Behavioral Economics – Conversations with History

Behavioral Economics – Conversations with History


– [Narrator] This
program is a presentation of UCTV for educational
and noncommercial use only. (electronic music) – Welcome to a Conversation with History, I”m Harry Kreisler of the Institute of International Studies. Our guest today is Richard H. Thaler, who is the Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics at the Graduate School of Business, the University of Chicago. His publications include, The Winter’s, The Winner’s Curse: Paradoxes
and Anomalies of Economic Life and Nudge: Improving
Decisions About Health, Wealth, and Happiness. He is the 2010 Hitchcock
Professor on the Berkeley Campus. Well, welcome, Professor Thaler. – Thank you, it’s very nice
to be here in Berkeley. – Where were you born and raised? – I was born and raised in New Jersey and grew up in, grew up
in suburban New Jersey. My, my father was an actuary, and commuted on the train into
Newark, worked at Prudential. – And looking back, how do
you think your parents shaped your thinking about the world? – Oh, you know, it’s always hard to tell. I think my father’s
greatest influence on me probably was to convince me
that I didn’t have it in me to become a business man. I saw what he did and I
knew I couldn’t do that, and so, I’ve never held an honest job and hope to keep it that way. – And, but he peaked your
interest in economics? – Not really, I would say he
peaked my interest in math. Actuaries are really
applied mathematicians, and he was always giving
me little brain teasers and math problems, and
I’d say he cultivated my analytical thinking ability. – And where were you educated? – I was an undergraduate
at Case Western Reserve and did my PhD at the
University of Rochester. – And what was your dissertation on? – My dissertation was
on the value of a life, and it sounds like a unusual topic, but I had taught a course
in cost benefit analysis and this was kind of a problem that hadn’t really been
dealt with satisfactorily. How should we decide how much to spend on making things safer? And so … The theoretically correct approach is to see how much you
would be willing to pay to make your life a little bit safer, and, and then, because that’s what we do, we don’t save specific lives, we make everyone’s lives
a little bit safer, and so, I estimated that by looking at how much you had to pay
people to take risky jobs, and it was a very
classical economics thesis. – And … You, you are classified, I
guess, as a behavioral economist. – [Richard] Yes.
– And I wanna help our audience understand what that, that exactly means and I want to help students understand how you prepare for a career
in behavioral economics. So, so first, let me ask,
what are the skills involved in the kind of work you do? – Well, being a behavioral economist is really being an economist, and the training is really 90% the same as being any
other kind of economist. I think it’s just taking a
somewhat different approach and borrowing some psychology, so … A student who sets out to
become a behavioral economist goes to an economics graduate program, and then, take some psychology courses to add some breadth.
– Mhmm. And, and what accounts for your interest in human behavior and psychology … As a way to inform economics? Was it the anomalies of economic theory that led you in that direction or was this just an interest you developed earlier in your career? – No, I just kept running
into counter examples to the theory. So, the first one I found while
I was working on my thesis. So, I decided, I had mentioned I was doing really an econometrics exercise, but I decided just for the fun of it to ask people some questions. So, I would ask people two questions. “Suppose, by conducting this interview, “you’ve been exposed to a one
in a thousand risk of death, “how much would you pay to eliminate it?” And then, I’d ask a second question, “How much would you be, have to be paid “to agree to accept an
extra one in a thousand “risk of death?” Now, economic theory says those answers have to
be virtually the same, but when I would ask those
questions, people would say, “Oh, I would pay $5,000
to eliminate the risk, “but you wouldn’t get me to
take that risk for a million.” And, I thought, “Well,
that’s interesting,” and so, I started having a list on my blackboard of funny behavior and I was trying to make
sense of this behavior, and then, I ran into the
work of two psychologists, two Israeli psychologists,
Daniel Kahneman and Amos Tversky. Kahneman, of course, was a
faculty member at Berkeley here for many years.
– [Harry] And he was a guest on our program, actually. – And … So, they were … They had planned a trip to … Stanford for a year, they were professors at the Hebrew University and they were gonna go to
Stanford for a year, 1977, and I made it my business to
be in Stanford that year too. We spent a year talking
and the rest is history. – Now, in your book on The Winner’s Curse, you, you help us understand
what a theory is in economics. I wanna talk a little about that. What is a theory, and then, and what is the driving
theory of economics, if there is one, what is its assumptions about the way people
act in the marketplace? – Well … The first and most
important hypothesis is … That agents optimize. Individuals or firms. So, firms maximize the value of the firm, consumers maximize utility. They solve any problem as
well as an economist would, and … In fact, the sort of
culture of economics is that suppose you right
down some theory of, well, the recent Nobel Prize winners won research for search behavior. So, suppose Peter Diamond writes down a model of search behavior, and then, I come along and I write down the
model of search behavior where the agents are more
clever in the way they search, then, my model is taken to
be better than Peter’s model. Now, it’s not that it’s
a better description. We’ve evolved that … The agents in the economy,
as assumed by economists, have been getting smarter and
smarter for the last 60 years, but human beings, are, you know, just as dumb as we always
were, we’re just as human. So, we’ve had this growing gap, and I’m trying to fill in that gap by studying humans in economic situations, as to, as supposed to what,
in Nudge, Cass Sunstein and I, call them econs, which are
these mythical creatures that populate economics textbooks. – Now, in a theory, and we’ll talk about
your insights in a minute in terms of the flaws of human nature that enter into the equation, but in a theory, the goal is to simplify – [Richard] Right.
– To push away all of the brush, and to have, I guess, elegant, is the word, a statement with few assumptions, and
then, the measure of success is whether you generally predict the way things actually
happen in the real world. – Well, but notice there’s
a bit of a conflict there between elegance and predictive power. So, you know, Einstein said,
“Elegance is for tailors,” (Harry laughs)
and that … We want a theory to be as simple as possible, but no simpler. And … So … Economic theory is elegant,
and simple, and raw. Now … So, let me give you an example, one of the, one of the unstated
assumptions of economics is that people have perfect self-control because they choose just
what they should choose. So, an econ never has a hangover, never needs to go on a diet because he eats just the right amount. And, you know … Does that, saves for
retirement, perfectly. Now, we look around and
20% of America is obese, and 40% is overweight. That doesn’t look like a world in which people have perfect self-control. Now, an economist, of course, could say, “Well, they choose to be obese. “They choose to be overweight,” but there’s a whole industry
helping people go on diets, which suggests that, no there, it’s not that people
are choosing to be fat, there, there’s a conflict there. One part of them would like to be thinner, another part of them reaches
for the bag of potato chips and so, if we’re gonna have a
good model of that conflict, we have to face it head-on. – So, in … In your work, as you got
into this, it was … The situation that you would
run up against anomalies that the theory couldn’t account for. So, your book is called
The Winner’s Curse, what, what is The Winner’s Curse? And what did you learn from that? – Well, The Winner’s Curse is kind of a well-known
phenomena in economics, in which, the more bidders
there are for some object, an object that’s worth
the same to everybody, like say an oil well. The more bidders there
are, the more likely it is that the winner pays too much, and so, this has been well-documented in things like studies
of bidding for oil wells or for baseball players. When the Yankees paid so much
money to get Alex Rodriguez, or, well, originally, the Rangers, he was a very good player, but they paid him an astronomical amount and he probably wasn’t worth
the astronomical amount. So, the more bidders there are, the more careful you wanna be in bidding, but that’s a very counterintuitive idea, and so, in many contexts, we see people bid too much, and then, the
winner’s curse is the fact that when you win the auction,
you should be unhappy, rather than happy. – Now, the thrust of behavioral … Economics … It is empowered by observation, and I’m a
little confused as … How does … Theory, classical theory,
continue to survive when it really doesn’t
emphasize observation in the way behavioral economists do, or am I missing something here? – Well, I think, you know, there … Geocentric models of the universe survived for hundreds
of years with epicycles. So, you know, epicycles were the kludges that were invented by defenders
of the geocentric model to explain the anomalies, and they’re, the, as they got better, you know, as they invented
telescopes and things, the anomalies became more and more clear, and the epicycles became
more and more convoluted. So … The defenders of the
classical economic theory, say, “Well, it’s the only theory we have,” and what’s true is, it is
very elegant and parsimonious, and it often makes good predictions, so it is the case, of course, that people respond to incentives. If you raise the price, people buy less. That’s a pretty good prediction. Now, do they do things perfectly? No, and we can argue about what are the situations
in which these departures are most important, and
my strategy has been To aim at those. So, I’ve spent a lot of time talking about self-control problems because I think those are glaring examples in which the standard model fails. I’ve also studied … Situations and economic theory assumes that people are selfish. And … So … I, if there’s some way of
taking advantage of you, I will, if I’m a good economic agent. Humans are a little nicer than that. If you ask somebody what time it is, most people they just look at their watch, and respond truthfully. They don’t think, “Oh, maybe this is a
strategic opportunity,” and, you know, “if I tell
you it’s five minutes later “then, I’ll get a better
seat in the movie theater.” So … You know, I think we haven’t,
we, behavioral economists, have not abandoned the standard model. What we’ve done is append things to it to make it more realistic, and the reason is there will not be one single parsimonious behavioral model anymore than there’s a
single parsimonious model of psychology or political science, or international relations. Alas, there is no such model. – And, and so, the world,
when you get into the, to the world of behavior
and the way you do it, it’s messier, and so,
therefore, that, your your goal is really not
to come up with a new theory, so much as really to … Enhance, inform … And show the errors of
economic theory, is that– – No, no, I mean, there are, I mean, I’m not … I don’t practice what economists generally would call economic theory, but many of my colleagues, several of my colleagues here at Berkeley, Matthew Rabin, Matthew
Bolton, Stefano DellaVigna … Do engage precisely in standard looking economic theory, lots of mathematical models that are departures from
the standard theory. So, it is possible to write down mathematically rigorous economic theory that’s behaviorally enlightened. What’s true is that the model we have … That explains … Why we seem to lack self control might be a different one
than the model that we have that explains why if you’re nice to me, I’m probably gonna be nice to you. – And I wanna be clear about something, if one were to look at your career and the insights you’ve
brought to the table, is what has propelled you the anomalies that you would up collecting so that you were, it
was through observation, or was there some philosophical
reason for your … Looking in this direction? By that I mean, “Hey, people
are nicer than, than what … “What economic, the way economic
theory posits they are?” – No, I don’t think there was
some philosophical motivation, I think it was, I, it was, you know,
Milton Friedman used to, he had a book on, that he
called Positive Economics, and he used to say, in defending the rational model, actually, that, “We should judge a
theory by its predictive power. “Not by its assumptions.” So, that’s the way he
defended the seemingly artificiality of the assumptions, and I’ve, my approach as
been to say, “Okay, Milt. “Let’s do that, “but look here, here, and
here, the model fails,” and so, I think what’s
driven me over the years is it was first that list of anomalies, and then, second, the challenge
of convincing my colleagues that these were worth taking seriously. – You call yourself a
libertarian paternalist. What is that and what does it tell you about the way you look at public policy? – So, obviously, the phrase
sounds like an oxymoron, and it was kind of meant
to be a poke in the eye, but by libertarian, we mean
we like to devise policies that respect freedom of choice, and don’t tell anybody
what they have to do. By … Paternalism, we simply mean helping people achieve their own goals, as defined by themselves. So, suppose when we
walk out of the studio, somebody comes up to you and says, “Can you direct me
toward Telegraph Avenue?” If you’re the sort of person that points them in the correct direction, then you’re a paternalist. If you give them directions that may not be the actual, most direct route, but the route that they’re least
likely to make a mistake, you also qualify as a paternalist, but this is a new kind of paternalism that doesn’t require coercion. It’s not a nanny state, it doesn’t say, “You
shouldn’t eat fatty food.” It says, “If you’d like to lose weight, “here’s an environment
that might help you.” So, that’s our goal is to create an … A new sort of political framework, and our goal was to create one that was neither left nor right. So … It has the libertarian flavor … That … Some on the right … Seem to endorse, and it has the … Caring about people that
many progressive endorse. It’s not that different from
compassionate conservatism, a phrase that, from our distant past. – And what are there categories of, help us organize the way people fail … In seeing their best interest, because what you and
your co-author go through is a list of, of kind of human failings that sort of are the foundation upon which you build your model. Are there characteristics
of all of these things? Are there certain kind
of general situations where these failings manifest themselves? – Well, we’ve talked about self-control. So … That’s one problem we humans face. So many of us eat too much,
drink too much, smoke too much, fail to save for retirement, and people admit to
that, if you ask people, if you, there have been surveys
conducted of participants in 401k plans, and you say, “Do you think you’re saving too
much, just the right amount, “or too little?” Two-thirds will say too little. Now, an economist will make fun of that and say, Well, if they think
they’re saving too little, “then, why aren’t they saving more?” And the answer, if you ask people that, they’ll say, “Well, I can’t afford it.” Okay, so how can we, that
seems to be an opportunity. If you have somebody who’s
tried to quit smoking four times and has failed, well you have an opportunity
if you can come up with a better nicotine patch, then, you’re able to help
people achieve their own goals. So … One of, one of the success stories of, of behavioral economics
is a program a colleague, a former student of mine
Shlomo Benartzi and I devised to help people save more. We call it Save More Tomorrow, and it’s based on the
premise that all of us have more self-control in
the future than we do now. So, many of us are
planning diets next month, and so, what we do is
give people an opportunity to commit themselves to saving more later when they can afford it. And … We also link it to raises because we know people display
what we call loss aversion, they hate losing, they don’t
like to see their pay go down. So, we allow people to sign up for a plan where every time they get a raise, they increase the amount
that they’re contributing to the savings plan by a little bit in a way they don’t even notice. The first company that adopted this, we tripled saving rates
in two and a half years. Nobody complained,
people signed up for it, they were happy. Now in, according to economic theory, our plan wouldn’t have worked. No one would’ve signed up because they were already
saving just the right amount. What do they need this for? And … So, that’s an examp– A perfect example of a nudge,
and a successful nudge … And, you know, for years,
people had struggled about the right tax incentives
to get people to save. The … And this is gonna sound
totally banal and obvious when I say it, but it’s a point that most
economists have missed, and it’s the basic lesson
from social psychology, if you want to encourage
people to do something, make it easier for them to do it. Full stop. And if you do that, wonders will happen. – And it sounds like, in
this example you’re giving that you’re sort of realizing or you’re accepting the reality that people are contradictory. They have the best
intentions for the future, but in the short term,
they may not act on them, and then, you’re essentially,
finding the beauty in the default position, really, that you’re, you’re essentially saying, “Okay, let’s do something in the future “that you do right now,
so it happens automatic. “It becomes the default position,” yeah. – Exactly, and then, we
let inertia work its magic because people can withdraw
from the system anytime, but, you know, we lose
two or 3% a year, so … Because they don’t bother to, to pull out of the system. So, we always put a cap, you know, I sometimes joke
I could get people saving 150% of their income, if
this worked long enough. They wonder, “Geez, well how
come I have to write a check “to Berkeley every month?” And, you know, I’m joking, but the point is that
inertia creates big problems, we get stuck in ruts, but then we can use inertia. So, one of the tools, one of our most powerful
tools in Nudge is, precisely, the power
of the default option, and default options are simply what happens if you do nothing. So, when you get a new computer, there are all sorts of
options that have been picked by the manufacturer, how long it takes for the
screensaver to come on if you do nothing. What is the screensaver? Well, if you’re like me, you never changed any of those options. So, the computer manufacturer
has a lot of power And … They can use that to
help you or to abuse you. It can be an option that you’ve automatically checked
to get emails once a week from the manufacturer trying
to sell you other things. You know, you would prefer
that box not be checked, but if you have to dig down
far enough to uncheck it, chances are, you won’t. – Now, now, there’s a
political problem here and it would seem to lead to resistance to what you’re saying, that is, some actors in the market, for example, use human weakness and
human frailty to actually take advantage
– [Richard] Yes. – Of the consumer. Whereas, what you’re saying is, “You know, let’s look at
the greater good here, “and without interfering
with people’s decision, “you know, let them see, “help them act on the basis
of the bigger picture,” but what about that, that
problem of the people one thinks here of the
whole mortgage industry – [Richard] Right.
– Where a lot– – [Richard] That’s exactly
where I was gonna go. – Yeah.
– So, if you think about the crisis we’re still living through, much of it was started with
people taking out mortgages that weren’t good for them. Many of those were sold door-to-door in the old fashion,
high-pressure sales technique. “Psst, buddy, I can get you
a good deal on a mortgage,” and … In quite deceptive ways. Now, you can say they’re nudging. We didn’t invent nudging,
and it’s been around for thousands of years. So … Well what can we do about that? In a sense, this is my co-author’s job. He–
– Your co-author, tell our audience who your co– – My co-author is Cass Sunstein, a world-renown constitutional lawyer, whose current job is, in
the media, they call him The Regulation Czar. His official title is the
Director of the Office of Information and Regulatory
Affairs, part of the OMB. And … He, his job is to make
sure that regulations, new regulations adopted by the government, do more good than harm, and … So … He might think about, “Okay, what are we going
to do about mortgages?” Now, we know there’s just been a new consumer financial
protection agency created, and Elizabeth Warren and
another law professor has been given the job of figuring out what that agency will do, and … Certainly, I would encourage
Cass and Elizabeth to … Think about the mortgage market as, “How can we, how can we help “people who are choosing
mortgages make fewer blunders?” Without … Going so far as to say, “You must take this kind of mortgage, “you must not take that,” and one of the things that
we advocate in the book, and that I’ve been continuing
to work on and advocate for, is a new kind of disclosure,
electronic disclosure, and let me explain what that means, when you get a mortgage, you get 30 pages of forms that you have to sign, and you’re signing something that says, “I’ve read this thing,” and
anyone who’s ever bought a house knows you go to a closing
and you spend an hour signing pieces of paper
that you don’t read. Now, so that disclosure is useless, and there’s always waves
that we’re gonna have plain English disclosure, plain English disclosure for
really complicated products is a hopeless task. I don’t need a plain English disclosure for how my iPhone works because it’s obvious how it works. I press the button and it works. So, but I don’t, no one can explain to me the complexities of that mortgage. So, here’s what we advocate, when you apply for a mortgage, you would get an electronic
file, instead of 30 pages. Now, it’s not that you
would look at that file, you would, with one click,
upload it to a website, a private website, that
would help explain it to you, and what we’d like is mortgage shopping to be as easy as airline shopping. So, we’re all pretty good
now at finding the best fare between San Francisco and Chicago, ’cause there’s a whole array of websites that makes it easy for us to do that. There are even websites that search across the other websites. So, I think that market works pretty well, and it’s because the airfares
are readily available. We wanna make everything
readily available. The Obama Administration has
been extremely aggressive in releasing data, and so has the Bay Area. One of the best things the
local government has done is BART, Bay Area Rapid Transit, has GPS locators in every train and bus. They just released that
data that they already had where every train and bus is, and then, third party
providers created apps. So, if you’re standing at a bus stop wondering where the bus is, you can look in your app, and say, “It’s actually
caught in a traffic jam. “It’s four blocks down, it’s
never gonna get to you.” So, that cost the government nothing. They just released the data. The market provides the fancy app, and so, the administration
is busy releasing all kinds of data that was
hidden in file cabinets, and we’ll let the market do its wonders. – Now, will … What can be done about the resistance in, let’s go back to
the case of mortgages, where, you know, there’s
something of a fight to do the simple things that
might make things better? In your book, you propose,
with regard to credit cards, the notion of a recap, end of the year, a very simple state, this how
much interest you’re paying, this is, this is what
your account looks like, which would allow you to
do shopping around to see, “Well, do I really want this credit card?” How do we win the battle
of making that happen? The insight is the right one, but is there a resistance
to having that happen? – Well, you know, I think
some players in the market will resist this. Regulators often get
captured by the industry. We’ve set up a new
regulator and I’m sure that the President and Ms. Warren have every intention not to be captured, but they will be under pressure. I think that this electronic
disclosure and recap is a middle course, so, not every provider may embrace it, but I think the honest ones
will, the big players will, and so, I have some hope that if the companies are to choose
between a regulator telling them they can’t charge this sort of fee, but they can charge that sort of fee, in which, they play this
endless game of whack-a-mole, where the regulator abolishes some fee and they invent some new one, that if we just go to disclosure, then I think that the honest
firms will win, and I’m, so … I’m, I make a pitch whenever
I speak to groups like that, that this is the sort of
regulation that you should want because it just creates good competition, and if you’re in the business
of trying to fool people, then, by all means,
you should oppose this. – Let’s look now at the
economic collapse of 2008, and are there, is there some
way of looking at that crisis that is especially informed
by behavioral economics? – Well, you know, one of
the behavioral problems we haven’t talked about yet, and it’s one of the most
important, is overconfidence. So … The first week of, in my, I teach a course in decision-making in the
Chicago Booth School of Business, and … Before the class even
starts, we have the students fill out a survey on the web, and one of the questions is, “Where in the gray distribution, “do you think you will come out?” And 90% of the class thinks
they’ll be above the medium. Now, of course, that
can’t happen, and slowly, during the course of the
quarter, they realize that that prediction was overconfident. Well, business people are
overconfident too, and … You know, Tony Hayward … The CEO of BP, said the risk
of that oil well exploding was one in a million. And … I think the CEOs of Bear Stearns and Lehman Brothers never thought
this could happen to them, and so, I think there were
lots of human failings. Part of it came from complexity that they were dealing with ever-increasingly complex mechanisms, be it, a black box trading system or an oil well that’s a mile down, and the CEOs didn’t really understand what some of their bright
employees were doing, and here’s where I think
my plea for more disclosure may have a hidden benefit. I think in some cases, firms will end up disclosing
things to themselves. So, going back to the government’s … Disclosure, one of the things
the Obama Administration did in their first few months, was release on CD-ROM, a record of … The details of every
401K plan in the country. Now, there’s a company
down in Southern California that rates 401K plans. They could, now that they got this data, they could rate every company. They’ve told me that some CEOs have called them up, and said, “How, we gotta 68 on your score, “we had no idea our plan was
so bad, we’re gonna fix it.” So, that’s disclosure to yourself, it’s like getting on the scale, and if you’re forced to get on the scale, maybe you’ll be nudged to go on a diet. – So, so it’s interesting
because what you’re saying is that with the insights
of behavioral economics, you’re able to push the
system in positive directions just by … Looking at … The individual, the organization, the CEO, the consumer, and saying, “If you knew more, if you
had better information, “better feedback and systems that “sort of transcended human frailty, “that you would actually
not be undoing the market, “but, making it better.” – Exactly, we’re pro-market, but we’d like to create, market’s work best for simple products. If you go to the farmer’s market, and there are eight vendors
selling heirloom tomatoes, you know, you can do a pretty good job of picking the best tomatoes
at the price you wanna pay. You know, if you’re picking a mortgage, most PhDs in Finance struggle with understanding all the terms of a mortgage. So, that market isn’t gonna work as well as the farmer’s market, and we wanna make
everything work as well as, as the example I gave before
of picking an airline ticket. That has become pretty easy, even though the pricing
strategies are very complicated. Right, I have now idea why
the, the flight at 10:00 a.m. costs half as much as
the flight at 4:00 p.m., I don’t know what the formula is, but I can see it there and I can decide whether I have the
flexibility to fly at 10, and I can save $400. – Now, what does this
tell us about the way we should act in the future,
with regard, to regulation? Is it just what you said,
namely, more information at our fingertips, or what else? I mean, because there
are people who want to exploit the system, you
know, that actually were sort of party to the making of the crisis. – Well, I think we wanna
put a spotlight on them. I think the danger here is, and people often accuse me of thinking that we want lots of
heavy-handed regulation, and they accuse me of not realizing that bureaucrats are humans too. So, let me say right here,
in front of the camera, that I understand bureaucrats, with the possible exception
of my co-author, are fallible, and, you know, I write a … A monthly column in the New York Times, and I wrote one on World Cup refereeing. Precisely, to make this point. In the recent World Cup
there was an incident, in which, England was playing Germany, and a ball went one yard into the goal and everyone missed it, and there were thousands of replays where you see the ball landing
a yard over the goal line, and everyone missing it, and
the thrust of my essay was, if you were designing the rules, the first thing you
would take into account, that the referee is fallible. He can only be in one place at a time, he can only see in one direction. So, we need to create rules
that take into account that everyone’s fallible. Larry Summers said something very smart about the new financial regulations, and he said, “The goal should
be to create regulations “that don’t require anyone
to get any smarter,” and by that, he meant, both the consumers and the regulators. So, that’s my goal, is to create a world where we don’t need to be
geniuses to pick a mortgage, and we don’t need to be geniuses to run the Consumer
Finance Protection Agency. – And what sort of politics
make that possible? Because you’ve been, your
book has been attacked, I assume, by some people who view you a person who only wants to nudge, as a socialist, basically. – Yeah, that’s quite funny because … Well, Glenn Beck, in particular, thinks that we have some evil agenda. He’s referred to my co-author as the most dangerous man in America, which I can assure you he’s not. There certainly must be someone
more dangerous than him, and I would nominate him, actually, as one of the least
dangerous men in America, he’s, if he has a flaw, it’s
moderate, he’s too moderate, but … But, you know, the irony is, that the new government in the U.K. that’s led by the Conservative Party, has set up a Nudge Unit in Number 10. It’s, informally, it’s
called the Nudge Unit, the formal name for it is
the Behavioral Insight Team, and I’m an advisor to that team, and our mandate is to just think of ways that we can improve what government does using behavioral science techniques. So, I don’t think that this
is a left versus right. I’m just back from a trip to Korea, where the President of
Korea, read the book and assigned it to his cabinet, and he is … From an extremely conservative
party, a former businessman. So … We set out to write a book that
was neither left nor right, and, to some extent, we’ve achieved, but there’s, with a few exceptions. – If students were
watching this interview, they wanna go into
economics, public policy, how would you advise them to prepare for a career … So that they’re able to take advantage of psychology and the kind of
analysis that you are doing, while remaining in economics? – Well, you mean, aside
from reading our book cover to cover?
– [Harry] Yeah, yeah, right– – Several times. – [Harry] And making it
available to all their students. – Yes, assigning. I think that’s one of the, I’ve been on a campaign to
replace the Bible in hotel rooms with copies of Nudge,
Gideon’s Nudge, I think, but, you know, I think that many leading public policy schools are starting to incorporate
psychology courses in their curriculum, and I think that makes really great sense, and it’s not all economics, it’s very important that
policymakers understand economics, but what we’re trying
to convince them of is that it’s just as important that they have some
understanding of human nature, – And, and that … I think you’re saying that
that comes from observation, and not necessarily course work. – No, look, I think I’ve
learned a tremendous amount from reading the work of psychologists like the Danny Kahneman and Amos Tversky, and I teach a course that’s
more psychology than economics, and I think there should
be a course like that in every public policy program. – Well, on that note, Professor Thaler, I wanna thank you for being on our program, and I’m gonna show your book, ’cause everybody is gonna
wanna go out and buy it. – Right, Christmas is coming up. You know, this is a perfect
Christmas gift (laughs). – Thank you very much for being here, and thank you very much for joining us for this Conversation with History. (electronic music)

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