Host, Steven Dubner, talks with Richard Thaler and his behavioral economic theories, who also recently became a Nobel prize winner in the field of economics. They talk on the pros and cons of separating ones money into different labeled pockets. Something that was once looked down upon by economists, but because people do it, there must be something about it. Thaler just won a million dollars in prize money but chose to put the money in his Vanguard account with his other money. He says he should have put it on one special account for special occasions like the layman only it is a million dollars. I do this with my money and I am not sure why when I am forced to ask myself. In fact, my money is separated into nine different pockets and I see this as an aid in my frugality. One reason for this is because different types of bank account grow (in interest, dividends, or the like thereof) at different rates. So while it is true that virtual money is fluid, one could say that depending on the account, different types of liquids carry different weights. In Thaler’s case, a Vanguard account still carries far more weight than a simple Huntington savings account.
In the second half of the podcast, Thaler talks of his theory that won him his nobel prize for: “people often say one thing but do another.” A theory on frugal cognitive dissonance in order to thrive richer in the future, or we Thaler calls it: “optimization problems.” Highlighting the double-edged sword of change, or when and when not to buy. Similarly, in recent times, I have had to ask myself what and what not to buy in bulk. Buying in bulk is cheaper, yes, but at times it can be more cost-effective not to buy in bulk. For example, if you have one hundred dollars right now, why would you buy a bulk supply item that would last longer than when you would receive more money? And as Thaler suggests, this is the type of thinking a successful person would employ.