It was a sunny fall day in London in 2013 when George Loewenstein and I walked up Fleet Street to St. Paul’s Cathedral. We turned onto a lane toward the Millennium Bridge. We were meeting in London to continue our work on a research project; our walk was a chance to take a break and find lunch. Gradually, our conversation shifted from our work, and I found myself curious about something else. As we crossed the Thames, I asked George, “What do you think are your most important contributions to the field?”
He mentioned his work on short-term and long-term choices, how our preferences are inconsistent over time, and the role of emotions in decision-making. He also mentioned my favorite study of his, which helps explain why you can’t find a cab on a rainy day in New York City. But then, as we reached the south end of the bridge with the afternoon sun shining in our eyes, George paused and said something unexpected: “One important thing was being at the table when we decided to call the field behavioral economics.”
Although I’d read lots of tales about the early days of Daniel Kahneman, Amos Tversky, Richard Thaler, and others, I hadn’t considered that at some point the founders of this new line of research had to shift their focus from deep, perennial questions of human nature to the more mundane question of what to call this new thing they were working on. His comment sparked curiosity about what it would have been like to be at the table for that discussion, and, more broadly, about how it was that the field of behavioral economics came to be.
Eleven years later, I got to find out. In 2023, I endeavored with Kurt Nelson (with whom I cohost the podcast Behavioral Grooves) and Andy Luttrell (psychology professor and host of the Opinion Science podcast) to tell the story of how behavioral economics took shape. The result was a five-part series called They Thought We Were Ridiculous. Featuring 20 interviews with the people who helped shape the field, the series traces how they came together to give the modern world a new perspective on how we make decisions. (And, through those interviews, I was able to find out more about the conversation that led to the name behavioral economics; more on that in a moment.)
They Thought We Were Ridiculous also focuses on the challenges inherent in building and sustaining a movement that runs counter to the status quo. These early leaders demonstrated the transformative potential of a small group of dedicated individuals united in their quest to challenge the very foundations of their training.
The widespread influence of behavioral economics today might make its progress seem inevitable. However, this view overlooks the field’s complex journey. Our series not only chronicles the development of behavioral economics but allowed us to explore the lifecycle of ideas—why new concepts emerge, evolve, and make a lasting impact or fade away—and broader perspectives on innovation and intellectual progress.
Since we released the podcast, and as all the hours of interviews and research coalesce in my mind, I’ve been reflecting more on what lessons we can take from those who started the field several decades ago. What are the lessons about starting something new, or pursuing something that runs counter to the prevailing wisdom and norms?
In this article, I want to share four lessons. I think they can help us all improve the ways we start up, get unstuck, collaborate, preserve, and find our own luck.
Teamwork Makes the Dreams Work
Important endeavors rely on the raw power of working with others. The early pioneers of behavioral economics did not operate in solitude. Rather, they became friends—good friends—and formed a close-knit network of intellectually curious scholars. They fought for opportunities to spend time with one another, intentionally designed studies to collaborate on, and in some cases, wrote every word of their research papers together.
Eric Wanner, who oversaw grants and organized programs through the Russell Sage Foundation, understood the value of this togetherness. He organized, with the help of Thaler and Kahneman, “summer camps” to formalize time for graduate students to live together and learn from the field’s emerging leaders. There were very few rules, but dining together was one of them. Wanner believed that if all the campers were required to attend lunch, he could increase conversations, encourage collaboration, and keep campers from wandering off midday. Wanner noted, “I was a big believer in lunch.” He took pains to make lunch desirable, and “good things came out,” he recalled.
As one of the institute’s first students, Sendhil Mullainathan, now a professor of computation and behavioral science at the University of Chicago, put it, “The summer school worked because the shared unit became all of the pockets of knowledge that different people had in different fields that we didn’t know.”
Innovation thrives when you can bump up against people who share your passions but have different bits of knowledge. And the social aspect fuels individual and collective curiosity. Not only does it help progress, it also makes the work more enjoyable. The lesson is unequivocal: to effect change, one must not endeavor alone.
The Magic of Starting Small
Grand initiatives needn’t start with a grand theory. The pioneers of behavioral economics did not embark on their journey with a grandiose vision of overhauling neoclassical economics. Instead, they began by meticulously noting peculiarities in human behavior that defied explanation under the prevailing models of the time.
Thaler, for instance, documented random observations on a blackboard in his office. Unencumbered by a preconceived theory, he was driven by curiosity about what he witnessed, and he asked questions. Why were dinner party guests happy to overeat the cashews before dinner? Why was it okay to skip the basketball game in foul weather when the tickets were a gift, but not skip it if we bought them? Why would consumers travel across town to save $50 on a toaster, but not make the same trek to save $50 on a television? As he put it, “I had this long list of funny things people did, but it wasn’t clear what to do with it because they were just stories.”
About the same time, Kahneman and Tversky were developing single questions to test people’s cognitive biases. A question such as, “Which graduate program is Tom W most likely getting his degree in?” revealed that the vast majority of respondents failed to pay attention to base rates, but as Kahneman reflected, “We were not thinking of changing economic theory.”
But change it they did. By collecting many threads of specific observations, they began to weave a robust body of knowledge that birthed novel theories and powerful models.
We need to cultivate a keen sense of curiosity and pay attention to the world around us. Resist the temptation to have all the answers upfront. One thing will lead to another. As you amass more data and insights, look for connections, rhythms, and patterns. With more and more data, you can begin to develop bigger, more comprehensive theories. It just takes time.
Working from the Inside
Early behavioral economists didn’t have it easy. On the one hand, they faced criticism, opposition, and skepticism from powerful economists whose turf was being challenged. On the other, they faced snide reservations from psychologists who felt their work was being repackaged.
Thaler spoke of resistance he encountered with old-school economists. “The guy who would be viewed as my main adversary is Eugene Fama [and] the debate between he and I has always been quite civil. And in contrast, there was another guy older than Fama called Merton Miller. [Miller said,] “Every generation has to make their own mistakes.’” But the challenges haven’t stopped. Thaler continued, “There are still people over in the economics department who think that I’m very much mistaken.”
Psychologists offered their own criticism. With a twinge of sarcasm in his voice, Richard Nisbett addressed the challenges from the side of the psychologists: “My friend Lee Ross said that behavioral economics is social psychology with a name change for business reasons.”
The early leaders were adamant about avoiding relegation to a fringe movement. They refused to create their own boutique journal, and instead published in mainstream outlets for the entire field. They wanted their ideas to stand up next to all the others.
In the face of resistance, which at times veered from the professional into the personal, they persisted. Gradually, their ideas gained traction.
Change is a protracted and arduous process, fraught with impediments along the way. There’s no easy way around them, and going around them might be the worst thing to do.
Seize Serendipity
Finally, many of the great breakthroughs came down to luck and having the sense to embrace unexpected opportunities. Many of the leaders met by chance, found career-changing opportunities through informal conversations, and had key ideas fall into their laps.
For example, economist Colin Camerer noticed how odd it was that cabs were in short supply on rainy days in New York City, when economists predicted the opposite should have been true. Classical economic theory would predict that cab drivers would work to maximize their earnings across a broad horizon—months, for instance—so ending a shift early on a rainy day, when there is abundance of demand, didn’t make sense. Camerer picked up some data from the New York City Taxi and Limousine Commission but didn’t act on it. It took a chance encounter with labor economist Linda Babcock to kickstart the project. Linda recalled the two of them were “just shooting the breeze” in her office when Camerer mentioned the data.
The resulting paper, authored by Camerer, Babcock, Loewenstein, and Thaler, became a landmark finding: cab drivers set wage targets differently than as predicted by classical economic theory. Cab drivers, they found, focused on earning a daily target rather than a weekly or monthly one. It demonstrated the value of behavioral economics’ insights and informed the field of yet another important breach in our rational thinking.
Breakthroughs might result from chance encounters or fortuitous accidents. You might have a goal, but you can’t plan the entire journey—only the next step. The genesis of your next groundbreaking idea or transformative collaboration may lie in the most unlikely of places. By being receptive to changing course when a positive opportunity opens up, you can increase your chances of stumbling upon something truly extraordinary.
What’s in a Name?
So how did behavioral economics get its name? George’s recollection of the naming discussion came from the time he spent at the Center for Advanced Study in the Behavioral Sciences (CASBS) near Stanford during the 1997–1998 year. He was there with Colin Camerer, Drazen Prelec, Matthew Rabin, and Richard Thaler and, because of their collective work, it has been hailed as the Capstone Year at CASBS.
In July 2022, George and I revisited the topic for this series, and he repeated the story. “The whole group [Prelec, Rabin, Thaler, and Camerer] would meet once a week and discuss some issue. At one of them, the discussion was about what we would name the field. I advocated calling it psychological economics. And Richard Thaler wanted to call it behavioral economics. And he’s much better at selling things. And fortunately, he prevailed in that debate.”
George went on, “The thing that concerned me was that behavioral economics sounds like it was going to create an association between behaviorism and economics, which is very much not what we practice. I mean in behaviorism, all that matters is behavior, not what’s going on in people’s minds. Behavioral economics is really centered on the idea that what happens in people’s minds is really important.”
We asked the others too. Drazen Prelec’s memory was fuzzy. We posed the question to Thaler and his response was definitive: “I don’t know exactly when it happened.” Kahneman tossed and turned over the story. After a bit of back and forth, and with an air of modest uncertainty, he said, “It existed.” He was correct. We traced the use of the term, albeit in a modestly different context, to George Katona’s published work from Michigan in 1947, and Herb Simon’s 1955 paper, “A Behavioral Model of Rational Choice.” Four decades later the term took on a new life.
Funny how the leaders who changed how the world thinks about thinking don’t recall the revolution quite the same way.