I've spent a career misbehaving in the economist profession. I'm now at the Booth School of Business at the University of Chicago. My recent book is my latest act of misbehaving, since its format (a substantive intellectual memoir that's meant to be funny) I've been assured can't possibly sell more than 10 copies. The successful books that share all those 3 qualities is the null set.

I'm here at reddit NYC with Victoria to answer your questions.

Ask away!

https://twitter.com/R_Thaler/status/610463865487409152

Edit: Thanks for all the great questions. And keep misbehaving!

Comments: 356 • Responses: 45  • Date: 

RadioMars241 karma

Hi Dick,

I recently had to serve jury duty for the first time and as a behavioral scientist, I was shocked at how much lawyers can manipulate the way in which information is presented to jurors (i.e., likelihoods as frequencies vs. percentages, etc.). In your opinion: what nudges are allowed in courtrooms that shouldn’t be, and which ones should be instituted that haven’t yet been?

rthaler206 karma

When judges warn jurors to ignore something that is almost certainly useless, based on the research on the hindsight bias. But I'm not sure how to fix that.

hbtn73 karma

Hi Dick!

I've actually got a couple questions, if that's alright. First, what do you think is/are the most important contribution(s) behavioral economics has made to economics in general?

Second, which economists' blogs (if any) do you read? About behavioral or not.

rthaler91 karma

I think the subfield of economics where the behavioral approach has had its largest impact is surprisingly in financial economics. I say "surprisingly" because 30 years ago, people thought it would've been impossible to find any trace of misbehaving in financial markets. But the debate between the efficient market advocates and behavioral researchers has become an important feature of the ongoing research in this field.

lgipa48 karma

Hi Dick! Thanks for doing this AMA.

How do you think that behavioral economics affects the interpretation of a lot of theory in macro econ? For example, Keynesian aggregate supply and demand curves?

edit: follow-up question, how can i change the framing of the above question to get an answer?

rthaler102 karma

At the end of MISBEHAVING, I note that macro is the domain of economics where behavioral economics has its least impact.

A fact that I bemoan.

And I hope that the next generation of young behavioral economists will take up the topic of behavioral macro seriously. The recent financial crisis is a good illustration of how desperately we need to re-think macro.

Pennquaker33 karma

Your work has basically solved the participation problem in 401(k) plans, yet not all employers offer automatic solutions and keep wasting money on ineffective participant education campaigns. What can be done to change this mindset? (EDIT: removed second "basically")

rthaler54 karma

Anyone working at a firm that does not offer automatic enrollment plus "save more tomorrow" should complain to their HR department.

These are obviously industry best practices.

SilverbackBob22 karma

What does this best practice look like when scaled to small business? Still 401(k)? I have 14 employees, and was able to offer profit-sharing and full medical insurance this year, but I'd like to provide some retirement/investment options as well.

Also, have you considered changing your title to Misbehavioral Economist?

rthaler36 karma

Okay, I like the title.

The State of Illinois has recently passed a law aimed at making it easier for small businesses to offer retirement/ savings plans.

President Obama has proposed similar legislation that has received the usual benign neglect we've come to expect from Congress.

Therefore, I encourage other states to follow the lead of Illinois and make it easier for small businesses to make good payroll retirement plans available to their workers.

slaw8727 karma

Hi Professor,

I was unluckly enough at Booth to not be able to take your course though it was on the top of my shortlist. I did however take behavioral finance with Professor Vishny. I fought a difficult battle with my peers at Booth by valuing behavior over efficient markets.

I am curious how you implement your strategies at Fuller & Thaler vs a place like LSV or AthenInvest. They seem to take a quantitative approach to value, which seems paradoxical to me. Do you automate trading strategies around earnings surprises or other reactions? Are decisions made automatically or by an investment professional?

Finally, I relocated from Chicago to the Bay Area. What does a guy have to do to work at Fuller & Thaler?

rthaler15 karma

We have several Booth graduates working at Fuller & Thaler. Check out the website for information about our investment processes, which combine quantitative research and human judgement disciplined by the knowledge of behavioral biases.

SteveReilly1025 karma

Are there any nudges that have been shown to work with drug or alcohol addiction?

rthaler91 karma

Some alcoholics choose to take the drug Antabuse.

Which has the effect of making you sick if you ingest alcohol.

Standard economic models predict that no one would ever use such a drug. Because it makes them sick, when they ingest their favorite beverage. But it illustrates that sometimes people are aware of their weaknesses, and take steps to remedy them, like setting our alarm clocks in the morning.

sushik323 karma

Hi Dick,

I tend to hear two complaints about behavioral economics from more traditional economists:

1) that the magnitudes of any behavioral effects that exists are small enough to be ignored by their models 2) that at this point there is no consistent, reliable behavioral theory that can be imported into general models (which seems to be saying that behavioral doesn't aggregate well for work like macro)

It seems like you probably get these questions a lot. How do you answer them?

rthaler52 karma

A recent study by Raj Chetti has estimated the effect of tax subsidies versus behavioral-designed features (aka "nudges") in determining employee saving in Denmark.

Chetti and his co-authors find that the "nudges" explain 99% of the new saving and the economic factors 1%.

Small effect indeed.

throwawayeco4ever21 karma

Sir,

How do you see the standard/rational econ models co-existing with the Human-oriented approach? Are there any takeaways from the econ models, which can be applied to understanding misbehavior?

rthaler72 karma

My goal is for behavioral economics as a discipline to eventually disappear.

Because economics will have become as behavioral as it needs to be.

Standard economic models work well for easy decisions that people get to practice often, such as how much milk to buy when you go to the grocery store. They fail for complex large decisions that are done infrequently, like buying a home or choosing a career or a spouse.

NEW_ZEALAND_ROCKS12 karma

I don't know on the buying the milk thing. I would argue there are behavioral issues at play. Like the square patty at wendy's. It's meat overlflows the bun and I like it.

rthaler52 karma

That may influence your choice of Wendy's versus McDonald's. But you've probably figured out how many cheeseburgers to buy when you go.

wjbc21 karma

Any thoughts on how to deal with the City of Chicago's financial woes?

rthaler47 karma

No, but I'm pleased to say that Chicago is one of the first cities to have started a "nudge" unit, with the help of my friends at ideas42.

jagxvi17 karma

Is there any evidence to show that being aware that a person is being "nudged" lessens or strengthens the effect? If no evidence do you have a hypothesis?

rthaler48 karma

Lots of people have the misconception that nudges have to be secret to work.

This is preposterous.

My favorite nudge, one that has saved my life on numerous occasions, are the signs in London that remind you which direction to look for oncoming double decker busses.

Obviously, they wouldn't work if they weren't visible.

MrAndyPowell13 karma

Hi Richard. You finished Nudge with the hope that people would use it for good, which also acknowledges that some will use it for more nefarious means. How do you see the good nudge/bad nudge space race evolving? And who is winning so far?

rthaler13 karma

The debate so far has mostly been about government-sponsored nudges.

We also need to think about the norms and ethics of private sector nudging.

For example, I recently ran into an extremely evil paywall from one newspaper not in the U.S.

Firms interested in keeping customers for the long term should be careful not to piss them off.

Hongkie12 karma

What's your thought on N.N. Taleb's work on extreme events/ randomness? His idea that people see pattern when there is none, attribute skill to luck etc? Do you think your work support his arguments or do you think you are contradicting them by finding legitimate patterns in random errors?

I agree with you that a lot of these irrational behaviors are more or less predictable. The evidences are convincing. I guess I'm trying to get a sense of whether you think we can accurately predict human behaviors if we understand the full complexity of human motivations and incentives etc. I.e. do you think Taleb's idea of 'randomness' is only random because we didn't have sufficient data to feed into the models.

rthaler18 karma

Of course Taleb is not the only one to stress that we see patterns in otherwise random behavior. One of my favorite illustrations of this is the classic paper by Tom Gilovich and Amos Tversky, the so-called "Hot hand effect in Basketball." It turns out that basketball players are not streak shooters, much as the casual fan thinks they are.

jagxvi11 karma

One thing that has surprised me since starting my career is how arbitrary many decisions are made. Do you follow or recommend any process or model to follow for decision making?

rthaler21 karma

I'll give a shout-out - a good book on this topic is by the Heath Brothers, called DECISIVE.

lookmorelike10 karma

I'm a huge fan of your work! My questions are:

  1. Would you regard advertisements as nudges?
  2. What's the funniest nudge?

rthaler22 karma

1.) Well, certainly many advertisements are intended as nudges!

2.) And probably the nudge we've had the most fun with is the famous "Fly in the Urinal at the Amsterdam Airport." And now at JFK. Which reportedly has reduced "spillage" by 80% (men have a lot on their minds).

davidmanheim10 karma

To what extent is it possible to "self nudge" - reframe or change decision contexts so that people overcome cognitive biases in their own?

rthaler15 karma

Cass and I call these "snudges."

And the comment about alarm clocks and reminders - not keeping your most tempting fattening food around the house, or putting it in a time-locked safe - there's a product called "Kitchen Safe" aka "Safe" that I have in my office that you can lock for a certain amount of time to prevent yourself from indulging.

jagxvi8 karma

Is there anything to suggest nudges being more powerful behavioral influences on people with certain (mental, emotional, social, economic, etc.. ) characteristics opposed to others?

rthaler11 karma

It's almost surely the case that some nudges will work better in some societies than others. That's why we believe that all behavioral interventions need to be tested and fine-tuned to the environment in which they're going to be used.

JizMarkie8 karma

Are you a fan of the nudges in place to speed up the pace of play in the MLB?

rthaler9 karma

Yes.

But more needed.

davidmanheim6 karma

To what extent do you think is it possible to train more rational behavior using techniques such as those used by www.rationality.org (Center for the advancement of rationality)? Is this a useful way to at least get policy makers to make better decisions?

rthaler16 karma

Many people have bemoaned the pitiful levels of financial literacy in this country. And it's true that most Americans are ill-equipped to make the difficult financial decisions, like choosing a mortgage or saving for retirement. Alas, the evidence is that attempts to improve financial literacy are not very effective, nor long-lasting. So while I favor including financial literacy in high school curricula - for example, I think teaching net present value is at least as useful as teaching trigonometry, it probably won't be remembered any longer. And so we need to make financial products easier for Humans. My motto is to Make the world safe for Homer Simpson.

snowtape5 karma

Behavioral scientists like Matthew Rabin have endorsed "sin taxes" to fight overeating based on the beta-delta model that you also briefly mention in your latest book. Would you say the case for sin taxes is convincing or do you think there are more clever nudges that one should focus on?

rthaler14 karma

Any solution to a behavioral problem has to include prices.

Behavioral economists are still economists.

So for example, the solution to the water crisis in California has to involve raising the prices for agricultural uses.

lgipa5 karma

Hi Dick, a couple of questions about nudges:

  1. Do you think it's possible for nudges to have a long-lasting effect? Like, do you think that nudges can trigger longterm behavioral changes, or somehow not lose their salience over time? I.e., how can we transition libertarian paternalism into just good autonomous decision-making?

  2. "nudge" is being used to describe a pretty wide range of signals. How do you think that something like a stoplight can be classified as a nudge, even though it isn't something that's not really intended to 'leave all options open'? - how isclassifying already existing instutitons/structures as nudges beneficial?

Thanks!

rthaler4 karma

1.) It's certainly possible that some effective nudges will wear off.

I don't think that's true for automatic enrollment. It might be true for other examples, such as changing the wording of a letter. But that's why behavioral insight teams need to constantly test and experiment.

2.) A stoplight is not a nudge. But a more visible stoplight is a nudge. Putting stoplights in places where they are more likely to be seen & noticed is an effective nudge.

Srao_4 karma

Hi - what's the best example of a developing country 'nudge' that you've seen? I'm keen to understand if developing countries can successfully leapfrog some of the Econ-oriented mistakes in policy and move on to the Simpson-oriented model. Edit: spelling

rthaler7 karma

Lots of good research going on in this domain by people like Dean Karlan at Yale, and Esther Duflo.

Hongkie3 karma

Do you think, with rapid advances in data collection, machine learning, ubiquity of technology that lowers barrier for precise calculation/ data interpretation etc, consumers/ humans will start to behave more like Econs? Do you think that would be OPTIMAL, i.e in our best interests? It seems a big 'flaw' in AI/ robotics right now is that they are not 'human like,' i.e. they are too much like Econs, they make no mistakes and always make optimal choices. Do you think it's more optimal for human to become more like robots/ machine that make no 'irrational' errors? Do you think it would eventually become that way when technology makes it much lower efforts to actually evaluate rather than rely on intuitive heuristics?

rthaler18 karma

Two parts to this.

One is: I've long advocated using big data to help people make better decisions, an effort i call "smart disclosure." I've a couple of New York Times columns devoted to this topic. The idea is that by making better data available, we can create new businesses that I call "choice engines."

Think of them like travel websites, that would make, say, choosing a mortgage as easy as finding a plane ticket from New York to Chicago.

More generally, however, the goal is not to turn humans into Econs. Econs (*not economists) are jerks.

Econs don't leave tips at restaurants they never intend to go back to. Don't contribute to NPR. And don't bother to vote.

_qwertea_3 karma

Thanks so much for doing this! How'd you get into behavioral economics? What do you recommend for a recent college grad who would like to learn more about the field?

rthaler9 karma

I began professionally misbehaving in graduate school, when I found the models i was learning didn't fit the behavior of the people that I interacted with. As to how do you get into the field, I assume you mean AFTER having finished my book! Right now, to become an academic behavioral economist, you have to get a PhD in economics. But there's a growing demand for applied behavioral scientists both in the public and private sectors. And such people need not have PhDs.

_qwertea_7 karma

Thanks for your reply! I loved Nudge and Misbehaving is next in line! Other than those and Thinking, Fast and Slow, what are the classics in the field?

rthaler14 karma

INFLUENCE by Robert Cialdini, several books by Robert Shiller in behavioral finance, all the books by the Heath Brothers.

Frajer3 karma

why do we misbehave?

rthaler14 karma

So by "misbehaving," I mean any behavior that is inconsistent with the model of choice favored by economists, in which people are lightning-fast calculators with no emotions, self-control problems, or care for other people.

So the term is not meant to be pejorative.

Mine is a critique of the economic model, not of human behavior.

Pennquaker2 karma

Only half-joking - do you want to make a line of "urinal fly" stickers with team logos on them for sports stadiums, like putting the Packers logo in the urinals at Soldier Field for when the Bears play them?

Pennquaker3 karma

"The only urinal sticker approved by noted behavorial economist Richard Thaler!"

rthaler4 karma

When do I get my cut?

rthaler2 karma

Great business model.

I see a Kickstarter campaign in the works.

StevenMulraney2 karma

Hi, I'm a choice architect.

I figured I'd ask if you had any book recommendations for people involved in that?

rthaler5 karma

You mean beside NUDGE?

There's a new book coming out by Dilip Soman that could be worth a look.

JeffCotner2 karma

Don't we need to try harder to teach financial and economic literacy? We can give the libertarian/paternalist "nudge" to solve some personal decisions like 401k contributions, but can that solve the problems in political and electoral contexts? People vote on minimum wage hikes without knowing basic supply and demand effects; they vote on trade and immigration issues without knowing comparative advantage. I've seen the pessimistic studies of ineffectiveness of "financial" education, but does that mean we need to try much harder (revamping curricula, etc.) or abandon the effort?

rthaler18 karma

As I've said before, attempts at improving financial literacy are laudable, but have so far been ineffective. How much do you remember about your high school chemistry class? If you're NOT a chemist, probably not much.

Many economic decisions, such as choosing a mortgage, are difficult even for MBAs from top business schools.

So that's why I stress making decisions easier while we wait for a miracle cure on financial education.

As for whether we can teach people to be smarter voters, that sounds even harder.

jagxvi2 karma

Given that nudges inherently leave an out, that is the opportunity to ignore them and choose alternative options, at what point does nudging raise questions of ethics?

rthaler9 karma

The nudge philosophy has been criticized by both the Left and the Right.

The critique from the Left is that it doesn't go far enough. So, for example, some people think that rather than automatically enrolling people in pension plans, we should force them to do it.

The critique from the Right is that nudges are an act of meddling - this critique is ill-informed, and fails to recognize the fact that it's impossible not to nudge.

Some option has to be chosen as the default. Or you can force people to choose. But some form of choice architecture must be selected. So why not choose the best one?

Hongkie2 karma

Hi, I'm curious why you decided to bring psychology into economics when traditionally economics had seem to be more about optimal choice/ prescriptive/ normative. Why not leave the descriptive to the psych? Why bridge the two discipline? (This is not a criticism, I think it's very useful and important, it just also seemed like herculean efforts to get acceptance by traditional economists when you probably could have done the same research in psych.)

rthaler9 karma

That's a great question.

My goal has always been to improve economics as a discipline. I have no training in psychology. And as for getting psychology to address economic problems, there's neither supply nor demand.

Very few psychologists are interested in figuring out what the best tax system is, or how the Federal Reserve should do its job. Economists are a necessary "evil." And so the appropriate response is not to replace them, but to enrich the discipline by adding wisdom from other social sciences.

Hongkie2 karma

Thank you, that makes sense. I've read both Nudge and Misbehaving, I admit there's a lot of overlapping material, but that made the narratives stand out. I really enjoyed reading about how the people you met and random events in your career ended up making all these happen, from the List to all the nay-sayers threatened by the idea to randomly finding supporting fresh researches in Psych just in time. It's like one of those convergence events that's meant to happen (the same way multiple people discovered same elements and invented calculus around the same time.)

Thanks for the great contribution and a couple of very interesting and relatable books.

rthaler4 karma

Thank you!

(Can you post that on Amazon?)

OneMomentum2 karma

Greetings,

Do you have an opinion on the use of computational methods in behavioural economics? As behavioural economics often relax some of the assumptions that make economic decisions easy to model it seems that this is the way to push the field forward. On this point, there was last week a conference on computational social science in Helsinki that show cased a lot of interesting methods and ideas that could well be applied in an economic situation.

On a similar note, do you think we'll ever have a behavioural economics theory or will it be a hodge podge of different methods and ideas with very little in common? Is it possible maybe to use evolution somehow as an organizational framework?

rthaler3 karma

One of my young collegues, Sendhil Mullainathan, has been doing interesting research at the intersection of behavioral economics and machine learning. Check it out.

albino-rhino2 karma

Hi Richard, about two thirds through Misbehaving and really enjoying it.

Your enjoyment of skiing and wine, among other things, shines through. How much of economists' personal interests influences their work, do you think, and going further than that, how much do people graduating from business school reflect a different mindset from ordinary people? Do you think that explains some corporate malfeasance? You reference how peak demand pricing makes sense to a CEO or an economist, but offends a lot of people - do you think such thinking also influences, say, actors in the financial market to bend the rules? Are there any nudges that can reinforce morality? Sorry; broad question I know.

rthaler8 karma

Glad you're enjoying the book.

Recommend it to your friends. My grandchildren need the money.

I've often said that training in economics or business school teaches people a lot about economics, but removes some common sense. And one of my goals in writing this book was to restore some of that common sense to people who've studied too much economics.

It's not a good business practice to make your customers angry. And learning what makes them mad is a worthwhile investment.

albino-rhino2 karma

On the topic of enjoyable books - can you think of any nudges to get economists to write better? You'd think it'd be self-reinforcing, what with good writing helping to distribute ideas more widely.

rthaler7 karma

I think the problem is that in academic journals, good writing is not rewarded, and in fact may even signal a lack of seriousness on the part of the researcher. Fortunately, I've never valued seriousness.

boston19852 karma

It has been said that even learning about behavioral biases often cannot prevent us from falling victim to them. In much of the world, changes in policy and structure (for example, automatically opting into retirement plans) are beginning to combat this assertion. In your opinion, are there any systems or policies that could be used to eliminate, or at least lessen the influence of, behavioral biases in the valuation/investing process? For example, I believe this could be what Ray Dalio's firm encourages with their thoughtful disagreement policy. Are there other ways to do it?

rthaler2 karma

It's never going to be possible to eliminate ALL behavioral biases without replacing humans with robots.

So my approach has been two-fold: first, to change the way economists think about human behavior, to incorporate the biases, and from a policy perspective, designing policies that cater to humans rather than to the fictional creatures that economists study that I call "Econs."

AnotherAccount0031 karma

Thanks for doing this AMA! Here on Reddit, /r/futurology is obsessed with the SDV (Self-driving vehicle) and their uncertain future. My questions are, as an Economist, what impact do you think the self-driving vehicle will have on the American and global economy over the next few decades? And do you think politics and economies themselves will play a large roll in the rate of SDV’s?

rthaler2 karma

SDVs are only a game changer if LOTS of people adopt them.

So like lots of disruptive technologies, the question is when the numbers will become large enough for them to matter.

As for job displacement, we have to get used to the idea that technology is going to replace some jobs, and we have to train people to do jobs that machines can't do well. Driving cars may not be one of them.

nagybrian401 karma

What are the long term and short term economic effects of legalizing marijuana? I know what i think but lets hear a professional speak? And now every sentence will be ended with a question mark seein how dumb bot keeps deleting my posts?

rthaler3 karma

My view is that there's no evidence that marijuana is more dangerous than alcohol. And we learned the lesson that Prohibition was not a successful way of dealing with the problems of alcohol abuse. And should find more sensible ways of dealing with the market for marijuana.

SteveReilly101 karma

Markowitz came up with portfolio theory and then ignored it for his own investments. Do you find yourself ignoring the lessons of behavioral econ in your day-to-day life?

rthaler3 karma

So if you mean if I've been able to transform myself into an econ, the answer is no.

My best friend, Danny Kahneman, has said that my best quality is my laziness, which I've not been able to cure.

But I use "snudges" wherever possible.

RadioMars1 karma

[deleted]

rthaler1 karma

Good example of a "nudge for evil."

Mr_Again1 karma

Hi Richard. I just read a great review of your book misbehaving and was surprised to see you doing this AMA immediately after!

What would you say is the number 1 thing that people get wrong about the future?

rthaler11 karma

The number one thing people don't anticipate about the future is how surprised they are going to be about how things turn out.

As Yogi Berra once said, "Prediction is hard, especially about the future."