PortalsOS

The real debate in economics has been about whether models should reflect people behaving as if they were maximizing their outcomes, even if they don't literally know how to do it. This has been a central theme in my career.

Richard Thaler highlights the ethical considerations of nudges, noting that while they can be used to help people make better decisions, they can also be exploited for profit, as seen in the design of casinos and online gambling platforms.

Nick Kokonas shares an experiment on loss aversion in restaurants. By requiring a $5 deposit for reservations, the no-show rate dropped from 14% to under 3%. Despite criticism from economists suggesting auctions instead, Kokonas found this method effective in practice, demonstrating the power of behavioral insights.

Nick Kokonas discusses the concept of mental accounting, where people irrationally treat money differently based on its source or intended use. For example, people often feel compelled to use a $30 dessert they paid for, even if they're full, because of the sunk cost fallacy.

Economists often model human behavior as if people are perfectly rational, making the best choices in every situation. However, this assumption overlooks the reality that people often take shortcuts and make less than optimal decisions.

Richard Thaler discusses the resistance he faced in academia when introducing behavioral economics. He recalls a time when he presented his theories on saving behavior to a psychology department, and the audience laughed because they found the traditional economic models unrealistic. Thaler points out that economists believed people behaved like expert billiards players, acting as if they knew physics, which he found absurd.

Richard Thaler and Danny Kahneman explored fairness in economics by asking if it's fair for a hardware store to raise snow shovel prices after a blizzard. Most people said no, except business school students, who believed it was justified based on microeconomic principles.

Richard Thaler discusses his project of revisiting and updating his 1992 book on economic anomalies. He highlights the importance of verifying whether the foundational experiments still hold true today, both in theory and in real-world applications.

Economics traditionally assumes people are selfish, but in reality, people care about fairness and often act in ways that aren't purely self-interested. This complexity is often ignored in traditional economic models.

Behavioral economics emerged when psychologists started questioning traditional economic models, pointing out that people don't always act rationally. This led to a more nuanced understanding of economic behavior.