Nobel Economist Reveals Why Economic Models Keep Failing Us, ft. Richard Thaler

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Oct 30, 2025

Richard Thaler, a Nobel Prize-winning economist and co-author of The Winner's Curse, dives deep into the quirks of human behavior that challenge traditional economic theory. He discusses how behavioral economics helps explain why people often make irrational decisions, from personal finance to tech addiction. Thaler emphasizes the significance of modest policy nudges to improve outcomes, sharing real-world successes like automatic retirement enrollment. He also explores the cultural robustness of behavioral findings and the tension between academia and Silicon Valley's rapid adoption of these insights.

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INSIGHT

Why Economists Embraced The Rational Agent

Economists favored mathematically neat 'optimizing' agents because formal models were easiest to write and defend.
That simplification persisted until richer data and experiments exposed systematic departures from the model.

INSIGHT

Models Got Smarter To Win Seminars

Modelers escalated agent intelligence because academic contests rewarded ever-smarter assumptions.
That produced implausible 'super-rational' agents until behavioral research challenged the trend.

INSIGHT

Data Broke The 'Smarter Agent' Arms Race

The data revolution shifted economics from theory contests to empirical testing of real behavior.
Large individual-level and big datasets made anomalies impossible to dismiss as corner cases.

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Standard economic theory informs how we think about business strategy and the economy and presumes that people are selfish, have well-defined preferences, and consistently make welfare-maximizing choices. In other words, we are rational. But what if that is not the case?

Nobel Prize-winning economist Richard Thaler is out with an updated edition of his bestselling 1991 book, "The Winner's Curse: Paradoxes and Anomalies of Economic Life." In the new edition, he and his co-author Alex Imas (both professors at the University of Chicago Booth School of Business) reflect on the last thirty years of behavioral economics and how it makes sense of tensions between our psychological biases and impulses that make us less than fully rational in practice. Using a wealth of empirical evidence, the authors explore the behavioral anomalies that contradict the expectations of standard economic theory and explain a wide range of real-world examples from banking crises to social media addiction.

Earlier this month, Thaler joined Bethany and Luigi for a sold-out Capitalisn’t recording in front of a live audience in Chicago to walk through the anomalies of human behavior that have endured from biblical times to the age of Big Tech. Thaler reflects on how views and the adoption of behavioral economics have changed over the last thirty years, both within academia and beyond (wonder why you can’t put down your phone? Silicon Valley has read Thaler). He also shares how behavioral economics can influence public policy from canceling “junk fees” and dubious subscriptions to deciding which parts of the Affordable Care Act to keep and which are unlikely to produce their desired outcomes. Over conversation, light banter, and audience Q&A, Thaler shares his views on the state of capitalism and reveals how there is no grand unified theory of human behavior that incorporates all its irrationalities—only departures from the standard model.

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