In the movie "The Big Short"—based on Michael Lewis' book of the same name, about the collapse of the global financial system in 2007-'08—the singer Selena Gomez and the University of Chicago economist Richard H. Thaler explain the "hot-hand fallacy" as it applies to the Wall Street weapons of mass destruction known as synthetic collateralized debt obligations. The scene takes place at a blackjack table in a casino. Gomez is dealt an ace and a 10—blackjack—and therefore can't lose. During the filming, she at first didn't react to her cards, and Thaler pointed out that a real player with an unbeatable hand would at least have cracked a smile. So, in the take that appears in the movie, Gomez and Thaler exchange high-fives, and the extras crowding behind them clink glasses and cheer. Thaler figures that, because of his contribution to the movie's verisimilitude, he ought to have received a directing credit, if not gross points—and also that he was robbed at the Academy Awards. "Doubly so, in fact," he told me recently, "since I ad-libbed all my lines, and the writer-director won the Oscar for Best Adapted Screenplay."
In October, Thaler's pain was assuaged, somewhat, when a different academy, in Sweden, gave him the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel—the Nobel Prize in economics. The award was in recognition of Thaler's contributions to behavioral economics, a field he was instrumental in creating. His foundational insight was that human beings, and therefore the markets they throw money at, are far less rational than neoclassical economic theory assumes them to be. This idea—that people are basically idiots—might seem unsurprising to anyone who's not a neoclassical economist, but for many years Thaler's fellow academics considered him a fringe thinker. He has gradually won over most of them, though, and he has done so with creativity and humor, as well as by finding mathematically rigorous ways to explain why mathematical rigor can't explain everything.
Thaler is also a golfer. His regular playing companions include two other Chicago economists: Eugene F. Fama, who shared a Nobel Prize in 2013, and Steven D. Levitt, who is the co-author (with the journalist Stephen J. Dubner) of the Freakonomics books, which have introduced millions of non-economists to behavioral-economic thinking. People who win the Nobel Prize are inevitably hounded by pushy journalists and self-serving well-wishers, but an important finding from my own work in behavioral economics is that golfers are always up for golf. And, indeed, when I emailed Thaler, Fama and Levitt, they responded faster than my children usually do. After several reply-alls back and forth, accompanied by a little schedule-rearranging and nervous forecast-checking, we were able to pick a date and a tee time that accommodated everyone but Fama, who had a commitment in Texas that he couldn't think of a way to back out of.
"Things have been crazy," Thaler said when we met. "I've said no to everyone but The New York Times, The Wall Street Journal, PBS NewsHour and Golf Digest—the Big Four." Levitt had already told me, by email, "I've dreamed about being on the cover of Golf Digest more often than I've dreamed about winning the Nobel Prize."
Thaler is 72. He played a little golf when he was growing up, in New Jersey, but he wasn't crazy about it. "Then, when I went to college, I took up tennis, and I basically played tennis until I was 60. That's when I saw the writing on the wall. Old-man tennis is just ugly—four guys standing around—and I'm really a clay-court-singles kind of guy." He and his wife, France Leclerc, decided to try golf instead. (She's a retired marketing professor and a talented amateur photographer. You can see a selection of her work at franceleclerc.com.) "France and I took a three-day course, and I got hooked immediately," he continued. "There was some muscle memory, and some transfer from tennis, in terms of eye-hand coordination. And pretty soon after that, France broke her arm and never played again."
At first, Thaler played most of his rounds at Jackson Park, on the shore of Lake Michigan virtually across the street from the university. (The park was the site of the 1893 World's Fair, and its golf course, which opened in 1899, was the first public course in the Midwest. The park will be the home of Barack Obama's presidential library, and the course is about to be redesigned and renovated by Tiger Woods.) Fama—who is six years older and had taken up golf a couple of years before—joined Beverly Country Club, which is also close to the university. "I don't think I would have thought of joining a club on my own, because I wasn't very serious about it," Thaler says. "But Gene took me to play at Beverly, and it turned out to be a great place to learn the game."
“GOLF WOULD BE A DIFFERENT GAME IF NOBODY HAD EVER THOUGHT OF THE IDEA OF PAR. THERE ARE VERY FEW 260-YARD HOLES, FOR EXAMPLE. WHY NOT? FOR A LOT OF GOLFERS, THAT WOULD BE PERFECTLY NICE.”
Beverly opened in 1908. Its current layout was created by Donald Ross, who redesigned the course in 1918 and took advantage of the fact that the property straddles what was once the southern edge of Lake Chicago, a sort of ur-Great Lake. Several holes play into or out of the old lakebed and among what used to be low dunes along the shoreline. Ron Whitten, Golf Digest's architecture editor, told me that the course's routing is "a great example of how to fit a design into a long, skinny rectangle and make it work" and that the architecture is "excellent if not quite superlative enough to be ranked among America's very best." Francis Ouimet won a U.S. Amateur at Beverly, in 1931, and Chick Evans, Arnold Palmer and Jack Nicklaus all won Western Opens there. "The course is brutal," Thaler said. "But one good thing about that is that it makes anywhere else seem like a walk in the park."
Levitt—who's also a Beverly member—had to teach a class on the morning of our golf date and so wouldn't be joining us until we made the turn. Thaler and I warmed up with a few practice balls, then headed to the first tee, which you get to from the range by taking a cart through a tunnel that runs under all six lanes of West 87th Street. Four younger guys were about to tee off, but they stepped aside, in deference to the Nobel Prize and to the fact that Thaler is a known non-dawdler.
Thaler had described himself to me as a bogey golfer. He could be better if he decided he wanted to be, but he's a very laid-back player. We didn't keep score, and if his ball got muddy, he cleaned it. On one long hole, his approach shot ricocheted off a tree and disappeared, and after maybe a minute of searching he told his caddie to abandon it. "I believe that people spend way too much time looking for golf balls," he said. Then: "Oh, look—here it is." He dropped one. "We'll try a feasible shot, one that I need to practice." He hit a good 50-yard wedge, and we moved on.
"Golf would be a different game if nobody had ever thought of the idea of par," he said a little later. "There are very few 260-yard holes, for example. Why not? For a lot of golfers, that would be perfectly nice." He also has doubts about the diameter of the golf hole (which is 4.25 inches only because when players at what's now Royal Musselburgh Golf Club, in Scotland, asked a local plumber to fashion a hole-cutting device for them, in 1829, that was the size of the pipe he had on hand.) "You know how practice greens sometimes have those tiny holes?" Thaler said. "Imagine that all golf holes were like that. On a course like this one, where the greens are normally super-fast, that would be horrible. Now suppose that holes were an inch bigger than they are now. Would that be better? I don't know—although Fama would like it, because he says that short putts ruin the game."
Levitt was waiting in the clubhouse when we finished the first nine, and he and I chatted while Thaler went to the locker room to put on an outfit that Golf Digest's photographer had picked out for him in Beverly's golf shop. Levitt is 50, and, unlike Thaler, he's deeply obsessed with the game. When he was in his 40s, he entertained the delusion, common among middle-age men, that if he found the right teacher and worked really hard on his handicap, he would have a non-zero chance of qualifying for the senior tour. (Golfers didn't invent irrationality, but we've contributed to the field.) Levitt has gotten over all that now, although he still prefers the range to the golf course—and, of course, to the office.
Thaler returned from the locker room, and Levitt told me about an encounter he'd had with the economist Larry Summers, who probably would have won a Nobel Prize by now if he hadn't forsaken academic research to become, among other things, the chief economist of the World Bank, the U.S. Secretary of the Treasury and the president of Harvard University. Levitt said, "Summers came up to me at a conference and said, 'Steve, I really need your help. There's a question that no one else in the world can answer for me.' " Levitt, naturally, was deeply flattered—maybe something about interest rates? Summers continued, "My handicap is 18. I want to be a 13. I'm your pupil. Tell me what I need to do."
Thaler and I had played the first nine from Beverly's green tees, the forward-most set rated for men, from which the course—a par 71—measures a little more than 6,200 yards. That was plenty long enough for both of us, and it would be plenty long enough for the vast majority of golfers anywhere in the world. But Levitt told me that, as far as he can tell, he, Thaler and Fama are the only men at Beverly who don't play from either the whites, which are more than 300 yards longer than the greens, or the blues, which are 300 yards longer than that. "And I know we're the only ones who play the greens," he continued, "because we never find any broken tees."
Fama, at first, was appalled by the idea of moving up. But one day several years ago, Levitt told him, untruthfully, that he'd hurt his knee and didn't feel up to walking all the way back to the whites. "The hole was a par 5, and from the green tees, Gene hit driver, 3-wood, 8-iron," Levitt continued. "When he saw his ball on the green, he said, 'That's the first time in five years that I've reached a par 5 with an iron'—and he's never played the whites since. He's a fast learner. It took him exactly one hole to realize what he hadn't been able to see ahead of time. But to get him there, I had to trick him."
Levitt's trick was actually an example of what might be Thaler's best-known contribution to human happiness—the concept of the "nudge" (which also provided the title of his most popular book so far, co-written with the legal scholar Cass R. Sunstein). In Fama's case, the nudge was probably more of a shove, but the idea is the same. If humans really were as rational as most 20th-century economists assumed them to be, male golfers would find the green tees all by themselves. But, for a variety of reasons, not least among them inertia, people routinely make self-defeating decisions, or non-decisions, even if they've been offered obviously sensible alternatives. A useful workaround, Thaler has demonstrated, is to use inertia as a force for good, rather than evil, by requiring people to opt out of desirable courses of action, instead of requiring them to opt in. The most commonly cited example has to do with retirement funds. If a company creates a pension plan and invites employees to sign up, they often don't; but if the company enrolls employees automatically and allows them to drop out, they seldom do. This approach has sometimes been criticized as paternalistic, or coercive, but if employees who don't save enough for retirement suffer harm later and regret not having acted intelligently when they had the opportunity to do so, what's the problem? Besides, recklessly ignoring human nature is a form of coercion, too.
“SUPPOSE THAT HOLES WERE AN INCH BIGGER THAN THEY ARE NOW. WOULD THAT BE BETTER?”
Every year, the Swedish Embassy invites the American Nobel Prize winners to a reception in Washington before they take their trip to Stockholm. The festivities traditionally include a visit to the White House—and this year that posed a problem for at least some of the recipients, Thaler among them. But the Swedes, with diplomatic aplomb, apparently devised a graceful solution: They scheduled the reception for a day when the problem was going to be in Asia.
After our round, Levitt had to rush off to another appointment, but Thaler had time for a drink in Beverly's grillroom. I asked him how winning the Nobel Prize had changed his life. "Well, here at Chicago, Nobel Prize winners are a dime a dozen," he said. "You get a little cred for about a week, but then it's back to, you know, 'You're only as good as your last paper.' " One nice thing about Thaler's prize, for those of us who aren't economists, is that it proves a brilliant person can be brilliant without being incomprehensible to laymen. Thaler's two most recent books—Nudge and Misbehaving—are immensely readable, and Thaler is often very funny. Misbehaving is worth its cover price for the chapter called "The Offices" alone.
When it was time to leave, I asked him whether there was anything I ought to have asked him that I hadn't known to ask. "Well," he said, "why don't you ask me whether there's some golf course I'd really like to play?" So I did, and if you, too, spend much of every winter dreaming about the Masters, you can easily guess his answer. "And you can put that in your article," he said. I told him I would and added that I was pretty sure that someone in a position to grant such a wish would read what I'd written and grasp the obvious benefits of spending a couple of days playing golf with a personable, fascinating, fun-to-hang-around-with guy who also happens to be a superstar in a discipline that has seldom been more important than it is right now. (That's a nudge.)
1.) What's your idea of a perfect round? Three good friends, nice weather, and two birdies. Second choice: out by myself on an empty course, late afternoon, hitting two balls. Peace.
2.) What's your go-to shot, the one you know you can pull off? Tap-in from one inch.
3.) What's the shot that keeps you up at night? Long bunker shot, downhill lie.
4.) What's the best part of your game? Banter.
5.) Best tip you ever got? A bunker shot is just another golf shot.
6.) Where in the world would you like to go with your golf clubs? Augusta.
7.) What is it that golfers don't understand? Most people play tees that are too long for them. And not everyone in the foursome should play the same tees. If skill varies, then ideally everyone has the same club in their hand on their second shot on a par 4 and on the tee on a par 3.
8.) What do you dislike about your golf self? When my mind wanders, which is what it does most of the time, on and off the course.
9.) What golfer would you most like to be like? Jordan Spieth—I like his thoughtful game. His mind does not seem to wander.
10.) What's the difference between golf and economics? No gimmes in economics.
11.) Why are golfers so despised by nongolfers? Don't know, but people don't much like economists either. I will say that the folks you meet on a public course like Torrey Pines are a great cross section. Not a single jerk.
12.) Who would you most like to play golf with? President Obama.
13.) Favorite article of golf clothing? Kingsbarns sweater.
14.) Tiger Woods or Jack Nicklaus? Arnie.
15.) What golfer do you most identify with? Jason Dufner.
16.) What was your happiest moment on the golf course? When my friend David Schkade and I couldn't find either of our golf balls on an uphill par 3 at Steel Canyon in San Diego, and one of our playing partners (a stranger) found both of our balls in the hole. Top that one.
17.) Nobel Prize or Masters green jacket? Oscar.
18.) Where in golf would you want your ashes scattered? Off the Torrey Pines cliffs.
19.) What song is in your head when you swing? None! Maybe that's what I'm doing wrong.
20.) Phil Mickelson told us he won a Nobel Prize in economics. True or false? Well, if he would like to see if his is the real thing, tell him I spend part of the year in La Jolla, and he can come see if his is a counterfeit.