Richard Thaler Quotes
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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."
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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.
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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.
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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.
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When an economist says the evidence is "mixed," he or she means that theory says one thing and data says the opposite.
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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.
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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.
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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.
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Why tie to gold? Why not 1982 Bordeaux?
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If people just put away what's left at the end of the month, that's a recipe for failure.
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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?
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The lesson from behavioral economics is that people only save if it's automatic.
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Most economists, including me, agree that longevity insurance would make sense for a lot of people.
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A good rule of thumb is to assume that everything matters.
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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.
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Most people start claiming benefits within a year of when they become eligible, although benefits increase substantially if they wait.
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The assumption that everybody will figure out how much they have to save and then will just implement that plan is obviously preposterous.
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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.
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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.
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"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.
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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.
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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.
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People exaggerate their own skills. they are optimistic about their prospects and overconfident about their guesses, including which managers to pick.
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There are cases when I can make myself better off by restricting my future choices and commit myself to a specific course of action.
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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.
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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.
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I think we also have learned the lesson that we have to have better incentive structures.
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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.
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There's no reason to think that markets always drive people to what's good for them.
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So, what's a nudge? A nudge is some small feature of the environment that attracts our attention and alters our behavior.
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