Nobel laureate Richard Thaler delights in the human side of economics

Richard Thaler doesn't do anything that isn't fun, he said.

Thaler, a Nobel laureate who was a professor at the Samuel Curtis Johnson Graduate School of Management from 1978 to 1995, spoke Oct. 17 at the Alice Statler Auditorium, in conversation with his longtime colleague and friend Tom Gilovich, the Irene Blecker Rosenfeld Professor of Psychology in the College of Arts and Sciences.

"Let me be clear," Thaler said, when the audience laughed. "I don't say that only having fun leads to a Nobel prize."

Thaler won the Nobel Prize in Economics in 2017 for his research, much of it started at Cornell, on limited rationality, social preferences and lack of self-control. He is now the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics Emeritus at the University of Chicago's Booth School of Business.

Welcoming Thaler to the stage, President Michael I. Kotlikoff said Thaler found inspiration for his research in experiences familiar to Cornellians, such as driving on one-way bridges, purchasing a snow shovel after a blizzard and buying corn at unstaffed roadside farm stands.

"Professor Thaler … is widely considered the father of the research field of behavioral economics, a field founded upon the radical notion, previously not widely embraced by economists, that people are actually human," Kotlikoff said.

By working at the intersection of psychology and economics, Thaler upended a central assumption in economics: that humans behave rationally. He recalled that when he was offered a position at Cornell, "I didn't feel the pressure to stick with a specific type of research, which allowed me to dabble in lots of different fields."

With colleagues, he worked to account for those less-than-rational elements of human behavior in economic models.

"Trying to convince [senior economists] that this was worthwhile was not going to work," he said.

Instead, Thaler joked that he and his colleagues planned to "corrupt the youth." They nurtured a new generation of behavioral economists with behavioral economics summer programs and small grants for new researchers; several of that generation are now leaders in the field, including Cornell faculty. In 1989, Thaler founded the Center for Behavioral Economics and Decision Research at Cornell, which today encourages collaboration among 90 researchers from five Cornell colleges.

Thaler offered advice to students in the audience trying to introduce new ideas to senior professors in their fields.

"If you're going to write a paper that you know some people are going to hate, really understand the way they think and preempt their first three lines," he said. "Learning how your intellectual adversaries think, and what their immediate responses are going to be, is really valuable."

Gilovich and Thaler touched on several ways behavioral economics influences daily life, in ways that can either help or hurt. These include the "tip screen" consumers encounter at retail food and beverage transactions, the subscription offers that tempt consumers by charging only $1 for the first month but automatically renew at a much higher price, and programs that encourage employees to save a portion of their future salary increases.

When Gilovich asked which area of behavioral economics is most fertile for future research, Thaler pointed to macroeconomics, which has remained largely based on traditional rational models. This can leave out important factors that these models consider irrelevant, such as whether a stimulus payment is paid in a lump sum or paid out over the course of the year, he said.

"Thanks to amazing faculty like Thaler and Gilovich, Cornell will always be known as the first home of behavioral economics," Suzanne Shu, dean of faculty and research at the Cornell SC Johnson College of Business and a former doctoral student of Thaler, said after the talk. "We are honored to carry the torch forward through new research and by teaching behavioral approaches to new generations of Cornell students."

The event was hosted by the Cornell SC Johnson College of Business, the College of Arts and Sciences and the Center for Behavioral Economics and Decision Research.

Alison Fromme is the associate director of communications for the Cornell SC Johnson College of Business.