Richard Thaler, economist and professor at the University of Chicago, was awarded the Nobel Prize in Economic Sciences earlier this week. There were a few good pieces about Thaler this week that are worth citing.
This column at Bloomberg emphasizes the positive role Thaler has played in improving the average American worker’s chance of saving enough for retirement. Thaler has been a public advocate of automatic enrollment of employees into retirement plans (e.g. 401(k)) for at least a decade. He also has recommended the implementation of auto escalation of one’s savings rate over the course of a career. Auto escalation (e.g., save 1% of your income in Year 1, then increase by another 1% each year going forward) can drastically increase a person’s total savings by the end of their career.
Jason Zweig at WSJ mentions an anecdote from Thaler in the mid-1990s about the average person’s habit of delaying investment of their savings until a later date. Thaler’s assessment: “what investors fear even more than losing money is having to say ‘What an idiot I am.’”
This characterization of Thaler by Zweig is also great: “Much of Prof. Thaler’s contribution comes from a mindset more investors should try to emulate: He sees the world as if through a child’s eyes, as something wondrous and strange, as it is. To him, a consensus doesn’t confer authority; it calls his attention to the odd assumptions you have to make to believe in it.” Fellow Nobel Prize winner Daniel Kahneman agrees with Zweig: “He’s an ironic observer: He looks at the world, and the world looks funny to him.”
One last takeaway that Kahneman makes about Thaler that we can apply to our own work: Thaler’s ratio of home runs relative to average hits in his research is very high. “He has never wasted his time on problems that didn’t matter.”
Last, fellow economist Tim Harford wrote a congratulatory column about Thaler. He finished with this: “Mr Thaler’s catch-all advice: whether you’re a business or a government, if you want people to do something, make it easy.”