Dean Madhav Rajan and Richard Thaler Participate in Distinguished Speaker Series

On Tuesday, June 2, Chicago Booth Dean Madhav Rajan hosted Professor Richard Thaler for an online installment of Chicago Booth’s Distinguished Speaker Series for Booth students. Professor Thaler is the Charles L. Walgreen Distinguished Service Professor of Behavioral Science and Economics and the recipient of the 2017 Nobel Prize in Economics. 

Booth students were invited to submit their questions beforehand, and Professor Thaler answered them throughout his lecture, touching on topics such as the behavioral economics of COVID-19, decision making in professional sports, and how to (or not to) win a Nobel Prize. 

BEHAVIORAL ECONOMICS AND COVID-19

“Certainly the way we go about COVID-19 is a behavioral problem,” Professor Thaler explained. He delved into how behavioral economics has shaped the restaurant industry’s response to COVID. Data from reservation booking sites such as OpenTable show that people ate out less frequently in the days before businesses were officially ordered to shutter. So even if dining rooms re-open, consumer confidence may not rebound without additional safety measures. 

Despite signs of adaptation to COVID-19, Professor Thaler pointed out that some socially optimal behaviors such as mask-wearing are not common enough – an opportunity for the behavioral economists to step in to boost adoption rates. 

Professor Thaler also reflected on ways in which we can harness behavioral economics to increase private firms’ contributions to coronavirus relief funds. In his book Nudge, Professor Thaler showed how transparency can be used to alter firms’ greenhouse gas output; simply publicizing companies’ carbon emissions pushes firms to reduce consumption. Publicizing firms’ coronavirus relief donations could similarly increase their contributions to relief funds. 

SPORTS AND BEHAVIORAL ECONOMICS

Professor Thaler also explored his research on the role of biases in professional sports, including how long it takes for each sport to learn from their biases. In the NFL, for example, teams are willing to pay a high premium for the first pick of the draft each year. However, Thaler argues the first pick does not offer enough marginal value to make it worth its price. In the 1990s, NBA players more often went for the three-point shot despite the two-point shot having a higher expected point value. While many NBA teams have made progress on optimizing their shooting strategies, NFL teams continue to prioritize early picks in the draft. Professor Thaler credits the NFL’s inaction to what he calls “the dumb principal problem”—NFL coaches fear that their superiors will fire them if they implement a new method which fails.

HOW TO PREPARE (OR NOT PREPARE) TO WIN A NOBEL

Professor Thaler also reflected on his experience winning the Nobel Prize in 2017. On the day of the Nobel announcement, most economists sleep with their phone next to them, as the call comes in the middle of the night. However, Professor Thaler, not anticipating the good news, was sound asleep when the committee called, leading his wife to pick up the phone––which had run out of battery.  

When asked how the Nobel Prize changed his approach to research, Professor Thaler noted wryly that he now needs help reading all his emails. Thaler recalled that his friend Eugene Fama also did not appear to change much bit after winning the prize in 2013.

Given that the award often comes late in one’s career, winning the Nobel Prize rarely alters economists’ behavior, Thaler says. But if it does, “you’ve lost your mind,” he joked.