Richard H. Thaler — The Winner’s Curse and Going Against the Establishment (with Nick Kokonas)

Richard Thaler joins Tim Ferriss and co-interviewer Nick Kokonas to trace behavioral economics from first principles. He explains how post-WWII economists built models assuming people are perfectly rational, selfish maximizers with no self-control problems, and how he spent his career demonstrating that real humans systematically deviate from those assumptions. Through stories like the hidden bowl of cashews, the Cornell coffee mug experiment, restaurant reservation deposits, and the NFL draft, Thaler shows loss aversion, the endowment effect, mental accounting, the sunk cost fallacy, and the winner's curse in action. He discusses nudges and choice architecture, how the same principles can be used for good or harm, and how big data now confirms in the real world what was once found only in labs. The conversation closes with a moving reflection on his mentor Danny Kahneman's chosen assisted death at age 90.

• Thaler's origin story: at a graduate-student dinner party he hid a bowl of cashews so guests would stop nibbling, and everyone thanked him, revealing that people sometimes prefer to have choices removed.
  00:11:22
• The Cornell coffee mug experiment showed that people who were randomly given a mug 30 seconds earlier demanded roughly twice as much to sell it as others would pay to buy it, demonstrating the endowment effect and loss aversion.
  00:22:16
• Nick Kokonas found that requiring even a $5 reservation deposit dropped restaurant no-show rates from 14% to under 3%, regardless of how wealthy the customer was.
  00:24:20
• Changing a retirement-savings sign-up from opt-in to opt-out (auto-enrollment) raised new-employee participation from about 50% to 90%, a core example from Thaler's book Nudge.
  00:30:37
• The winner's curse was discovered by Arco engineers who realized the oil leases they won at auction had less oil than predicted, because winning an auction means you were likely the highest and overpaid bidder.
  00:41:35
• Thaler's NFL draft research found that the chance a higher-drafted player outperforms the next one at his position is only 53%, barely better than a coin flip, so teams with top picks should trade down for more picks.
  00:50:35
• The sunk cost fallacy: Thaler will gladly drink a $500 bottle of wine he owns but would never pay $500 to buy one, showing how prior payment irrationally drives current decisions.
  01:02:33
• Thaler reveals that his best friend and mentor Danny Kahneman chose assisted suicide at age 90 while still mentally sharp, wanting control over the end before any cognitive decline.
  01:28:40

• Economics textbooks use 'max' (maximize) as the starting point of nearly every model, and refer to people as 'agents' rather than people.
  00:02:01
• Thaler says the assumption of rationality 'peaked in the '90s' before economists began admitting its drawbacks.
  00:09:48
• In fairness experiments, ordinary people say raising snow-shovel prices after a blizzard is unfair, but business school students say it's fine because 'we learned that in micro.'
  00:26:26
• Thaler tried to convince Uber's owner to cap surge pricing, asking how many days Uber would survive if it charged $5,000 to drive people home on 9/11.
  00:27:30
• A fly etched into urinals (popularized in the Netherlands) reduces spillage because men instinctively aim at it, a classic nudge.
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• On Chicago's Lake Shore Drive, lines painted progressively closer together create an illusion of speeding up so drivers tap the brakes on dangerous bends.
  00:33:16
• In basketball, 40% of a three-point shot beats 50% of a two-point shot, yet it took the NBA roughly 40 years to fully embrace the three-pointer.
  00:54:43
• Steve Kerr shot 50% from three-point range during a season playing alongside Michael Jordan, yet got only about one and a half attempts per game.
  00:56:17
• During the financial crisis gasoline prices fell about 50%, and data from millions of shoppers showed people irrationally started buying premium gas they didn't need rather than saving the windfall.
  01:10:50
• The largest economics department in the world is now at Amazon, with around 100 PhD economists.
  01:13:27