This week in our interview series is Richard H. Thaler, Ralph and Dorothy Keller Distinguished Service Professor of Behavioural Science and Economics at The University of Chicago Booth School of Business. He received his PhD in 1974 from the University of Rochester and joined University of Chicago in 1995 after stints at The University of British Columbia, the Sloan School of Management at MIT, the Russell Sage Foundation and the Center for Advanced Study in Behavioral Sciences at Stanford as well as teaching at University of Cornell. While perhaps best known for the global best seller Nudge, his extensive research spans from behavioural finance to tackling many of society’s major problems with concepts from behavioural economics.
I wish someone had told me at the beginning of my career how to go about combining economics and psychology. There was no road map. Mostly trial and error with lots of errors.
I most admire academically… My greatest inspiration came from Kahneman and Tversky, my mentors who became my friends and collaborators. Danny is still a source of inspiration, going full speed at 78. They were a fantastic team because of their complementary skills, but they were both perfectionists in their different ways. I owe my career to them directly, but in some ways so does the entire field.
The best research project I have worked on during my career… This is like asking a parent to name his favorite child. Not fair. So I will fudge and name more than one. I think mental accounting is probably my best “idea”. Save More Tomorrow is my most important practical application. The book Nudge has reached the widest audience and had the most impact. But truth be told my favorite single paper is the one with Cade Massey on the NFL draft called the “Loser’s Curse”. The great thing about being an academic is that you can write a paper on anything. Certainly the paper that was the most fun to work on (or not work on) was the one with Eldar Shafir called “Invest Now, Drink Later, Spend Never”. Eldar and I didn’t work on it for a solid week in Venice one year. It is about the mental accounting of wine consumption. I still devote a lot of time to that problem!
The worst research project I have worked on during my career… There is nothing in print that I would want to take back. I have abandoned lots of projects. I believe in ignoring sunk costs. As I tell my MBA students: “Ignore sunk costs. Assume everyone else doesn’t.”
The most amazing or memorable experience when I was doing research… I gave a talk on the idea for Save More Tomorrow to a large (>500) group of 401(k) plan administrators in 1996 or so, thinking that at least one one of them would think enough of the idea to try it. Then nothing happened for several years. Very frustrating. Then out of the blue Shlomo Benartzi told me that someone he knew had tried it without even telling us, and the results were fantastic. That was exciting because once we could show people that the idea worked, it was (relatively) easy to get others to try it. Now it is used by millions of people, but we had to get the first employer to try it or we would still be wondering if it would really work.
The one story I always wanted to tell but never had a chance… No such thing. But I am putting all those stories into a book I am working on, so stay tuned. The working subtitle is “The Stories of Behavioral Economics”.
A research project I wish I had done… My phd thesis was on the value of saving a life. The idea was to estimate how much you had to pay people to get them to accept a small increase in risk. So, I did an econometrics exercise regressing wages on occupational mortality rates. But the really clean study to do, as suggested by my buddy Richard Zeckhauser, would be to get people to play Russian Roulette, with a machine gun with many, many chambers (say 10,000). Then tell people there are 5 bullets in the gun, how much would you pay to remove one, or accept to add one. For some reason, no human subject committee has ever been willing to approve this project. Can’t imagine why! (Before I get into trouble, this was intended as a joke.)
If I wasn’t doing this, I would be… Less happy. I feel lucky to have found a way to make a living that is so much fun to do. Who knows what else, but I did think about going to law school instead of economics graduate school. I don’t think I would have been a great lawyer though. I suffer from a diplomacy deficiency.
The biggest challenge for our field in the next 10 years is… I see two. First, JDMers need to learn to get out of the lab some of the time (and journal editors need to encourage such risky activity by applying appropriately different standards to field experiments). The stuff we study is too important and useful for it to be limited to the lab.
Second, I fear that the science-lab model in which increasing numbers of grad students are added to shrinkingly important papers in order to supply graduate students with enough publications to go on the job market. I think this trend stifles creativity and does not encourage students to do enough thinking on their own. More generally, I think psychologists are just publishing too many small papers. Look at the number of papers Kahneman and Tversky wrote that created and defined the field we now call judgment and decision making. The judgment stuff was really 3 papers plus the Science recapitulation. Then came prospect theory. Four blockbusters that led to a Nobel Prize. Not enough for tenure these days! Amos had a line about people that he felt wrote too many papers: “he publishes his waste basket”. I don’t think he would approve of the current state of affairs.
My advice for young researchers at the start of their career is… Work on your own ideas, not your advisor’s ideas (or at least in addition to her ideas). And spend more time thinking and less time reading. Too much reading leads people to think of small variations on existing studies. Admittedly my strategy of writing the paper first and only then reading the literature (or, more likely, letting the referees tell me what they think I should have read) is an extreme one, but it is better than trying to read everything. Try writing the first paper on some topic, not the tenth, and never the 50th.