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. Richard Thaler More Quotes by Richard Thaler More Quotes From Richard Thaler 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. Richard Thaler swans rare-events giving I think we also have learned the lesson that we have to have better incentive structures. Richard Thaler incentives lessons thinking Why tie to gold? Why not 1982 Bordeaux? Richard Thaler money ties gold 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. Richard Thaler saving self retirement 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. Richard Thaler balance people thinking 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. Richard Thaler giving men hands 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. Richard Thaler employee saving firsts 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. Richard Thaler should-have games writing 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. Richard Thaler over-you honor cards 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. Richard Thaler typical saving want 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. Richard Thaler simple two people 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. Richard Thaler russia class two 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. Richard Thaler debt credit retirement 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. Richard Thaler credit real use Every American worker should be able to save for retirement via payroll deductions. Richard Thaler able should retirement 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? Richard Thaler over-you use friendly 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. Richard Thaler balance long people 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. Richard Thaler mean people years 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. Richard Thaler drunk law thinking Most people start claiming benefits within a year of when they become eligible, although benefits increase substantially if they wait. Richard Thaler waiting people years
