You Are Not So Smart – Episode 309: “They Thought We Were Ridiculous” (Andy Luttrell Rebroadcast)

Episode Date: March 17, 2025
Host: David McRaney
Guests: Andy Luttrell, Daniel Kahneman, Tim Houlihan, Kurt Nelson, Richard Thaler, and others
Featured Series: “They Thought We Were Ridiculous” (Episode 2 + selected clips from Episode 1)

Episode Overview

This episode delves into the origins and impact of behavioral economics—a field that revolutionized our understanding of human reasoning, bias, and decision-making. The main focus is on how Daniel Kahneman and Amos Tversky, two psychologists whose groundbreaking research on heuristics and cognitive biases, challenged the prevailing view of people as reliably rational actors. Through vivid examples and memorable stories, host David McRaney and guest Andy Luttrell chart the seismic shift from classical to behavioral economics, highlighting how small, carefully crafted questions revealed deep truths about systematic human irrationality.

Key Discussion Points & Insights

1. The "Linda Problem" and the Birth of Systematic Bias

• [02:45] David McRaney introduces the iconic “Linda Problem”, illustrating how most people’s intuitions are systematically wrong due to the representativeness heuristic.
• [05:14] Andy Luttrell explains why our intuitions mislead us:
  “Our intuitions are not statisticians… Statistically, there's no way that it's more probable that Linda is both a bank teller and active in the feminist movements than just… a bank teller. Because to be a bank teller and a feminist is… more specific than being a bank teller.”
• This problem shows people confuse probability with similarity, substituting an easier question for a harder one (heuristics).

2. Heuristics: Mental Shortcuts and Their Systematic Flaws

• Availability Heuristic: Judging frequency by how easily examples come to mind (e.g., believing homicide is more common than stomach cancer).
• Anchoring Effect: Being unduly influenced by irrelevant starting points when estimating unknown values (e.g., estimates of babies born in the US based on whether told “more than 100” or “less than 50,000”).
  • [36:11] The anchoring demonstration (recent study: estimates swing from 3,000 to 27,000 depending on the anchor).
• Representativeness Heuristic: Ignoring statistical base rates in favor of similarity (e.g., assuming Tom W. is a computer scientist because he matches the stereotype, not considering relative frequency).
  • [41:28] Kahneman shares how even expert statistician Robin Dawes fell for the representativeness bias.

3. The “Psychology of Single Questions”

• [42:39] The power of simple, precisely crafted questions as both research tool and demonstration:
  • “Instead of devising complicated, intricate experiments, they instead develop the psychology of single questions… and people's answers to a single question can tell the whole story.”
• [43:27] Daniel Kahneman underlines the importance:
  “It turns out that that was essential to the success of the enterprise... People outside the profession reading those questions could feel that this was working on them.”

4. The Origins of Behavioral Economics

• [14:18], [28:12]: The collaboration between economists and psychologists, catalyzed by Kahneman & Tversky’s and then Richard Thaler’s work.
• [15:49] Thaler’s “blizzard story” and “cashew story,” demonstrating real-world anomalies unexplainable by classical economics.
• [19:45] The “as if” doctrine in economics (Milton Friedman’s billiards analogy), and its challenge by behavioral economists who observe predictable, not random, deviations from rationality.

5. Collaborations and the Institutionalization of a New Science

• [53:11] Vivid descriptions of the social and intellectual dynamics among Tversky, Kahneman, Thaler (walking & thinking in the hills near Stanford).
• [57:04] The role of foundations (especially Russell Sage) and Eric Warner in funding and connecting the early pioneers.
• [60:35] 1990s: The “magical” unstructured time at Stanford’s CASBS center fueling breakthroughs and cross-disciplinary collaboration.

6. The Spread and Legacy of Behavioral Economics

• [61:24] The growth:
  “It was really the fact that we had endless hours of unstructured time together. You really need time without agendas, without structure. It's the kind of conversation that is really priceless, that these centers are built to sustain.” (Drajan Pralik, [61:30])
• [63:07] The resistance and eventual adaptation by mainstream economics and psychology.
  • Some in psychology resented economists claiming “behavioral economics” for what was essentially applied psychology, but ultimately the field’s impact was undeniable.
• [68:39] The field has since expanded beyond economics into policy, business, and what’s now commonly called "behavioral science."

Quotes & Memorable Moments

• [07:00] “The Linda problem… is an example of the representativeness heuristic. Two very weird words, one sort of made up, the other very old…” – David McRaney
• [13:15] “Economists thought we were ridiculous. They thought heuristics and biases were ridiculous.” – Andy Luttrell, explaining the series title.
• [32:36] “Danny was always sure he was wrong. Amos was always sure he was right. Amos was the life of every party. Danny didn’t go to parties...” – Michael Lewis (biography), describing Kahneman and Tversky’s “opposites attract” partnership.
• [41:55] “Robin (Dawes) was an expert on base rates... and he was completely aware of them.” – Daniel Kahneman, on how expertise does not prevent bias.
• [54:24] “I think of him as a genius. I think he is just extraordinary… he has both irony and wisdom. And that's a very powerful combination.” – Daniel Kahneman on Richard Thaler.
• [69:16] “If you know enough about psychology... you’re supposed to have an almost Buddhist sense of truth and humility...” – David McRaney
• [70:00] “Knowing a lot about social psychology has made me just a more understanding, patient person. I'm so much more understanding of when people do things that don't make sense.” – Andy Luttrell

Important Segment Timestamps

• 02:45 – Introduction to the “Linda Problem”
• 05:14 – Andy Luttrell explains the intuition behind the error
• 13:07 – Naming the series “They Thought We Were Ridiculous”
• 15:49 – The “Blizzard" and “Cashews” stories (Thaler)
• 19:45 – Billiards story: “as if” rationality in economics challenged
• 27:40 – Daniel Kahneman on how economists viewed psychology as “ridiculous”
• 33:11 – The “availability heuristic” explained
• 36:11 – The “anchoring” effect demonstration
• 41:28 – Tom W. problem and representativeness heuristic
• 42:39 – Psychology of Single Questions: why single questions matter
• 45:54 – Prospect Theory, and preference for sure things vs. gambling
• 53:11 – Kahneman, Tversky, and Thaler’s camaraderie and collaboration
• 57:04 – Institutional funding: Russell Sage foundation and “behavioral economics”
• 60:35 – 1990s: Expansion of the movement at Stanford’s CASBS
• 64:29 – Andy Luttrell on the art of “single questions” in research
• 66:16 – The analogy to optical illusions: single questions reveal the mind’s “blind spots”
• 69:16 – Humility and understanding through learning about bias
• 70:00 – Biases as evolved tools for navigating complex life

Tone and Style

The hosts and guests maintain a conversational, often humorous, and intellectually curious tone. Personal anecdotes, vivid metaphors, and self-deprecating humor abound, making complex scientific ideas feel accessible and engaging.

Takeaways

• Behavioral economics began as a radical challenge to rationalist dogma in economics, grounded in psychological insights about human error.
• Simple, cleverly designed questions (“psychology of single questions”) have extraordinary power to reveal hidden but systematic cognitive biases.
• Collaboration, cross-disciplinary openness, and institutional support were key to the new field’s success.
• Recognizing that bias is universal—even among experts—yields both humility and empathy in understanding ourselves and others.

For anyone interested in how we actually think, decide, and err—and how a few great questions changed social science forever—this episode is an essential listen.