Richard ThalerOpen Access

Richard Thaler

at University of Chicago, Booth School of Business

By discovering a long list of “Supposedly Irrelevant Factors” influencing our decisions, Thaler’s stories of ‘anomalies’ uncovered a new human layer of irrationality, earning him a Nobel Prize for Economics as a result.

What you need to know about ‘Dick’, Nudges and Sludges

The study

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Results

Results

Study graph
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What you need to know about ‘Dick’, Nudges and Sludges

• It started with a bowl of cashews at a university dinner party. After Thaler’s friends thanked him for removing the addictive nuts from the table, he wondered why people felt happier that they now had less choice; it contradicted economic theory around more choice being better!  A curious anomaly…

1979 He saw that Kahneman and Tversky's Prospect Theory better predicted human behavior. Their finding that we use shortcuts to make decisions that lead to biases motivated him to turn his own stories into experiments…

1990 His famous mug experiment found that, due to Loss Aversion and the Status Quo Bias (a tendency to stick with what we have), we overinflate the value of what we own, known as the Endowment Effect or Ownership Bias.

“Creating a reputation as a “sludge-free” supplier of goods and services may be a winning, long-run strategy”

- Thaler (2018) The Evolution of Behavioral Economics

2004 Designed the ‘Save More Tomorrow’ program with Shlomo Benartzi to help people save more as their wages went up, using Defaults + Foot In The Door to get savings from 3.5% to 13.6% after 5 years, next to 5% without help.

2008 Wrote  ‘Nudge’ with Cass Sunstein, defining nudges as interventions to help people make the choice they'd have made if informed and rational, happening within a ‘Choice Architecture’: the environment in which people make decisions, like a menu in McDonald’s or on your iPhone screen.

2018 Found, from looking at Swedish pensions, that default-based nudges last for many years, even when risk goes up! He’s since spoken out of the misuse of nudges in industry, calling them ‘sludges’.

2021 'Nudge - The Final Edition' was updated with new examples and a deeper dive into sludge.

Key Takeaways

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Pairings

Pairings

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Richard Thaler

Richard Thaler

at University of Chicago, Booth School of Business

By discovering a long list of “Supposedly Irrelevant Factors” influencing our decisions, Thaler’s stories of ‘anomalies’ uncovered a new human layer of irrationality, earning him a Nobel Prize for Economics as a result.

The study

Setup

Nuggademic people academic

Results

study graph
np_read_2490885_000000

In detail

• It started with a bowl of cashews at a university dinner party. After Thaler’s friends thanked him for removing the addictive nuts from the table, he wondered why people felt happier that they now had less choice; it contradicted economic theory around more choice being better!  A curious anomaly…

1979 He saw that Kahneman and Tversky's Prospect Theory better predicted human behavior. Their finding that we use shortcuts to make decisions that lead to biases motivated him to turn his own stories into experiments…

1990 His famous mug experiment found that, due to Loss Aversion and the Status Quo Bias (a tendency to stick with what we have), we overinflate the value of what we own, known as the Endowment Effect or Ownership Bias.

“Creating a reputation as a “sludge-free” supplier of goods and services may be a winning, long-run strategy”

- Thaler (2018) The Evolution of Behavioral Economics

2004 Designed the ‘Save More Tomorrow’ program with Shlomo Benartzi to help people save more as their wages went up, using Defaults + Foot In The Door to get savings from 3.5% to 13.6% after 5 years, next to 5% without help.

2008 Wrote  ‘Nudge’ with Cass Sunstein, defining nudges as interventions to help people make the choice they'd have made if informed and rational, happening within a ‘Choice Architecture’: the environment in which people make decisions, like a menu in McDonald’s or on your iPhone screen.

2018 Found, from looking at Swedish pensions, that default-based nudges last for many years, even when risk goes up! He’s since spoken out of the misuse of nudges in industry, calling them ‘sludges’.

2021 'Nudge - The Final Edition' was updated with new examples and a deeper dive into sludge.

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Open access, foundational Nuggets

Scarcity

Scarcity

We value things more when they’re in limited supply

Social Proof

Social Proof

We copy the behaviors of others, especially in unfamiliar situations

Prospect Theory

Prospect Theory

A loss hurts more than an equal gain feels good

Reciprocity

Reciprocity

We’re hardwired to return kindness received

Framing

Framing

We make very different decisions based on how a fact is presented

Loss Aversion

Loss Aversion

We feel more negative when losing something than positive when we gain it

Default Effect

Default Effect

We tend to accept the option pre-chosen for us

Anchoring

Anchoring

What we see first affects our judgement of everything thereafter

Fast & Slow Thinking

Fast & Slow Thinking

We make knee-jerk spontaneous decisions that can cause regretful damage

Dynamic Norms

Dynamic Norms

We’re more likely to change if we can see a new behavior developing

Salience

Salience

Our choices are determined by the information we're shown

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