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#830: Nick Kokonas and Richard Thaler, Nobel Prize Laureate — Realistic Economics, Avoiding The Winner’s Curse, Using Temptation Bundling, and Going Against the Establishment

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Oct 10, 2025

Richard H. Thaler, a Nobel Prize-winning behavioral economist, joins Nick Kokonas, entrepreneur and co-founder of Tock. They explore the flaws in traditional economic assumptions and how behavioral insights can reshape decision-making. Thaler discusses loss aversion's impact on markets and why people bid irrationally in auctions. They delve into practical applications of nudges, like using deposits to reduce restaurant no-shows. The duo also shares insights on mental accounting and the ethical implications of behavioral strategies.

01:57:50

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Why Winners Often Overpay

The winner's curse arises because winning auctions selects bids that overestimate value more often.
Winners systematically overpay because their bids reflect optimistic errors.

Don't Model Ordinary People As Experts

Experts and models differ: studying typical, non-expert behavior yields different predictions than using expert 'as if' assumptions.
Aggregate models can't hide individual biases when policy or markets involve ordinary people.

Trade Down To Reduce Selection Risk

If you hold a top pick in uncertain selection markets, trade down for more picks to reduce overpaying.
Diversify selections rather than betting on one high-variance choice.

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What is the study of economics?

02:43 • 5min

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Which core economic assumptions are flawed?

08:06 • 5min

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How did behavioral economics begin for you?

How do you test behavioral ideas rigorously?

18:02 • 7min

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What evidence shows loss aversion exists?

25:06 • 3min

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What are consequences of loss aversion in markets?

28:30 • 1min

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Can deposits reduce no-shows at restaurants?

29:54 • 5min

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How can behavioral economics be applied in practice?

35:01 • 3min

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What is a nudge and how long do they last?

37:50 • 4min

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Can nudges be used maliciously?

What sticks from your decision-making class?

45:53 • 2min

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What is the winner's curse and why does it matter?

48:11 • 6min

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How do behavioral biases affect forecasts and overconfidence?

53:50 • 5min

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Why does scouting fail and randomness dominate drafts?

59:12 • 50sec

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How can individuals create useful frictions?

01:00:02 • 1min

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How does mental accounting shape decisions?

01:01:20 • 12min

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How did reservation deposits improve restaurants?

01:13:08 • 2min

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How do people mentally treat gifts versus cash?

01:15:12 • 52sec

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Which cognitive biases help or hurt us?

01:16:04 • 3min

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How have big data and field experiments transformed research?

01:19:27 • 4min

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Why were you underestimated as a grad student?

01:23:11 • 4min

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How did you spread behavioral economics academically?

01:27:04 • 5min

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What made Kahneman and Tversky so influential?

01:31:50 • 6min

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Can we discuss Danny Kahneman's assisted death?

01:38:11 • 7min

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What motivates you now and who is the book for?

01:45:13 • 5min

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What resources do you recommend for learners?

• Mentioned in 251 episodes

Moneyball

The Art of Winning an Unfair Game

Michael Lewis

The book tells the story of the Oakland Athletics' 2002 season, where General Manager Billy Beane and his assistant Paul DePodesta used advanced statistical analysis, known as sabermetrics, to assemble a competitive team despite a limited budget. The approach, pioneered by Bill James, focused on metrics such as on-base percentage and slugging percentage rather than traditional measures like batting average and runs batted in. This data-driven strategy allowed the Athletics to compete with teams having much larger payrolls, like the New York Yankees, and achieve significant success, including a 20-game winning streak and a playoff appearance.

#2446

• Mentioned in 18 episodes

Misbehaving

The Making of Behavioral Economics

Richard H. Thaler

In 'Misbehaving: The Making of Behavioral Economics,' Richard H. Thaler recounts his journey in challenging traditional economic theories that assume humans are rational actors. The book chronicles the evolution of behavioral economics, a field that integrates psychology and economics to understand how people actually make decisions. Thaler discusses various behavioral concepts such as endowment effects, mental accounting, and self-control issues, using anecdotes and empirical studies to illustrate these points. The book also delves into Thaler's personal struggles and successes in establishing behavioral economics as a recognized field, including his work with institutions like the British tax collection agency and his battles with traditional economic thinking.

#168

• Mentioned in 129 episodes

Nudge

Improving Decisions About Health, Wealth, and Happiness

Richard H. Thaler

Cass R. Sunstein

In 'Nudge,' Thaler and Sunstein argue that by understanding how people think, we can design 'choice architectures' that nudge people toward better decisions for themselves, their families, and society. The book introduces the concept of 'libertarian paternalism,' where gentle nudges guide people toward beneficial choices without limiting their freedom. It explores various aspects of human decision-making, including the distinction between the 'Automatic System' and the 'Reflective System' of thinking, and provides numerous examples of how nudges can be applied in real-life scenarios to improve outcomes in health, finance, and other areas.

#1155

• Mentioned in 34 episodes

The Undoing Project

Michael Lewis

The Undoing Project by Michael Lewis chronicles the intellectual and personal relationship between Daniel Kahneman and Amos Tversky, two Israeli psychologists whose research fundamentally changed our understanding of human decision-making. Their studies, conducted from the late 1960s to the 1980s, exposed systematic errors in human judgment under uncertainty and laid the foundation for behavioral economics. The book delves into their extraordinary lives, including their careers in the Israeli military, and how their personal differences and eventual estrangement affected their work. Lewis's narrative makes complex psychological concepts accessible through engaging storytelling, highlighting the profound impact of Kahneman and Tversky's work on various fields, including economics, medicine, and government regulation.

• Mentioned in 566 episodes

Thinking, Fast and Slow

Daniel Kahneman

In this book, Daniel Kahneman takes readers on a tour of the mind, explaining how the two systems of thought shape our judgments and decisions. System 1 is fast, automatic, and emotional, while System 2 is slower, effortful, and logical. Kahneman discusses the impact of cognitive biases, the difficulties of predicting future happiness, and the effects of overconfidence on corporate strategies. He offers practical insights into how to guard against mental glitches and how to benefit from slow thinking in both personal and business life. The book also explores the distinction between the 'experiencing self' and the 'remembering self' and their roles in our perception of happiness.

#2406

• Mentioned in 19 episodes

The Winner's Curse

Paradoxes and Anomalies of Economic Life

Richard Thaler

Alex Imas

Richard H. Thaler is the 2017 recipient of the Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. He is the New York Times bestselling co-author of Nudge: Improving Decisions About Health, Wealth, and Happiness and the author of Misbehaving: The Making of Behavioral Economics. His new book is The Winner's Curse: Behavioral Economics Anomalies, Then and Now.

My co-host for this conversation is Nick Kokonas. Nick is an entrepreneur, investor, and author best known as the co-founder of The Alinea Group (sold in 2024) and the reservation platform Tock, which is now owned by American Express.

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Timestamps:

[00:00:00] Start.

[00:02:33] First principles: What is economics, really?

[00:04:18] The “max” assumption and agents as optimizers.

[00:06:41] Rationality in models: Solving problems like an economist would.

[00:07:29] “Meh” vs “Max” — shortcuts instead of optimization.

[00:08:06] Selfishness, fairness, and self-control in economic models.

[00:10:08] Milton Friedman’s “as if” defense.

[00:12:36] The cashew nuts story: Origin of behavioral economics.

[00:14:02] Removing choice and status quo bias.

[00:17:31] The case for Americans needing forced savings.

[00:19:34] Academic resistance: Psychologists laughing at economic theory.

[00:24:37] Loss aversion: Disease cure experiment.

[00:27:04] Endowment effect: Coffee mug experiment.

[00:29:45] Restaurant reservations and the power of deposits.

[00:31:05] Fairness research: Snow shovels and blizzards.

[00:32:50] Uber surge pricing and the 9/11 thought experiment.

[00:34:37] Behavioral economics in one sentence.

[00:35:00] Nudges: 401(k) auto-enrollment case study.

[00:37:46] The fly in the urinal and nudge durability.

[00:39:07] Lakeshore Drive lines: Making safety easy.

[00:41:30] Choice architecture: Good nudges vs. malicious nudges.

[00:42:40] Online gambling and Robinhood’s gamification.

[00:45:51] Lessons learned from teaching decision-making for 40 years.

[00:46:52] Winner’s curse: The jar of coins demonstration.

[00:49:04] ARCO engineers discover the winner’s curse in oil bidding.

[00:50:11] Writing papers as competitive strategy.

[00:52:31] Amos Tversky’s note: People learn through stories.

[00:53:44] Overconfidence: Amazon River and CFO predictions.

[00:55:59] NFL draft: 53% success rate (barely better than coin flips).

[00:57:12] Trading down in the draft as optimal strategy.

[00:59:26] Applying behavioral insights to daily habits.

[01:01:04] The law of one price and restaurant deposit resistance.

[01:02:39] Being a chef doesn’t automatically make you a good businessperson.

[01:03:33] Sports analytics: The three-point shot revolution.

[01:04:29] Michael Jordan vs Steve Kerr: 50% three-point shooting.

[01:05:56] Finding $20 bills on the street.

[01:06:35] Mental accounting: Money in jeans feels like a windfall.

[01:07:50] Obama stimulus: Lump sum vs. spread out payments — why does it matter?

[01:09:58] Airline baggage fees: “There’s a guy who owns that.”

[01:11:43] Sunk cost fallacy: The dessert we don’t need.

[01:12:37] Nick’s $500 wine example and building Tock on sunk costs.

[01:14:41] Richard’s daughter and the baseball/concert tickets experiment.

[01:16:05] Temptation bundling: Using cognitive biases for self-improvement.

[01:19:06] Big data and natural experiments in the real world.

[01:19:50] Mental accounting in action: Premium gas during the financial crisis.

[01:22:34] Amazon’s hundred-PhD economics department.

[01:23:48] The pragmatic reason Richard invented behavioral economics.

[01:25:47] Strategy: Corrupt the youth, not change old minds.

[01:27:06] The behavioral economics summer camp running since 1994.

[01:28:12] The “Anomalies” column in Journal of Economic Perspectives.

[01:29:44] Citations matter: Writing articles people can understand.

[01:30:31] Availability bias: Homicides vs. suicides.

[01:31:47] Kahneman and Tversky: The reason for everything.

[01:33:11] Systematic bias vs. random errors.

[01:34:08] Amos’ dinner trap: Everyone you know is dumb, except your models.

[01:37:19] Michael Lewis’ The Undoing Project.

[01:38:11] Daniel Kahneman’s assisted suicide decision as peak-end rule applied to life itself.

[01:45:11] What keeps Richard going?

[01:46:44] Why the updated version of The Winner’s Curse should appeal to economists and everyday humans.

[01:49:58] Parting thoughts.

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