BUS166 Richard Thaler Notes

BUS166 Richard Thaler Notes - BUS166 11/16/09 Richard...

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BUS166 11/16/09 Richard Thaler, University of Chicago economist and author of Nudge : 2008 talk at Google Trying to use tools of behavioral economics to do two things: Goals and Objectives: Apply the techniques of the psychology of decision making and behavioral economics to improve decisions without limited choices – help people make good decisions. (Ambitious) Offer a new approach to public policy that is neither left nor right – help develop a new idea to help decrease polarization (division) in our society. (Ridiculously ambitious) What is behavioral economics? “The phrase behavioral economics appears to be a pleonasm (redundant phrase). What non-behavioral economics can we contrast with it? The answer to this question is found in the specific assumptions about human behavior that are made in neoclassical economic theory.” – Herb Simon Economics (assumptions) Bounded Rationality - Economists assume people are super smart (human difference) -including bounded attention Bounded Willpower -“Econs” have Gandhi-like willpower (never submit to temptation) unlike “humans” Bounded Self-interest
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-Econs unboundedly unscrupulous -Humans are nicer than Econs (difference) Bounded Market -What sense do markets drive humans to be Econs and in what sense do they exacerbate Law of one price -The same thing cannot be for sale at two different prices = False One Approach to Policy: Libertarian Paternalism Both terms are currently unpopular (at least in the US), and seemingly contradictory. But, neither concept should be controversial: - Libertarian : protect the individual’s right to choose (so all ideas presented in book are choice-preserving) - Paternalism : do what you can to improve the welfare of people (for most of us, if we ask what time it is, we give the correct answer!) So don’t think that this way the idea is controversial. So how do we achieve libertarian paternalism? We do it by what we call choice architecture Choice Architecture Anyone who designs the environment in which people make choices is a choice architect -Menus -Store layouts -Curriculum
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Google is the one of the biggest choice architecture What is the alternative? Important concept of the book: Choice architects must choose some set of institutional arrangements. What design should planners pick? (Must of windows, doors, etc.) – have to have a real building, not some abstract So real architecture has to make choices and choice architecture has to make choices Example : cafeteria menu at Google planning --- in what manner (order, salience…) should the food be presented?
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BUS166 Richard Thaler Notes - BUS166 11/16/09 Richard...

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