Podcast Summary: More or Less – Richard Thaler and The Winner’s Curse

Podcast: More or Less
Host: Tim Harford (BBC Radio 4)
Guest: Richard Thaler
Air Date: November 29, 2025

Episode Overview

In this episode, Tim Harford welcomes Nobel laureate Richard Thaler, one of the founding figures in behavioral economics, to discuss the enduring significance of his influential work, The Winner’s Curse. They delve into noteworthy findings from behavioral economics, explore why humans aren't always rational in their decisions, and examine concepts like the "winner's curse" and mental accounting. Thaler also discusses the updated edition of his book and how experimental results from decades ago still stand up to scrutiny.

Key Discussion Points and Insights

1. The Birth of Behavioral Economics

• Traditional Economics vs. Real-World Behavior
  • Early economic models depicted humans as entirely rational, akin to “a wealth maximising version of Star Trek's Mr. Spock” ([01:20], Tim Harford).
  • Thaler and other behavioral economists introduced the idea that real human behavior often strays far from rational optimization—humans are “less Spock and more Homer Simpson: Silly, impatient, weak willed and easily confused” ([01:41], Tim Harford).
• Significance for Public Policy
  • Accepting that humans aren't fully rational has “important consequences for how economists did their work and how public policy should be conducted” ([01:56], Tim Harford).

2. Exploring "The Winner’s Curse"

• Classroom Experiment: The Jar of Jelly Beans
  • Thaler explains the winner’s curse using a jar filled with jelly beans, where students bid based on their guesses of the jar's value ([03:04], Richard Thaler).
  • “The average bid will be less than the amount in the jar … but the winning bid almost invariably is more than the value” ([03:39], Richard Thaler).
  • This happens because the highest bidder is likely to overestimate the value, and this effect is amplified as the number of bidders increases ([03:55], Richard Thaler).
• Origin in Real-World Auctions
  • The phenomenon was first documented by engineers at the Atlantic Richfield Oil Company in the context of oil drilling rights ([04:30], Richard Thaler).
  • Accurately assessing value is hard, so the winner often has the most overly optimistic estimate: “The insight … is that the value you should expect if you're the winning bidder is lower than it would be if you had made some other bid. Because the fact that you had the high bid means there's a good chance that you had an overestimate of the value” ([05:31], Richard Thaler).

3. Mental Accounting: Why All Money Isn’t Equal

• Money Isn’t Treated as Fungible
  • In economic theory, “money is fungible” ([06:35], Tim Harford), but Thaler argues real people think otherwise.
  • “People adopted a strategy of putting cash into envelopes or jars with labels as a way of budgeting. Think of it as their early spreadsheet” ([06:58], Richard Thaler).
• Behavioral Evidence
  • Thaler gives examples like “house money” (home equity) and gasoline budgets—people don't mix these funds and will even splurge on unnecessary luxury fuel when petrol prices drop: “...they also oddly treated their cars to occasional fill ups of more expensive gasoline” ([08:21], Richard Thaler).
  • Thaler quips: “I would have gone for better olive oil or better wine, you know, that would be my advice” ([08:58], Richard Thaler).

4. Replicability and Progress in Behavioral Economics

• Revisiting Past Experiments
  • Unlike many fields, seminal behavioral experiments have largely “replicated,” even as research moved from lab experiments to vast real-world datasets ([09:09], Richard Thaler).
  • Thaler’s co-author, Alex O. Imus, set up a website for people to try out these experiments themselves ([09:22], Richard Thaler).

Notable Quotes and Memorable Moments

• On Rationality:
  “What if humans are less Spock and more Homer Simpson? Silly, impatient, weak willed and easily confused.” — Tim Harford ([01:41])
• On the Winner’s Curse:
  “The mathematics of this is that the value you should expect if you're the winning bidder is lower than it would be if you had made some other bid.” — Richard Thaler ([05:31])
• On Mental Accounting:
  “So real people don't think all money is the same. You know, for centuries people adopted a strategy of putting cash into envelopes or jars with labels as a way of budgeting. Think of it as their early spreadsheet.” — Richard Thaler ([06:58])
• On Experiment Replication:
  “The lab experiments I reported 30 years ago all replicate. And in fact my co author has provided a website where anybody can replicate any of the experiments at home for fun. If that's your idea of fun.” — Richard Thaler ([09:09])

Timestamps for Key Segments

• [01:09] – Introduction to the episode and topic
• [02:54] – Tim welcomes Richard Thaler; first mentions the Winner’s Curse
• [03:04] – Thaler explains the Winner’s Curse with the jelly bean auction
• [04:30] – Real-world origin of the winner’s curse in oil auctions
• [06:35] – Discussion of mental accounting, fungibility of money
• [08:21] – Example: Gasoline price drop and behavioral spending
• [09:09] – Behavioral experiments' enduring accuracy, opportunity to replicate at home
• [09:48] – Conclusion and goodbye

Tone and Style

The episode is conversational, combining Tim Harford’s clear, gently skeptical narration with Thaler’s patient, witty explanations. They use vivid, relatable examples—like Homer Simpson, jelly bean jars, and family fuel budgets—to make complex economic ideas accessible to all listeners.

Summary

This episode is a lively, insightful tour through the quirky realities of human decision-making, as revealed by one of behavioral economics' leading lights. Whether you're curious about auctions, budgeting, or why your brain plays funny games with money, this conversation demystifies the hidden habits driving our economic lives while affirming that, three decades on, the evidence for human irrationality remains surprisingly robust.