Richard Thaler Quotations

There is no doubt that these are real people making real choices for high stakes, and we rarely get to observe such pure decisions.

There have been hundreds of papers on subjects from picking students for a school to predicting the survival of cancer patients.

At the moment no one can prove that these Internet stocks are overpriced. But many of us have deep suspicions.

The median person still thought that their prices were going to go up. That's the definition of a bubble.

Retirement savings is probably behavioral economists' greatest success story. It is a prototypical behavioral-economics problem because saving for retirement is cognitively hard - figuring out how much to save - and requires self-control.

One simple step firms can take is make sure that people that are getting paid a lot of money, say more than a million or two, that a big chunk of that money is deferred. That's going to change the whole ballgame.

The money has to be deferred with what they call "clawback," which means they can get it back if I lose it all. So that guy making ten million a year selling credit default swaps, if we're going to keep five million of it in escrow for ten years, and with the right to go back and get it, if he starts losing money, then we're going to give people the right incentives not too take so much risk.

Everyone's lost a lot of money on their 401k plans. I've heard some people calling them 201k plans. So it's even more important to get people to be saving more for retirement. Behavioral economics has helped us learn a lot about how to do that.

In a typical 401k plan, when you first become eligible you get a big pile of forms and you're told, fill out these forms if you want to join. Tell us how much amount you've saved and how you want to invest the money. In, under automatic enrollment you get that same pile of forms but the top page says, if you don't fill out these forms, we're going to enroll you anyway and we're going to enroll you at this saving rate and in these investments.

There's a second component of a good savings plan, which is something that a colleague of mine called Schlomo Benartzi and I developed many years ago, that we call "save more tomorrow."

"Save more tomorrow" is a nudge to help people do what they know they want to do, which is save more, but they can't bring themselves to save more now. Just like many of us are planning to go on diets next month, or maybe in two months, certainly not tonight.

A company invites their employees to sign up for a plan where every time they get a raise, some part of that raise goes to increasing their contribution rate to the 401k plan. In the first company we convinced to adopt this plan, saving rates tripled.

When should we nudge and when should we shove, I think, it's a political judgment. Obviously in some situations we need shoves, we need laws. Fraud is against the law, murder is against the law, drunk-driving is against the law. We don't need just nudges.

So, what's a nudge? A nudge is some small feature of the environment that attracts our attention and alters our behavior.

It turns out, that men, when they're taking care of their business, they're not fully attending to the task at hand, but, I'm sure there's an evolutionary explanation for this, if you give them a target, they will aim.

People worry that if they buy an annuity and then die before the policy starts to pay off, their heirs will lose out. I tell them, "What you should be more worried about is if you outlive your money, you will have to move in with your kids. Ask your kids which of these outcomes they are more worried about."

The assumption that everybody will figure out how much they have to save and then will just implement that plan is obviously preposterous.

If people just put away what's left at the end of the month, that's a recipe for failure.

Every American worker should be able to save for retirement via payroll deductions.

Most people start claiming benefits within a year of when they become eligible, although benefits increase substantially if they wait.

I think the people who've been the most overconfident in our business in the last decade have been the people that called themselves risk managers.

The reason is they failed to learned the primary lesson we should have learned from when Long Term Capital Management went belly up ten years ago. That is, investments that seem uncorrelated can be correlated simply because we're interested in it.

he card companies will often, as a courtesy, honor that credit card, but hit you with a penalty. And you keep swiping your card for $3 at Starbucks for your latté, and you're getting hit with a $25 penalty because it's over your credit limit.

If rather than setting the minimum balance as the lowest possible amount, so we keep people in debt for as long as possible, we raise the minimum payment and encourage people to pay off their credit cards, we're going to make less money, but we're going to have costumers that are more solvent.

Is there a market for somebody selling a credit card that helps people pay down their balances? I think the question is yes. But it would have to be sold by a bank that's really willing to invest in being a trusted partner with its consumers, because they will make less money on each consumer.

Credit cards have been extremely profitable to banks. They're profitable not from the fees they collect from the retailers that use the credit cards, that pays the bills, but the real profits come from the interest payments and the charges to users that are unexpected.

A good rule of thumb is to assume that everything matters.

I think we also have learned the lesson that we have to have better incentive structures.

Recall that people like to do what most people think it is right to do; recall too that people like to do what most people actually do.

People exaggerate their own skills. they are optimistic about their prospects and overconfident about their guesses, including which managers to pick.

The same with the mortgage brokers that were selling people mortgages they couldn't afford. We shouldn't pay them on each mortgage they write. They should have what they call "skin in the game," where they've got to reimburse us if the guy who sold the mortgage defaults.

I think one lesson we have to learn is that there's a lot more risk than we're giving credit to, a lot more what economist calls systematic risk.

Maybe you'll take the cash out. So a credit card company or a bank that goes into the business of saying we're going to be the broker, we're going to sell you a mortgage that you're going to be able to pay off, we're going to help you reduce your credit card debt, we're going to help you save for retirement, we're going to put you into mutual funds that have low fees rather than high fees.

Why tie to gold? Why not 1982 Bordeaux?

I'm all for empowerment and education, but the empirical evidence is that it doesn't work. That's why I say make it easy.

So the world is much more correlated than we give credit to. And so we see more of what Nassim Taleb calls "black swan events" - rare events happen more often than they should because the world is more correlated.

Most economists, including me, agree that longevity insurance would make sense for a lot of people.

Rip Van Winkle would be the ideal stock market investor: Rip could invest in the market before his nap and when he woke up 20 years later, he'd be happy. He would have been asleep through all the ups and downs in between. But few investors resemble Mr. Van Winkle. The more often an investor counts his money - or looks at the value of his mutual funds in the newspaper - the lower his risk tolerance.

There's no reason to think that markets always drive people to what's good for them.

LTCM lost money when Russia defaulted on a certain class of bonds, and then they had other investments like on the spread between two different kinds of shares of Royal Dutch Shell Oil Company. Now that seems completely unrelated to Russian bonds. But they were related because other hedge funds saw similar discrepancies and they were all making similar bets.

There are cases when I can make myself better off by restricting my future choices and commit myself to a specific course of action.

Investors must keep in mind that there's a difference between a good company and a good stock. After all, you can buy a good car but pay too much for it.

The lesson from behavioral economics is that people only save if it's automatic.

It would be much more consumer friendly for them to beep you when you swipe your card that says, uh-oh you're over your limit, are you sure you want to use that?

I don't go by the ratings. I buy wine that tastes good. Statistically, anybody's ability to predict what will be a good wine a decade from now is limited.

My mantra is if you want to help people accomplish some goal, make it easy.

When an economist says the evidence is "mixed," he or she means that theory says one thing and data says the opposite.