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 concept of 'mental accounting,' where people irrationally categorize money, affecting their financial decisions. This concept is widely applicable and often leads to irrational spending behaviors.

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.

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.

Economists sometimes rationalize corruption as 'efficient' when it facilitates growth, as seen in China, but this rationalization is criticized as an attempt to justify negative practices.

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.