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Richard Thaler: 5 ideas worth knowing

5 ideas from Richard Thaler, each explained in a minute and credited to the original work. Free on Savvy.

• Throwing good money after bad because you already spent so much

  Rational choice says only future costs and benefits should matter — money already spent is gone either way. But people keep funding failing projects and finishing bad meals just be…

  — Richard Thaler, Toward a Positive Theory of Consumer Choice

• The instant a mug is yours, you value it roughly twice as much

  Daniel Kahneman, Jack Knetsch and Richard Thaler randomly handed out coffee mugs, then asked owners how much they'd sell for and non-owners how much they'd pay. Owners demanded rou…

  — Daniel Kahneman, Jack L. Knetsch & Richard Thaler, Experimental Tests of the Endowment Effect and the Coase Theorem

• Changing the default option can change behaviour more than a law can

  Richard Thaler and Cass Sunstein showed that small changes to how choices are presented, like making retirement savings opt-out instead of opt-in, dramatically shift what people do…

  — Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness

• You treat a tax refund differently from an identical paycheck

  Richard Thaler showed that people mentally sort money into separate 'accounts' based on its source or intended use, even though cash is completely interchangeable. A windfall like …

  — Richard Thaler, Mental Accounting Matters

• Give someone a mug, and they'll suddenly demand twice its price to sell it back

  In 1990, Daniel Kahneman, Jack Knetsch and Richard Thaler handed Cornell students coffee mugs, then let owners set a selling price and non-owners set a buying price. Owners wanted …

  — Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, Experimental Tests of the Endowment Effect and the Coase Theorem

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