{"id":11697,"date":"2025-10-11T19:17:55","date_gmt":"2025-10-11T23:17:55","guid":{"rendered":"https:\/\/parmaks.com\/Resources\/the-tim-ferriss-show-transcripts-nick-kokonas-and-richard-thaler-nobel-prize-laureate-realistic-economics-avoiding-the-winners-curse-using-temptation-bundling-and-going-against\/"},"modified":"2025-10-11T19:17:55","modified_gmt":"2025-10-11T23:17:55","slug":"the-tim-ferriss-show-transcripts-nick-kokonas-and-richard-thaler-nobel-prize-laureate-realistic-economics-avoiding-the-winners-curse-using-temptation-bundling-and-going-against","status":"publish","type":"post","link":"https:\/\/parmaks.com\/Resources\/the-tim-ferriss-show-transcripts-nick-kokonas-and-richard-thaler-nobel-prize-laureate-realistic-economics-avoiding-the-winners-curse-using-temptation-bundling-and-going-against\/","title":{"rendered":"The Tim Ferriss Show Transcripts: Nick Kokonas and Richard Thaler, Nobel Prize Laureate \u2014 Realistic Economics, Avoiding The Winner\u2019s Curse, Using Temptation Bundling, and Going Against the Establishment (#830)"},"content":{"rendered":"<p> <a href=\"https:\/\/hop.clickbank.net\/?affiliate=infohatch&amp;vendor=J1R2C\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-10614 aligncenter\" src=\"http:\/\/parmaks.com\/Resources\/wp-content\/uploads\/2025\/05\/profit-gen400px.png\" alt=\"Profit Gen\" width=\"400\" height=\"217\" srcset=\"https:\/\/parmaks.com\/Resources\/wp-content\/uploads\/2025\/05\/profit-gen400px.png 400w, https:\/\/parmaks.com\/Resources\/wp-content\/uploads\/2025\/05\/profit-gen400px-300x163.png 300w\" sizes=\"auto, (max-width: 400px) 100vw, 400px\" \/><\/a><br \/>\n<\/p>\n<div>\n<p>Please enjoy this transcript of <a href=\"https:\/\/tim.blog\/2025\/10\/10\/richard-thaler\/\">my conversation with Richard Thaler and Nick Kokonas<\/a>. <\/p>\n<p><strong>Richard H. Thaler<\/strong> (<a target=\"_blank\" href=\"https:\/\/x.com\/r_thaler?lang=en\">@r_thaler<\/a>) is the 2017 recipient of the Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. He is also a founding principal at FullerThaler Asset Management, which uses behavioral finance to manage over $30 billion in small-cap US equities.\u00a0He is the <em>New York Times<\/em> bestselling coauthor of <a target=\"_blank\" href=\"https:\/\/www.amazon.com\/Nudge-Improving-Decisions-Health-Happiness\/dp\/014311526X\/?tag=offsitoftimfe-20\"><em>Nudge: Improving Decisions About Health, Wealth, and Happiness<\/em><\/a> (with Cass R. Sunstein) and the author of <a target=\"_blank\" href=\"https:\/\/www.amazon.com\/Misbehaving-Behavioral-Economics-Richard-Thaler\/dp\/039335279X\/?tag=offsitoftimfe-20\"><em>Misbehaving: The Making of Behavioral Economics<\/em><\/a>. <strong>His new book is <a target=\"_blank\" href=\"https:\/\/www.amazon.com\/Winners-Curse-Behavioral-Economics-Anomalies\/dp\/1982165111\/?tag=offsitoftimfe-20\"><em>The Winner\u2019s Curse: Behavioral Economics Anomalies, Then and Now<\/em><\/a>, co-authored with economist Alex O. Imas.\u00a0<\/strong><\/p>\n<p><strong>Nick Kokonas<\/strong> (<a target=\"_blank\" href=\"https:\/\/x.com\/nickkokonas\">@nickkokonas<\/a>) is an entrepreneur, investor, and author best known as the co-founder of The Alinea Group (sold, 2024) and the reservation platform Tock (now owned by American Express). After revolutionizing how restaurants and experiences are crafted, booked, and managed, he\u2019s now focused on creative ventures that blend business, technology, and art\u2014from immersive theater projects to Napa Valley winemaking. A philosophy graduate of Colgate University, he is as interested in ideas and first principles as he is in building things that last. He lives in Chicago and Napa Valley with his wife and two sons.<\/p>\n<p>Transcripts may contain a few typos. With many episodes lasting 2+ hours, it can be difficult to catch minor errors. Enjoy!<\/p>\n<div class=\"podcast-player\">\n<div class=\"podcast-player-inner-wrap\">\n<p>Nick Kokonas and Richard Thaler, Nobel Prize Laureate \u2014 Realistic Economics, Avoiding The Winner\u2019s Curse, Using Temptation Bundling, and Going Against the Establishment<\/p>\n<p><noscript><iframe src=\"https:\/\/www.art19.com\/shows\/58dacbdc-646e-4585-9914-19c3de11d1ba\/episodes\/73b40154-c616-4ba1-af34-04c52a37a7d2\/embed?type=micro\" style=\"width: 100%; height: 30px; border: 0 none;\" scrolling=\"no\"><\/iframe><\/noscript><\/div>\n<\/div>\n<h3 class=\"wp-block-heading\">Additional podcast platforms<\/h3>\n<p><strong>Listen to this episode on\u00a0<a href=\"https:\/\/podcasts.apple.com\/us\/podcast\/830-nick-kokonas-and-richard-thaler-nobel-prize\/id863897795?i=1000731148886\" target=\"_blank\" rel=\"noreferrer noopener\">Apple Podcasts<\/a>,\u00a0<a target=\"_blank\" href=\"https:\/\/open.spotify.com\/episode\/7IolwZIOLo3LVoBg4OBccw?si=LkSvroeMT7-h4trBPa84lw\">Spotify<\/a>,\u00a0<a href=\"https:\/\/overcast.fm\/+AAKebtFWOkM\" target=\"_blank\" rel=\"noreferrer noopener\">Overcast<\/a>,\u00a0<a href=\"https:\/\/podcastaddict.com\/podcast\/2031148#\" target=\"_blank\" rel=\"noreferrer noopener\">Podcast Addict<\/a>,\u00a0<a href=\"https:\/\/pca.st\/timferriss\" target=\"_blank\" rel=\"noreferrer noopener\">Pocket Casts<\/a>,\u00a0<a href=\"https:\/\/castbox.fm\/channel\/id1059468?country=us\" target=\"_blank\" rel=\"noreferrer noopener\">Castbox<\/a>,\u00a0<a target=\"_blank\" href=\"https:\/\/music.youtube.com\/playlist?list=PLuu6fDad2eJyWPm9dQfuorm2uuYHBZDCB\">YouTube Music<\/a>,\u00a0<a href=\"https:\/\/music.amazon.com\/podcasts\/9814f3cc-1dc5-4003-b816-44a8eb6bf666\/the-tim-ferriss-show\" target=\"_blank\" rel=\"noreferrer noopener\">Amazon Music<\/a>,\u00a0<a href=\"https:\/\/www.audible.com\/podcast\/The-Tim-Ferriss-Show\/B08K58QX5W\" target=\"_blank\" rel=\"noreferrer noopener\">Audible<\/a>, or on your favorite podcast platform. <\/strong><\/p>\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n<p><em>DUE TO SOME HEADACHES IN THE PAST, PLEASE NOTE LEGAL CONDITIONS: Tim Ferriss owns the copyright in and to all content in and transcripts of The Tim Ferriss Show podcast, with all rights reserved, as well as his right of publicity. WHAT YOU\u2019RE WELCOME TO DO:<\/em> <em>You are welcome to share the below transcript (up to 500 words but not more) in media articles (e.g., <\/em>The New York Times<em>, <\/em>LA Times<em>, <\/em>The Guardian<em>), on your personal website, in a non-commercial article or blog post (e.g., Medium), and\/or on a personal social media account for non-commercial purposes, provided that you include attribution to \u201cThe Tim Ferriss Show\u201d and link back to the tim.blog\/podcast URL. For the sake of clarity, media outlets with advertising models are permitted to use excerpts from the transcript per the above.<\/em> <em>WHAT IS NOT ALLOWED:<\/em> <em>No one is authorized to copy any portion of the podcast content or use Tim Ferriss\u2019 name, image or likeness for any commercial purpose or use, including without limitation inclusion in any books, e-books, book summaries or synopses, or on a commercial website or social media site (e.g., Facebook, Twitter, Instagram, etc.) that offers or promotes your or another\u2019s products or services. For the sake of clarity, media outlets are permitted to use photos of Tim Ferriss from <\/em><a href=\"https:\/\/tim.blog\/media\/\" target=\"_blank\" rel=\"noreferrer noopener\"><em>the media room on tim.blog<\/em><\/a><em> or (obviously) license photos of Tim Ferriss from Getty Images, etc.<\/em><\/p>\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n<p><strong>Tim Ferriss: <\/strong>Well, I\u2019m excited to dive in, and I thought, Nick, we would let you take the reins because you had this idea of starting from first principles or at least fundamentals, and that is a great place to start, because maybe the things we think we understand, we don\u2019t understand, or the things we think we\u2019ve defined for ourselves we haven\u2019t defined.<\/p>\n<p><strong>Nick Kokonas: <\/strong>When I got to college at a Liberal Arts College and didn\u2019t know what I was going to study, but I knew I enjoyed business, quote-unquote, or might work in business of some sort, you\u2019re left with the study of economics there. You\u2019re not getting an undergrad MBA or something. So, you get to economics class and it\u2019s not that at all. It\u2019s a bunch of models, it\u2019s a bunch of all that. So, I thought what we would start, which is first principles, what is the study of economics? And we\u2019re going to the best source in the world on that, but it\u2019s really basic, yet I think fundamentally misunderstood.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, I think that\u2019s actually a great place to start. And especially, it\u2019s not really possible to talk about what behavioral economics is without understanding what economics is. And economics is really two things. It\u2019s people interacting in markets, and then what are those people doing? And what happened is sometime right after World War II, economists started getting interested in making their models more rigorous and more mathematical. And the easiest model to write down of what somebody\u2019s doing is to write down a model in which they\u2019re doing it perfectly.<\/p>\n<p>So, if you open up any economics textbook, you\u2019ll see the three letters MAX. And that\u2019s short for maximize, and all models start with that. So, we assume that when Nick goes to the grocery store, what he chooses is the best things he could choose. And that\u2019s a simplifying assumption. It\u2019s simplifying for the economist because that\u2019s the easiest model to write down.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And so, what are they modeling, though, even more fundamentally?<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, what they\u2019re modeling is whatever you do. So, what route do you take to drive from home to the golf course? The best route. Which home do you choose to buy? The best one. What mortgage do you choose? The best one.<\/p>\n<p>Look, economists are jealous of physics, and they\u2019re jealous of physicists. Many economists started out in school as a math major or physics major or engineering major, and then decided, \u201cOh, this is too hard.\u201d<\/p>\n<p><strong>Richard Thaler: <\/strong>But they admire that. So, they want a model that\u2019s as accurate as the model you use to send up a rocket. And the problem is that that problem is solvable. How much stuff do you need to get a rocket to go up there? That\u2019s a solvable problem. And figuring out what people do. If you open a book, an economics textbook, you actually don\u2019t see the word \u201cPeople,\u201d You see the word, \u201cThe agents.\u201d<\/p>\n<p><strong>Richard Thaler:<\/strong> Economics starts with Adam Smith, 1776, and it\u2019s that way about until 1950, then we start having math. Now, we have an equation that says exactly what a smart person is going to do. And so, the agents in these models are getting smarter and smarter because the norm is, \u201cMy model is better than your model if my agents are smarter than your agents.\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>And so, what does it mean to be rational within those models?<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, it means to solve the problem the way an economist would. And I don\u2019t mean that economists think that they\u2019re the smartest, though they may. But if it\u2019s an economic problem, how to adjust your thermostat so you\u2019re comfortable and spend the least money? That\u2019s a little practical economic problem. And an economist and an engineer might solve it. And knowing you, Nick, you could easily get absorbed with figuring out how to really do it. But most people can\u2019t figure out how to use that easy-using thermostat in their house, much less solve it themselves. So, people will take shortcuts.<\/p>\n<p>And my joke is, instead of writing down \u201cMax,\u201d suppose we wrote down \u201cMeh,\u201d because what people are doing isn\u2019t really max, right? It\u2019s \u201cI\u2019ll do something.\u201d And so, where I come in on that part of the story is, \u201cOkay, if people are not capable or interested in solving and they\u2019re doing something else, taking some shortcut, then what?\u201d So, that\u2019s principle number one.\u00a0<\/p>\n<p>Principle number two is economists, again, for simplicity, have assumed that people are selfish. And we do \u2014 most of us care more about ourselves than anybody else. Maybe our family, some family members, but we give money to charity. NPR collects money. Churches collect money.<\/p>\n<p><strong>Nick Kokonas: <\/strong>We might care about fairness.<\/p>\n<p><strong>Richard Thaler: <\/strong>We might care about fairness, right? I\u2019m sure we\u2019re going to have a discussion about fairness, and we might care about being treated fairly. And so, that was left out of the model again because it seemed like a simplifying assumption to just start out \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>You\u2019re making the rocket equation, and you don\u2019t really care about the astronauts at this point. You\u2019ve just got to get the rocket.<\/p>\n<p><strong>Richard Thaler: <\/strong>You\u2019ve got to get the rocket up. Then I\u2019ll mention a third thing, which is these agents don\u2019t have any self-control problems. So, they eat just the right amount, they exercise just the right amount, amount. We wouldn\u2019t need these new fat drugs because people would already \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Be optimizing for their health. Yeah, of course.<\/p>\n<p><strong>Richard Thaler: <\/strong>It would be perfectly fit. And you wouldn\u2019t have sold half as many books, Tim. If people were those agents, then that par\u2014 And even the other kinds of things you\u2019re interested in. Implicitly, in this idea that the agents are maximizing, means they don\u2019t need any advice. They\u2019re doing it right. They\u2019re getting the labor leisure trade-off, right. They don\u2019t need any help in getting along with their spouse because they\u2019re \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>No, I\u2019ve optimized my marriage. It\u2019s perfect.<\/p>\n<p><strong>Richard Thaler: <\/strong>And in fact, our wives would be happy to testify.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yes, they\u2019ve done a wonderful job.<\/p>\n<p><strong>Richard Thaler: <\/strong>We\u2019re both perfect, really. We couldn\u2019t be better husbands.<\/p>\n<p><strong>Tim Ferriss: <\/strong>So, I\u2019ve been looking forward to this conversation that I\u2019ve always furrowed my brow at the agents all as rational and selfish because I just don\u2019t see that behavior if you look at your neighbor or your friend or someone else. So, my question though, is not so much to dive into that we could, and the story of your friend who got hay fever, Richard, when he mowed his lawn is a pretty funny one from New York Times. Maybe we\u2019ll bring that up. But suffice to say, people self-sabotage, they care about fairness, there are all these things that seem to invalidate getting the rocket to the moon or that approach to economics.<\/p>\n<p>And I\u2019m wondering, were they just force-fitting precision to something in order to defend it as more rigorous, and it was a waste of time? Or was it more like Newtonian physics versus quantum mechanics, where it\u2019s like, \u201cWell, you can actually use Newtonian physics for a lot of good things.\u201d Is there anything productive that came of these incorrect assumptions about all agents being rational and selfish as a bedrock assumption?<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah, I would say, sure, supply and demand still works, right? All the economic starts with supply and demand. If you raise the price, you\u2019re going to sell less, almost always. And when you write down these more formal models and make more precise predictions, then the question is, \u201cAre you adding predictive power through that?\u201d And what happened is as this norm we\u2019re starting in the 50s, and I would say rationality peaked in the 90s, maybe, where this norm that a model with really, really, really smart people is the best possible model. Eventually, people start to realize, \u201cWell, maybe there\u2019s some drawbacks to that.\u201d<\/p>\n<p>But you can argue, and of course, I\u2019ve spent my career arguing about how wrong this is. The great Chicago economist, Milton Friedman, had this defense, is he would say, \u201cLook, I just want a model that people are behaving <em>as if<\/em> they were maximizing.\u201d So, he would say, \u201cIt doesn\u2019t matter if they literally know how to do it, if their behavior is close enough.\u201d The real debate over my career has been about that question.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Well, let\u2019s go back to the start then, I think, of your origin story and thus the origin story of behavioral economics itself. Because at some point, psychologists start getting involved, and they start looking at these models, and they start saying, \u201cYeah, but people don\u2019t really act this way.\u201d And so, this could be great in a laboratory or on a piece of paper in a spreadsheet, but it might not work in the real world, and there\u2019s real consequences to those things. So, let\u2019s go back to when you were a young academic and started coming across those ideas.<\/p>\n<p><strong>Richard Thaler: <\/strong>This is in grad school. So, there\u2019s a story I tell about a dinner party with some other economics graduate students, and there\u2019s some roast in the oven, it smells great, and there\u2019s some adult beverages. And I bring out a bowl of cashew nuts, and people started nibbling as they do, and at some point, I realized that their appetite was in danger. And so, I grabbed the bowl of cashew nuts and went and hid them in the kitchen. And then I came back into the living room, and people thanked me, \u201cOh, thank God you got rid of those nuts. We were going to eat them.\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>So, you removed choice.<\/p>\n<p><strong>Richard Thaler: <\/strong>I removed choice. And then, because this is a group of economists, they start analyzing it. There\u2019s a rule of thumb\u2014you don\u2019t want too many economists at any dinner party. And this is a good example of it. So, somebody mentions that \u201cWell, we\u2019re actually not allowed to be happy about that because more options is always better. And we used to have the option of eating nuts, and now we don\u2019t.\u201d Well, you can imagine. But the principle, the discussion wasn\u2019t that interesting. But the principle is interesting that sometimes we prefer not to have options. And so, I started with this list of stuff like that, and then the work comes into, \u201cAll right, well, how can you go beyond a story?\u201d \u201cSo, yeah, that\u2019s an amusing story, but so what?\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>You want to change the framework of economic theory without throwing out the rigor, but now you\u2019re introducing something super messy, which is humans and psychology and irrationality and all of those things. So, how do you do that without getting rid of the rigor?<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yeah. Just to make sure I\u2019m tracking, it seems like, so you\u2019ve created this list of sacred cows that you had put on trial, but the question was how to do it quantitatively or in some way, like Nick said, rigorously without just leaving it as an anecdote?<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, there are two parts to it. One is can you show that people are really doing that? And then second, can you create rigorous models that describe that behavior? And we might as well stick to the demonstration part. So, we can go from that, the cashew story, and say, \u201cWell, what does that have to do with the real world?\u201d and we can talk about retirement saving. As a first principle, Americans don\u2019t save unless the money is taken from their paycheck and put into a retirement plan. Now, economic theory would say \u201cIt doesn\u2019t matter. People are going to save the right amount.\u201d<\/p>\n<p>There have been two Nobel Prizes for theories that basically say, \u201cPeople save the right amount.\u201d So, they take their income, and they decide, \u201cOkay, I\u2019d like this consumption path over my lifetime, and now how much do I have to save to get that? And then I keep re-optimizing, market goes up, I can save a little less,\u201d and so forth.<\/p>\n<p><strong>Nick Kokonas: <\/strong>That seems so obviously wrong. So, were you frustrated at this point? I read some of your old papers in preparation for this, and I saw these little backhanded little mentions that were snide. It\u2019s funny reading 40-year-old academic papers and reading the snark in them, right? There\u2019s actual snark in young Thaler, long before any of this.<\/p>\n<p><strong>Richard Thaler: <\/strong>It never escaped.<\/p>\n<p><strong>Nick Kokonas: <\/strong>It never escaped. So, tell me a little bit about that, because it seems to me in hindsight, the first time we met, we played golf together after a Twitter exchange. And I remember thinking to myself as you were saying this, I would go like, \u201cYeah, well obviously.\u201d And then you\u2019d look at me like, \u201cNo, no, no, you don\u2019t understand. For 150 years, that wasn\u2019t obvious.\u201d And so, within the context of this academic world, why was any of applying what seems to be pretty logical stuff, why was it resisted so much? Why is that system built like that?<\/p>\n<p><strong>Richard Thaler: <\/strong>I can tell you, while I was living through that, The Emperor Has No Clothes was a recurring thought that, \u201cWhy am I seeing that and no one else does?\u201d And the \u201cno one else\u201d was just economists. So, I remember giving a talk in the Psychology department at Cornell, where I was teaching, and I was talking about this theory of how people save, and the audience just starts laughing.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah, that\u2019s what I did. I was like, \u201cThis is pretty easy stuff.\u201d<\/p>\n<p><strong>Richard Thaler: <\/strong>They\u2019re laughing and one of my economist friends was there, and he had to assure them that I wasn\u2019t making this up and that this wasn\u2019t a caricature of economic theory. No, there are economists, one floor up from here, who actually believe this is the way people behave.<\/p>\n<p><strong>Nick Kokonas: <\/strong>But they didn\u2019t even think of it as an abstraction in the model? They actually thought like, \u201cHey, this is how humans go through life.\u201d<\/p>\n<p><strong>Richard Thaler: <\/strong>Or, \u201cas if,\u201d remember those magic\u2014?<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yes.<\/p>\n<p><strong>Richard Thaler: <\/strong>They don\u2019t have to know how to do a present value, but they\u2019re acting as if they knew.<\/p>\n<p><strong>Nick Kokonas: <\/strong>That\u2019s right.<\/p>\n<p><strong>Tim Ferriss: <\/strong>That has a bit of a \u201cmaxing works in mysterious ways\u201d type of ring to it. Is that defensible as an argument, the \u201cas if\u201d? Or is that just a wiggle?<\/p>\n<p><strong>Richard Thaler: <\/strong>Look, it was the winning argument when I started on this. And in fact, in my first paper, which was published in 1980, my first behavioral economics paper, it ends with a long response to Milton Friedman\u2019s \u201cas if.\u201d He talks about a billiards player, and he says, \u201cLook, the billiards player may not\u2026\u201d It\u2019s an expert billiards player. I should point out that he talks about, he says, \u201cHe may not know physics or trigonometry, but he acts as if he did.\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>But is it really inferring that the law of large numbers or crowd intelligence, or whatever you want to call it, where you go, \u201cWell, it doesn\u2019t matter what the individual does,\u201d as an aggregate? When we look at a model, it will average out that the smart people and the idiots all get to the midline, which is the model.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, there are two things here. One is when he talks about this expert billiards player, I pointed out in this article, we actually study regular people, not experts. So, you are a pretty good golfer. I\u2019m a mediocre golfer. Neither of us play like Tiger Woods. So, even though you\u2019re a pretty good golfer, we wouldn\u2019t want to predict the way you\u2019re going to hit a shot by saying, \u201cWhat would Tiger do?\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>1000 percent, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>And so, that was my first point about the billiards player is let\u2019s just go to a bar and try to predict what this guy is going to do. Is the model going to be the one that is optimizing, or is it the model of the regular guy at a bar? And if we\u2019re studying investors, they\u2019re not Warren Buffett, they\u2019re pretty far from Warren Buffett. So, the second thing is, and it\u2019s another version of the same thing, which is if we\u2019re trying to describe behavior, whose behavior is it? So, there\u2019s a lot of discussion in, say, monetary policy about expectations.<\/p>\n<p>So, the Fed will say, \u201cWe have to change interest rates because we are worried that if prices go up, people will expect them to go up further.\u201d I\u2019m always asking my friends who are in that field, whose expectations are they talking about? If it\u2019s the guy walking down Michigan Avenue, they have no expectations about inflation. They may have impressions of what\u2019s going on now. Like, \u201cOh, meat\u2019s high now.\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>The eggs.<\/p>\n<p><strong>Richard Thaler: <\/strong>Eggs are high, right? Gasoline, I have an electric car, even I\u2019m aware of the price of gas because it\u2019s posted in those big signs that you walk by. So, we know the level, do we have real forecasts about the future? No.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Then how did you, going back a little bit now, how did you then go about designing thought experiments, actual lab experiments, experiments out in the public to take these erratic, if you will, or non-optimal behaviors, and go back to the models that you questioned and improve them, alter them, change them? If you could give a couple examples, because I think they\u2019re fun too.<\/p>\n<p><strong>Richard Thaler: <\/strong>Let\u2019s talk about loss aversion. And here\u2019s the first survey I ever \u2014 my thesis, which was a very traditional bit of economics, although on a exotic topic, it was on the value of saving lives. So, if we make a highway safer and we save 10 lives a year, how much should we be willing to pay for that? And I decided it might be interesting to ask people a question. So, I asked people, \u201cSuppose by attending this lecture today, you\u2019ve been exposed to a one in a thousand risk of dying, you have this disease and there\u2019s a one in a thousand chance you\u2019re going to die a quick and painless death next week but I have a cure here that I can sell. How much would you pay for it?\u201d That was one question. Another question was, \u201cOver at the med school, we\u2019re studying that same disease. We\u2019d like to know how much you would have to pay you to expose yourself to a one in a thousand chance of getting that disease and there\u2019s no cure here.\u201d Now, economic theory says the answers to those two questions have to be the same. So, the amount I\u2019m willing to pay to get rid of it or the amount I have to be paid to do it should be approximately the same. They are nowhere near the same.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, people would say, \u201cOh, I\u2019d pay $1,000 to get that cure, but youI wouldn\u2019t do that experiment for $1 million.\u201d Now, they\u2019re lying because they drive, they \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah, they do all sorts of things, yes.<\/p>\n<p><strong>Richard Thaler: <\/strong>But they wouldn\u2019t choose to be in that experiment for a million. So, okay. So, that\u2019s buying and selling prices are wildly different. Now, how do we get that down to something more real? You asked about an experiment, there\u2019s a famous experiment I did with my friend and mentor, Danny Kahneman and our friend Jack Knetsch. And the way it works is very simple. We go into a classroom and\u2014we did some of these at Cornell\u2014we would go and put a Cornell coffee mug of the sort you can get at any campus bookstore.<\/p>\n<p>We put it on every other desk and then we say, \u201cAll right, if you have a mug, we ask you, of each of the following prices, are you willing to sell?\u201d Start at $10 and go down. And if you don\u2019t have a mug, you get the same form and say at each of the following prices are you willing to buy. Now, the mugs are assigned at random, people have had this mug for 30 seconds. It\u2019s not their grandma\u2019s mug, it\u2019s been in their possession for 30 seconds. And what do you find? Well, the people who have a mug demand twice as much to give it up than the ones who don\u2019t have a mug are willing to pay to get it.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Why is that, do you think?<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, if I\u2019ve got it, I don\u2019t want to give it up.<\/p>\n<p><strong>Nick Kokonas: <\/strong>That\u2019s it.<\/p>\n<p><strong>Richard Thaler: <\/strong>But I wouldn\u2019t pay much to get it.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Right. So, the variance between retaining something and acquiring it are really wide.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah.<\/p>\n<p><strong>Nick Kokonas: <\/strong>What are the consequences of that?<\/p>\n<p><strong>Richard Thaler: <\/strong>It means there\u2019s much less trading and much less change than we would expect because we hold on to the stuff that we have because we don\u2019t like giving it up. But when there\u2019s a big fire like they had in LA last year, people are going to have to decide. All right, now they don\u2019t have the option of moving into the old house, what are they going to do?\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>The interesting thing about these is that the way that we met is that I was running experiments of loss aversion with a restaurant. So, I had these restaurants and I had people making reservations and, if they had absolutely not a single penny in, they didn\u2019t care about anything. But you could take the richest person in the world and, once they had $5 in for their reservation as a deposit, it took the no-show rate from 14 percent to under three percent. And I wrote about that and published it, and these economists from Northwestern published an article saying that I was an idiot and I should just run an auction. And I replied to them suggesting that maybe there\u2019s a little bit of human behavior and psychology involved in this and I think that I\u2019ve got it right and I have hundreds of thousands of examples as to why this is working for my business. And Thaler read this and tweeted at me, but at the time I didn\u2019t know who he was.<\/p>\n<p>And so, finally people said, \u201cHey, you\u2019ve got one of the best economics professors in the world who really wants to talk to you about this.\u201d And so, I was just doing it out of intuition and experimentation, but they\u2019re the same sorts of experiments in a practical way that you are abstracting into these traditional models.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, Kahneman and I wrote another paper where we tried to find out what people think is fair.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah. Fairness is a really interesting concept.<\/p>\n<p><strong>Richard Thaler: <\/strong>And the Northwestern economists that were dumping on Nick thought that what he really should do is just auction off the tables at 7:30 on Saturday night for whatever price he could get.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Because I\u2019d be maximizing my utility.<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, no, you\u2019d be maximizing your profits.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And profits, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>Right, right. And there is some rich guy who will pay $2,000.<\/p>\n<p><strong>Nick Kokonas: <\/strong>For sure. Especially then, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. And you wrote back and said, \u201cYeah, but they might not come back.\u201d And the questions that we asked in this paper were scenarios like there\u2019s a hardware store that\u2019s been selling snow shovels for $20 and there\u2019s a blizzard and they raise the price to $30. Is that fair? And people say no, but there\u2019s one exception. There\u2019s a group that say absolutely yes, and that\u2019s business school students. So, I teach a class in decision-making, and each week I show them, look, here\u2019s the data from some experiment and you think these people are idiots but, look, you do it the same. So, they may be idiots but so are you.<\/p>\n<p><strong>Nick Kokonas: <\/strong>What\u2019s the example?<\/p>\n<p><strong>Richard Thaler: <\/strong>Any of them. Any of any these other experiments except this one on fairness, the business school students are different from the idiots because they think, of course, you should raise the price of snow shovels after a blizzard, we learned that in micro.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah. Well, that\u2019s the Uber surge pricing. Tim, you know something about that.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yeah. Surge pricing, I know it well.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. So, surge pricing, I thought at the time that there\u2019s nothing wrong with surge pricing, but you have to put a limit on it. And the example I gave, I tried to convince the owner of Uber of this. I said suppose Uber existed on 9\/11 and you had Ubers charge $5,000 to drive people back to Greenwich. How many days would Uber still be in business? Minutes. You can\u2019t do that.<\/p>\n<p><strong>Nick Kokonas: <\/strong>You can\u2019t do that. And that\u2019s the fairness principle.<\/p>\n<p><strong>Richard Thaler: <\/strong>That\u2019s \u2014 right, right.<\/p>\n<p><strong>Tim Ferriss: <\/strong>And that proves the rule that we are psychological, everyone is a psychological creature when it comes to markets and interaction.<\/p>\n<p><strong>Richard Thaler: <\/strong>Right. It might be the guys that are in that Uber for five grand, but even they are going to be a little pissed.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yeah, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>But more importantly to Uber, if they did that \u2014 the thing is, at the time, when they would have these surges of 10X, they were not making any money off of that, it would be fleeting. So, they\u2019d make a little bit of money just like if Nick had sold one dinner reservation for 10 grand. Yeah, he\u2019d make 10 grand but he\u2019d have thousands of people writing articles.<\/p>\n<p><strong>Nick Kokonas: <\/strong>1,000 percent, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, Uber was making a little bit of money and pissing off millions of people and that was dumb in a business where they had to fight city by city to get permission to take people to the airport. And so, I think the important lesson is that, if you\u2019re doing business in the real world and you have customers and employees that are people, not agents, then you have to do things a bit differently. And that\u2019s the one-sentence summary of behavioral economics.<\/p>\n<p><strong>Tim Ferriss: <\/strong>So, Richard, could you, for people listening in, for me, give an example or two of how you take the research and then apply it in the real world? You mentioned, effectively, forced savings earlier, maybe that\u2019s a domain we could explore.<\/p>\n<p><strong>Richard Thaler:<\/strong> When my father worked, he was an actuary, he worked at a big insurance company. He had the pension that was prevalent at that time, defined benefit pension plan, the old-fashioned kind, where how much you got in your pension just depended on how long you worked and what your final salary was, no decisions. And we gradually started shifting over to the new 401(k) type that\u2019s called defined contribution meaning you put money in and invest it and then you get what you have at the end.<\/p>\n<p>Now, when I started working in this area, one problem we noticed was lots of people weren\u2019t joining this savings plan even though their employer was matching contributions dollar for dollar up to, say, 6 percent of their salary. So, that\u2019s the stupidest thing you could ever do. You\u2019re making $100,000, they\u2019ll say, \u201cI\u2019m going to give you $6,000 as long as you put \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>You save 6,000, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. In a tax deferred \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yes, right.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, an economist would say, \u201cWell\u2026\u201d\u00a0<\/p>\n<p><strong>Tim Ferriss: <\/strong>100 percent of the people are going to do that.<\/p>\n<p><strong>Richard Thaler: <\/strong>\u201c\u2026everybody will do it.\u201d And what we noticed is, in a lot of companies, only half of new workers would sign up within the first year. So, how can we fix that? Well, remember we talked about status quo bias. So, here\u2019s a simple way. The way it worked at that time was, in order to join, you have to fill out a form and choose some investments and then sign and this was a piece of paper at the time. I said how about if we just change the form and say there\u2019s this plan, we\u2019re going to put you in unless you fill out a form saying you don\u2019t want it. Now, again, economic theory says that won\u2019t make any difference, everybody\u2019s going to join and, certainly, just filling out a piece of paper, that\u2019s \u2014\u00a0<\/p>\n<p><strong>Tim Ferriss: <\/strong>It\u2019s not enough friction to change things. Right, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>We\u2019re giving you $6,000 so no one will \u2014 but the first company that did that, new employees now joined 90 percent instead of 50 percent. So, that\u2019s an example. I wrote a book called <em>Nudge<\/em> and that\u2019s an example of a nudge.<\/p>\n<p><strong>Tim Ferriss: <\/strong>I am fascinated by nudges and tell me if I\u2019m defining this correctly but \u201csome feature of the environment that improves decisions but doesn\u2019t force anyone to do anything.\u201d Is that a fair \u2014\u00a0<\/p>\n<p><strong>Richard Thaler: <\/strong>Yes.<\/p>\n<p><strong>Tim Ferriss: <\/strong>I think I\u2019m trying to quote directly, hopefully it\u2019s accurate.<\/p>\n<p><strong>Richard Thaler: <\/strong>I\u2019m pretty sure I wrote those words.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yeah, I think you did. So, one of the examples that I\u2019ve heard you discuss, I think this started in the Netherlands, but it is the fly etched or otherwise put inside of urinals to reduce spillage because a lot of guys are on autopilot, turns out they like to aim at things. My question is \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>I love that that\u2019s what you \u2014 of everything that you read, that\u2019s what you chose to pick.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Well, I picked it because at least most guys listening have seen this. And my question is is there a certain half-life to the effectiveness of nudges? Because I remember the first time I saw one of these, I was like, \u201cOh, I\u2019m definitely going to get that fly.\u201d I remember it. And then, after a while, I was like, \u201cOkay, I realize this is just painted on enamel or etched into the enamel, it\u2019s no longer that interesting.\u201d And not to extrapolate from myself to everyone but I\u2019m wondering if you need to refresh nudges as you might refresh many other things that maybe Nick has experimented with in the realm of business. How do you think about the durability of these types of nudges?<\/p>\n<p><strong>Richard Thaler: <\/strong>So, there\u2019s a good example of a nudge of that sort here in Chicago. When Nick and I drive back home, we\u2019re going to go on Lakeshore Drive and there\u2019s a bendy part, and it\u2019s beautiful road, and a lot of people wipe out around these bends. You really can\u2019t go more than about 30 and it\u2019s a six-lane road so people think they can go fast. So, what somebody did, around the time we wrote that book, a little before, is they painted lines on the road that get closer and closer together that gives the illusion that you\u2019re speeding up.<\/p>\n<p><strong>Tim Ferriss: <\/strong>That\u2019s clever.<\/p>\n<p><strong>Richard Thaler: <\/strong>And so, you\u2019re just instinctively tap the brake and then don\u2019t wipe out your car. That\u2019s good. Now, those lines, they keep repainting them.<\/p>\n<p><strong>Nick Kokonas: <\/strong>No one pays attention anymore, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, I don\u2019t know.<\/p>\n<p><strong>Nick Kokonas: <\/strong>I don\u2019t know either.<\/p>\n<p><strong>Richard Thaler: <\/strong>I don\u2019t know. I think the fly in the urinal probably won\u2019t have any effect in the toilet you use at your place of work where you see it several times a day or whatever. For the pension thing, if we only have to get \u2014 you to sign up once, that\u2019s enough. So, yes, attention, it may be that we have to do something different to get your attention this time. But there\u2019s a rule which is if you want people to do something, make it easy. That\u2019s a rule. That\u2019s always true. And if the more complicated you make things, the less people are going to do it. So, I think that\u2019s pretty much automatic. In terms of capturing attention, that\u2019s what the business of advertising is constantly trying to do and clickbait on ads on social media.<\/p>\n<p><strong>Nick Kokonas: <\/strong>I mean, social media itself is in the business of that?<\/p>\n<p><strong>Richard Thaler: <\/strong>Right.<\/p>\n<p><strong>Richard Thaler: <\/strong>Keep it simple is a formula that always works. And getting your attention always works, but it won\u2019t be the same thing that will keep getting your attention.<\/p>\n<p><strong>Nick Kokonas: <\/strong>So, this turned into a whole field from relatively simple concepts like that called choice architecture. And you\u2019ve done consulting with various companies, the NFL, all sorts of people. I don\u2019t even know which ones I\u2019m allowed to talk about or not, so I have to be careful. But tell us a little bit about when does that become a bad thing? So, can you turn the nudge or can someone that\u2019s malicious turn the nudge into something that takes advantage of the lack of self-control in these models?<\/p>\n<p><strong>Richard Thaler: <\/strong>We always say we didn\u2019t invent Nudging. Adam and Eve, right?<strong> <\/strong>There was the serpent. There was the apple. So, human nature has been there all along. Hucksters have existed forever. Charles Ponzi didn\u2019t read our book, didn\u2019t read any of my papers, neither did Bernie Madoff. And when we wrote Nudge, it was saying, \u201cLook, here are some basic principles of human behavior. Can we use those to help people make better decisions?\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>So, practically speaking, how do you then go into one of the businesses that you\u2019ve consulted for and come up with through your framework what they have overlooked?<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, you want to ask, you want people to do more of that. Why are you making it hard for them to do it? That\u2019s the answer. But where I was going with that was the same principles can be used to harm people. So, if you go into a casino, the whole casino has been designed to get people to bet as much as possible and to bet on things that \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Have the worst possible outcomes.<\/p>\n<p><strong>Richard Thaler: <\/strong>Right.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>And now, we have online gambling. And we have places like Robinhood that have made investing feel a lot like casino gambling.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah. They gamified it.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. So, they\u2019re making it easy. They\u2019ve made it easy to bet. It used to be you had to go find a bookie. Now, you open your phone and you can bet on the game that you\u2019re watching. And that\u2019s very tempting. So, the principles of understanding the customer and then designing the product can be used for good or evil. I take no responsibility for somebody optimizing an online gambling app to make it as attractive as possible for people to lose all their money. Don\u2019t blame me. But that\u2019s what\u2019s going to happen in a competitive market with consumers who are humans.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Richard, a question for you. How long have you been teaching your, or how long did you teach? It sounded like it was current day, the decision-making class.<\/p>\n<p><strong>Richard Thaler: <\/strong>40 years.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Okay. So, you\u2019ve had time to work on your material.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. I should be better at it. Right?<\/p>\n<p><strong>Tim Ferriss: <\/strong>Well, I wasn\u2019t going to go that far. I was going to ask you what seems to be the stickiest of what students repeat back to you from that class as concepts, frameworks, stories, could be anything at all. I suppose the precursor question is what are they hoping to gain from the class in the first place? What\u2019s the promise of the class? But I\u2019d be curious to know what sticks.<\/p>\n<p><strong>Richard Thaler: <\/strong>That\u2019s a great question. So, first thing I will say is nobody thinks they need a class in decision-making because they\u2019re great at decision-making. Why would they need a class in that? And do I need a class of breathing? So, although you\u2019re going to tell me, actually, you don\u2019t know how to breathe in, right? Then, yeah, yeah, yeah.<\/p>\n<p><strong>Tim Ferriss: <\/strong>I\u2019ve got a frictionless e-course for you with lots of in-app purchases.<\/p>\n<p><strong>Richard Thaler: <\/strong>I do hear from people who took a class from me at Cornell 40 years ago, which is very gratifying. I\u2019m glad that they even remember that they had such a class. What do they remember? They remember stories. That is the only thing people remember. They do not remember a formula. They don\u2019t remember some abstract concept. They remember a story or they remember a demonstration.<\/p>\n<p>Take the concept of the winner\u2019s curse. This is an obvious move on my part since I have a new book that\u2019s called <em>The Winner\u2019s Curse<\/em>. But let\u2019s talk about the winner\u2019s curse, because it\u2019s a great example. Winner\u2019s curse, the way you do this in a class is you bring in a jar of coins and you say, \u201cI\u2019m going to auction this off.\u201d You get the money in the jar, and \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>You mean the high bidder guy \u2014\u00a0<\/p>\n<p><strong>Tim Ferriss: <\/strong>Gets the money.<\/p>\n<p><strong>Richard Thaler: <\/strong>High bidder gets the money. So, there\u2019s $75 worth of coins in there, and the high bidder gets 75 bucks and they pay me \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Something.<\/p>\n<p><strong>Richard Thaler: <\/strong>\u2014 something.<\/p>\n<p><strong>Nick Kokonas: <\/strong>That\u2019s what we\u2019re getting to.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Do they know that it contains 75 or it\u2019s an unknown.<\/p>\n<p><strong>Richard Thaler: <\/strong>No. They just see \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>It\u2019s like a jelly bean estimation or something.<\/p>\n<p><strong>Richard Thaler: <\/strong>Exactly.<\/p>\n<p><strong>Tim Ferriss: <\/strong>I got it.<\/p>\n<p><strong>Richard Thaler: <\/strong>In fact, right, you can use jelly beans or whatever, paperclips. So, what do you find in that? You always make money on this.<\/p>\n<p><strong>Nick Kokonas: <\/strong>The creator of the jar makes money.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. The professor always makes money because you have this jar, it\u2019s worth $75. There\u2019ll be somebody that\u2019ll be 100 or 150.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And they win. They\u2019re the winner.<\/p>\n<p><strong>Richard Thaler: <\/strong>They win. So, that experience, you can tell people this abstract concept of something called the winner\u2019s curse. They won\u2019t even remember what it means. It\u2019s got a weird name. It doesn\u2019t have anything to do with cursing or witches. But they remember, \u201cOh, yeah. That guy who bid a lot bid too much. Now, this concept was not discovered by psychologists. It was discovered by engineers at ARCO, an oil company. They were bidding for leases in what I\u2019m going to insist on continuing to call the Gulf of Mexico. And what they discovered was the leases that they won had less oil than the engineers and geologists had told them would be there. And they said, \u201cGeez. That\u2019s weird because we thought we had great geologists. And what\u2019s the problem?\u201d And the problem, they figured out, which very subtle, which is that the auctions you win are not a random sample of the auctions you bid in. They\u2019re the ones where you\u2019re the highest bidder. And if you\u2019re the highest bidder, there\u2019s a good chance that \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>You bid too much.<\/p>\n<p><strong>Richard Thaler: <\/strong>You bid too much.<\/p>\n<p><strong>Nick Kokonas: <\/strong>So, that leads to an interesting conundrum, or it\u2019s almost like war games where the only way to win the game is not to play if you\u2019re ARCO, which means you should just go out of business. So, how do you win that if you are in that market where you have to bid on these things?<\/p>\n<p><strong>Richard Thaler: <\/strong>That\u2019s a great question. So, all right, it\u2019s 1970 or something, whenever they published that paper, they get this finding, \u201cWhat should they do?\u201d One would be to not\u2026 to go into some other line of business. Another would be to bid less, but then they\u2019re not going to win very many auctions. They came up with a pretty clever solution, I think.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Was it collusion?<\/p>\n<p><strong>Richard Thaler: <\/strong>No.<\/p>\n<p><strong>Nick Kokonas: <\/strong>That would work. I bid on something like that.<\/p>\n<p><strong>Richard Thaler: <\/strong>Major League Baseball.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Major League Baseball does that.<\/p>\n<p><strong>Richard Thaler: <\/strong>That was their solution. And they were outed on that. No. Their solution was to write a paper. Think about it.<\/p>\n<p><strong>Nick Kokonas: <\/strong>So, they made everyone aware of it?<\/p>\n<p><strong>Richard Thaler: <\/strong>Right. So, instead of going to all the other team owners and say, \u201cHey, guys, when Catfish Hunter becomes a free agent, don\u2019t bid.\u201d That\u2019s illegal. But publishing a paper saying people are bidding too much and the more bidders there are, the less you should bid. That\u2019s perfectly legal and useful. Now, it turns out that there\u2019s a funny story about this, which is the version of this book, <em>The Winner\u2019s Curse<\/em>, that I published in 1992, the editor who bought that went to Princeton University Press. And then when Nudge came along, there was an auction for the rights to bid it.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Did they pay too much?<\/p>\n<p><strong>Richard Thaler: <\/strong>No. He didn\u2019t bid. And I said, \u201cPeter, how come you didn\u2019t bid on this book? I think it\u2019s going to sell.\u201d He said, \u201cNo. I read <em>The Winner\u2019s Curse<\/em>.\u201d I knew \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>I can\u2019t bid on your book.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. And no, don\u2019t bid in auctions. So, I said, \u201cWell, maybe this one should have been an exception.\u201d So, that concept \u2014 I haven\u2019t forgotten your question. I don\u2019t know whether people will learn that theoretical lesson, but they\u2019ll remember the jar of coins and they\u2019ll remember stories.<\/p>\n<p>I had two psychologist mentors, Amos Tversky and Danny Kahneman, now both dead. But Amos sadly died at 59. But at his funeral, his son read a little note that Amos had given him that said something like, I\u2019m not going to get this exactly right. But he had cancer and he had a few months where he knew he was dying and was spending time talking to his family about it. And he wrote a note saying that he thinks the time they\u2019ve been spending talking has been useful and that he thinks people learn through stories.<\/p>\n<p>And I\u2019ve put that little note in my first class ever since then. And I say to people, \u201cLook, people will tell you don\u2019t take this class. All he does is tell stories.\u201d And I said, \u201cThat\u2019s true. And talk about sports, that\u2019s also true.\u201d But \u201cLook, here\u2019s this line from Amos, smartest man on earth. That\u2019s the way you learn. You\u2019re going to learn through the stories.\u201d And so, I think we show people that they\u2019re overconfident and \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>In their decision-making and \u2014\u00a0<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. Or in judgments. I mean, you ask people, what\u2019s the length of the Amazon River and give 90 percent confidence limits, meaning give a high and low estimate so that you\u2019re 90 percent sure that the correct answer lies \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Is somewhere in.<\/p>\n<p><strong>Richard Thaler: <\/strong>\u2014 between.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>And the right answer will be within it \u2014 not 90 percent, but like 60 percent.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah. I would not wager on that. I have no idea.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. So, you know you have no idea. But still the limits are too narrow.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Too narrow.<\/p>\n<p><strong>Richard Thaler: <\/strong>By the way, the same is true for CFOs of Fortune 500 companies. I have two friends at Duke who do a survey twice a year of CFOs. And they\u2019re asked what\u2019s going to be the return on the S&amp;P 500 over the next year. And they\u2019re asked for a high and low estimate. And the correct answer comes out between those. I think they asked for 80 percent limits. And it\u2019s like \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah. No one knows.<\/p>\n<p><strong>Richard Thaler: <\/strong>\u2014 a third of the time.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah. No one knows.<\/p>\n<p><strong>Richard Thaler: <\/strong>Now, it\u2019s true that that\u2019s an impossible task, meaning nobody can predict the market. But you should know that you can\u2019t predict the market. So, a correct answer for 80 percent is, \u201cWell, it\u2019s going to be somewhere between up 20 percent and down 10 percent.\u201d That\u2019s a reasonable forecast.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yes.<\/p>\n<p><strong>Richard Thaler: <\/strong>But instead, they say up 10 percent minus two percent, minus two percent.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Or something there. Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>There was a whole decade where the average downside scenario was zero.\u00a0\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Well, it\u2019s a recency bias, right? It\u2019s like whatever happened the last couple years, people tend to extrapolate into the future.<\/p>\n<p><strong>Richard Thaler: <\/strong>They were doing that right up until the financial crisis, right?<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah, yeah, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, they were most overconfident right before \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Right before the shit hit the fan.<\/p>\n<p><strong>Richard Thaler: <\/strong>Exactly. So, that was Kokonas saying the shit hit the fan, not \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>I\u2019m allowed to swear on this podcast.<\/p>\n<p><strong>Richard Thaler: <\/strong>Oh, okay.<\/p>\n<p><strong>Tim Ferriss: <\/strong>You can swear. You are free to fire away.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, the winner\u2019s curse sounds like an abstract concept, but Nick knows I wrote a paper about the NFL draft that applies exactly that concept. The teams really think it\u2019s valuable to have the first pick or one of the top 10 picks.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And then you just cited the Chicago Bears and their quarterback picks, and that\u2019s all you needed to do.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. I mean, and I think the Bears traded up twice to pick quarterbacks, at least \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>I mean, this is always \u2014 it\u2019s not just the Bears though.<\/p>\n<p><strong>Richard Thaler: <\/strong>It\u2019s not just the Bears. No. This is availability bias.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>We live in Chicago. But they\u2019re not the only team that does this. And my co-author and I, that paper and somebody else, have been, again, updating that and nothing has changed.<\/p>\n<p><strong>Nick Kokonas: <\/strong>But then people actually then hire you to tell them this because for some reason they can\u2019t believe it.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. But then the problem is that there\u2019s an owner.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Well, let me ask you, Richard, about the hiring just for a second, because the example with ARCO involved writing a paper that draws attention to the fact that if you bid the most, you\u2019re likely going to be overpaying, which is a very interesting stratagem. I\u2019m wondering, in the case of, say, an NFL team, what is it that they can do? How can they change their behavior or bidding behavior based on you describing the winner\u2019s curse and all the connective tissue around it?<\/p>\n<p><strong>Richard Thaler: <\/strong>If they have a top pick, they can trade down. So, if you have the first pick, you can trade it for the 7th and 8th picks, or five, count them, five second round picks. And those five players will cost you about the same as \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>In dollars, in contracts.<\/p>\n<p><strong>Richard Thaler: <\/strong>In dollars.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>Right. And if you look, I mean, any sports fan can rattle off the number of very high picks, quarterbacks and others that have been complete busts. So, here\u2019s the one statistic from that paper that I think is most compelling. Take the players at any one position, let\u2019s say running backs and rank them in the order in which they were picked. So, we have the first down to whatever. Now, we ask, \u201cWhat\u2019s the chance the higher one picked is better than the next one?\u201d My co-author, Cade, and I used to \u2014 we call this the better than the next guy stats.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah, yeah, yeah. So, it\u2019s like a tennis ladder.<\/p>\n<p><strong>Richard Thaler: <\/strong>Right. Right? So, yeah. And if teams are perfect at predicting, it\u2019ll be 100 percent. If we rank them \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Number three guy is \u2014\u00a0<\/p>\n<p><strong>Richard Thaler: <\/strong>\u2014 tallest to shortest, that\u2019ll be 100 percent. And if they\u2019re flipping coins, it\u2019s 50 percent.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Sure.<\/p>\n<p><strong>Richard Thaler: <\/strong>It was 53 percent.<\/p>\n<p><strong>Tim Ferriss: <\/strong>All that work, all of the prediction, all of the people, all of the scouting, all the combine, and it\u2019s pretty much coin flip.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. It\u2019s pretty much coin flips. So, that means more picks are better.<\/p>\n<p><strong>Nick Kokonas: <\/strong>So, Tim\u2019s podcast is really about taking, as he always says at the beginning of everyone, the high-performers and the people who see things differently and trying to take the nuggets that people can apply to their lives. And so, I know that some of what you\u2019ve studied and done, you\u2019ve looked at people\u2019s habits like we were saying at the very beginning, where everyone makes perfect \u2014 we live in this wonderful world where people make perfect decisions. And of course, that\u2019s not the case.<\/p>\n<p>That\u2019s really what the whole podcast is about, how to change those bad habits into positive habits. And so, what kind of frictions can we create in our lives where we can improve our decision-making? We can be more like that ideal agent that actually cares about our economic utility without going nuts and sitting in a room with spreadsheets. But how do you take these things that you\u2019ve studied in human nature for 40 years and apply them to my life normally?<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, let\u2019s go back to the cashews. This is stuff everybody knows. Your mother told you that if you\u2019re trying to quit smoking, you don\u2019t have cigarettes around. If you are drinking too much \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Lock the wine cellar.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. Lock the wine cellar. And so, make it harder to do the stuff you want to do less of and make it easier to do the stuff you want to do more of.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah. I mean, that seems obvious.<\/p>\n<p><strong>Richard Thaler: <\/strong>Well \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Not so much for economist.<\/p>\n<p><strong>Richard Thaler: <\/strong>Basically, everything I\u2019ve done has seemed obvious after the fact. Selling reservations at a restaurant, instead of, as you used to say, having five people you pay to say \u201cno\u201d on the phone, that seems like an obvious thing to do.<\/p>\n<p><strong>Nick Kokonas: <\/strong>It does. But I will say that since I have sold the company, we\u2019ll talk about the law of one price. Like this pen, if it\u2019s identical should cost the same all over the place, and that\u2019s where arbitrage opportunities come from and all of that. And classical economics would say, \u201cWell, those get scrubbed out because of perfect information and all of that.\u201d But as it turns out, you have to then convince business owners that, \u201cHey, this is not a controversial idea, and you can indeed charge a deposit and change the economics of your business.\u201d And I spent over a decade doing that. And it was very difficult, actually.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And no matter how easy we made that choice architecture for them as business owners, their psychology was that, \u201cWell, this is a controversial topic.\u201d And then since I\u2019ve left the company, what I\u2019ve watched is that one of the big competitors is now simply going to other restaurants, some of the premier restaurants, and they\u2019re saying, \u201cWell, we\u2019ll give you $10,000 to leave Tock, upfront cash.\u201d Now, I would go, \u201cWhy would they want to give me free money? There is no such thing as a free lunch.\u201d But it works remarkably well. And that thing is also an interesting psychological problem.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, you know this better than anybody, but people are good at something like being a chef. Many restaurants are run or owned by the chef. And being a good chef doesn\u2019t make you a good business person. And the same is true of being a coach. You don\u2019t get to be the coach of a team just by being smart. You almost always have to have played that sport, and that doesn\u2019t make you a good decision-maker. It\u2019s interesting, the field of behavioral economics and the field of sports analytics, you can think of Michael Lewis\u2019s book, <em>Moneyball<\/em>, it\u2019s the same field.<\/p>\n<p>And so, why do I say that? Well, again, people optimize. So, economists would say, \u201cWell, teams are all going to do the strategy that maximizes their chance of winning.\u201d Well, let\u2019s take basketball. There was an innovation 40 years ago, the three-point shot. Before that, all shots are with two points. Now, you have a shot that\u2019s 50 percent better. Now, every team had somebody who could make 40 percent of their three-point shots. And teams average about half of their two point shots. Now, Nick, see if you can keep up with the math here.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>40 percent of three \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Expected value.<\/p>\n<p><strong>Richard Thaler: <\/strong>\u2014 is greater than 50 percent of two.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>But now \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>How long did it take them to figure that out though?<\/p>\n<p><strong>Richard Thaler: <\/strong>Basically, 40 years.<\/p>\n<p><strong>Nick Kokonas: <\/strong>That\u2019s right. Steph Curry. Steph Curry. Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, so, take just \u2014 right now, I\u2019m going to say the words Michael Jordan and think of \u2014 give me your image that comes to mind, and I can tell you what it is. It\u2019s Michael taking some last second shot somewhere, mid-range with two guys hanging on him. Now, even if you\u2019re Michael Jordan, that\u2019s a low percentage shot. Steve Kerr, who\u2019s now the coach of the Warriors, was on the team with Jordan. For an entire year, his three-point shooting percentage was 50 percent.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Was that true? Really?<\/p>\n<p><strong>Richard Thaler: <\/strong>Yes.<\/p>\n<p><strong>Nick Kokonas: <\/strong>I had no idea.<\/p>\n<p><strong>Richard Thaler: <\/strong>And how many shots a game do you think he got?<\/p>\n<p><strong>Nick Kokonas: <\/strong>One and a half or something?<\/p>\n<p><strong>Richard Thaler: <\/strong>Right. So, if you have look at a plot of three-point attempts over time, it\u2019s been going up, but very slowly. And so, I am friends with Daryl Morey, who\u2019s the general manager of the 76ers. I always tease him that he got to be rich and famous because he was the first guy to calculate that 0.4 times three was greater than 0.5 times two. He\u2019s actually a really smart guy, but that\u2019s kind of true.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And then that happens everywhere around us.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yes. Yes. There are examples of that. And again, when I came from Cornell to Chicago, I came and gave a job talk. It\u2019s called an interview, and you present a paper and they were taking me to lunch. And we walk out the door and there\u2019s literally $20 bill lying on the \u2014 and people think I\u2019m making up the story because it\u2019s an apocryphal economic story that economists looks at that it can\u2019t be real because otherwise somebody would\u2019ve already picked it up. I picked it up.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, economists, really, they think there aren\u2019t these $20 bills on the street and there kind of are.<\/p>\n<p><strong>Nick Kokonas: <\/strong>There are. But then what I was going to is where do you put that? So, I want to just touch on a little bit my favorite concept of yours of all, because it comes up in my household and in my businesses once a week. And that is mental accounting. And if you could just go over, because I think this one, it might be the most applicable to every single person that I know, because people are incredibly irrational about this. Explain what that is.<\/p>\n<p><strong>Richard Thaler: I<\/strong>n economic theory, there\u2019s money and it has no labels. You have wealth, W, and then you figure out, and it doesn\u2019t matter where it is or how you got it or that\u2019s it. Now, humans think about money as coming in categories. Let\u2019s suppose you take out a pair of jeans you haven\u2019t worn in a long time and you find three $100 bills in there. You don\u2019t know exactly when you left them there. Oh, that feels like a windfall.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Jackpot.<\/p>\n<p><strong>Richard Thaler: <\/strong>Right.<\/p>\n<p><strong>Nick Kokonas: <\/strong>I can go have a nice meal.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, again, the standard theory is money has no labels. Now, here\u2019s a policy version of this question. In the financial crisis, the Obama White House, there was going to be some tax refund to stimulate the economy. And the question was, should we give it in a lump or should we spread it out. Now, the economists will say, \u201cDoesn\u2019t matter. It\u2019s W. That\u2019s it.\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, it matters. I\u2019m not saying I know exactly what the right answer is. It is a complicated question.\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>But the point is that people take money and how they acquired it matters to them. If I win $100 off you at golf, I might go like, \u201cWell, I\u2019ll buy a bottle of wine with that.\u201d But really, it\u2019s just part of my cumulative wealth. And I should have just done that anyway, because I had another $100. But that comes true. We\u2019re selling our house right now.<\/p>\n<p><strong>Richard Thaler: <\/strong>That money, I\u2019m pretty sure you to just give that to me.<\/p>\n<p><strong>Nick Kokonas: <\/strong>So, my house is going to get sold. And so, there\u2019s this concept now that, \u201cWell, that\u2019s the money for the next house or the condo we\u2019re buying in Chicago, and as we downsize.\u201d So, somehow, the budget is tied from one house to the other, even though it\u2019s completely irrelevant. The money\u2019s going to come in from the house sale. And I can use any pool of \u2014 it\u2019s just in the big swimming pool. It doesn\u2019t matter which drop you take, right?<\/p>\n<p><strong>Richard Thaler: <\/strong>Right.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And in our companies, I think businesses do a terrible job of that. People get budgets and they become \u2014 they own that budget, and they look at tax savings that the company might get as completely different than earnings that they might get. And they spend it differently and they think about it differently. And boards have been on are talking about all this. And what we all said in our businesses, we tried to, Steve Bernacchi, I\u2019ll give you a shout-out, every dollar spends the same. They\u2019re all the same.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, I got to know the CEO of an airline. I won\u2019t mention which one. And I was trying to convince them before COVID that they should get rid of change fees. And I think I was also lobbying for getting rid of baggage fees. And he told me, they have a billion dollars a year in baggage fees, \u201cThere\u2019s a guy who owns that.\u201d\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Owns that. He ain\u2019t going away.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yes. Now, of course, owns, what does that mean? It\u2019s not that my money goes to him. He\u2019s the baggage guy.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah, yeah, yeah. He\u2019s pricing out the baggage.<\/p>\n<p><strong>Richard Thaler: <\/strong>It would be like if in your restaurant \u2014 well, I\u2019m sure there was a beverage manager, but that money is the same as the food.<\/p>\n<p><strong>Nick Kokonas: <\/strong>It\u2019s the same money as all the other stuff.<\/p>\n<p><strong>Richard Thaler: <\/strong>It\u2019s the same.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yes. And so, people, the mental accounting concept is don\u2019t do mental accounting, basically.<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, I mean, now it can be helpful. So, putting money into a children\u2019s education account that can be smart and treating that as off limits. I mean, some people have trouble spending too much. Most people have that problem. Some have the opposite problem. And so, it\u2019s just like we were talking about you want to hide the booze and put the exercise equipment somewhere where it\u2019ll be easy to use. It\u2019s the same with the money. So, you can have a fiction that that money \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>So, there could be good fictions and bad fictions?<\/p>\n<p><strong>Richard Thaler: <\/strong>Yes. Yes. And now, part of mental accounting, probably the biggest mental accounting thing is the so-called sunk cost fallacy. And the idea is if you paid for something, so we go out to dinner and we\u2019ve bought some dessert and we realize, \u201cGod, we\u2019re really full and neither of us need to weigh more.\u201d We\u2019ll just say that. But we paid 30 bucks for that dessert.<\/p>\n<p><strong>Nick Kokonas: <\/strong>You\u2019ve got to eat it.<\/p>\n<p><strong>Richard Thaler: <\/strong>You\u2019ve got to eat it. That\u2019s dumb. And again, every economist teaches that. And this is the discussion I used to have in the old days. I said, \u201cLook, why do you have to teach people the sunk cost fallacy and then assume they already know it?\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>People would say, \u201cWhat do you mean that I can\u2019t waste that?\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>I mean, I fully admit your wine example. I do. I fully admit this. And every time I do it, I think of the sunk cost fallacy because I\u2019ve got this old bottle of wine, it\u2019s now worth $500 or $600. I would not pay $500 or $600 to acquire it, but I will gladly drink it. But I won\u2019t go buy a $500 bottle of wine. And that\u2019s it in a nutshell. And that\u2019s literally, I built the whole company off that, the entire company of Tock was built off that one concept.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Wait, Nick, could you expand on that? How is that built off of that?<\/p>\n<p><strong>Nick Kokonas: <\/strong>Well, the big friction in \u2014\u00a0<\/p>\n<p><strong>Tim Ferriss: <\/strong>And maybe you could explain, I would\u2019ve mentioned it briefly in the intro, but since it\u2019s come up a few times \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah. No, no. Totally.<\/p>\n<p><strong>Tim Ferriss: <\/strong>The reservation platform of Tock, maybe you could just give a little bit about that.<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, he doesn\u2019t own it anymore now, so he doesn\u2019t need to plug it.<\/p>\n<p><strong>Nick Kokonas: <\/strong>No, no. I\u2019m not trying to plug it. No. But that\u2019s how we met was because I got into the restaurant industry by accident, in some ways. And then when I got there, I saw all of these irrational behaviors. And one of them was that people would make reservations for restaurants and then simply not show up. And it\u2019s a big number. It\u2019s like 12, 14 percent of the people just wouldn\u2019t show up. And then even at a destination place like Alinea that I used to own, six percent, seven percent, eight percent of the people wouldn\u2019t show up.<\/p>\n<p>And what I realized very quickly was that if people had paid for it, they would show up and they would show up at all costs. Like the dog could have died and the snowstorm is happening, but they\u2019re going to figure out a way to get there because they have paid some amount of money, whether it\u2019s the hole or the half, it doesn\u2019t really matter.<\/p>\n<p>And it\u2019s fascinating because if something more important lines up or something has more economic utility to you, you should in classical theory, just go, \u201cWell, screw it. That\u2019s already done. I\u2019ve already spent that $300 or whatever it is. And now, I have something that\u2019s more important or more valuable.\u201d But people cling to that thing very, very, very, very strongly.<\/p>\n<p><strong>Richard Thaler: <\/strong>I\u2019ll tell you a funny story. My daughter lives in [redacted]. There was a guy, a kid in the neighborhood, grew up to be a pitcher for the Mets. And he was pitching in some first-round playoff game. And I noticed that, and I said, \u201cI think I can get you tickets to this game. Why don\u2019t you go? That\u2019d be fun.\u201d She said, \u201cOh, that\u2019s great. That\u2019s great.\u201d So, I\u2019d look online at one of these ticket sites and tickets are \u2014 this was a first-round. It wasn\u2019t that expensive, so $300, $400.<\/p>\n<p>But then I wasn\u2019t sure which one she would want and how to get them to her. So, I say, \u201cOkay, I\u2019ll send you $1,000. You pick which tickets you want and take the rest to buy hotdogs.\u201d So, she texts me back.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Now, she has a choice.<\/p>\n<p><strong>Richard Thaler: <\/strong>She texts me back and says, \u201cLol. This is just like in your book. If you send me $1,000, I\u2019m not going to spend it on baseball tickets.\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>Right, right.<\/p>\n<p><strong>Richard Thaler: <\/strong>So, just last week I learned my lesson. We\u2019re David Byrne fans in my family. And David Byrne had a show where she was. I sent her the tickets. And she had no choice. They were free.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Well, they\u2019re free. Yes. They\u2019re mentally accounted for as zero.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. Right. So, that was the best gift ever.<\/p>\n<p><strong>Tim Ferriss:<\/strong> I\u2019d love to talk about cognitive biases for a second. A few things have come up already, sunk cost fallacy. I think maybe you were referring to something that I might put under the category of endowment effect with maybe the mugs. It might be mixing that up. But my question is what are good examples? I can think of a few for myself where you actually, as a backstory. I bought books on cognitive biases. And the framing around the reading for me was things to avoid. These are things that I want to avoid. These are yellow flags.<\/p>\n<p>But what I realized, at least for myself, and maybe I\u2019m misapplying the term, but I could basically do what Nick did to his customers, making reservations, to myself. For instance, I could prepay for personal trainer or something like that, and it would make me more inclined to do the thing that I say I want to do that\u2019s good for me.<\/p>\n<p>I know of \u2014 actually, wrote about the case of two engineers. They were at the tech companies. They made perfectly good money, but they bet each other. Effectively, it was a bet, $1, so it was like trading places. But if they would show up at the gym at the same time to do something like 15 minutes of treadmill, and if somebody didn\u2019t show up, they had to pay the other person a dollar. And these are two people who had failed at every exercise regimen prior to that, and they both ended up losing 50 plus pounds, even though they didn\u2019t really know the nuances of exercise or anything like that. So, I\u2019m curious if any examples come to mind where you can actually use cognitive biases to your advantage?<\/p>\n<p><strong>Richard Thaler: <\/strong>I\u2019m a big believer in that, a good way to get yourself to do something is have a commitment.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Pay for it.<\/p>\n<p><strong>Richard Thaler: <\/strong>And pay for it.<\/p>\n<p><strong>Nick Kokonas: <\/strong>It\u2019s a monetary commitment.<\/p>\n<p><strong>Richard Thaler: <\/strong>It\u2019s pain.<\/p>\n<p><strong>Nick Kokonas: <\/strong>It\u2019s a little bit of pain. Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>I have some young colleagues who wrote a paper called Paying Not To Go to the Gym. And so yes, I do Pilates and if I make an appointment with my trainer, then I go. And there\u2019s a clever experiment by a young colleague of mine called Katie Milkman, who\u2019s big in this behavior change space. And she ran an experiment with getting people to go to the gym where what she did was she gave them the <em>Hunger Games<\/em> audiobook, and they could only listen to it when they were on the treadmill. But the idea is you pair something good with something that you don\u2019t want to do. So if you go, then you \u2013<\/p>\n<p><strong>Nick Kokonas:<\/strong> You get to hear the next chapter.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Get to hear the next chapter, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>And it\u2019s like if you\u2019re binging, imagine to watch the next episode first you have to run around the block.<\/p>\n<p><strong>Nick Kokonas: <\/strong>It strikes me that the experiments that you\u2019ve done \u2014\u00a0<\/p>\n<p><strong>Richard Thaler: <\/strong>Temptation bundling, that\u2019s what she calls it.<\/p>\n<p><strong>Nick Kokonas: <\/strong>That\u2019s it. Yeah. I mean, it strikes me that a lot of the experiments you\u2019ve done required finding groups of people and then testing them methodically and then putting rigor to some things that were maybe a little amorphous and whatnot, so that the academic community would accept them as rigorous enough to be its own department and ultimately win a Nobel Prize.<\/p>\n<p>And at the end of the day, that seems like those tests and experiments are so much easier now with social media, with the internet. With the ability to engage with huge populations of people. Is that true? Has the field utilized that? I know you\u2019ve cited eBay auctions in some of your papers.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah, I think the big thing, so as you know, I took on a task, kind of a weird task, of taking a book I wrote in 1992 and taking on a young co-author and going back and saying, did we make all that up?<\/p>\n<p><strong>Nick Kokonas: <\/strong>How does it hold up? Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>How does it hold up? And it holds up. And the kind of encouraging thing is that we can go from the lab and now to the field. So we were talking about mental accounting. Here\u2019s a fundamental accounting result. During the financial crisis, the price of gasoline fell, like by 50 percent. So what do people do? Now remember, it\u2019s a financial crisis, so people are tight for cash, but their gasoline budget is overflowing.<\/p>\n<p><strong>Nick Kokonas: <\/strong>They have a little compartment in their head that\u2019s for gas.<\/p>\n<p><strong>Richard Thaler: <\/strong>So they go, let\u2019s say they spend a hundred bucks a week at the gas tank and now it\u2019s 50 bucks. So what do they do?<\/p>\n<p><strong>Nick Kokonas: <\/strong>Vacation time.<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, they start treating their car to occasional tanks of high test.\u00a0<\/p>\n<p><strong>Nick Kokonas:<\/strong> Oh, really?\u00a0<\/p>\n<p><strong>Richard Thaler:<\/strong> Now that\u2019s really stupid. I mean, you know your Honda Prius, it\u2019s not going to do any better with premium gas.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Premium gas. Yeah, yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>You know, it\u2019s made to run on regular. No matter what the gasoline companies are telling you, the more expensive gas isn\u2019t better for 90 percent of cars. But what they found was when the price went down, they would buy more expensive gas. Now you and I would say if we\u2019re going to do some mental accounting with that, we say, all right, we can upgrade the wine.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yes. I always say that. That\u2019s always that. That\u2019s always my mental accounting.<\/p>\n<p><strong>Richard Thaler: <\/strong>No, yeah. We would always do it anyway. Or they buy better olive oil.<\/p>\n<p><strong>Tim Ferriss: <\/strong>That\u2019s right.<\/p>\n<p><strong>Richard Thaler: <\/strong>Instead of the store brand. But the bigger picture is, and that\u2019s kind of one of the lessons in this new book is all the stuff that we found in thought experiments and laboratories now because of big data you can find in the real world\u2014 And this paper, they had data from millions of shoppers at a large box chain store. And so they could show not only are they upgrading the gas, which is stupid, but they\u2019re not upgrading the orange juice.\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Or purchasing in bulk to save money during a crisis.<\/p>\n<p><strong>Richard Thaler: <\/strong>Right, right. So I think you\u2019re right that it\u2019s much easier to run experiments now. And of course companies are running these experiments every minute. The largest economics department in the world is now at Amazon. There are a hundred PhDs in economics working at Amazon.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Which could be good or bad for them. According to you.<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, if they\u2019re my\u2014<\/p>\n<p><strong>Nick Kokonas: <\/strong>I was going to say it depends if they\u2019re the right stripe, right?<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah. I think they\u2019re getting pretty good economists.<\/p>\n<p><strong>Tim Ferriss: <\/strong>How many do you think work, and maybe the label of economists is too confining here, but in terms of working with mass data sets in the real world? Let\u2019s say a Palantir, I don\u2019t know if those numbers are public, but I would imagine they also have an entire army of people who are working on this stuff.<\/p>\n<p><strong>Richard Thaler: <\/strong>And the mix of data scientists, and some of them got their training in a economics departments, so exactly what their training is. But there are people with the equivalent of PhDs in economics or computer science working at all these companies. So, yes.<\/p>\n<p><strong>Tim Ferriss: <\/strong>So to rewind the clock quite a ways, you\u2019ve done a lot of amazing things in your career. I was looking at an interview with you on nobelprize.org, and there\u2019s a line here I\u2019d love for you to explain. \u201cMy thesis advisor famously said, when interviewed about me of my time in graduate school that, quote, we did not expect much of him. End quote.\u201d<\/p>\n<p>So why is that the case?<\/p>\n<p><strong>Richard Thaler: <\/strong>I was not the best grad student in my class and I wasn\u2019t in the best department. I mean, actually I wasn\u2019t a great student in any way, but I certainly knew I was not the best grad student in my class.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Why is that?<\/p>\n<p><strong>Richard Thaler: <\/strong>I was good in math, but not as good in math as the people who go to get PhDs in economics. And I was better at noticing the problems with economics than\u2014 You can think about it as \u2014 you could be somebody who can draw perfectly or you can be somebody who thinks of a different way of drawing. And I was more that guy. So the only way I managed to succeed, even get a job as an economist and get tenure, much less get a Nobel Prize, which was certainly never on my radar when I was a young person, was to think of a different way of doing economics.<\/p>\n<p>And I more or less had to invent behavioral economics to have a career, otherwise I would\u2019ve done something else.<\/p>\n<p><strong>Nick Kokonas: <\/strong>I was reading in preparation for this, a bunch of his old source material papers, like I\u2019ve read <em>Nudge<\/em> and I read <em>Misbehaving<\/em> and all of these. And I went back to some of the source papers and I was literally laughing out loud. I mean, they were written 30, 40 years ago, and some of these same problems and the same human nature shows up again and again and again. It\u2019s just a fascinating thing that within this entire academic discipline for hundreds of years, no one said, well, the emperor doesn\u2019t have the clothes on this. And I think that\u2019s what you\u2019ve done really, really well time and again.<\/p>\n<p><strong>Richard Thaler:<\/strong> I always say that I never changed anybody\u2019s mind. So what I was saying was heresy. It was the emperor has no clothes, and I\u2019m thinking, look, see that mole on his belly? You can\u2019t see that. And you\u2019re talking about the three-piece suit. But sarcasm doesn\u2019t really convince people. So the strategy I adopted at some point, I mean I had to write some papers, but the strategy I adopted to broaden the field, I always say, instead of changing people\u2019s minds, I would corrupt the youth.<\/p>\n<p>And so one example of that is there\u2019s a foundation in New York called the Russell Sage Foundation, and they wanted to support behavioral economics when we were just getting started. And they gave us some money and they said, you can do whatever you want with it. And what we decided to do is start a two-week summer camp. I don\u2019t think we \u2014 that\u2019s not the official name, but everybody refers to it as the summer camp. So it\u2019s two weeks. We got 30 grad students from around the world, best students in the best departments, and we would teach them about behavioral economics. There are graduates from that. Graduates, I mean attendees,<\/p>\n<p><strong>Nick Kokonas: <\/strong>Alums.<\/p>\n<p><strong>Richard Thaler: <\/strong>Alums in the best economics departments around the world. They\u2019re editing journals now. The new chairman of the Berkeley Economics Department was at one of those. And I think it\u2019s still the truth that people my age, they never got convinced, and it\u2019s the 30 and 40-year-olds.<\/p>\n<p>The other thing I did was there was a new journal called the Journal of Economic Perspectives, and it tells you something about economics that this journal had to be created. Journal articles had gotten so arcane and technical that the papers were not understandable unless you were in the subfield. So a macroeconomics paper was not understandable to a labor economist or a finance professor. So they started this journal and the idea was the articles would be written in a way that would be accessible to any economist or a grad student or even advanced undergrad. My friend Hal Varian was the chief economist at Google. He was an editor at this journal, and he and I were having lunch one day, and we had the idea they were going to have some regular features. And the idea was I would write a column in this journal on anomalies.<\/p>\n<p>So these were pokes. So there was one on the endowment effect that we\u2019ve talked about. That buying and selling prices are different. There was one about the fact that stocks that have gone down a lot do better than ones that have gone up a lot. So I started writing this when I was about 40, and it\u2019s kind of an old man thing to do to write stuff like that. And there was a colleague of mine at Cornell who I overheard telling somebody about this journal. Well, I don\u2019t know whether articles in that journal should count. And I\u2019m thinking you know, yeah, what are they counting?<\/p>\n<p><strong>Nick Kokonas: <\/strong>What are they counting? Imaginary economist points<\/p>\n<p><strong>Richard Thaler: <\/strong>Right.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yes.<\/p>\n<p><strong>Richard Thaler: <\/strong>You know now there is something you can count, which is citations. A citation is if somebody else writes an article and cites your article, those are counted. And actually publications in this journal get a lot of citations because people read them.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Because they\u2019re readable. Because they can read them.<\/p>\n<p><strong>Richard Thaler: <\/strong>Because, right. First idea, write an article, somebody can understand.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Make it easier.<\/p>\n<p><strong>Richard Thaler: <\/strong>Now it is the case that if the article is too easy, like we\u2019ve mentioned, my friends Kahneman and Tversky were writing the psychology articles that inspired me a lot. A lot of people would look at those articles and say, what\u2019s the big deal? Because \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>There just wasn\u2019t enough rigor to them within the economics?<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah, and it seems like so obvious. So they have this idea, availability. That you\u2019re going to think something is more likely if examples of it come to mind. So ask people, what\u2019s the ratio of homicides to suicides? And they think two or three to one. Turns out they\u2019re twice as many suicides as homicides, but suicides are quiet. And I\u2019m betting you know more than one person who either directly or in your community who is a suicide victim. And the chances are you don\u2019t know any homicide victims. But nevertheless, you might give that same answer. And the obvious reason is that we read about homicides all the time and suicides are kind of quiet. So the thing is, their papers look too easy.<\/p>\n<p><strong>Tim Ferriss:<\/strong> I don\u2019t even know if you know this, Nick, but when I was at Princeton undergrad, one of the many ways that I got together little bits of money here and there was by volunteering at mostly Green Hall in the psychology department. And I was a subject for some of Danny Kahneman\u2019s studies.<\/p>\n<p><strong>Richard Thaler: <\/strong>So you were there when Danny was teaching there?<\/p>\n<p><strong>Tim Ferriss: <\/strong>I was. Yeah, I was there.<\/p>\n<p><strong>Richard Thaler: <\/strong>Did you take a class?<\/p>\n<p><strong>Tim Ferriss: <\/strong>I did not take a class with him, which is one of my great regrets.<\/p>\n<p><strong>Richard Thaler: <\/strong>That was a bad move, Tim.<\/p>\n<p><strong>Tim Ferriss: <\/strong>I know. It was a bad move.<\/p>\n<p><strong>Richard Thaler: <\/strong>Next time, get that right.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Exactly. And people may recognize the name popularly from <em>Thinking, Fast and Slow<\/em>, which has been recommended by presidents and so on. But why is he so notable? What did he do or show or explain that made him so noteworthy?<\/p>\n<p><strong>Richard Thaler: <\/strong>Well, so the early work was done jointly with Amos Tversky. And I mean, they are the reason why you\u2019re talking to me. Because I had that list of weird behavior, but I didn\u2019t know what to do with it. And then I went to a conference, and one of their students, this is back in the \u201970s, one of their students was telling me about the work they were doing. And I went back home and read a bunch of their papers, which you had to do by going to the library and finding the psychology section in the library, which I had never been to, and a big light bulb went on. And the light bulb was that they, it\u2019s the phrase systematic bias.<\/p>\n<p>So let me explain. To an economist, if people make a mistake, that\u2019s no big deal, because fine, they\u2019ll admit, and in fact, if you give economists a half a glass of wine, they\u2019ll admit, even traditional economists, that most of the people they know are idiots. See what I mean? Certainly their students and their spouse and their dean and the president of the university.<\/p>\n<p>So they think \u2014 actually, there\u2019s a funny story about Amos. Amos and I are at this conference and there\u2019s an economist at dinner, and he starts going into this rant about, Amos had set him off and said, \u201cHow\u2019s your wife\u2019s decision-making?\u201d And the guy starts telling stories. And then Amos asked him about the president of the university and the president at the time, I don\u2019t remember who it was. We\u2019re getting this half-hour long rant about \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>The irrationality of all these people.<\/p>\n<p><strong>Richard Thaler: <\/strong>Right. And then it\u2019s like Amos is having him walk the ledge and then pulls it out and says, \u201cSo let me see if I can understand this. So basically everybody you know you think is dumb, but the people in your models are all brilliant.\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>So that\u2019s the systematic bias.<\/p>\n<p><strong>Richard Thaler: <\/strong>And the systematic bias is back to the availability we were talking about. So the fact that I can ask you a question, homicides or suicides, which is more common? I can predict that, and that\u2019s a mistake, and it\u2019s not a random error. So it\u2019s not that people are dumb. I don\u2019t really think people are dumb. I think the world is hard. But people deal with this hard world using shortcuts and so forth, and the shortcuts are useful but not perfect, and they lead to predictable mistakes, like the sunk cost fallacy. The more you paid for the play you were going to go to, the less willing you are to skip it no matter how good the alternative is. A friend you haven\u2019t seen for 20 years calls and says, \u201cMy flight got canceled. I\u2019m in Chicago tonight for dinner.\u201d<\/p>\n<p><strong>Nick Kokonas: <\/strong>We bought tickets \u2014 the day I started Tock, this is really true. We bought tickets to a movie with the kids that they wanted to go to, and I went on Fandango, bought the tickets. I don\u2019t like superhero movies. It was some superhero movie, and I did not want to go. I would\u2019ve easily paid the $150 to not go at 9:00 in the morning. Then I bought the tickets and it was pouring rain outside at like six o\u2019clock, and everyone\u2019s looking at each other and they\u2019re comfortable on the couch. And everyone\u2019s like, \u201cDo you really want to go out in this?\u201d I was like, \u201cWe are going to that damn movie. How can you not?\u201d Literally that moment I went, \u201cWe are putting deposits down on every person that goes to the Aviary.\u201d And I walked in and my CFO was like, \u201cThis is what I was talking about.\u201d<\/p>\n<p><strong>Richard Thaler: <\/strong>I hope you didn\u2019t go to the movie.<\/p>\n<p><strong>Nick Kokonas: <\/strong>We did go and I hated it. It was terrible.<\/p>\n<p><strong>Richard Thaler: <\/strong>That\u2019s because you didn\u2019t know me then.<\/p>\n<p><strong>Nick Kokonas: <\/strong>But it\u2019s absolutely true. That is a real thing that we all succumb to.<\/p>\n<p><strong>Richard Thaler: <\/strong>So that was the big idea from Kahneman and Tversky. And by the way, everybody knows Michael Lewis and <em>Moneyball<\/em> and many of his other books like, <em>The Big Short<\/em>, my favorite movie. People don\u2019t realize I have a cameo in that movie, but \u2014 it\u2019s not the one with Margot Robbie. But an amazing book Michael wrote. It was about Kahneman and Tversky called <em>The Undoing Project<\/em>, and I kept telling him, \u201cYou can\u2019t write a book about two psychologists talking to each other.\u201d But he\u2019s an amazing writer and it\u2019s an amazing story. So if you\u2019re curious about those two people who are two of the greatest twentieth-century scientists, I recommend that book. It\u2019s an easy read.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Can we bring up a difficult subject as it applies to \u2014\u00a0<\/p>\n<p><strong>Richard Thaler: <\/strong>Is there anything I could do to stop you from \u2014\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>Absolutely. You can say no.<\/p>\n<p><strong>Richard Thaler: <\/strong>Oh, okay.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah, sure. Bring it up.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yeah, we can always edit it out as well.<\/p>\n<p><strong>Nick Kokonas: <\/strong>As well. Yeah, no I, look, I say it with respect, but so it became public, I guess earlier this year, and I literally just found this out a couple hours ago, that Danny chose assisted suicide, and I\u2019ve known that for a little while. But as a friend, as a mentor, that had to be incredibly difficult and something to struggle with when he told you that he was going to do this. Furthermore, he wasn\u2019t actually tremendously ill or anything like that. Are you comfortable talking about that a little bit?<\/p>\n<p><strong>Richard Thaler:<\/strong> He had been a friend and mentor. He was my best friend for 40 years. Yeah, he calls me one day and says, \u201cAh, that\u2019s it.\u201d And he had just turned 90. And one of his findings was that our memory of an experience is determined by two factors, the peak and the end. So you go to one of those meals at a three-star restaurant, what was the best thing? That\u2019s the peak. And how was it at the end? I think those restaurants don\u2019t get the end part right, because they give you too much food.<\/p>\n<p>But anyway, Danny was concerned. He took this part seriously. And he was mostly, he didn\u2019t want to lose control. At 90, I can tell you he was still the smartest guy I knew. He had lost nothing. So we spent a week or so arguing, and I thought I was winning. And he said, \u201cOkay, you\u2019re getting annoying.\u201d So I flew to New York, I was in California. I flew to New York, took him out for a good dinner. Bought him a bottle of wine, 1998 La Mouline that I thought this is worth living for. So that was my attempt. I wasn\u2019t allowed to try and argue with him anymore.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah, I figured he\u2019d probably put the kibosh on that.<\/p>\n<p><strong>Richard Thaler: <\/strong>So no arguing, but I went out to dinner together. He did think the wine was good, but wasn\u2019t going to change his mind. And then the next day, we spent just figuring out how to manage the next month or so, and our goal was that the obits weren\u2019t about the way he died.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And they weren\u2019t.<\/p>\n<p><strong>Richard Thaler: <\/strong>And they weren\u2019t<\/p>\n<p><strong>Nick Kokonas: <\/strong>Until that came out again.<\/p>\n<p><strong>Richard Thaler: <\/strong>Then a year later, there was an article in the Wall Street Journal. I think the writer shouldn\u2019t have included the letter he sent, the email he sent to friends. But anyway, Danny had a great 90 years and he was great up until the end, and I would\u2019ve liked a few more, but I respected the right to\u2014 him to end the way \u2014 I kept sending him emails saying, \u201cTell me how the chocolates are in Switzerland.\u201d But he didn\u2019t reply.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Richard, what was his argument for doing it? Did he feel like he was slipping? Did he want to just head that off at the pass altogether?<\/p>\n<p><strong>Richard Thaler: <\/strong>He wanted to be able to decide when he was going to do it, and his argument was, yes, he realizes that it\u2019s premature, but it would be premature whenever he decided to do it and so he\u2019s going to do it now. And I will say the last month of his life might\u2019ve been his happiest. So maybe he got it exactly right. He went to Paris for two weeks with his partner. And then his Israeli family, his daughter lives in Tel Aviv, and she and her family came and spent a week with him in Paris, which is where he grew up as a kid. And then he went off to Switzerland.<\/p>\n<p>So yeah, I\u2019m a greedy man. I would\u2019ve liked a few more, but I had 45 years, so that\u2019s pretty lucky.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yeah, and I won\u2019t spend too much more time on this, but I am curious, what was his belief around death? Was it lights out, that\u2019s it, just like before you were born? Was it something else? Was he afraid of dying or did he not have a fear of it?<\/p>\n<p><strong>Richard Thaler:<\/strong> I think he had no fear of it. Yeah, he didn\u2019t want to go through a phase where he didn\u2019t have his full faculties.\u00a0<\/p>\n<p><strong>Nick Kokonas: <\/strong>You explained to me when you first told me about this, because I think there\u2019s this innately human thing, which Tim is reacting to as well, and I certainly did, which is we are so ingrained to protect life and the life of ourselves and others that we love no matter what, right? And he feared the cognitive decline, the thing he valued the most was wrestling with ideas. And you told me that he feared that more and the control over how that ended than anything else.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah, I think it\u2019s not like he was worried about no longer being the smartest guy in the room as much as he thought that he might be slipping, and then who would \u2014 my intervention and my attempt at an intervention was to create a group of people he loved and trusted to say, \u201cAll right, when certain steps are there, we buy you the ticket.\u201d But he wanted to be the one who got to decide when that was going to be, and that was with all his facilities, and so that was it. So I think \u2014\u00a0<\/p>\n<p><strong>Tim Ferriss: <\/strong>Thank you, Richard. We can shift gears, but thank you for being willing to share that. I was taken aback when I read the piece and have just been very, very curious as someone who was in the same hallways but never took a class, which is real shame on my part. In any case, thanks for being willing to talk about that.<\/p>\n<p><strong>Richard Thaler: <\/strong>No problem.<\/p>\n<p><strong>Tim Ferriss: <\/strong>What keeps you going, Richard? What gets you excited?<\/p>\n<p><strong>Nick Kokonas: <\/strong>There\u2019s a transition, Tim.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Well, no, not saying you should buy a ticket to Switzerland. I\u2019m just saying, what is it that gives you the feeling of aliveness? Is it the wrestling with ideas? Is it something else? Is it corrupting the youth in productive ways?<\/p>\n<p><strong>Richard Thaler:<\/strong> So I took on this possibly wacky task of rewriting a book I published in 1992 about those anomalies columns. And part of that was there\u2019s something in psychology called the replication crisis, that there are some experiments that just don\u2019t replicate, and there are some people that have been proven just to have made stuff up. And I wanted to see whether the stuff we had built everything on could stand scrutiny. So I corrupted a young colleague of mine, Alex Imas, who just turned 40, and we took some of those old things, two pieces I wrote with Danny and one with Amos, and then some others, and then gave it the hard look. Does this hold up? Is it true out of sample? Is it true in the real world? And that\u2019s what keeps you thinking.<\/p>\n<p><strong>Nick Kokonas: <\/strong>I also like, I like that in the book, at the end of every one of these chapters where they go through the rigor of updating it and seeing if it holds up, they also say, \u201cFor the economist,\u201d and it\u2019s like one sentence. \u201cHere\u2019s your takeaway if you\u2019re an economist.\u201d And then it\u2019s like, \u201cFor everyone else, here\u2019s one sentence that\u2019s a takeaway.\u201d If anything comes out of \u2014 you can read the whole book, but you could also read those and get an awful lot out of it, which is really good because those conclusions are the nuggets that kind of propel the book forward, I think as well.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah, the way we wrote it is, yeah, take away for humans and for economists.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Well, I was going to \u2014<\/p>\n<p><strong>Richard Thaler: <\/strong>We don\u2019t say whether we think economists are not humans, but \u2014\u00a0<\/p>\n<p><strong>Tim Ferriss: <\/strong>Well, that actually preempts, in a way, my question, but I\u2019ll ask it anyway. Who is this book for? Who is this book for? Who\u2019s the reader?<\/p>\n<p><strong>Richard Thaler: <\/strong>I think we tried very hard to write it in a way that \u2014 it\u2019s not a thriller and it\u2019s not a self-help book, but I don\u2019t think it\u2019s as hard as <em>Thinking, Fast and Slow<\/em>, which was tough.<\/p>\n<p><strong>Tim Ferriss: <\/strong>That\u2019s dense. That\u2019s dense. Yeah.<\/p>\n<p><strong>Richard Thaler: <\/strong>It\u2019s a great book, but it\u2019s dense. And this book is much funnier than that. But I think corrupting the youth is always on my mind. I\u2019m giving a series of talks at universities because \u2014 so I have a trip next week, Cornell, Penn, and Princeton. So your alma mater. I\u2019ll be there in Green Hall. So I like interacting with the young people. I officially went emeritus July 1, so I\u2019m not teaching, but I still divide my time between Chicago and Berkeley. I still like going to workshops and interacting with my colleagues and having them sharpen me.<\/p>\n<p><strong>Nick Kokonas:<\/strong> I mentioned this to Thaler when we were on our way here, is that I was struck by the fact that these anomalies were pointed out 30, 40 years ago, something like that. And every single one of them, I could think of an example of a person, or myself, or a business that fell victim to one of these issues, if you will. And so it almost shines a light on our own, as you were saying, cognitive biases in a way that takes something that\u2019s a little squishy, like psychology and this and that, and then just applies it to something that impacts all of our lives, markets, business, the way we conduct our own households and does so in a very pretty basic way.<\/p>\n<p><strong>Tim Ferriss: <\/strong>And just for people, I\u2019ll give the title again. I\u2019ll mention it also towards the end, but <em>The Winner\u2019s Curse: Behavioral Economics Anomalies Then and Now<\/em>, is this the subject matter, Richard, of the talks that you\u2019re giving at these various schools?<\/p>\n<p><strong>Richard Thaler: <\/strong>So it\u2019s essentially a little book tour, but no point in going to bookstores. I\u2019d rather have 300 young students\u2019 minds to corrupt.<\/p>\n<p><strong>Tim Ferriss:<\/strong> Is there anything else, Nick or Richard, I\u2019ll kick it to Nick first, that you\u2019d like to cover with Richard before we wind to a close? Or Richard, anything else that you\u2019d like to mention, point people to, requests of my audience, anything like that that you\u2019d like to mention? Nick, you want to go first?<\/p>\n<p><strong>Nick Kokonas: <\/strong>Yeah, I was going to ask the Tim question, which is what books, if you\u2019re new to understanding this topic of behavioral economics, or even just traditional economics, what are your favorite sources, other than your own of course? And you\u2019ve already mentioned Danny\u2019s book and all that, but there must be some that are kind of the foundational books that you go to or you suggest to these young folks that you\u2019re trying to corrupt.<\/p>\n<p><strong>Richard Thaler: <\/strong>I mentioned this journal, the Journal of Economic Perspectives, most academic journals you can\u2019t get. That one is posted online. Anybody can read it. And if you\u2019re modestly interested in economics, it\u2019s a fantastic journal. There\u2019s a guy called Timothy Taylor who they hired brilliantly to, they call him the managing editor. I call him the writing editor. And he quickly adopted the strategy of taking your article and then just rewriting it. And he would say it\u2019s like in Microsoft Word with track changes, but the version you would get is the one, his version, and you could restore. But we know status quo bias works. And he still at it. So that\u2019s a fantastic place to learn about economics. It\u2019s four times a year. Typically, there\u2019s a symposium on some topic. And it\u2019s a resource nobody knows about and is fantastic.<\/p>\n<p>I mentioned Michael Lewis\u2019s book, <em>The Undoing Project<\/em>, and it\u2019s a great insight into Kahneman and Tversky. And I think I\u2019m not going to mention any other books because whichever one I mention, I will off 12 other people. So I\u2019ll keep the friends I have.<\/p>\n<p><strong>Tim Ferriss:<\/strong> Well, Richard and Nick, thanks so much for taking the time today for a very wide-ranging conversation. There\u2019s a lot more that I could ask about, but since we\u2019re racking up some decent mileage on this conversation, I\u2019ll keep it to this duration for round one, and people can find <em>The Winner\u2019s Curse: Behavioral Economics Anomalies Then and Now<\/em>, which is co-authored with Alex. Is it Imas? Am I saying that correct?<\/p>\n<p><strong>Richard Thaler: <\/strong>Imas.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Alex Imas. And we\u2019ll link to that in the show notes. You can find Richard on X, the artist formerly known as Twitter, at x.com\/R_Thaler, T-H-A-L-E-R. And as usual, everybody, I will link to anything that came up in the conversation in the show notes at tim.blog\/podcast. Just search Thaler, T-H-A-L-E-R, and Nick has been on the show, I think at least now this would be the third or fourth time. So if you want to delve into all the background on Nick, you have ample opportunity.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Hey, Thaler, thanks for doing this. I really appreciate it.<\/p>\n<p><strong>Richard Thaler: <\/strong>Hey.<\/p>\n<p><strong>Nick Kokonas: <\/strong>I always love spending time with you.<\/p>\n<p><strong>Richard Thaler: <\/strong>Likewise.<\/p>\n<p><strong>Nick Kokonas: <\/strong>And it was great having Tim here to make me sound better at asking questions. I will say to the audience, it is much, much harder, what Tim does, than to be a guest on the show. And so great respect to you because week after week, I listen to your podcast and you do a wonderful job.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Oh, thanks, man. Thanks, Nick. And we\u2019re overdue for an in-person catch up. Thanks. So I look forward to making that happen.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Let\u2019s do it.<\/p>\n<p><strong>Richard Thaler: <\/strong>I look forward to meeting you in person as well.<\/p>\n<p><strong>Tim Ferriss: <\/strong>That would be great. I do spend some time in Chicago. I also spend time occasionally in NorCal. I\u2019ve got a lot of friends at Berkeley, so I would suspect we\u2019ll cross paths.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah, I think we both know Michael Pollan, right?<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yep.<\/p>\n<p><strong>Richard Thaler: <\/strong>Yeah.<\/p>\n<p><strong>Tim Ferriss: <\/strong>Yeah, absolutely. Yeah, I\u2019m involved with the center there on a couple of levels, so lots of overlap. I really appreciate the time, guys.<\/p>\n<p><strong>Richard Thaler: <\/strong>Thanks.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Thanks, Tim.<\/p>\n<p><strong>Tim Ferriss: <\/strong>And enjoy your dinner. I\u2019ll talk to you guys soon.<\/p>\n<p><strong>Nick Kokonas: <\/strong>Thanks. Take care, Tim.<\/p>\n<\/div>\n<p><a href=\"https:\/\/hop.clickbank.net\/?affiliate=infohatch&amp;vendor=J1R2C\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-10614 aligncenter\" src=\"http:\/\/parmaks.com\/Resources\/wp-content\/uploads\/2025\/05\/profit-gen400px.png\" alt=\"Profit Gen\" width=\"400\" height=\"217\" srcset=\"https:\/\/parmaks.com\/Resources\/wp-content\/uploads\/2025\/05\/profit-gen400px.png 400w, https:\/\/parmaks.com\/Resources\/wp-content\/uploads\/2025\/05\/profit-gen400px-300x163.png 300w\" sizes=\"auto, (max-width: 400px) 100vw, 400px\" \/><\/a><br \/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Please enjoy this transcript of my conversation with Richard Thaler and Nick Kokonas. Richard H. Thaler (@r_thaler) is the 2017 recipient of the Nobel Memorial [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":11691,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-11697","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-growth"],"_links":{"self":[{"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/posts\/11697","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/comments?post=11697"}],"version-history":[{"count":0,"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/posts\/11697\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/media\/11691"}],"wp:attachment":[{"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/media?parent=11697"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/categories?post=11697"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/parmaks.com\/Resources\/wp-json\/wp\/v2\/tags?post=11697"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}