If you want to encourage some activity, make it easy.
Richard Thaler
Whenever I'm asked to autograph a copy of 'Nudge,' the book I wrote with Cass Sunstein, the Harvard law professor, I sign it, 'Nudge for good.' Unfortunately, that is meant as a plea, not an expectation.
Real people have trouble balancing their checkbooks, much less calculating how much they need to save for retirement; they sometimes binge on food, drink, or high-definition televisions. They are more like Homer Simpson than Mr. Spock.
In the 1940s, economics started getting highly mathematical. It was basically because economists weren't smart enough to write down models of real behavior that they started writing down models of highly rational behavior - and they kind of forgot about humans.
Countries all around the world, starting with the U.K., have started behavioural insight teams, often referred to as nudge units. And they seem to be doing lots of good.
Pundits are no better at forecasting election outcomes than they would be at predicting the final path of a hurricane. Smart pundits should consider either abandoning this activity or consulting with the geeks before rendering their guesses.
Behavioral economics offers a plausible explanation for overreactions by the market. For example, a long period of bad performance can lead to stereotyping.
It's not that we can predict bubbles - if we could, we would be rich. But we can certainly have a bubble warning system.
The lesson of my field, behavioral economics, is that we need to understand the ways in which we differ from the rational human assumed in standard economic theory.
We all need a lot of humility, and especially about the economy.
If you're not putting enough away for emergencies or retirement, making commitments in advance, such as signing up for payroll withholding, can help.
Arthur Laffer's idea, that lowering taxes could increase revenues, was logically correct. If tax rates are high enough, then people will go to such lengths to avoid them that cutting taxes can increase revenues. What he was wrong about was in thinking that income tax rates were already so high in the 1970s that cutting them would raise revenues.
Lotteries are just one way to provide positive reinforcement. Their power comes from the fact that the chance of winning the prize is overvalued.
Leaders are important but not omnipotent.
If there is one thing that most economists agree about in the realm of tax policy, it is that it's best to broaden the base of any tax, all else being equal. That means minimizing the number of deductions and exclusions from taxable income in order to lower marginal rates and reduce distortions.
The sad truth is that many behavioral economists know very little about psychology.
The more we turn down questionable offers like trip insurance and scrutinize 'one month' trials, the less incentive companies will have to use such schemes.
If governments want to encourage good citizenship, they should try making the desired behavior more fun.
One reason for high health care costs is that patients fail to follow their treatment regimen.
If we think that high marginal tax rates are bad because they distort incentives, the same is then true for tax subsidies.
Signing up to be an organ donor should be at least as easy as downloading a song to your iPhone.
I try to teach people to make fewer mistakes. But in designing economic policies, we need to take full account of the fact that people are busy, they're absent minded, they're lazy, and that we should try to make things as easy for them as possible.
Parents want their children to excel, callers to a victims' hot line want help, and sick people want to get well. Offering aids is like providing an alarm clock: it may help people get to an appointment on time, but no one is forcing them to use it.
One of society's thorniest problems is that children from poor families start school lagging badly behind their more affluent classmates in readiness.
It's essential that we understand things like the free-rider problem, but we also need to understand that, fortunately, humans are a little nicer than economists give them credit for. Some people actually leave money at roadside fruit stands; some people give money to NPR so we can listen to it.
Tax cuts are one of many ways to stimulate the economy. Building infrastructure, for example, is another.
The tradition of Chicago price theory is a good one, and it is a low-tech methodology that tries to apply simple economic theory to the world.
The lesson for businesses is you are dealing with real people. Those are your customers, those are your employees, those are your bosses, and the better you understand how real people tick, the more successfully you will be able to accomplish your goals.
The main thing that you learn in grad school, or should learn, is how to think like an economist. The rest is just math.
The good thing I will say about the Chicago School is that it was always about the world, not about the abstract.
How can government reduce the frequency and the severity of future catastrophes? Companies that have the potential to create significant harm must be required to pay for the costs they inflict, either before or after the fact. Economists agree on this general approach. The problem is in putting such a policy into effect.
When it comes to assessing the chances of some complicated combination of events, gut feelings are pretty much useless.
In the world of traditional economics, it shouldn't matter whether you use an opt-in or opt-out system. So long as the costs of registering as a donor or a nondonor are low, the results should be similar. But many findings of behavioral economics show that tiny disparities in such rules can make a big difference.
When it comes to my health, I would rather my doctor base her decisions on science rather than what she, or some lawyer, thinks will stand up in court.
Demanding that the rich get a tax cut as a condition for tax relief for others is simply elitist.
As both a consumer and producer of newspaper articles, I have no beef with pay walls. But before signing up, I read the fine print.
Doctors and hospitals should be paid for keeping their patients well. Paying them for doing more tests and surgeries creates bad incentives.
Companies are accumulating vast amounts of information about your likes and dislikes. But they are doing this not only because you're interesting. The more they know, the more money they can make.
Don't get trapped by looking at what the price was that you paid for some stock originally.
Fortunately, economists open to new ways of thinking are finding novel ways to use supposedly irrelevant factors to make the world a better place.
It is true that I am one of the co-authors of 'Nudge,' and I am a behavioral economist, but it does not mean that everything we write about in that book is behavioral economics, nor does it mean that my co-author, the distinguished legal scholar Cass Sunstein, is a behavioral economist.
I don't think it says anywhere in the Bible that tithing should be calculated on a before-tax basis.
I am all for trying to teach household finance in schools, starting as early as possible. And when it comes to high school, I think learning about compound interest is at least as important as trigonometry or memorizing the names of all 50 state capitals.
I practice what has come to be called behavioral economics.
Academia does not provide many opportunities for immediate gratification. You work for two years on a project, it takes two more years to get it published, and then you start hoping someone might read it.
Traditional economics is based on imaginary creatures sometimes referred to as 'Homo economicus.' I call them Econs for short. Econs are amazingly smart and are free of emotion, distraction or self-control problems. Think Mr. Spock from 'Star Trek.'
You go out on the practice range, and something kind of clicks, and you start hitting the ball very crisply. And you're sure that you've found it, the holy grail - that all you have to do is hold your hand in a certain way. Then you go out on the golf course, and it's completely disappeared.
A nudge is some feature of the environment that changes the behaviour of humans but would not change the behaviour of rational economic agents, what we call Econs.
Claiming that Social Security benefits are safe may sound naive, but my view is actually quite cynical. I believe that as long as the elderly continue to vote in large numbers, no Congress will renege on promised payouts for those already eligible to receive benefits.
Anybody who's ever been in a large organization realizes that 'optimizing' is not a word that would often be used to describe any large organization. The reason is that it's full of people, who are complicated.
