way my question, but I'll ask it anyway. Who is this book for? Like, who is, who is this book for? Who's the reader?

    4. RTRichard H. Thaler1:37:49

       I think we tried very hard to write it in a way that it's not a thriller, and it's not a self-help book, but I don't think it's as hard as Thinking Fast and Slow, which was tough. It's a great book-

    5. TFTim Ferriss1:38:05

       Dense at points

    6. RTRichard H. Thaler1:38:06

       ... but it's dense.

    7. TFTim Ferriss1:38:07

       Yeah.

    8. RTRichard H. Thaler1:38:07

       And this book is much funnier than that. [laughs] I think corrupting the youth is always on my mind, so I'm giving a series of talks at universities, so I have a trip next week, Cornell, Penn, and Princeton, so your alma mater. I'll be there-

    9. TFTim Ferriss1:38:28

       Mm-hmm

    10. RTRichard H. Thaler1:38:28

        ... in Green Hall.

    11. TFTim Ferriss1:38:29

        [laughs]

    12. RTRichard H. Thaler1:38:29

        I like interacting with the young people. I officially went emeritus July one, so I'm not teaching. But I still, you know, I divide my time between Chicago and Berkeley. I still like going to workshops and interacting with my colleagues and having them sharpen me.

    13. NKNick Kokonas1:38:55

        I mentioned this to Thaler when we were on our way here, is that I was struck by the fact that these anomalies were pointed out thirty, forty years ago, something like that, and every single one of them, I could think of an example of a person or myself or a business that fell victim to one of these issues, if you will. And so it almost like shines a light on our own, as you were saying, cognitive biases in a way that takes something that's a little squishy, like, you know, psychology and this and that, and then just applies it to something that impacts all of our lives, markets, business, the way we conduct our own households, and does so in a very pretty basic way.

    14. TFTim Ferriss1:39:47

        And just for people, I'll give the title again. I'll mention it also towards the end, but The Winner's Curse: Behavioral Economics Anomalies Then and Now. Is this the subject matter, Richard, of the talks that you're giving at these various schools?

    15. RTRichard H. Thaler1:39:57

        Yeah. So it's essentially a, a little book tour, but no point in going to bookstores. I'd rather have three hundred young students' minds to corrupt.

    16. TFTim Ferriss1:40:09

        [laughs]

53. 1:40:12 – 1:44:19

    Parting thoughts.

    1. TFTim Ferriss1:40:12

       Is there anything else, Nick or Richard, I'll kick it to Nick first, that you'd like to cover with Richard before we wind to a close? Or Richard, anything else that you'd like to mention, point people to, requests of my audience, anything like that, that you'd like to mention? Nick, you want to go first?

    2. NKNick Kokonas1:40:29

       I was gonna ask the, the Tim question, which is, what books, if you're, if you're new to understanding this, this topic of behavioral economics or even just traditional economics, what are your favorite sources other than your own, of course? And you've already mentioned Danny's book and all that, but there must be some-

    3. RTRichard H. Thaler1:40:49

       Well, and-

    4. NKNick Kokonas1:40:49

       ... that are kind of the foundational books that you go to or, or you suggest to these young folks that you're trying to corrupt.

    5. RTRichard H. Thaler1:40:55

       I mentioned this journal, the Journal of Economic Perspectives. Most academic journals, you, you can't get. That one is posted online. Anybody can read it. And if you're modestly interested in economics, it's a fantastic journal. There's a guy called Timothy Taylor who they hired brilliantly. They call him the managing editor. I, I call him the writing editor, and he quickly adopted the strategy of taking your article and then just rewriting it. And he would say, you know, it's like in Microsoft Word with track changes, but the version you would get is the one, his version, and you could restore, but we know status quo bias works. So, uh, and he's still at it, and that's a fantastic place to learn about economics. It's four times a year. Typically, there's a symposium on some topic, and it's a resource nobody knows about and is fantastic. Yeah, I mentioned Michael Lewis' book, The Undoing Project, and it's a great insight into Kahneman and Tversky. And I think I'm not gonna mention any other books because whichever one I mention, I will piss off twelve other people, so I'm gonna-

    6. TFTim Ferriss1:42:18

       [laughs]

    7. RTRichard H. Thaler1:42:20

       I'll keep the friends I have.

    8. TFTim Ferriss1:42:22

       Well, Richard and Nick, thanks so much for taking the time today for a very wide-ranging conversation. There's a lot more that I could ask about, but since we're racking up some decent mileage on this conversation, I'll keep it [laughs] to, to this duration for around one. And people can find The Winner's Curse: Behavioral Economics Anomalies Then and Now, which is co-authored with Alex... Is it Imas? Am I saying that correctly?

    9. RTRichard H. Thaler1:42:47

       Imas. Imas.

    10. TFTim Ferriss1:42:49

        Imas. With Alex Imas. And we'll link to that in the show notes. You can find Richard on X, the artist formerly known as Twitter, x.com/r_thaler, T-H-A-L-E-R. And as usual, everybody, I will link to anything that came up in the conversation in the show notes at tim.blog/podcast. You can just search Thaler, T-H-A-L-E-R. And Nick has been on the show, I think at least now, this would be the third or fourth time. So if you want to delve into all the background on Nick, you have ample opportunity. [laughs]

    11. NKNick Kokonas1:43:21

        Hey, Thaler, thanks for doing this. I really appreciate it.

    12. RTRichard H. Thaler1:43:24

        Hey.

    13. NKNick Kokonas1:43:24

        I always love spending time with you.

    14. RTRichard H. Thaler1:43:26

        Likewise.

    15. NKNick Kokonas1:43:27

        And it's great having Tim here to make me sound better at asking questions. It is-- I will say to the audience, it is much, much harder what Tim does than to be a guest on the show, and so great respect to you because week after week, I listen to your podcast, and you do a wonderful job.

    16. TFTim Ferriss1:43:42

        Oh, thanks, man. Thanks, Nick. And we're overdue for an in-person catch-up. So I look forward to making that happen.

    17. RTRichard H. Thaler1:43:49

        And I-

    18. NKNick Kokonas1:43:49

        Let's do it

    19. RTRichard H. Thaler1:43:49

        ... I look forward to meeting you in person as well.

    20. TFTim Ferriss1:43:52

        That would be great. I do spend some time in Chicago. I also spend time occasionally in NorCal. I got a lot of friends at Berkeley, so I would suspect we'll cross paths.

    21. RTRichard H. Thaler1:44:02

        Yeah, I think we both know Michael Poland, right?

    22. TFTim Ferriss1:44:05

        Yeah, absolutely. Yeah, I'm involved with the, the center there on a couple of levels. So lots of overlap. I really appreciate the time, guys.

    23. NKNick Kokonas1:44:12

        Cheers, Tim.

    24. RTRichard H. Thaler1:44:13

        Thanks, Tim.

    25. NKNick Kokonas1:44:13

        Thank you.

    26. TFTim Ferriss1:44:14

        And enjoy your dinner. I will talk to you guys soon.

    27. RTRichard H. Thaler1:44:17

        Okay.

    28. NKNick Kokonas1:44:17

        Thanks. Take care, Tim.

    29. RTRichard H. Thaler1:44:17

        Sounds good. Bye-bye.

    30. TFTim Ferriss1:44:19

        Take care, everybody.

Episode duration: 1:44:40