Behavioral Insights

Behavioral Insights: Nudging for Good

Nobel Laureate Richard Thaler in conversation with PIMCO CEO Emmanuel Roman discusses his discovery of human life in the economy and the intervention of nudges to lift people out of poverty.

More from this section

Read Transcript

Richard Thaler: How many of you had an economics course sometime during your life?

Emmanuel Roman: Most people.

Richard Thaler: Almost everybody. So, you remember the way that courses taught is there are these economic agents in Latin it's homo economicus. And these economic agents are really smart. They have no emotions and they don't care about anybody else. And the idea the humans versus ‘econs’ the idea is that, I call these people ‘econs’  – the people you only read about in economics textbooks and my claim is that they don't exist.

When I was lucky enough to win the Nobel Prize two years ago, there's a toast I had to give at the banquet and my toast was - my great discovery was discovering human life in a place where it was thought not to exist, which was the economy.

And that's really the essential insight of behavioral economics, which is: We don't have these robots. We don't have a world of bots. They may be around the Internet more than we suspected but they're not consumers and investors and traders, and even CEOs are human, which means they're imperfect and emotional and expectations can be biased and influenced by all kinds of things and that makes the world way more interesting.

Emmanuel Roman: They gave the gave yesterday a Nobel Prize to three great economist, and as we were talking about – in a way, they do behavioral economy.

Richard Thaler: Oh, absolutely. So, if you weren't clinging to this news economists this is you know the most interesting day of the year.

It was given to three economists and together they are responsible along with hundreds of others, but they're the leaders, in creating a style of research of doing randomized controlled trials in poor countries.

Emmanuel Roman: You had that in medicine, right?

Richard Thaler: Yeah so, we've been doing that for drugs for many years. There's no way to know whether a medicine works or doesn't unless there's a control group that gets a placebo. And the reason for that is, most of the time – no matter what's wrong with you – you get better. And that's why the species existed before we had pharmaceutical companies.

Let me describe one of the experiments. The question was why didn't peasant farmers in India use enough fertilizer on their farms. Now think about it. In the economic analysis of this, well, we say people are rational farmers or business persons and they will use the optimal amount of fertilizer. That is the theory of the firm, that you learned in school, marginal cost equals marginal revenue and everybody produces in the most efficient way possible. So, it turns out most farmers were not using nearly enough fertilizer and they could almost double their income by spending a couple dollars on fertilizer and they weren't doing it. And they tried various ways to get them to do it. Lowering the price and so forth and so on. The thing that worked used my favorite behavioral tool which is: ‘make it easy’.

And the best time to intervene was right after the harvest. Which is because that's when they have money. And the intervention was free delivery. Which by the way has made Jeff Bezos a very rich man. So, they offered fertilizer prime, and free livery and that – I don't remember the exact results – but basically, it increased income by about 50 percent. So, you know again the economic theory says this will have no effect. It's a trivial….

Emmanuel Roman: [?]

Richard Thaler: And because they're already doing everything perfectly. And, anyway, it's a beautiful little experiment. And this is how ‘one experiment at a time’ we're starting to learn some lessons about how we can lift people out of poverty.

Disclosure


Recorded 15 October 2019

This material contains the opinions of the speaker but not necessarily PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Deutschland GmbH Italian Branch (Company No. 10005170963), PIMCO Deutschland GmbH Spanish Branch (N.I.F. W2765338E) and PIMCO Deutschland GmbH Swedish Branch (SCRO Reg. No. 516410-9190) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch, Spanish Branch and Swedish Branch are additionally supervised by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act, the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008 and the Swedish Financial Supervisory Authority (Finansinspektionen) in accordance with Chapter 25 Sections 12-14 of the Swedish Securities Markets Act, respectively. The services provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862 (PIMCO Australia). This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (107) FSC SICE Reg. No.001. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.), Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©[2019, PIMCO.

CMR2019-1112-423978

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Economic and Market Commentary
    Investment Strategies
    Bond by Bond
    Viewpoints
    Careers
    Education
    PIMCO Foundation
    View from the Investment Committee
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Video Finder

Filter By:
  • Economic and Market Commentary
  • Investment Strategies
  • Bond by Bond
  • Viewpoints
  • Careers
  • Understanding Investing
  • View from the Investment Committee
  • A
  • B
  • C
  • D
  • F
  • G
  • H
  • I
  • K
  • L
  • M
  • N
  • P
  • R
  • S
  • T
  • W
Clear
Tina Adatia
Fixed Income Strategist
Olivia A. Albrecht
Head of ESG Business Strategy
Mike Amey
Joshua Anderson
Head of Global ABS Portfolio Management
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
David L. Braun
Head of US Financial Institutions Portfolio Management
Nathaniel Brown
Erin Browne
Portfolio Manager, Asset Allocation
Libby Cantrill
Executive Office, Public Policy
Laura Deneke
Sr. Vice President, Product Strategist
Pramol Dhawan
Head of Emerging Markets Portfolio Management
Joachim Fels
Global Economic Advisor
David Fisher
Head of Traditional Product Strategies
Gene Frieda
Global Strategist
Adam Gubner
Portfolio Manager, Distressed Debt
Mary Hoppe
Daniel H. Hyman
Head of Agency MBS Portfolio Management
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Christine Long
Nicola Mai
Portfolio Manager, Sovereign Credit Analyst
Jason Mandinach
Alternative Credit Strategist
Scott A. Mather
CIO U.S. Core Strategies
Mohit Mittal
Portfolio Manager, Liability Driven Investment and Credit
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Commercial Real Estate
John Nersesian
Head of Advisor Education
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Lupin Rahman
Head of EM Sovereign Credit
Libby Rodney
Steve A. Rodosky
Portfolio Manager, Real Return and Long Duration
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Client Solutions & Analytics
Jerome M. Schneider
Head of Short-Term Portfolio Management
Marc P. Seidner
CIO Non-traditional Strategies
Sapna Shah
Head of Corporate Responsibility
Greg E. Sharenow
Portfolio Manager, Real Assets
Anmol Sinha
Fixed Income Strategist
Cathy Stahl
Global Head of Marketing
Christian Stracke
Global Head of Credit Research
Geraldine Sundstrom
Portfolio Manager, Asset Allocation
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Mark Thomas
Account Manager, Global Wealth Management
Jessica K. Tom
Senior Credit Analyst
Eve Tournier
Head of European Credit Portfolio Management
Jamie Weinstein
Portfolio Manager, Head of Corporate Special Situations
Tiffany Wilding
North American Economist
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Chris Brightman
PIMCO
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
The Bolstering Effect of Fixed Income
Resilient Returns in Equities and Credit
Finding Value on the Uneven Road to Recovery
Five Characteristics of a Post-COVID World
The Long Climb to Recovery

Load more results Load {{cCtrl.fetchResults}} more results

PIMCO
EU

Europe

[change]