What is the study of economics?

Richard H. Thaler is the 2017 recipient of the Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. He is the New York Times bestselling co-author of Nudge: Improving Decisions About Health, Wealth, and Happiness and the author of Misbehaving: The Making of Behavioral Economics. His new book is The Winner's Curse: Behavioral Economics Anomalies, Then and Now. 

My co-host for this conversation is Nick Kokonas. Nick is an entrepreneur, investor, and author best known as the co-founder of The Alinea Group (sold in 2024) and the reservation platform Tock, which is now owned by American Express.

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Timestamps:

[00:00:00] Start.

[00:02:33] First principles: What is economics, really?

[00:04:18] The “max” assumption and agents as optimizers.

[00:06:41] Rationality in models: Solving problems like an economist would.

[00:07:29] “Meh” vs “Max” — shortcuts instead of optimization.

[00:08:06] Selfishness, fairness, and self-control in economic models.

[00:10:08] Milton Friedman’s “as if” defense.

[00:12:36] The cashew nuts story: Origin of behavioral economics.

[00:14:02] Removing choice and status quo bias.

[00:17:31] The case for Americans needing forced savings.

[00:19:34] Academic resistance: Psychologists laughing at economic theory.

[00:24:37] Loss aversion: Disease cure experiment.

[00:27:04] Endowment effect: Coffee mug experiment.

[00:29:45] Restaurant reservations and the power of deposits.

[00:31:05] Fairness research: Snow shovels and blizzards.

[00:32:50] Uber surge pricing and the 9/11 thought experiment.

[00:34:37] Behavioral economics in one sentence.

[00:35:00] Nudges: 401(k) auto-enrollment case study.

[00:37:46] The fly in the urinal and nudge durability.

[00:39:07] Lakeshore Drive lines: Making safety easy.

[00:41:30] Choice architecture: Good nudges vs. malicious nudges.

[00:42:40] Online gambling and Robinhood’s gamification.

[00:45:51] Lessons learned from teaching decision-making for 40 years.

[00:46:52] Winner’s curse: The jar of coins demonstration.

[00:49:04] ARCO engineers discover the winner’s curse in oil bidding.

[00:50:11] Writing papers as competitive strategy.

[00:52:31] Amos Tversky’s note: People learn through stories.

[00:53:44] Overconfidence: Amazon River and CFO predictions.

[00:55:59] NFL draft: 53% success rate (barely better than coin flips).

[00:57:12] Trading down in the draft as optimal strategy.

[00:59:26] Applying behavioral insights to daily habits.

[01:01:04] The law of one price and restaurant deposit resistance.

[01:02:39] Being a chef doesn’t automatically make you a good businessperson.

[01:03:33] Sports analytics: The three-point shot revolution.

[01:04:29] Michael Jordan vs Steve Kerr: 50% three-point shooting.

[01:05:56] Finding $20 bills on the street.

[01:06:35] Mental accounting: Money in jeans feels like a windfall.

[01:07:50] Obama stimulus: Lump sum vs. spread out payments — why does it matter?

[01:09:58] Airline baggage fees: “There’s a guy who owns that.”

[01:11:43] Sunk cost fallacy: The dessert we don’t need.

[01:12:37] Nick’s $500 wine example and building Tock on sunk costs.

[01:14:41] Richard’s daughter and the baseball/concert tickets experiment.

[01:16:05] Temptation bundling: Using cognitive biases for self-improvement.

[01:19:06] Big data and natural experiments in the real world.

[01:19:50] Mental accounting in action: Premium gas during the financial crisis.

[01:22:34] Amazon’s hundred-PhD economics department.

[01:23:48] The pragmatic reason Richard invented behavioral economics.

[01:25:47] Strategy: Corrupt the youth, not change old minds.

[01:27:06] The behavioral economics summer camp running since 1994.

[01:28:12] The “Anomalies” column in Journal of Economic Perspectives.

[01:29:44] Citations matter: Writing articles people can understand.

[01:30:31] Availability bias: Homicides vs. suicides.

[01:31:47] Kahneman and Tversky: The reason for everything.

[01:33:11] Systematic bias vs. random errors.

[01:34:08] Amos’ dinner trap: Everyone you know is dumb, except your models.

[01:37:19] Michael Lewis’ The Undoing Project.

[01:38:11] Daniel Kahneman’s assisted suicide decision as peak-end rule applied to life itself.

[01:45:11] What keeps Richard going?

[01:46:44] Why the updated version of The Winner’s Curse should appeal to economists and everyday humans.

[01:49:58] Parting thoughts.

*

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