Ryerson Lecture 2018

Speaker: President Zimmer and Richard H. Thaler

Introduction

• Ryerson Lecture Background:

  • Named in honor of Nora and Edward Ryerson.
  • Edward L. Ryerson Jr. was a long-time Board of Trustees member.
  • Annual lecture by esteemed University of Chicago faculty.
  • First delivered by John Hope Franklin in 1974.

• Speaker Introduction:

  • Richard Thaler, Nobel Prize in Economic Sciences awardee.
  • Distinguished Service Professor at University of Chicago Booth School of Business.
  • Co-director of Behavioral Economics Project at NBER.
  • Notable books: "Nudge" and "Misbehaving."

Richard Thaler's Lecture: "Behavioral Economics: Past, Present, and Future"

Behavioral Economics Overview

• Definition:

  • Integrates psychology with economics.
  • Challenges neoclassical economics assumptions.

• Origin and History:

  • Key figures: Adam Smith, Keynes, Pareto.
  • Early economics started as behavioral.
  • Return to behavioral roots with modern insights from Kahneman, Tversky, and others.

Key Concepts in Behavioral Economics

• Neoclassical Economics Assumptions:

  • Optimization: Agents choose by maximizing utility.
  • Consumer sovereignty: People know best what they want.
  • Unbiased beliefs: Rational expectations.
  • Self-interest: Economic agents are selfish.

• Challenging Assumptions:

  • Behavioral economics studies deviations from these assumptions.
  • Systematic and predictable errors in decision-making.

Key Figures and Theories

• Herb Simon: Critiqued neoclassical assumptions.
• John Maurice Clark: Early critic of ignoring human behavior.
• Econs vs. Humans: Econs are rational agents; humans deviate in predictable ways.

Examples and Evidence

• Market Behavior:

  • Exploitation of irrationalities (e.g., extended warranties).
  • Examples of irrational market behavior: CUBA fund, closed-end mutual funds.

• Behavioral Models in Practice:

  • Save More Tomorrow Program: Increases in retirement saving rates.
  • Automatic enrollment: Significant participation increase in 401(k) plans.

Challenges to Neoclassical Economics

• Efficient Market Hypothesis:

  • "No free lunch" component is mostly accurate.
  • "The price is right" is often violated.
  • Evidence from abnormal market behaviors.

• Supposedly Irrelevant Factors (SIFs):

  • Framing and defaults have significant impact on decisions.

Future of Behavioral Economics

• Integration with Neoclassical Models:
  • Behavioral insights to enhance explanatory power.
  • Continued empirical research to inform policy and practice.
  • Potential disappearance as it integrates into broader economic theory.

Audience Questions

• Saving after 401(k) max:
  • Commitment strategies and strategic refinancing.
• Group decision-making errors:
  • Groups often exacerbate individual biases.
• Public policy impact areas:
  • Behavioral macroeconomics, health care, corruption.
• Income disparity:
  • Policy changes can address inequality.
• Future of economics:
  • Ongoing empirical research; young economists leading change.