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Richard Thaler Talks About Silly (but Serious) Things
By JEFF SOMMEROCT. 13, 2017

Richard H. Thaler learned early on Monday that he had won the Nobel Memorial Prize in Economic Sciences for “contributions to behavioral economics”—a field that he helped create.

Mr. Thaler, a professor at the University of Chicago, is also a writer of the Economic View column for The New York Times, which I edit. So at dawn, right after the Nobel announcement, I sent him an email. “Bravo!!!”

I also reminded him that his column was due that morning.

“Happy to talk!” he responded. “No column this week!!!”

Which is how, on Tuesday, we ended up speaking by phone. We discussed the prize, of course — but also his brief movie career, how he got started in behavioral economics (it involves cashews) and the human quirks that have been his life’s work.

Here is an edited, condensed version of the conversation.

Q. How are you holding up? I hear that winning a Nobel is stressful.

A. Yesterday was a long day and I’m starting to lose my voice. You’re the last person I’m going to talk to, and then I’m going to the Cubs game.

Since you can’t finish the column, tell me something interesting. Maybe we can use it instead. For instance, how did you get going on the whole behavioral economics thing?

My career started with cashews. I took a bowl and hid them in the kitchen.

What's the deep meaning of cashews?

You know I’m a victim of all the things I talk about. Cashews? They are a self-control problem. I had roommates. We were all eating cashews too quickly. Really, there were two problems — eating too much, that’s self-control, plus shortsightedness.

How does shortsightedness come in?

Dinner’s coming in 20 minutes. You know that, but you can’t stop eating.

But I found an answer.

If the cashews aren’t in front of you, you’re less tempted to eat them. In fact, if you have to get up and walk all the way to the kitchen — in this gigantic house I was living in as a graduate student in Rochester — you don’t end up eating so much.

Some insight, huh? I’ve been studying stuff like that for years.

The first time I ever called you was when I read about the fly in the urinal.

That’s what hooked you?

Yes. So, remind me. Was putting that fly in the urinal part of a scientific experiment?

No, there was no experiment. It was something they did in the Amsterdam airport. They just put the fly in the urinal and came up with unvalidated data. And you went for it. A lot of people did.

I shouldn’t have paid attention to it?

I’m not saying that. It was interesting. In Amsterdam, they found that when men see a fly in a urinal, there’s a behavioral change. There was a reduction in, let us say, spillage.

I did make the fly in the urinal famous. Cass Sunstein and I wrote about the fly in our book, “Nudge.” The fly may be the most famous nudge in the world.

Nudges: They work because we humans aren’t entirely rational beings, right?

Right. On Monday, when I heard I won the Nobel, I put on an old sweatshirt with the words “Quasi Rational” on it.

What are our most important quirks?

I’ve made a list of the dumb stuff people do. Not all of these things were committed by me. A lot were.

One big one is sunk costs.

What does that mean?

Sunk costs? We pay too much attention to them. Like this: A friend of mine and I, back in Rochester, were given two tickets to a basketball game that was going to take place in Buffalo. But there was a big snowstorm. My friend said to me there’s no way we’re going to that game now, in the snowstorm, and we didn’t go. But, he said, you know, if we’d paid for those tickets ourselves, we’d be going.

It felt different because we didn’t pay: We had no sunk costs. If we’d paid, it would’ve been different. That’s crazy, for classical economics, but it’s true. So sunk costs got on my list.

What else is on there?

I had a friend who got terrible hay fever when he mowed his lawn. I said why don’t you hire some kid to do it for you? This was years ago. He said it would cost $10 and he wouldn’t pay it. So I asked, would you mow your neighbor’s lawn for $20? He said, come on! Not even for $50!

But to traditional economics, that makes no sense. And my friend was an economist!

You know, the supply price and the demand price should be roughly the same. You’re not supposed to have two different prices. According to economists. But even my friend, an economist, didn’t think the way economists are supposed to think.

So I made this list of the funny things I saw people doing. There’s more of them in my book, “Misbehaving,” things that didn’t make sense with traditional theory. That’s how it all started. The theory had to be changed.

What was your biggest discovery?

Greatest by far was discovering the work of Danny Kahneman and Amos Tversky.

Two great psychologists. Daniel Kahneman won a Nobel in economics in 2002. Amos Tversky had died by then. And Danny Kahneman has said that you taught him and Amos Tversky economics. Is that right?

Well, in a way, yes: I taught them economics and they taught me psychology. At Stanford.

And now, we have behavioral economics.

In a way, yes.

It’s become very popular. You appeared in the movie, “The Big Short,” as yourself, “the father of behavioral economics.”

Synthetic CDO Video by Jose Alberto Lopez Da Silva

And the approaches you advocate — nudges, redesigning “the choice architecture” of things from cafeteria food displays to the design of 401(k) plans — are having a big effect in the world. Where is this heading?

I don’t really know but the World Bank did a count. In 75 countries around the world, people are already using these ideas. It’s exploding.

What are you working on now?

On your column. Of course. It will be on health care. It will be brilliant.

Excellent. Thank you. Aside from that?

I’m looking again at nudges in pension plans. Oddly, into Swedish pensions: You know, I’ll be going to Sweden for the award. Unlike Bob Dylan. Which means I’ve got to write a speech. It will take a lot of time. That could delay the column.

You can handle it!

Thank you.

The Nobel money: Have you started spending it

I’ve made a kind of joke about that. I said I’ll spend it “as irrationally as possible.” The Nobel Prize is going to be “fun money" — for an occasion, when my wife and I want a $50 bottle of wine.

“Fun money” is another thing that makes no sense to traditional economists. Because there’s just money; there’s no “fun money.” It’s all supposed to be the same.

Which brings me to “mental accounting.”

That’s probably what I’m best known for.

How would you explain it?

The best explanation, actually, is in a YouTube video with Gene Hackman and Dustin Hoffman. You should use it.

I’ll see if we can. (We can’t. It contains a word we don’t publish unless a politician says it.) Help. What is mental accounting?

Well, Hackman says when they were both young actors he was over at Dustin Hoffman’s house and Hoffman asks him for a loan.

Hackman goes into the kitchen and sees all these Mason jars with labels — “entertainment” and “books” and “rent” — and they all have money in them. Except for one, the one that says “food.” So he says to Hoffman: “You have plenty of money, why do you need money?” And Hoffman says, ‘There’s no money in the food jar. I can’t touch the other money. ”

They laugh, they go on, it’s funny but you know, it’s serious. Because we all do that.

Is mental accounting — putting money into different Mason jars in your head — a dumb thing to do?

At some level, you can think of it as dumb, as violating the economist’s basic assumption that money is fungible. That’s a good New York Times word.

Yes. Money is money. It’s all the same. So putting it into mental boxes isn’t entirely dumb?

It’s smart. It helps. It helps to put money into a “retirement basket,” for example. 401(k) money is much “stickier” than money elsewhere: It tends to stay there. It helps people save for retirement.

What it comes down to is, in everyday life, we don’t want to deal with a lot of math problems. People just impose rules of thumb, like, this one: I don’t pay more than $30 for a bottle of wine, unless it’s a special occasion. Then, I use “fun money.” And now, I’ve got a mental account for it: the Nobel money.

That is kind of silly.

Sure it is, Jeff. But those silly things are my life’s work.

https://www.nytimes.com/2017/10/13/business/economy/richard-thaler-nobel-silly-but-serious.html?