Masters in Business: How Investors Fall Into Bias Traps with Richard Thaler & Alex Imas

Host: Barry Ritholtz (Bloomberg)
Guests: Richard Thaler and Alex Imas (Chicago Booth School of Business)
Date: January 16, 2026

Episode Overview

This episode features a lively and insightful discussion with Nobel laureate Richard Thaler—considered the godfather of behavioral economics—and his collaborator Alex Imas, on their updated edition of Thaler's influential book, The Winner's Curse. Host Barry Ritholtz leads a nuanced conversation spanning the origins of behavioral economics, persistent investor biases, reproducibility of behavioral findings, and the real-world consequences for decision-making and finance.

Key Discussion Points & Insights

1. Origins and Evolution of Behavioral Economics

• Thaler’s Aha Moment:

  • Studying standard economics, Thaler noticed models lacked real human behavior. (“I kept pausing and saying, really? …There are no people. There are agents and there are firms and there are things they call consumers, but they're not really people.” – Thaler, 01:58)
  • Reading Kahneman and Tversky’s work confirmed people deviate predictably from traditional models.

• Behavioral Economics: Marginal in Academia, Explosive in Practice:

  • Imas explains behavioral economics wasn’t yet in undergrad curriculums even after Kahneman’s Nobel (10:14).
  • Standard economic curricula lagged behind empirical research acknowledging real-world human decision-making.

2. The Persistence of Human Biases

• Biases Are Deep-Rooted:

  • “We have 30 years of data, all this research, a handful of books, people still make the exact same behavioral mistakes they used to. Has there been any change in behavior?” (Ritholtz, 27:22)
  • “Essentially no. That’s not that surprising because the stuff we’re talking about has been true as long as there have been humans... There’s evolution, but evolution takes thousands of years and 30 years is the blink of an eye.” – Thaler (27:22)

• Mental Accounting:

  • Where money is “mentally” allocated shapes spending decisions, not just total wealth (17:09).
  • Notable anecdote: Thaler’s Nobel prize money and “spending it as irrationally as possible” (19:32).

3. Choice Architecture and “Nudge”

• Impact on Retirement Savings:
  • Changing the default investment in 401k plans from “cash” to a balanced fund led to trillions more invested sensibly (28:09).
  • “You get credit for about $2 trillion in retirement savings that might have otherwise just been sitting around in cash.” – Ritholtz (28:24)
  • Thaler describes the legislative evolution enabling auto-enrollment and target date funds (31:44).

4. Key Investor Biases in Behavioral Finance

A. Loss Aversion & Status Quo Bias

• Thaler and Imas explain how much of their work relates directly to financial markets:
  • “There’s loss aversion and the status quo bias and a variety of different things.” (33:44)

B. The Disposition Effect

• Definition: Tendency to sell winning investments and hold onto losers.
• “When I buy a stock, it goes up in price. What do I do? I sell it. I want to realize my gains. Same stock goes down in price…What do I do? Hold onto it.” – Alex Imas (34:22)
• Visible decades ago, and persistently robust: “You download Robinhood data from today, you’re going to see it show up.” (35:13)

C. Limited Attention/Availability Bias

• Investors are disproportionately influenced by stocks “in the news,” neglecting less visible choices (36:20).

D. Home Country/Local Bias

• Investors over-allocate to their home country or even local industries; notorious consequences (Enron, GE – 38:00).

E. Overconfidence

• “Overconfidence…that’s the mother of all biases. We fall into these traps because we think we know more than we do.” – Thaler (67:34)

5. Behavioral Principles Applied in Asset Management

• Fuller & Thaler Asset Management:
  • Uses strategies directly tied to biases like overreaction and underreaction (40:50).
  • “We try to find stocks that we think the rest of the market is making a mistake about.” (40:58)
  • They forbid forecasting earnings: “We’re trying to predict the mistakes.”

6. Reproducibility and Robustness of Behavioral Findings

• Most classic biases are robust, both in lab and real-world settings—even as experiments are replicated with new populations and higher stakes (43:12).
• “Basically everything works. … If you go on the website of the book, we posted all of the results of our replications, but also instructions on how you can do it yourself. … People are still loss averse. They still have the endowment effect. Things like the conjunction fallacy… all work still.” – Imas (43:12)

7. The Winner’s Curse Explained (Auction Paradoxes)

• Concept: In competitive auctions for an item of uncertain value, the winner is likely the most over-optimistic and thus overpays.

• “What happens? Well, the average bid is less than $100…But the winning bid is always above $100 if you have enough people, because the most optimistic forecast is likely the highest bid and it's too high.” – Thaler (57:06)

• Real World Examples:

  • Oil lease bids, real estate bidding wars, and NFL draft picks—systematic “winner’s curse” overpayments (56:11–66:40).
  • “There's only a 53% chance that [the earlier pick] is better than the next one…Overconfidence…we think we know more than we do.” (66:47)

8. Applications, Evolution, and Challenges

Learning from Biases—Or Not

• Even sophisticated investors (e.g., institutional portfolio managers) are not immune:

  • On stock selection: “On the buying side, people actually did really well...but on the selling side, we found literally the same biases we found in the lab.” – Imas (71:10)

• Bias Blind Spot:

  • People believe they are less biased than “others.” (72:50)
  • “You have to have a lot of humility to say, ‘looks like I'm not really doing so well on selling. I'm going to adopt some choice architecture...’” – Imas (73:11)

The Ethics of Behavioral Tools

• Behavioral insights are often used against investors (e.g., Robinhood, sports gambling/gamification).
  • “It's tempting to say, look, all these sports betting apps and the gamification of investing are bad for people. On the other hand, people like doing it…It's difficult to find out what the odds are… It's a tough question.” – Thaler (74:46)

Notable Quotes & Memorable Moments

• On Homo Economicus:

  • “I started making a list of dumb stuff people do, but that was just to annoy my friends.” – Thaler (02:27)

• On Mental Accounting:

  • “My instinct was to say, well, you know, to a real economist, this is a stupid question, because how am I going to know? … How do I know that's the Nobel money as opposed to the money I got from selling a book?” – Thaler (18:14)

• Choice Architecture Real World Effects:

  • “You get credit for about $2 trillion in retirement savings that might have otherwise just been sitting around in cash.” – Ritholtz (28:24)

• On Disposition Effect:

  • “You know what feels good when you own a stock? Selling it at a gain. … You know what feels worse? I bought it at 90 and I sold it at 60. So you just kind of hold onto it, hoping something happens.” – Imas (35:13)

• On Overconfidence:

  • “Overconfidence … that’s the mother of all biases. … If we had some humility, maybe if we listened to our spouses more often, because at least in my house, my wife doesn’t think I know anything.” – Thaler (67:34)

• On Data and the Future of the Field:

  • “Get teched up. … Sort of work that you're doing in modern behavioral economics … just requires a different level of analysis.” – Imas (78:16)
  • “Learning how to clean up a data set, you got to learn that through experience.” – Thaler (79:45)

Timestamps for Important Segments

• [01:58] Thaler’s “aha moment” reading Kahneman & Tversky; behavioral economics roots.
• [09:40] Imas’s route into behavioral economics & lack of undergrad exposure.
• [17:08] Mental accounting vs. economic “wealth effect” models.
• [19:32] Thaler’s Nobel prize: “I’ll just spend it as irrationally as possible.”
• [28:09] Impact of choice architecture in 401k retirement savings.
• [34:22] Disposition effect explained (selling winners, holding losers).
• [36:20] Limited attention & home country/local bias.
• [40:50] How Fuller & Thaler Asset Management applies behavioral principles.
• [43:12] Replication and robustness of behavioral economics experiments.
• [56:11] Winner’s curse in auctions: real-world and classroom examples.
• [62:52] NFL draft, overbidding, and reproducibility of judgment errors.
• [68:59] Are we learning? How investors/people can combat their biases.
• [71:10] Biases among institutional investors—cognitive/decision blindspots.
• [74:46] Behavioral science used for and against investors (sports betting & apps).
• [78:16] Advice for students: “Get teched up,” modern analytics.
• [80:28] Retrospective: policy wish list & data frontiers for behavioral research.

Conclusion

This conversation distills decades of research into why, despite better knowledge of our behavioral failings, investors and consumers remain highly susceptible to the same bias traps that motivated The Winner’s Curse in the first place. With equal parts candor and humor, Thaler and Imas show that in fields from asset management to legislation and even sports, understanding and leveraging human psychology remain as critical—and as tricky—as ever. Successful real-world “nudges,” robust experimental replications, and ongoing behavioral pitfalls all point to a simple truth: human nature is persistent, but so is our capacity to learn—especially when aided by practical experience, the right data, and (ideally) a little humility.

Recommended:

• The Winner’s Curse: Behavioral Economics, Anomalies Then and Now (Updated 2025 Edition)
• [Find all past Masters in Business episodes on your preferred podcast platform]

(Podcast advertisements and sponsorships have been omitted for clarity and substance.)