207. Should We Really Behave Like Economists Say We Do?

Episode Summary

Executive Summary: The episode follows Freakonomics producer Greg Rozalski as he tries to live like homo economicus under Richard Thaler’s guidance, testing rational choice on commuting, dating, voting, and civic behavior. Through humorous experiments and interviews, the show argues that real people are not fully selfish, emotionless optimizers, and that behavioral economics better explains everyday decisions and public policy.

Main Topics: Homo economicus vs. real human behavior (Priority: 5/5): The episode introduces the economist’s idealized rational actor and contrasts it with how people actually decide, emphasizing biases, emotions, self-control issues, and social norms. Richard Thaler and behavioral economics (Priority: 5/5): Thaler explains how noticing everyday ‘misbehavior’ led to the development of behavioral economics and his work on nudges, defaults, and policy design. Rational choice in daily life (Priority: 4/5): Greg tests economic logic on subway seats, a romantic relationship, and other personal choices, exposing the limits of pure cost-benefit thinking. Public goods, free riding, and civic participation (Priority: 5/5): The episode explores why people contribute to street musicians, charities, voting, and collective action despite incentives to free ride. Voting and democracy under economic theory (Priority: 4/5): Through Brian Caplan and others, the show examines why a perfectly selfish rational actor would usually not vote, and how social pressure and civic duty complicate that model. Markets, bubbles, and the limits of rationality (Priority: 4/5): The discussion addresses whether competitive markets always force rational outcomes, with Thaler arguing that bubbles and mispricing show the limits of the traditional model. The future of economics (Priority: 3/5): Thaler argues economics is moving toward a more realistic, behavioral model, with younger economists more open to revising classic assumptions.

Key Arguments: Economists’ classic model assumes hyper-rational people who optimize perfectly, but this creature is unlike real humans in practice. Behavioral economics arose from observing that people systematically deviate from the rational model in predictable ways. Nudges and defaults can help people make better choices without removing freedom of choice. Pure cost-benefit logic works poorly in settings shaped by social norms, such as subway seats, charity, and voting. A fully selfish homo economicus would free ride on public goods and likely avoid voting because an individual vote rarely changes outcomes. The traditional claim that markets always correct irrationality is weak; bubbles and bad lending show that markets can misprice assets for long periods. A revised ‘Homo economicus 2.0’ that includes conditional cooperation better matches real behavior than the old model. Even if being fully rational were possible, it would eliminate emotions that have both benefits and costs; the model is not a complete guide to human flourishing.

Data Points: Age of Richard Thaler: 69 years old - Introduced as a leading founder of behavioral economics and author of Misbehaving. Years of behavior research: About 40 years - Thaler says his list of examples of misbehavior grew over decades into a field. Nudge Unit savings: Tens of millions of pounds - The British government’s nudge office reportedly saved taxpayers this amount while changing behavior. Brooklyn-to-Manhattan commute: Every morning - Greg’s subway commute is used as a real-world test of whether seats can be bought like a market transaction. Valentine’s Day date: February 14 - Greg asks Rachel to be his girlfriend at the Empire State Building on Valentine’s Day. Relationship distance: About half an hour on the train - Greg cites the commute between him and Rachel as a factor in his spreadsheet-style analysis. Election date: November 4, 2014 - The voting segment is framed around Election Day in New York. Probability of changing an election by voting: Extremely small - Brian Kaplan argues that a selfish rational actor would not vote because the chance of affecting the outcome is negligible. Public speaker share of earnings from listeners: Small percentage - The subway musician explains that only a small fraction of passersby give money.

Pivotal Quotes: "We ended up calling our book and the tools we use nudges." — Richard Thaler: Thaler describing the policy approach he and Cass Sunstein popularized. "The economic model of behavior really can be summarized by one word, which is optimizing." — Richard Thaler: Thaler explaining the core assumption behind homo economicus. "The notion that somehow markets are going to force people to be rational is just silly." — Richard Thaler: Thaler rejecting the claim that competitive markets eliminate irrational behavior.

Implications: The episode suggests economics works best when it models humans as imperfect, social, and biased rather than perfectly rational. For policy, nudges and realistic defaults may outperform pure choice-and-incentive design.