The Tim Ferriss Show – Episode #830

Guests: Richard Thaler (Nobel Laureate, Behavioral Economist), Nick Kokonas (Entrepreneur, TOC/Alinea)
Host: Tim Ferriss
Date: October 10, 2025

Overview

In this wide-ranging, thought-provoking episode, Tim Ferriss is joined by Nobel laureate and pioneering behavioral economist Richard Thaler, along with returning guest and entrepreneur Nick Kokonas. Together they explore what economics really is—and isn’t—debunk classical assumptions, dig into the real-world anomalies of human decision-making, and reveal how "nudges" and behavioral science can transform business, investing, public policy, and personal change. The conversation is equal parts rigor and wit, peppered with compelling stories, practical frameworks, and candid discussion of both legacy and loss.

Key Themes & Discussion Points

1. Foundations of Economics and Behavioral Economics

• [03:24] Economics traditionally assumes people are rational, self-interested "agents" that maximize utility—overly simplified and detached from real human behavior.

• Thaler outlines three core faulty assumptions:

  • Rational maximization (people always pick the optimal choice)
  • Pure selfishness
  • Perfect self-control

• Economics became mathematically rigorous after WWII, envying physics, but lost touch with how real people actually behave.

  “Suppose we wrote down ‘meh’ instead of ‘max’—because what people are doing isn’t really max, right?” – Richard Thaler [06:45]

2. Thaler’s Origin Story & Behavioral Breakthroughs

• [13:18] Anecdote: Thaler removes cashew nuts at a grad student party to help guests save their appetite, only for everyone to thank him for removing choice—challenging the ‘more options = better’ dogma.

• Gradually, psychology was blended with economics, challenging long-held assumptions.

  “Sometimes we prefer not to have options.” – Richard Thaler [14:01]

3. Resistance to Behavioral Ideas

• [20:08] Thaler describes years fighting orthodoxy; economists insisted people act "as if" they’re rational, even if that’s not true.

• Initial experiments and real-world observations—like vastly differing buying and selling prices—defied economic theory (e.g., loss aversion and status quo bias).

  “The Emperor has no clothes was a recurring thought.” – Richard Thaler [20:08]

4. Classic Behavioral Economics Experiments

• [25:06] Loss Aversion / Endowment Effect:

  • People demand more to give something up than to acquire it (Cornell mug experiment).

• Real business parallels:

  • Kokonas found that a $5 deposit on a restaurant reservation slashes no-shows—tiny sums, huge psychological effects.

• [32:30–34:39] Fairness in markets:

  • Raising snow shovel prices after a blizzard: most people, except business school students, see it as unfair.
  • Surge pricing (Uber) can backfire if it violates customer’s sense of fairness.

  “The important lesson is if you’re doing business in the real world and you have customers and employees that are people, not agents, you have to do things a bit differently.” – Richard Thaler [44:06]

5. Nudges, Defaults, and Choice Architecture

• [35:19] Thaler shares practical “nudge” examples:

  • Enrolling employees in 401(k) plans by default (opt-out vs opt-in): participation skyrockets from ~50% to 90%.

• Simplicity rules:

  • “If you want people to do something, make it easy.” [41:14]

• [38:00] Nudge durability: Nudges like flies in urinals may need refreshing to retain effect; one-off nudges (like 401k enrollment) have lasting impact.

  “Nudge: some feature of the environment that improves decisions but doesn’t force anyone to do anything.” – Tim Ferriss [37:45]

6. Misuse of Behavioral Principles

• [42:02] Thaler notes: casinos, gamified investing platforms, and unscrupulous marketers use nudges and behavioral insights to reinforce negative behaviors.

  “The same principles can be used to harm people. … The principles of understanding the customer and designing the product can be used for good or evil.” – Richard Thaler [43:22]

7. The Power of Stories & the Winner’s Curse

• [46:30] Students retain stories/demonstrations, not formulas—e.g., the “Winner’s Curse” (the high bidder in an auction typically overbids, gains less-than-expected, or loses).

  • [47:51] Coin jar auction demo: students routinely overbid for unknown value.
  • Winner’s curse shows up in oil, sports drafts (NFL), book auctions—“more picks are better than one high pick.” [59:20]

  “That experience … you can tell people this abstract concept of the winner’s curse, they won’t even remember what it means. … But they remember that the guy who bid a lot, bid too much.” – Richard Thaler [48:03]

8. Habit Change, Self-Control, and Temptation Bundling

• [60:29] Practical self-nudging:

  • Hide temptations, remove friction for positive habits.
  • “Temptation bundling”: pair an indulgence with a positive behavior (e.g., you can only listen to a favorite audiobook at the gym) [78:51].

  “Make it harder to do the stuff you want to do less of and make it easier to do the stuff you want to do more of.” – Richard Thaler [60:29]

9. Mental Accounting, Sunk Costs, and Financial Biases

• [66:48] “Mental accounting” – people put money in categories, treating $100 found in a pocket differently from paycheck money.

  • Sunk cost fallacy: Persisting with a bad decision just because you already invested time/money.

• Real business and personal decisions: Kokonas’ use of prepays to lock in behavior, Thaler’s airline anecdote, budgeting quirks.

  “Don’t do mental accounting—basically.” – Nick Kokonas [70:49]

10. Cognitive Biases: Avoiding and Harnessing Them

• [76:04] Many biases (sunk cost, endowment, overconfidence, recency, availability) are systematic, not random error.

• Smart commitments—like financial pre-commitments or accountability bets—can actively use our biases for positive change.

  “A good way to get yourself to do something is have a commitment, pay for it … It’s pain. It’s a little bit of pain.” – Richard Thaler [77:45]

11. Replication, Legacy, and the Human Side of Science

• [84:16; 86:20] Thaler reflects on being an outsider in economics, his journey, and the importance of “corrupting the youth” with new ways of thinking (via story, summer camps, accessible journals).

• [98:23–104:53] Moving tribute to Danny Kahneman: His decision for assisted suicide, his legacy, and the value of living with full faculties and on your own terms.

  “People learn through stories. … People will tell you, don’t take this class, all he does is tell stories. That’s true. … That’s the way you learn.” – Richard Thaler [52:10]

Notable Quotes & Memorable Moments

• [06:45] “Suppose we wrote down ‘meh’ instead of ‘max’—because what people are doing isn’t really max, right?” (Richard Thaler)
• [14:01] “Sometimes we prefer not to have options.” (Richard Thaler)
• [20:08] “The Emperor has no clothes was a recurring thought. Why am I seeing that and no one else does?” (Richard Thaler)
• [35:36] “If you want people to do something, make it easy.” (Richard Thaler)
• [44:06] “If you’re doing business in the real world and you have customers and employees that are people, not agents, then you have to do things a bit differently.” (Richard Thaler)
• [52:10] “People learn through stories. … That’s the way you learn.” (Richard Thaler)
• [59:20] “It’s pretty much a coin flip … so that means more picks are better.” (Richard Thaler, on NFL draft and prediction limits)
• [70:49] “Don’t do mental accounting—basically.” (Nick Kokonas)
• [77:45] “A good way to get yourself to do something is have a commitment, pay for it and pay for it … It’s pain. It’s a little bit of pain.” (Richard Thaler)
• [98:56] “He had been my best friend for 40 years ... he was great up until the end. And I would have liked a few more [years], but I respected the right to him to end the way [he wanted to].” (Richard Thaler, on Danny Kahneman)
• [107:12] “Takeaway for humans and for economists. We don’t say whether we think economists are not humans… (laughter)” (Richard Thaler)

Notable Segments & Timestamps

• Opening & Guest Intros: [00:00–02:33]
• What is Economics…Really?: [02:52–09:54]
• Behavioral Economics Origin Stories: [13:18–15:03]
• Resistance to Behavioral Insights: [19:10–24:36]
• Loss Aversion, Endowment Effect, and Reservation Systems: [25:06–31:05]
• Fairness & Market Lessons (Snow shovels, Uber, Auctions): [31:05–35:00]
• Nudges and Defaults in Real World: [35:00–41:30]
• Business and Behavioral Economics: For Good and Bad: [42:02–44:39]
• Stories as Teaching Tools & the Winner's Curse: [46:30–50:27]
• Sports Drafts, Analytics, & Skill in Prediction: [59:26–65:46]
• Mental Accounting, Sunk Costs, and Restaurant Psychology: [66:48–76:00]
• Using Cognitive Biases for Good, Temptation Bundling: [76:00–79:49]
• Big Data, Replication, and the Power of Real-World Testing: [80:06–83:08]
• Kahneman’s Legacy, Assisted Suicide, and the End: [98:23–104:53]
• Final Nuggets, Book Recommendations: [110:16–112:18]

Additional Recommendations & Resources

Books/Journals Mentioned:

• Nudge by Richard Thaler & Cass Sunstein
• Misbehaving by Richard Thaler
• Thinking, Fast and Slow by Daniel Kahneman
• The Undoing Project by Michael Lewis
• Journal of Economic Perspectives (open access)
• The Winner’s Curse: Behavioral Economics Anomalies Then and Now by Richard Thaler & Alex Imas

Closing Thoughts

This episode delivers a masterclass in how the imperfections of human nature—habits, biases, fairness instincts—reshape every market, decision, and institution. Thaler’s approach: combine humility, humor (“meh” not “max”), and a relentless search for real evidence. The episode will resonate with anyone curious about business, investing, policy, or their own self-improvement—and offers highly applicable takeaways for prodding yourself (and others) toward better decisions.

For further information and links to everything discussed, visit the show notes on Tim.blog/podcast and search for “Thaler.”