Morningstar Magazine - December 2017/January 2018 - 60

Investors

was 1977. I claim my greatest scientific discovery
is discovering them.
Ritholtz: Were you at Stanford?

Thaler: No, I was then at the University of
Rochester,3 but I made it my business to be at
Stanford that year.
Ritholtz: Stalking them?

Thaler: Stalking them. We got to be friends
and spent the year together, and Danny Kahneman
is still my best friend.
Ritholtz: So, how does an econ think about a problem
differently than a regular person?

Thaler: An econ will basically solve every problem
with a spreadsheet. And real people are rarely
deciding anything. We spend our lives doing. Every
once in a while, there's a moment where we
have to decide something, but then we go back
to doing. Econs are deciding all the time.
They never go into this autopilot phase. Most
of us are on autopilot all the time. The other
thing-the key thing-is that econs don't have
self-control problems.

How do we deal with bubbles and busts?
Is it something we just have to accept as
inevitable, or are we ever going to get past the
boom-bust cycle?

Ritholtz: No self-control problems?

Thaler: No, because they choose the best thing
for them all the time. They eat just the right
amount of food, they drink just the right amount
of alcohol, and they go to sleep at the right
time, they wake up at the right time, they never hit
that snooze button because they set the alarm
for the time they wanted to get up and then they
get up. Right? Now, I think there are people
like that, but I haven't met any. They're not the
people I know.

Anomalies
Ritholtz: Let's talk about the people you know and how
they tend to come out in your "anomalies" that you
publish on a regular basis. How did that come about-
that you started publishing a column, going back
a few decades, on things that simply don't make any
sense according to traditional economic theory?

Barry Ritholtz

Thaler: There was a new journal that the American
Economic Association started called The Journal
of Economic Perspectives.

As a past president of the American Economic
Association, I'll take an ad out for that journal.
It's free to anybody. You just go on the American
Economic Association website. The articles are
written for a nonspecialist-most of them would
be accessible to almost everybody in this room.
In the late 1980s, when that journal was starting,
I was having dinner with Hal Varian, who's now...
Ritholtz: ...the chief economist at Google.

Thaler: Right, an old friend of mine. This was
before he was rich. He was telling me
about this journal, and we cooked up the idea
at dinner of having a series on anomalies.
The first editor was Joe Stiglitz.4 Joe likes making
trouble, which is what this column was going
to do, and so he said, "Great idea!" I did
that once a quarter for four years and then
sporadically after that.
Ritholtz: Some of the things that have come up under
the idea of anomalies are really fascinating. We
were discussing the other day the issue with health
insurance deductibles. What is the problem with how
people deal with their own deductibles?

3 Thaler received a master's degree in 1970 and a doctorate in 1974 from the University of Rochester. His dissertation was titled "The Value of Saving a Life: A Market Estimate."
4 Stiglitz won the Nobel Memorial Prize in Economic Sciences in 2001.

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