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The ease of actions

By Ashton Daum
web posted September 28, 2020

Self-described as a believer in libertarian paternalism, 2017 Nobel Prize winner Richard Thaler’s policies are simple: “If you want to get people to do something, make it easy.” Expounding upon this stance, he formulated several ideas that directly contradict many of the prior economist and psychologist assumptions. Claiming that people are happy with fewer choices, people are not entirely rational, and people tend to avoid thinking about the future are all concepts that Thaler pioneered, with the underlying principle that the easier something is, the more likely someone will perform it.

As soon as five-year-old Maria bounded into the 100-flavor ice cream store, curiosity filled her heart. She raced excitedly around the store, looking at all the colorful flavors and attempting to decide what to pick. The dozens of options all looked tempting from beneath the shimmering glass, which had a faint whiff of lingering Windex. Though she peered and pondered about what flavor to get, Maria increasingly felt a sense of procrastination and perplexedness. After finally deciding on simple vanilla, she couldn’t help but feel like she had possibly missed out and should have made a different choice. Such is an example of one of Thaler’s theories: ultimately, people are happier with fewer choices. The Paradox of Choice is no stranger to this claim, as it describes that having an abundance of options easily leads to procrastination, dissatisfaction, and comparison; all negative emotions Maria was feeling due to her multitudes of available ice cream options. With fewer choices, he explains, there is less pressure to make the “correct” one. While many economists disagree with this theory, Thaler’s contribution continues to be consistent with several economic studies performed by various colleges like Yale, Swarthmore, and Columbia University. These studies also support Thaler’s concept that the easier something is, the more likely it will be done. In Maria’s case, the easier it would be to pick an ice cream flavor - which would be made possible by having fewer flavors – the more swiftly and straightforwardly it would be done, which is consistent with Thaler’s theory of ease.

Thaler’s concepts are presented in another way, with the assumption that people are not entirely rational and instead place an astounding amount of emphasis on emotion. Consider Marcus, who was having his first garage sale. He haggled with a customer, “fifty bucks for this blanket, nothing less.” The customer responded in bewilderment, claiming it was riddled with holes and wasn’t worth a penny over five. This normative statement, which made an opinionated judgment on the perceived price, irritated the seller. Marcus angrily retorted, with the explanation that his grandmother made it and that blanket was priceless. No matter how dirty, raggedy, or moth-eaten the article was, it held a special place of sentimentality in Marcus’s heart, and he could not bring himself to accept the perceived shoddy offer. Most economists would be surprised by this, saying that as the value decreases, so does the price, and a perfectly logical person would snatch up the offered deal within seconds. Thaler however, recognizes that it is not easy or entirely possible to be completely rational, and calls these roadblocks “cognitive limitations.” One result of these limitations is what Marcus experienced, called the “endowment effect,” where people must be payed more to give up something than to acquire it. To Marcus, the blanket was worth a significant sum, when in reality, acquiring it in a logical circumstance would have costed much less. Thus, this connects with Thaler’s overarching theme on the importance of ease: it was not easy to give up the blanket, so it was not done; in addition, it adds to his previous assertions that people are not entirely rational and are inclined to their own personal biases.

Finally, the third way Thaler’s assumptions can be demonstrated is his claim that people often tend to avoid thinking about the future at all costs. I have experienced this firsthand, a notable example being from early this summer. With an upcoming cross-country move looming over my schedule, I decided the best way to mentally prepare myself would be to avoid the issues for as long as possible. Life continued as normal until it was two days before the moving truck arrived and all my belongings still looked very much so unpacked. I panicked. Where had the time gone?! The next two days were spent scurrying around, hastily throwing clothes in boxes while shoving precious belongings into unmarked cases. Though I did not know it at the time, I has just experienced a real-life application of Thaler’s theories, where I had done everything I could to avoid the future (particularly the unpleasant aspects of it) before it was almost too late. He also uses other examples in his book Misbehaving, where people neglect to save for retirement until their late years creep up unexpectedly. When wrinkles and late sixties come before stable retirement funds do, people face a huge issue. Years of spending money with no cares had the resulting opportunity cost of financial hardship in later life. Complex 401Ks, compound interest, and bank loans are often quite overwhelming for the average adult, and this lack of the system’s ease added to the desire to put saving off, just as Thaler predicts. Those who neglect to look forwards to the future are also impacted by Thaler’s assertion that ease is often what nudges people to take action.

The main root of much of Richard Thaler’s work is grounded on the assumption that if something is easy, people will be more inclined to do it. Five-year-old Maria, sentimental Marcus, and myself and a financially burdened retiree are all represented by various applications of this theory. It is represented in three major ways: people are happy when they have fewer choices, people are not always entirely rational, and people often purposely avoid thinking about the future. I undoubtedly agree with Thaler; his explanations describe actual, probable behavior instead of just a squeaky-clean model. They are tailored with real-life scenarios that appeal to the average reader and are simple to understand. It is his unique insight coupled with his special emphasis on the individual person – as opposed to demographics as a whole – that inspired his quote: “Trying to put in all the complexities of emotion, lack of willpower, and salience makes these models a lot messier. The economists like things to be neat and tidy. And of course, the world isn’t that neat and tidy.” Richard Thaler’s deviation from the general assumptions of economists and his emphasis on the ease of a behavior leading to an individual’s results indisputably makes him an altogether Great Economist. ESR

Ashton Daum is a high school student studying macroeconomics and this is his first contribution to Enter Stage Right. © 2020 Ashton Daum




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