Richard Thaler
Richard Thaler is a behavioural economist at the University of Chicago and a Nobel laureate in 2017. He originated mental accounting, coined the term endowment effect, wrote Nudge with Cass Sunstein, and built the Save More Tomorrow savings scheme with Shlomo Benartzi. He is on this site chiefly for the order of credit on one idea: the sunk cost effect is his, stated as a hypothesis in 1980. The famous experiments came five years later and belong to Hal Arkes and Catherine Blumer.
Who they are
The order matters and popular accounts reverse it. In 1980 Thaler set out the hypothesis in a sentence: paying for the right to use something will increase the rate at which it is used, all else being equal. He called it the sunk cost effect, listed it beside the endowment effect as an anomaly any honest theory of consumer choice would have to account for, and gave two examples that have been circulating ever since, the family driving through a snowstorm to use basketball tickets they had paid for, and the man who keeps playing tennis on an injured elbow because he has paid the annual membership.
Arkes and Blumer supplied the experimental programme in 1985, ten experiments and a field study. Their contribution is not the demonstration that the effect exists, which Thaler had already argued. It is the motive: a learned rule against appearing wasteful, applied where it does not belong.
Econs and Humans is also his, and it is the most useful piece of vocabulary in this area. Econs are the agents of economic theory, rational and consistent. Humans are the people the research actually studied. Daniel Kahneman's own gloss is the line to keep: the research only showed that Humans are not well described by the rational-agent model, which is a claim about a model and not a claim that people are stupid.
Key papers
Thaler, R. H. (1980). "Toward a positive theory of consumer choice", Journal of Economic Behavior and Organization, 1, 39 to 60. Where the sunk cost effect is named and stated, alongside the endowment effect. Note that the endnotes of Thinking, Fast and Slow give this paper two different volume numbers on two different pages; take the citation from here rather than from there.
Thaler, R. H. (1985). "Mental accounting and consumer choice", Marketing Science, 4(3), 199 to 214.
Thaler, R. H., & Benartzi, S. (2003). Save More Tomorrow, the automatic-escalation savings scheme, which remains the most convincing applied result the whole programme has produced.
Key ideas
Credit runs Thaler in 1980, then Arkes and Blumer in 1985. He named the effect and proposed it. They tested it and found the reason.
Attribution again, in the other direction. This site has already corrected choice architecture, which had been credited here to Kahneman. The same pattern runs through popular business writing: Contagious builds a chapter on Thaler's scenarios while crediting Kahneman in the body text, with the endnotes quietly saying the material is adapted from Thaler. Kahneman himself is careful about this. The popularisers are not.
Where the applied work stands, honestly. The claims made for nudges around 2011 were overstated, and later large-scale studies of real nudge units report far smaller average effects. Retirement-savings defaults, which is the Save More Tomorrow family, remain among the better-supported cases. The specific thing Thaler built has survived better than the general claim built on top of it, and an article should say which of the two it is using.
The endowment effect is bounded rather than broken. His own definition was narrower than the one that escaped into circulation: the underweighting of opportunity costs, not sentimental attachment to possessions. The phenomenon survives; the loss-aversion explanation of it is in worse shape than the phenomenon.
Concepts on this site
Reference Point and Diminishing Sensitivity, the two pieces of prospect theory his applied work rests on, are named in plain text because neither has a page on this site yet
Sources
- Thaler, R. H. (1980). Journal of Economic Behavior and Organization, 1, 39 to 60.
- Thaler, R. H. (1985). Marketing Science, 4(3), 199 to 214.
- Arkes, H. R., & Blumer, C. (1985). Organizational Behavior and Human Decision Processes. The experimental programme, credited to its own authors.
- Thinking, Fast and Slow (2011) and Contagious (2013), the two popular books through which most of this material reaches readers, and the source of the misattributions recorded above.