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How To Work Around Your Own Irrationality | Richard Thaler

Dec 6, 2021 40m 27s 24 insights
<p>This episode explores how to make the infernally difficult challenge of habit formation a little easier, with guest Richard H. Thaler, who won the Nobel Prize in Economic Sciences in 2017 for his pioneering work in the fields of behavioral economics and finance. Thaler is the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago's Booth School of Business, where he also serves as the director of the Center for Decision Research. He is also the co-author, with Cass R. Sunstein, of <a href="https://www.penguinrandomhouse.com/books/690485/nudge-by-richard-h-thaler-and-cass-r-sunstein/" rel="noopener noreferrer" target="_blank"><em>Nudge: the Final Edition</em></a>.</p> <p><br /></p> <p>In this episode, Dan and Richard discuss what a nudge is as well as its opposite – which Thaler and Sunstein call sludge. They also discuss other fascinating concepts, including: choice architecture, mental accounting, libertarian paternalism, bounded rationality, and how the lessons of behavioral economics can lead to a happier life</p> <p><br /></p> <p>The Anti-Diet Challenge kicks off today in the Ten Percent Happier app. If you're not already a Ten Percent Happier subscriber, you can join us by starting a free trial that'll give you access to the challenge, along with our entire app. Click <a href="https://10percenthappier.app.link/install" rel="noopener noreferrer" target="_blank">here</a> to get started.</p>
Actionable Insights

1. Embrace Nudge Philosophy

Acknowledge that humans are frail, irrational creatures and strategically leverage nudges or environmental tweaks to guide behavior in positive directions. This philosophy forms the core of effective self-improvement.

2. Acknowledge Human Frailty

Recognize that humans are not naturally wired for easy adoption of long-term healthy habits. This understanding is liberating, freeing you from self-blame about unique struggles with habit formation.

3. Recognize Bounded Rationality

Understand that human intelligence is limited and some problems are too complex to solve independently. This awareness highlights the necessity of using nudges and external aids.

4. Address Bounded Willpower

Acknowledge your “bounded willpower” and identify personal weaknesses in self-control. Strategize and implement self-nudges or environmental changes to support yourself in these areas.

5. Make Desired Actions Easy

To encourage yourself or others to do something, design the environment or process to make that action as easy as possible. This principle is central to effective nudging and behavior change.

6. Eliminate “Sludge” Obstacles

Identify and remove “sludge” – unnecessary gunk or processes that slow things down and make tasks difficult. Simplifying processes helps prevent procrastination and facilitates desired actions.

7. Automate Important Tasks

Make life as automatic as possible by setting up automatic payments for bills and other routine tasks. This reduces mistakes caused by absent-mindedness and frees up mental energy.

8. Leverage Automatic Enrollment

Opt for automatic enrollment in programs like 401k plans where available. This makes participation the default, overcoming procrastination and helping you achieve financial goals without active effort.

9. Utilize Mental Accounting

Leverage mental accounting by designating certain funds as “off-limits” for specific purposes, like retirement savings. This helps prevent impulsive spending and reinforces long-term financial goals.

10. Separate Accounts for Couples

For financially stable couples, consider having separate accounts for individual discretionary spending. This can reduce quarrels by allowing each partner to make purchases without needing to report or justify them.

11. Adopt “It’s Only Money”

Cultivate the mantra “it’s only money” to avoid getting emotionally upset by relatively small financial mishaps. This helps reduce unnecessary stress and irritation over minor financial setbacks.

12. Avoid Sunk Cost Fallacy

Recognize and avoid the sunk cost fallacy, understanding that money already spent is “sunk” and cannot be recovered. Don’t let past investments dictate future decisions, and learn to “not cry over spilt milk.”

13. Limit Investment Monitoring

Set up a diversified investment portfolio and avoid excessive monitoring or frequent trading. Over-vigilance and frequent trading often lead to worse outcomes, so aim for optimal, rather than daily or hourly, checks.

14. Use Financial Management Apps

Employ financial management apps to automate credit card payments, prioritize paying down high-interest debt, and ensure bills are paid on time. This helps manage finances effectively, especially for those prone to procrastination.

15. Implement Diet Self-Control

For dietary control, use “self-control devices” such as meal delivery services or prepackaged dinners with limited calories. This helps overcome impulsive food choices by pre-committing to healthier options.

16. Remove Tempting Substances

To support dietary goals or overcome addiction, remove tempting foods (e.g., ice cream) or addictive substances (e.g., alcohol, cigarettes) from your home environment. Eliminating easy access reduces the likelihood of impulsive consumption or relapse.

17. Customize Digital Notifications

Adjust the number of news and app notifications based on your individual needs and tendencies. Some people benefit from fewer notifications to reduce anxiety, while others need more to stay informed.

18. Manage Auto-Play Traps

Be aware that automatic features, like auto-play for streaming episodes, can be “traps” that exploit bounded willpower. Develop the self-control or implement strategies to turn them off and avoid excessive consumption.

19. Embrace Small Improvements

Adopt the mindset that “better is good,” meaning even small improvements are valuable. Focus on taking consistent small steps, as they accumulate into significant changes over time.

20. Utilize Health Monitoring Technology

Explore and utilize available technology, such as continuous blood sugar monitors, to unobtrusively track health metrics. These devices can provide timely nudges when parameters are outside desired ranges, aiding in disease management.

21. Check Subscription Exit Terms

Before subscribing to a service or joining a gym, investigate the process required to unsubscribe or quit. This helps avoid “Hotel California” situations where leaving is made intentionally difficult.

22. Use GPS for Navigation

Employ GPS devices or apps to navigate unfamiliar environments or when you have a poor sense of direction. This helps you reach your destination efficiently while retaining control over your choices.

23. Advocate for Carbon Tax

Support the implementation of a significant carbon tax, ideally starting small and gradually increasing over time. This policy is crucial for incentivizing environmentally friendly behaviors and addressing climate change.

24. Compare Energy Usage

Seek out information on your energy consumption compared to neighbors in similar homes, if available, to encourage reductions. Knowing how you stack up can nudge you towards more efficient energy use.