Overview of Special Edition: Nobel Prize Winner Richard Thaler Live from the Economic Club of New York
This is a live, ~30–40 minute Masters in Business conversation (host Barry Ritholtz) with Nobel laureate Richard Thaler and co-author Alex Imas (Booth School of Business), recorded at the Economic Club of New York. They discuss the new updated edition of Thaler’s book The Winner’s Curse (originally a 1992 collection of “anomalies” columns), summarize key behavioral-economics findings from the past 30 years, and connect those insights to real-world domains: markets, auctions, sports, hiring, retirement savings, choice architecture (nudges), and the digital/democratized finance era (e.g., Robinhood).
Key takeaways
- The new edition of The Winner’s Curse is roughly two-thirds new material: original anomalies are retained/updated and every chapter includes a 30-year review of developments and replications.
- Many classic behavioral findings (endowment effect, ultimatum fairness, winner’s curse, status quo bias, etc.) have replicated robustly in lab and field settings — and often at similar quantitative magnitudes.
- Behavioral anomalies are strongest when decisions involve uncertainty. When experts have clear feedback and low uncertainty, biases tend to diminish.
- Buying and selling are psychologically asymmetric: professionals can be very good at buying but poor at selling (selling decisions often get less attention and produce worse outcomes than random).
- Choice architecture (defaults, gradual escalation, framing) produces large real-world effects — the 401(k) auto-enroll + default investment changes are a major success story.
- Digital platforms magnify behavioral biases: democratized, zero-fee trading (and products like weekly options) amplifies lottery-like behavior and large losses among retail investors.
- Slow organizational learning is common: even when analytics shows better strategies (e.g., sports analytics, pitch clocks), adoption is often slow due to social/ reputational costs and institution inertia.
Discussion highlights / examples
- Origins: Thaler and Hal Varian created “anomalies” columns (mid-1980s) to flag empirical puzzles that standard economic assumptions couldn’t explain; those columns became the 1992 Winner’s Curse book.
- Endowment effect: lab results (mugs/pens) — owners value items ~2.5x more; replicated in housing markets with similar quantitative magnitudes.
- Ultimatum game: offers under ~20% are frequently rejected — fairness and reciprocity matter; game theory’s “take $1” prediction does not match human behavior.
- Winner’s curse (auctions): winners tend to overpay because winning signals over-optimism; empirical examples include oil leases, contractor bids, NFL draft pick valuations. Contractors often use heuristics (e.g., add 25%) rather than precise math.
- Beauty-contest (Keynesian guessing game): classroom and contest experiments show iterative reasoning stops well above Nash equilibrium (1), illustrating limited depth of strategic thinking.
- Sports & analytics: Moneyball parallels behavioral economics; teams are slow to adopt analytically superior strategies (three-point revolution, 4th-down decisions, pitch clock).
- Buying vs. selling in finance: paper “Selling Fast and Buying Slow” — managers excel at picking buys but underperform on sells; a counterfactual “random sell” often beats actual selling choices because selling gets less deliberate attention.
- Choice architecture wins: auto-enroll and default fund choices (and Save More Tomorrow) dramatically increased retirement savings assets that otherwise would have sat in cash.
- Hiring & AI: replacing early-stage interviews with AI screening in one study improved retention — AI can extract signals humans miss in some recruiting contexts.
- Robinhood/digital trading: platforms profit from retail behavioral biases; heavy volume in single-day/weekly options has produced large retail losses.
Notable insights / quotes (paraphrased)
- “Most behavioral phenomena are bred and fed through uncertainty.” — Thaler
- “If you want people to do something, make it easy.” — Thaler (choice architecture mantra)
- Trust can beget trust: offering generous or trusting contracts can produce cooperative behavior in return (cab driver story).
- “The big lesson: when you’re dealing with people, if you make insulting offers they may be rejected; if you want cooperation, be cooperative.” — on ultimatum/cooperation.
Practical recommendations / action items
For policy makers and organizations:
- Use defaults to nudge good outcomes (e.g., auto-enroll in retirement plans; sensible default investments).
- Implement gradual-contribution schemes (Save More Tomorrow) to overcome self-control problems.
- Test and redesign communications (e.g., tax-collection letters) to highlight social norms and simplify actions — low cost, high impact.
- Create feedback loops and data-driven audits so practitioners learn from outcomes (e.g., keep and analyze scouting/scoring data).
- Deploy AI where it can extract hiring signals humans miss — but audit for fairness and unintended consequences.
For financial professionals and individual investors:
- Treat selling decisions with as much rigor as buying decisions — have rules/processes to avoid emotional/attentional bias.
- Be aware of “lottery” instruments and platform incentives (how zero-fee models monetize spread/flow).
- Use experiments and counterfactuals to evaluate decisions (e.g., would a random sell have been better?).
Audience Q&A — notable points
- Robert Aumann’s “agreeing theorem” requires common knowledge; confirmation bias and selective information consumption break its preconditions, explaining persistent disagreement in public/political discourse.
- Equity premium puzzle: long-run premium remains similar to earlier estimates; not a dramatic structural change.
- Democratization of finance has widened access but also supercharged risky, low-probability trading (options) that often leads to losses for retail traders.
Book & research notes
- The updated Winner’s Curse mixes original anomalies with modern replications and extensive chapter-by-chapter updates reflecting 30 years of behavioral economics research.
- Alex Imas led many of the update efforts; their collaboration produced substantial new content and synthesis.
Where to find the full interview / next steps
- This was a live bonus edition; a full Masters in Business studio interview with Thaler and Imas was recorded and will be released later by Bloomberg. Check Masters in Business on Bloomberg for the full episode and the updated book The Winner’s Curse for deeper reading.