Dean’s Speaker Series: Richard Thaler, David Leonhardt discuss future of the American economy 

two men sitting on a stage one holding a microphone
NY Times writer David Leonhardt and Economist Richard Thaler. Photo: Katelyn Tucker

Pulitzer Prize-winning journalist David Leonhardt believes that the American Dream has dimmed over time, but can rise again if the U.S. changes its policies.

With nearly 25 years of experience reporting on economics for The New York Times, including serving as Washington bureau chief and starting the publication’s “The Upshot” section, Leonhardt spent years writing about the American economy. That formed the topic of his new book, Ours Was the Shining Future: The Story of the American Dream.

Leonhardt sat down with Richard Thaler, former president of the American Economic Association and the 2017 recipient of the Nobel Memorial Prize in Economic Sciences,to discuss the history of the American economy and the drive behind Ours Was the Shining Future at a recent Dean’s Speaker Series talk, co-sponsored by the O’Donnell Center for Behavioral Economics.

Much of what he tells in the book is not a happy story. “The problem is…. that living standards have been really rising so slowly for many, many people at the same time that living standards at the very top are rising,” Leonhardt said.  (Watch the video below)

The 1940s through the 1960s were times when society was geared politically and economically toward improving the living standards of most Americans, including those who didn’t have a college education—through labor unions and higher taxes for the rich to invest in public goods like roads and education, he said.

But “over the last 50 years, our society has really moved away from that,” he said, instead taking an individualistic approach that has not worked out for most Americans.  “Part of what I worry about is that many of the ideas that we would come up with for helping lower-income workers to make a good living are basically versions of redistribution,” he said. “I don’t think that tends to be what people want.”  

Describing unions as “grassroots foot soldiers” against a politically powered economy, Leonhardt contends that a strong labor movement is necessary to get us back to improving American society. He discussed the idea of developing new kinds of unions in the scope of current political and economic conditions.

While his book may not recount the happiest history, Leonhardt clarified that the future can still be bright. “I tried to emphasize ours was the shining future—and can be again,” he said. 

Read the full transcript: 

– Good afternoon. My name is Ulrike Malmendier, and I’m a professor here at the Haas School of Business, and I’m also the faculty director of the new O’Donnell Center of Behavioral Economics. And it’s my pleasure to welcome you here; it’s in the name of our dean, Ann Harrison. I’m truly delighted to introduce our two guests, David Leonhardt and Richard Thaler. Neither of them really needs an introduction. In fact, many of you New York Times readers have David’s flagship newsletter in the morning in your inbox every day. David has been at The New York Times for almost 25 years, since 1999, writing on business, economics for the magazine, opinion columnist in the spare time, founding “The Upshot” section, running the “Washington Bureau,” what did I forget? Oh, winning a Pulitzer Prize on the way. So, an amazing career as a journalist, and I’m fortunate enough to have crossed paths with him more than 20 years ago when he, with me just being fresh out of graduate school, took an interest in my own first behavioral economics research, which was on people signing up for gym memberships, paying steep monthly fees, and then rarely showing up at the gym. Discussing that research with David was not only really helpful for forming the research ideas; I also learned, from David, the power of storytelling, of using examples, personal experiences to convey a deeper concept. That’s something academic training tries to drill out of you, I have to admit. But now that I’m, for example, we just talked about it, involved in policy and convincing politicians to do the right thing, I am recognizing it as so powerful. So, all you future leaders here in the room, take note. David, also, while talking with him, actually gave us the title for our very first paper, I don’t know whether you remember. We’d called it something like “Time Inconsistency, Contract Design, and Health Club Attendance.” And then, David wrote a column, an economic column, which had the headline, “How much does it cost not to go to the gym?” And with his permission, we told the American Economic Review that we are renaming it into “Paying Not to Go to the Gym,” which was, of course, a much better title. We’re here today because David has just written his first book, “Ours Is the Shining Future.” It’s the story of the American Dream, which has been named one of the best books of the year by The Atlantic, The Financial Times, and The New Republic. The book starts from him telling the story of his own family, and then, examining the history of the American economy as it has evolved over the decades, examining the forces that have been driving the rising inequality and led to stagnation and lack of progress for many Americans. As we distill his argument, we see that David still thinks and argues that capitalism works better than any alternative we know of, but only a certain type of capitalism: one that’s softened by government intervention for the common good. And he urges us to recognize and foster the power of grassroots movements to instill humanity and opportunity for… Now, putting a more human face on economics is, of course, what our second guest, Richard Thaler is known for. And what won him the 2017 Nobel Prize in economic sciences. It is thanks to Richard that economics, which at times fell into the trap of pursuing analysis based on and enchanted by mathematical rigor more than driven by uncovering the truth about human behavior. It is thanks to him that we have learned again that we are a social science that deals with messy human behavior. And he has ushered these theories of behavioral economics into the mainstream with “Nudge,” his 2009 global bestseller he wrote with Cass Sunstein. I’ve known Richard even a few years longer than I’ve known David. Ever since here, at Berkeley Haas, I was fortunate enough to attend his behavioral economic summer camp in the big room down there, in the F building. Ever since then, he has been an invaluable source of inspiration and mentoring for me and for generations of behavioral economists. I view Richard as the true founder of our field, which includes, by the way, introducing us to Danny Kahneman, whom I also met for the first time at the very same famous behavioral economics summer camp, and who very sadly passed away last week. Kahneman was an academic giant, and introducing his and Amos Tversky’s work to economics was a game changer. In fact, in a time where a lot of psychology evidence in behavioral science is under fire for lack of robustness, as courageously exposed by our very own Haas colleague, Leif Nelson and his team. Richard had pointed us to rigorous psychology research, which we economists can build on, and which is here to last. So, I would like to add a really heartfelt thank you for those gifts to economic science, to a generation of behavioral economists, including myself. Like David, Richard is an amazing storyteller. Just Google “Beer on the Beach,” and you will see the type of narrative, which in my view is what he won the Nobel Prize for. So, we are in for quite a treat here, listening to their conversation right now. Just quickly, before we get going, you should all have note cards on your seat. If you have any questions that come to your mind, which would enrich our conversation afterward, write them down during the event and pass them on. My colleagues, Sarah and Carrie, will be collecting them. And then, the last 20 minutes, I will be able to ask a few of those questions to our two speakers. And with that, I now turn it over to David and Richard. Welcome.

– Thank you very much, Ulrike. And so, I’m going to steal a line from Malcolm Gladwell, who, when he and I did an event like this for I think my book “Misbehaving,” he began by saying how we had met in a hotel bar. And I’m going to say that David reminded me Sunday night, when we had dinner that he and I met in a hotel bedroom. And you know that, in Berkeley, that doesn’t raise as many eyebrows as it might otherwise. But the story is, and we just worked out that David and Ulrike met at the same American Economics Association meeting 20 years ago, 2004. David and I were supposed to talk about economics and have a coffee. And I said, “David, are you a sports fan?” And he said, “Yes.” And I said, “Why are we sitting here when we could be watching a football game?” And David, Sunday night remembered what the football game was, Titans-Ravens. So, since then, David and I have bonded over sports and many other things and have become great friends. So, here’s David’s book, and the title is “Ours Was the Shining Future,” note the tense there. So, why the past tense—and are we doomed?

– We are not doomed. Ulrike, thank you for that wonderful introduction. Thank you Richard, and thank you all for coming. Actually, first, this is from another era. I first learned about Haas when my first job in journalism was stuffing envelopes and opening envelopes for “Businessweek’s” business school survey.

– Oh!

– And so I would-

– Don’t get me started, I had that ruined business education.

– I was very low level—I was very low level. But I remember Haas students liking Haas when I opened those mini surveys. So the line, “Mine is the shining future,” is a line of an immigrant named Mary Anton who moved to the United States from Russia. And she has that line in her memoir. She’s looking up at the Boston Public Library and thinking about the antisemitism that she’s escaped in Russia and made it to the United States. And she describes, she says, “Mine is the shining future.” And, in the book that coins the phrase the “American Dream” in 1931, it ends by telling her story. And so, I knew when I was writing this book that I wouldn’t name it, I’m not good at naming things. My wife came up with the names for our children. I think Ulrike mentioned this.

– We about “The Upshot.”

Yeah, so exactly, so, when we were starting “The Upshot” at The New York Times, I said to people, “There is no way I will come up with the name for this.” So I offered a bottle of champagne to whoever on the staff did, and someone did. And so, I let Random House and my agent come up with the name of it, and they did. Random House first suggested, “Ours Is the Shining Future.” And my agent thought that was a touch too optimistic. And so, she suggested “Ours Was the Shining Future.” And Random House loved the switch. I will confess that, though I love the title, it is, there is, I do think, “Ours Is the Shining Future” is too positive. But when I’ve gone around and talked about it, I tried to emphasize ours was the shining future and can be again. So we are not doomed.

– Yeah, yeah. Yeah, I don’t see that.

– No, it is, that is much of the argument of the conclusion. But yes. But look, much of the story I tell about the last 50 years is not a happy story. I mean, the first chart in the book is that, in 1980, the United States had a normal life expectancy for a rich country. Pretty similar to Western Europe and Canada. Little bit below average if you look, but right in the, kind of the heart of it. And starting in the early ’80s, we departed from the life expectancy line of every other rich country in the world. And for the last 15 years, the United States has had the lowest life expectancy of any country in the world. And it’s not particularly close anymore. And it’s driven overwhelmingly by trends among working-class people. And that’s not a happy story.

– No, and you have another chart showing a type of inequality that doesn’t get as much attention, which is, there’s a difference between rich and poor in terms of life expectancy. That’s quite sharp.

– Yeah, when you look at life expectancy for college graduates, the line actually looks pretty similar to lines for other countries. Whereas, and when you look at life expectancy for working-class Americans, even before COVID, for much of the decade before COVID, had almost completely stagnated. And people often say, “Well, is it X?” And the answer is yes and no. Is it guns? Yes. Is it opioids? Yes. Is it COVID? Yes. Is it car accidents? Yes. But it’s not any one of those things. It’s the combination of working-class life in the United States, that is Anne Case and Angus Deaton, that they’re known for “Deaths of Despair,” but their research is actually broader than that, and kind of looks at just how much, by many measures, life for Americans without a four-year college degree has really stagnated.

– So, the inequality has been a popular topic in economic circles, especially in recent years. Sort of two themes, one that I’ll call the French theme of Piketty and Berkeley’s own Saez and Zucman stresses the rise of the 1% or the 10th of 1%. So, all the billionaires, and then we’ll call it the “Chetty theme,” Raj Chetty and his army of researchers that are stressing the difficulty of, say, going from the bottom quintile to the second quintile. Your book is more about the latter, right?

– Yes.

– And so, what’s your take on, what you’ve learned about that and why is it that it’s harder than it was when I was a kid, or when you were a kid, for the people at the bottom to move up?

– I think I do focus more on what you’re calling the “Chetty” part of the story. But I also think the French part of the story is important. And a lot of the data that I use in the book comes from Saez and Zucman and Piketty. I think that the, what’s going on with mobility and opportunity for the bottom half is more important in part just ’cause the bottom half has many more people in it than the top 0.01%.

– Right.

– Right? And so, it just affects many more people’s lives. And I think if we had a society where, and we briefly had this in the late ’90s, if we had a society where the rich were getting a lot richer and inequality was rising, but living standards for most people were also rising, I think Americans would be mostly OK with that. I think the problem is the combination: that living standards have been really rising so slowly for many, many people at the same time that living standards at the very top are rising. And I do think there’s a relationship between that. I mean, I think the very, very rich have more control over our political process as a result of that. But I don’t think that’s the dominant explanation. I mean, what I try to argue is that as a society, we had a society in the ’40s and the ’50s and the ’60s for all of the terrible problems. We had a society that was very much geared politically and economically toward improving the living standards of most Americans, including Americans who didn’t have a college education. And that took the form of labor unions, which I know we’re going to talk about. It took the form of a political system that taxed rich people quite highly, that invested lots of money in things like roads and colleges. The University of California system came out of those years, and there really was an enormous emphasis to use the resources of our society to improve most people’s lives. There was also, and this is relevant for a business school, there was a culture in corporate America that seemed more invested in this country and in communities and that was a little bit less self-seeking. And I talk about some of the executives like that in the book. And I think, over the last 50 years, our society has really moved away from that, and imagined that a kind of laissez-faire individualistic approach could work well for everybody. Which I don’t think was a crazy theory, I just don’t think it’s worked out.

– So, there are, you sent me an email recently saying, “I know there are three things you’re going to disagree with me about, unions, immigration, and trade with China.” And so, we’ll talk about those because they’ll be interesting conversations. But so, you think Trump basically had it right?

– I do not think Trump had it right.

– OK, so-

– I would hope I have a long record of journalism that justifies that statement.

– Oh, OK. So, alright. So that was a joke, of course.

– Yeah, yeah, yeah, yeah.

– So let’s start with unions. You tell several stories, including the workers in the Pullman train cars of how unions helped pull the bottom end up, so elaborate a little on that and what you think the, what the benefits are, and why is it that they have decreased in power and influence?

– Let me just start by saying, I’m aware that unions are flawed institutions. I’ve been in a union.

– So, noted.

– I’ve been in a union at The New York Times, if you asked me to list, I don’t have much of a temper. If you asked me to list the five times I’ve been silently angriest in my life, one of them would be when I went to my union representative at The New York Times to explain that my infant child needed neurosurgery, and there were no neurosurgeons in the union-covered plan. And I kid you not, my union representative said to me, “Have you considered calling a neurologist and asking if they also do surgery?” And you know, this most vulnerable moment of my life, I don’t know whether it was a bad attempt at a joke or a serious bad suggestion, but this was someone who at that point had power over me. Right? And was in many ways a monopoly. ‘Cause this was my health insurance plan. So I understand the way that people can be frustrated with unions, and I’m now a manager at The New York Times, and sometimes, the union stands in the way of change that I think is important. So I get that unions are flawed. I think the issue is that corporations are flawed as well. And when you have flawed corporations that are not checked by flawed unions, you have a really high inequality economy. And so, what I try to tell in the book is, if you look at the economy of the United States in the late-19th century and 19 aughts and teens and twenties, we had a tremendously high inequality economy without labor unions. And then, we had the enormous growth of labor unions, and we had this incredible rise in pay for working class people. And then labor unions started shrinking. And the time series works out almost perfectly that it is also the case that inequality starts rising. And it’s not, this isn’t simply time series evidence. There’s research by Henry Farber and Ilyana Kuziemko and Suresh Naidu and others that really look at similar workers and see that a unionized worker tends to make about 10% to 20% more than an otherwise similar worker. It doesn’t tend to come out of economic growth in most cases. It comes out of corporate profits and executive pay. It is redistribution, which I understand why many executives and investors may not like that, but I think it’s better for most people. I think without unions, corporations just tend to have too much of a power advantage in the negotiation. If I’m the boss and you’re the worker and I underpay you, it’s really hard for you to quit, right? ‘Cause you have a family. And so, I just think, I understand unions have flaws. I understand why they can drive people totally nuts, but I think we now have more than a century of evidence that when you have an economy without unions, many, many people end up earning relatively low salaries. And it’s very problematic

– So I mean, one question to ask is, “Is there another way?” So I have my own, I’m organizing a conference, a couple months back in Chicago. And because of some union rule, you know what a poster session is? Have you ever-

– Yes.

– Yeah, so, the poster sessions are at academic conferences. Typically grad students and junior faculty who can’t get on the program are given an opportunity to stand in front of a board where they’ve posted up some slides and talk about their research. It turns out, because of some union rule, it costs like $1,000 per board to put up. And so, we can’t have a poster session, which is damaging to the young scholars who, as Ulrike knows, I am always on their side. So, that’s a trivial version that we could tell thousands of these stories. Is there a way of giving power to the people without having the work rules that make organizations less efficient?

– I’ll half answer and then I’ll ask you a question. Most of the time that Richard and I have spent together, it’s me asking the questions.

– Yeah.

– So I can’t help myself. There’s another recent paper by actually some of the same researchers whose names I just mentioned, in which they look at workers relative preference between what they call redistribution and predistribution or market wages and post-government benefit wages. And basically, what they find, and I’m slightly overgeneralizing, but not by much here, is that everyone wants higher market wages for themselves. I think because of ideas involving dignity and respect.  So, what rich people want, rich, particularly rich progressives, is they want a system where they make a lot of money; and then, they get to redistribute it through taxes and benefits. And what poor people and working class people want is a system where not, where they’re getting money through government benefits, but where they actually, their market wages are higher. And so, part of what I worry about is that many of the ideas that we would come up with for helping lower-income workers make good livings are basically versions of redistribution. Where New York Times journalists and MBAs and tenured professors get to make more money. And then we get to-

– Yay.

– Yay, we get to give it to people through taxes. And so, I don’t think that tends to be what people want. I don’t think it’s as healthy in a whole bunch of ways. So I guess my question to someone who is more skeptical of unions would be, “Do you think I’m wrong to be so negative about the economic trends for less advantaged people over this era when unions have been shrinking? And do you see some other way that we can have mass prosperity without a meaningful labor movement?”

– Well, I’ll respond by asking my next question as a way of answering that, which is many people admire the economies in Scandinavia, like, Denmark and Sweden, maybe even Germany. But we’ll let Ulrike opine on that if she wants. So people in Copenhagen seem to have good lives and are happy, but the distribution of income is much less skewed. So is there a way of achieving that? If I could plunk you and your family and social network into Copenhagen or Stockholm, do you think you’d be happier? And would that be a better model?

– Well, I think it’s, I mean, much of Western Europe does have stronger unions than the United States does, right? With both the advantages and disadvantages. So, it’s not simply a case of them having a larger, or a government system in which they redistribute income that way.

– Well, they have higher taxes and social network.

– Yeah.

– A social safety net as well. So unions are a part, I agree.

– Unions are a part of it. And I think, and look, I think unions are important both because of, I don’t think unions are the full answer to be clear, but I think it’s really hard to imagine us having an economy that delivers prosperity to more people without stronger unions, both because of what they get directly for workers in negotiations. Look, I was just, I’ve said a couple critical things about the union at The New York Times. The union at The New York Times just won pretty significant wage increases for its members. I am confident, as much as I like the people who run The New York Times, that they wouldn’t have given them that size of wage increase without the union having the threat of a strike. And I would say the same thing about GM and Ford. And so, not only do I think unions bring direct benefits to workers, but I also think they end up often serving as kind of grassroots foot soldiers in a society and an economy where more people have political power. So you mentioned Pullman, one of the heroes of my book is A. Philip Randolph. I think many people think of A. Philip Randolph, if they think of him today as a civil rights leader. And he was a civil rights leader. He’s the original organizer of the March on Washington. It’s a story I tell in the book. It was originally planned for 1941. He faced down FDR over integrating wartime factories. So he canceled the March on Washington in 1941. That’s what it was called, the March on Washington. And they rescheduled it 22 years later. And A. Philip Randolph was the first speaker at it. He was the elder statesman at that point. And it’s not a coincidence that the labor union that A. Philip Randolph built with these low-wage women and men who worked on Pullman trains basically became the seeds of the civil rights movement. That is often the way that these movements happen. And so, I think that labor unions are really important in multiple ways. I don’t think we should try to recreate the unions of the past. I think we need new kinds of unions. And I also think that for all their excesses, there are often ways for corporations to push back against those excesses. So the union at The New York Times not only has asked for higher wages, but it’s asked for a bunch of other things that the management said “no” to, right? And so, sometimes, what unions ask for don’t have to become policy.

– Yeah, I’m sure, the fact that The New York Times is mostly digital now is bad for the union.

– Yeah.

– Since there were lots of jobs making a paper.

– Yeah. And just to say, I don’t mean this to say it means that I’m right about this. I say it more as a piece of self-criticism. The process of working on this book made me think that, during my 20 plus years as an economics reporter, I hadn’t written enough about the importance of labor unions. So maybe that version of that old version of me was right. And you’re right. I think it’s a really hard and important question.

– Yeah, look, I’m asking the questions, so I’m not answering them. So, for once in 20 years, we get to switch roles. So, OK. Along with unions, the other second evil menace in your book are immigrants. Of course, we are the children of immigrants, and probably 90% of the people in this room are as well or are actual immigrants like Ulrike. So, of course, you’re pro-immigration, but you have some thoughts about immigration. You know, there are low- and high-skill immigrants, and I think California represents the value both provide. I mean, Silicon Valley would not exist if it were not for thousands of immigrant engineers and tech startup founders and so forth. And the rest of the state couldn’t exist. If you go anywhere where there are people working, they’re speaking Spanish. So it’s a state that doesn’t exist without immigrants.

– Yeah.

– And it’s the most prosperous state in the country. And it would be a prosperous country if it were a separate country. So, since you’re not anti-immigrant, what are the tweaks you would prefer?

– No, and I do have more criticisms of the way our immigration system works than many people with whom I agree on many other things. So, I think California’s an interesting case. I’m mostly not going to talk about California, but it’s, right, it is a very prosperous economy. It’s also a very unequal economy, right? Where all kinds of things like, homelessness and poverty, right? So it’s not a perfect economy by any means. Not that you were suggesting it was. So, I think, I have two basic criticisms in my book of the dominant political tribes in the United States. So far we’ve been talking about my criticisms of conservatives. And it’s not just conservatives, it’s many economists, right?

– Yeah.

– Yeah.

– Chicago school.

– Chicago school economists.

– They’re the other villain in this.

– And as I said, I think some of the arguments that people made in the 1970s about how to fix the American economy, ’cause it had real problems, were legitimate arguments. But I also think they made a set of predictions about what would happen if we had a lower tax, less regulation, less unionized economy where corporations were allowed to grow really large. They made specific predictions about how this won’t just be good for affluent people, it’ll be good for everybody. And I think those predictions have not come to pass. And so, part of what I’m saying is, “Let’s look at that economic system and be honest about what it is delivered for most Americans.” My second set of criticism is that I think, in the United States, as in parts of Europe and other countries, the center left party in our country, the Democratic Party has really moved away from the views and values of working-class people and often actually become disdainful of those views.

– You call ’em the Brahmin Left.

– The Brahmin Left, which is a Piketty line that I give him credit for. And I think it’s a great line. And look, this is where I, and I’m guessing many of you, spend my life, right? Like, highly educated coastal suburbs. And part of the reason I focus so much on immigration is that I think it’s actually a signature example of how relatively privileged progressive Americans have moved away from the views and the values and even the interests of less privileged Americans. And so, the main story I tell in the book is the story of the 1965 immigration law. And it’s really important to go back and look at that law and the people who are advocating for it: LBJ, Ted Kennedy, Robert Kennedy, a lot of moderate Republicans back when they existed. And what they said was, they said, “We’re getting rid of our old racist system of immigration.” They didn’t use the word racist, but that’s what they meant. Where basically all slots were reserved for Western Europe, and we’re replacing it with a system in which it will be first come, first serve. They specifically promised, specifically, repeatedly, that it would not lead to a large increase in the volume of immigration. This is one of the things that I actually found most enjoyable from a kind of academic process of reading this old work at the Library of Congress. Again and again, Ted Kennedy and LBJ’s cabinet secretary said, “Don’t you worry, we’re not increasing the amount of immigration, we promise we’re not increasing the amount of blue collar immigration.” The example RFK used is, he said, “We are not bringing more ditch diggers to this country.” Because they understood that most Americans were not in favor of a massive increase in immigration. They were completely wrong about what their own law would do. I don’t think they lied, I just don’t think they thought about it very carefully. And the fact is, we have had an enormous increase in immigration. And so, now what happens is that many people on the left and the pro-business right as well, they say, “Well, that’s OK because immigration has no costs for anyone. It is a free lunch, it is great for the immigrants, and it doesn’t have any wage costs for anyone else.” And I think most Americans look at that, and they don’t believe it. And I think we can dig into the data about whether immigration has costs or not. I think it has some costs for lower-wage workers, and I think many people fundamentally understand this. Why did doctors make it so hard for immigrant doctors to come into this country and compete with them? Well, if immigration didn’t actually have any wage costs.

– You mean the MD cartel you’re referring to? Yes, yeah.

– Yes, the MD cartel says, “You can’t be a doctor in this country unless you’ve done your residency here.” That’s a ludicrous rule, right? If you… Because we’re saying that you can’t get good medical training in India or Australia or Britain. Sure, seems like you should be able to. And, but doctors understand, right? That having a lot of people come in and compete probably creates wage pressure for them. And so, I tell the story of immigration because I don’t think Americans, including many recent immigrants who were uncomfortable with really high levels of immigration, with an immigration system that doesn’t work, with high levels of illegal immigration. I don’t think they’re bad people. I don’t think they’re racists. Some of them are, but I don’t think it’s inherently racist to be skeptical of immigration. And we’ve ended up with a situation in which our left of center party, particularly elites in it, look at those people and say, “No, no, no, no, no. You are wrong to have those views. You’re ignorant. You are hateful. You need to understand that more immigration is better for everyone including you.” And I think that’s really debatable. And I also think that a lot of Americans look at that party and say, “No thanks, you’re disdainful of me.”

– OK, I think, I’m going to give you a pass on China and free trade in order to get you into trouble on something else. You had a piece recently on the SAT.

– I did.

– And there are basically three policies that are around. One is the old policy that you had to submit test scores if you wanted to get accepted to an elite college or university. Dartmouth, among others, has recently instituted that. Then there are the second policy that University of Chicago and many others have, which is it’s test optional. And then, University of California, where you’re forbidden from disclosing your SAT score. I don’t know whether you can whisper it in an interview, you guys might know, put it, tattoo it but so give us your brief take on why you think the old system there is the right one.

– So if we were trying to fill an orchestra and we discovered some kind of test that helped us predict how good a violin player you would be, would we dismiss that test? If we were trying to fill a basketball team, I am a huge basketball fan. It’s possible, I was at a dinner last night where I was sneaking looks at Caitlin Clark versus Angel Reese on the side of the dinner. If we had a basketball team and there was a test we could give the players that would tell us how good they would be at shooting, would we want to look at that test in order to decide who should play on our basketball team? Of course we would. And we wouldn’t spend any time agonizing over it. For years, the research showed that the best way to understand how good a student someone would be was to combine their high school grades and their SAT, that both were better than one alone. Over time, that is still the case, but over time, it has become clear: the SAT is better than grades in part because of high school grade inflation. Berkeley cannot fill its college ranks with everybody who gets A’s, you don’t have room for everybody who still gets A’s. And so, even though that is the case, many colleges have decided that they are not willing to either. You don’t have to submit scores, or, as the University of California does, they will not accept scores. It is also the case that when you poll Americans, more than 75% of Americans, including more than 75% of every major racial group, Black, Latino, Asian, and white, say that college test score, that standardized test scores, should play a role in college admissions. And so, this to me, it’s not quite as important as immigration, but this to me is another example in which the Brahmin Left has gotten on the other side of what I think the empirical evidence shows; and that, if we want a world where we are admitting the students who are likely to do best in college, the SAT and ACT help us discover that. And yes, they have class gaps. Yes, they have racial gaps because we live in a deeply unequal society in which everything has class and racial gaps. But, and this is a point that Raj Chetty makes, the class and racial gaps on the SAT are nearly identical to the class and the racial gaps on the NAEP. Now, I’m guessing many of you don’t even know what the NAEP is. The NAEP isn’t just a low-stakes test; it is a no-stakes test. It is a test that third and eighth graders take that has no bearing on the student’s future. It doesn’t even determine whether you get into honors algebra. It does determine how schools are graded, right? So, when you hear the nation’s report card, and you hear which states are doing better, that’s all the NAEP. But it doesn’t matter for students. So, no one ever takes NAEP test prep. People don’t go to Stanley Kaplan for the NAEP because it has no impact on their lives. The racial and class gaps on NAEP scores are nearly identical to the racial and class gaps on SAT scores. And so, yes, the SAT is picking up inequality, but if colleges use it right, they can actually use it to identify lower-income kids and underrepresented minorities who are going to thrive there. And I kind of don’t understand the idea that there is this useful, important information that we’re scared of looking at.

– Well, I agree with you. And let’s turn it over to Ulrike and the audience.

– Excellent, well, thanks so much for a really fascinating discussion. Particularly your discussion about unions striking a court, so lots of questions about that. To comment briefly on the German unions, they make my life very hard right now when I have to fly to Berlin and I land in Frankfurt and my Lufthansa flight doesn’t go because they are on strike. I tried to take a train. Well, it turns out the train is also on strike, and I’m stuck in some airport hotel. So the unions, for that reason; and because my Italian husband is smiling about the trains in Italy going smoothly and everything working, and in Germany, everything breaking down. So that is a problem. But more seriously, the kind of two issues. One is, in some sense, “What are the union negotiations driven by?” You had this heartbreaking example of your personal case where the person clearly wasn’t trying to maximize your welfare, quite to the opposite, at least in Germany, the discussion is right now about career concerns of people who want to be elected to be a union leader and might exaggerate in their demands for populism reasons, basically. So in terms of the design, I think there’s a lot to be done. There’s also the question, and that’s the traditional old question about unions. That they are an instrument to help the people who are in the “in-group” to get higher wages. What about the people who don’t have a job, right? Might they be harming them if the outlandish demands of The New York Times union had to be agreed upon, which you said that they weren’t in the end, would that mean, we might not have a New York Times anymore; or we have The New York Times because it would be so much? So this in-group, out-group question and the question, so, you in your book and in your discussion right now, we’re a lot focusing about unions and wages and how they’ve correlationally seem to have helped the lower deciles and quintiles. I would love for you, and one question goes in that direction to bring it together with the loss of manufacturing jobs or generally industry restructuring and certain jobs and companies from the traditional mining to much broader jobs disappearing. So if that’s our concern, that people don’t have a job at all anymore, hence no income, if it’s not about how low it is and rising it, but just allowing people to make a livable income and have prosperity across all regions of the U.S., how do you see the way forward here? And actually, maybe we can bridge it a little bit to behavioral economics in a second; and well, I’m happy to step in, but hear your thoughts about that. Do you see, is it contrast there, as maybe the unions being a positive force on the wage increases, conditional on being, having a job, but possibly to the detriment of those who are outside?

– So, I’ve been now going around to many campuses talking about my book, and one of the things, a question I occasionally get is, “You talk about all these problems of capitalism, but you treat them as manageable. Maybe capitalism itself is the problem, and we should instead just reject capitalism.” And I say, “The problem with that idea is that there has never been a noncapitalist society that has delivered really good living standards for large numbers of people.” Like none, right? And this is a somewhat indirect way in answering this, I’m sorry, Ulrike, but I actually feel this comes from the other political side, but I actually feel somewhat similar about unions, which is for all the problems with unions, I really struggle to find an economy that has delivered mass prosperity to huge numbers of people without a really important labor union presence. And so, while I agree with many of the problems with unions and think they need to be checked and think that public sector unions can be particularly problematic because they’re not always ways to check them, I would actually be quite happy if we could find some example of a society and an economy that delivered mass prosperity and had really healthy wages for people who are less fortunate than I am that didn’t have unions. ‘Cause I see all their problems, but I really struggle to find such an example and the examples where capitalism, where living standards tend to be best to me are almost always capitalist economies where you have a pretty meaningful government and labor presence. And to the second part of your question about jobs, I do think that unions can sometimes sacrifice jobs for the sake of wages. I think, in the United States today, we don’t really have a jobs problem. We have a good jobs problem. And so, if some of the tradeoff is that we’re going to end up eliminating some lower-paying work and creating some more good-paying work, that’s a trade off I’d be willing to take.

– Yeah, so let’s actually, let’s continue on that, and let’s leave the poor unions just for a second out of here, even though there’s so many questions about them. But will that happen? Why is it not yet happening? So I’m asking myself that question if I look at U.S. data, I am asking myself that question tenfold when I look at German data or any other population, which is much more dramatically shrinking, partly because they’re even less of an immigrant country than the U.S. We have this huge lack of hours worked to increase productivity, and yet, I don’t see wages for lower-level jobs and training of people who land in lower-level jobs and efforts put into making sure that they get an education, so that they don’t land in these lower-level jobs, increasing as much as it would be good for aggregate productivity. That could be a way out of this problem you guys were discussing about, “How do we get people not just to get money redistributed, but to earn a higher wage. Why is that not happening?”

– I think it has a, I was just talking about the United States, not Germany. I think it has a huge amount to do with bargaining power, that it is still the case that it is very hard for workers to be able to negotiate for really good wages when they are each on their own, right? As opposed to being collectively together.

– Yeah. But I mean, even before they land on that job. So I am born into an area with not the best schools, and I’m going to get a training that won’t allow me to apply for some upward trajectory in terms of career. Politicians, as much as anybody who’s working in the economy and running a business, should say, “Well we should go in there, we should get here in the U.S., you have the no child left behind policy. You should really have no possible member of the workforce left behind a policy, to get them to a level of training and make the best out of their talents. I don’t see a dramatic change happening, which I would’ve predicted given the population changes.

– I do think the Biden administration deserves some real credit for their efforts in some of these areas.

– Bidenomics.

– But yes, I mean, the Biden administration really has tried very hard to invest in regions that have had less economic growth even though many of those regions are not blue areas. And even though Biden seems to be getting no credit for it politically, which is a real mystery, I mean, you look at a state like Ohio, where they’ve opened a whole bunch of semiconductor factories, it’s not going to turn around the economy immediately, but it really should, in the long term, make a meaningful difference. And I do actually think this is part of, to come back to our first question about why, despite the story I tell, it’s not that I am optimistic, it’s that maybe I’m hopeful. I do think we have the tools to do it. I do think policymakers have increasingly looked at the evidence, the economic evidence, and tried to change things. And I think the Biden administration has really tried to put in place some policies that are responsive to the fact that a whole bunch of market-based systems haven’t delivered what they promised, including some of these ideas. Now, it’s going to take a long time, and I told you, I don’t have an answer for why he’s getting no political credit for it.

– Yeah, so a little more is the shining future, a little more optimism.

– Could be.

– OK.

– Yeah.

– Now, one related question, which popped up in a lot of cards I got, is about the role of AI. So, how do you think AI will affect the income, living standards, distribution? How does it play into the theme of your book?

– Can I admit our conversation on the way over here?

– Yeah.

– We were driving over here, and I said to Richard, “I have to admit something that’s a little embarrassing, which is I don’t totally get why AI is going to be such a big deal.” It’s not that I doubt that it will be a big deal, but when I ask people for examples of how it’ll be a big deal, they’re all kind of like, fairytale, either we’re all going to die, or, and then when I go and use it, it’s kind of, eh, and you didn’t disagree with me.

– Yeah, I mean, look, neither of us are experts on AI, but my take on it is that, I don’t know enough to know whether I should be afraid, but I do know there’s enormous room for improvement on things like call centers.

– Yep.

– And you know, one example, my home wifi went out and OK, I call the cable company, God forbid, and they say, “Alright, reboot your router.” I did that. OK, oh, then we do thing two and she has to do that and that doesn’t work. And you know, this is taking half an hour. And then she says, “Oh, OK, now we have to do thing three,” and that works. A month later, the same problem happens: I get to some other person and of course, we have to go through thing one and thing two why doesn’t the system know this is the guy who called a month ago and what you do is press thing three and right? I mean, we all live through those horror stories all the time. It’s not, yes, it’s a virtual problem, but you know, it’s like, all, you know what I call sludge, there’s sludge everywhere and it seems like AI could improve that a lot and whether the world ends, I don’t think that the world will end in my lifetime or yours, maybe your kids.

– The two things that so-

– So, why do I worry?

– The two thing… The, the-

– Social preferences?

– I do actually think there’s an interesting relationship here to political power. We didn’t talk about antitrust, but I talk about antitrust a fair amount in the book. Robert Bork is another character figure in the book. He’s famous not for his antitrust work, but it’s the most important work he did. And even if you were right, and I’m sure you are, that AI could solve all those problems if the cable company basically has you captured, they have no interest in solving it, right? And so, we need to not only get the technology, right? But we also have to get some of the power dynamics right. And we have to make sure that we actually have-

– Yeah but Elon will supply my-

– He will get ’em.

– And then I’ll have no worries.

– I do think it’s the, David Autor of the MIT economist has gotten some attention, including a recent piece in The New York Times about how he actually thinks AI could reduce inequality by basically giving less skilled, lower-earning workers the power to be more productive. Right? And that’s a version of what you’re talking about with the call centers. So, if there was someone at the call center who actually had the ability to fix when my NFL RedZone package goes out-

– Oh God.

– At Sunday at 1:45 and my Texan wife is not happy about it, and I’m going totally nuts about it, and we’re all running around in our house, “How can we watch football?” And if we could call someone and basically have them fix it, that person could make more money, right? And so, I do see, theoretically, how AI could actually be inequality reducing, but in the short term, this wasn’t exactly your question, I would just really like it if some people could do a better job just giving us examples of here’s how AI can improve your life a little bit right now.

– Yeah, so, I mean, I think there are good example of how, in particular, natural language processing can help us to substitute certain jobs, including the ones that Richard mentioned. I do think it needs to come in combo with a renewed effort to invest in the human capital of the people who would’ve otherwise ended up in those jobs. And you are more optimistic on that than me, I have to admit. But you brought up another point, which is politics, political power. We also had a question about that, about the U.S. Congress being the lowest productivity Congress in history in terms of legislation passed, and how you can be standing here and saying, “Well, if you just get our act together and focus less on ego and narcissism and on the common good, things will get better because how will the framework be created to provide the guardrails for that in the current situation.”

– So the statistic on the lowest productive Congress was, I think it’s the current House, right? I do think, look, I have criticisms of the Biden administration. I think they’ve completely mishandled immigration along some of the lines that you would guess based on what I’ve said, right? I mean, if you go back and read the Democratic Party’s 2020 platform on immigration, it’s all about allowing more people in. It’s almost nothing about figuring out a way to prevent the kind of problems we’ve had. That is a radical change in the Democratic Party. Go back and look at the way Barack Obama talked about immigration; it’s very different. So, I think Joe Biden has mishandled immigration. I think he can fairly be blamed for a meaningful part of the problems at the border. So I have criticisms of the Biden administration; however, I think they’ve gotten a lot right. I mentioned the semiconductor policy. When Joe Biden took office and was talking about bipartisan legislation, a lot of people, including me, had a little bit of reaction of, “There he goes again,” like imagining a Senate that doesn’t exist anymore. And Joe Biden passed a really impressive group of bipartisan legislation. The semiconductor bill was bipartisan; the infrastructure bill was bipartisan. Some of the military stuff was bipartisan, and he didn’t let that keep him from passing the stuff that Republicans were never going to agree to at the same time that he was passing the bipartisan stuff, and I say this not critically, he jammed through a bunch of bills, like incredible fundings for clean energy research and making health care cheaper that Republicans were never, ever going to agree to. And so, I am not naive about the political challenges that face us. I am specifically worried about the threat of what a second Trump term would mean, given what he has said about his, how he views democracy and how he would use the political system and the justice system to go after his enemies. How he would round up huge numbers of immigrants. I mean, it’s really authoritarian, frightening stuff. And so, I’m aware of the risks and the challenges we face. I do nonetheless think there is evidence both over the last few years and in the 21st century, if you include marriage equality, if you include Obamacare, that our political system, when people organize, can actually be responsive to real problems in society.

– Isn’t that an optimistic word to end on? Thank you so much.

– Thank you.

– That was a fantastic conversation. Great questions. Thank you very much.


New center aims to create healthcare innovation research-to-impact pipeline

The Center for Healthcare Marketplace Innovation aims to shape the future of AI in healthcare through groundbreaking economic research, data partnerships and more.

Associate Professor Jonathan Kolstad will serve as faculty director of the new center (Photo: Copyright Noah Berger / 2023).

UC Berkeley experts are developing a trailblazing infrastructure to translate cutting-edge AI and behavioral economics healthcare research into powerful real-world advances in patient outcomes and drastically reduced medical costs.

The Center for Healthcare Marketplace Innovation, announced today by the College of Computing, Data Science, and Society and the Haas School of Business, will act as a force multiplier for top-tier technological innovation and economic insights. Developing and using the research on healthcare innovation incentives will lead to the creation and deployment of interventions that meaningfully improve public health.

Artificial intelligence (AI) is widely expected to transform healthcare. The new Berkeley center aims to play an essential role in ensuring those innovations benefit the public. AI tools could enhance care quality by, for example, helping triage patients in emergency rooms, diagnosing diseases and coaching clinicians. These technologies can also help reduce the 15% to 30% of health care spending that goes towards administrative functions each year, said Jonathan Kolstad, the center’s faculty director. That means up to $250 billion less in annual spending and more time focused on improving patient care. Still, this moment also carries risk.

“AI is going to be central to healthcare delivery in 10, 15 years from now,” said Kolstad, a professor of economic analysis and policy at Berkeley’s business school. “We’re at this inflection point. By understanding the technology, the systemic incentives and the human abilities in the healthcare system, we have a tremendous opportunity to help shape those dynamics.”

“We’re at this inflection point. By understanding the technology, the systemic incentives and the human abilities in the healthcare system, we have a tremendous opportunity to help shape those dynamics.” —Professor Jonathan Kolstad

“I think it matters whether and how those tools get built to actually enhance care delivery and help patients, and whether they are built in equitable, ethical ways because they’re started in places like Berkeley,” he said.

The center’s faculty are the right experts to lead this charge. Kolstad and faculty affiliates like Ziad Obermeyer are already award-winning academics in their respective fields, founders of healthcare innovation startups, and experts called upon by California and federal leaders to inform healthcare policies and regulations. Obermeyer is an associate professor at Berkeley’s School of Public Health.

This expertise enables them to build unique research and data resources and foster interdisciplinary incubation and industry and policy collaborations. Berkeley’s all-around excellence amplifies their potential impact. With connections to ambitious initiatives like the UC San Francisco-UC Berkeley Joint Program in Computational Precision Health and the open platforms initiative recently launched by CDSS, the new center can support other leading thinkers in moving their research from breakthrough papers into impact for public good. 

“Berkeley’s leadership in disciplines across computing, public health and economics and dedication to making real-world impacts make it the obvious home for this exciting initiative,” said Jennifer Chayes, dean of the College of Computing, Data Science, and Society. “The Center for Healthcare Marketplace Innovation will enable those at the intersection of healthcare economics and policy to join together with clinical and computing researchers to redefine success in healthcare outcomes.” 

“Harnessing AI to make our healthcare system work for people and ensure patients get better care requires a truly interdisciplinary approach,” said Ann Harrison, dean of the Haas School of Business. “I am very excited to see some of Berkeley’s great minds and cutting-edge resources come together at the new Center for Healthcare Marketplace Innovation.”

The center’s foundational development was made possible through a generous philanthropic donation by an anonymous thought partner. CHMI will be housed within the Institute for Business Innovation at Berkeley Haas.

A ‘bench-to-product’ runway

As society shifts to a new era of healthcare where AI plays a larger role, understanding human decision-making will remain central to discovering and applying useful solutions. The center aims to connect expertise in behavioral economics with the advanced research and development being executed at Berkeley to help develop healthcare solutions that people and companies want and will harness.

The center will focus on three pillars: conducting research to advance the science of innovation incentives in healthcare; encouraging interdisciplinary collaboration on projects and solutions; and partnering with healthcare providers, insurers, government agencies and others to test and refine the novel interventions.

Kolstad hopes this will be the “bench-to-product runway” that the increasingly technical and interdisciplinary AI, computer science and behavioral science need to be translated from research into impact.

“There’s a lot of really cool computational stuff happening, but it’s being built with very little understanding of the actual function of the healthcare system – of the complicated incentives of what it would take to have an algorithm, a prediction model, a solution be deployed to really change either healthcare outcomes or costs,” said Kolstad. “This kind of center that works to bridge these mechanisms can be very, very influential.”

“We want to take all of this intense energy and interest in AI and health and make sure that’s turning into benefits for patients and for the healthcare system.” —Ziad Obermeyer

Obermeyer’s work offers a blueprint of what the center’s impact could look like in practice. Through his research, Obermeyer found there was a need to improve physicians’ diagnoses of a patient’s probability of heart attack, an action that can trigger tests and other urgent care. Working with a major healthcare system, he developed an algorithm that could support doctors in emergency rooms as they screen patients and make crucial life or death decisions.

But will that algorithm work in practice? Obermeyer intends to find out. He’s now conducting randomized trials to see if the machine learning method he developed for an academic paper can become a real-world medical solution used in emergency rooms.

“We’re seeing so many papers come out in this area. I don’t think we’ve seen the impacts we want to see from those academic projects,” said Obermeyer, an affiliated faculty member of the Computational Precision Health program. “I think it’s because of that different skill set and because of the difficulties of translating academic ideas into the world.”

“We want to take all of this intense energy and interest in AI and health and make sure that’s turning into benefits for patients and for the healthcare system,” he said. 

Increasing access to industry data, feedback

The Center for Healthcare Marketplace Innovation is just getting started, but already its docket is stacked with ambitious projects. 

For example, the center is close to signing multiple large-scale, multimodal data access agreements with healthcare partners. The data is typically tightly held, and it can take years for academics to access it, Obermeyer said. That limits what research can be done to tackle health problems and the usefulness of related AI, which is only as good as the data it has access to train on, he said. Making it easier to access that data – and keeping it secure and used ethically – will unleash possibilities for research and impact in computational health. 

The center is also setting up an industry feedback platform, where large healthcare providers and others can share with researchers what problems they’re trying to solve for their patients, clinicians and systems. This input could lead to research and provide on-the-ground insights to inform the center’s efforts.

Additionally, the center will soon begin piloting a new generative AI model that offers clinical coaching to medical professionals. And it’s hosting an economics and policy conference – the Occasional California Health Economics Workshop – on March 8. 

These initiatives offer a glimpse of the new path forward the center is trying to create at Berkeley for this research, these industries and society.

“The future of AI and healthcare needs behavioral incentives, technological breakthroughs and data,” said Kolstad. “We’re working to bring those together.”


This article was also published by the College of Computing, Data Science, and Society with the headline “New center aims to create healthcare innovation research-to-impact pipeline.”

Media contact:

Laura Counts, Haas School of Business, [email protected]


Economist Thomas Marschak, UC Berkeley researcher and teacher for 60 years, dies at 93

Professor Emeritus Thomas Marschak, an economist who influenced generations of students during almost 60 years of active research and teaching at Berkeley Haas, passed away Jan. 31 at his Oakland home. He was 93.

Professor Tom Marschak (Photo: Jane Scherr)

Marschak, the Cora Jane Flood Research Chair Emeritus, was known for his dry humor, his generous mentorship, and his research into the design of efficient organizations.

“In so many ways, Tom was way ahead of his time,” said Professor Rich Lyons, UC Berkeley Associate Vice Chancellor for Innovation & Entrepreneurship and former dean of Berkeley Haas. “When you think about the center of gravity of his work—the informational and incentive aspects of the design of efficient organizations—you realize quickly that these topics are becoming ever more important.”

As a member of Haas’ Economic Analysis & Policy Group and Operations & IT Management group, Marschak continued his boundary-spanning research into his 10th decade. Just two weeks before his death, he had a paper accepted to the Journal of Institutional and Theoretical Economics.

“Tom was one of the sharpest, most insightful, and most admirable economists I have ever seen,” said Dong Wei, PhD 20 (economics), an assistant professor of economics at UC Santa Cruz who co-authored the recent paper with Marschak. “He had a tremendously successful academic career, and at the age of 90, he was still developing novel research ideas, conducting economic analysis with advanced mathematical tools, and writing academic papers with extreme rigor and clarity.”

“In so many ways, Tom was way ahead of his time. When you think about the center of gravity of his work—the informational and incentive aspects of the design of efficient organizations—you realize quickly that these topics are becoming ever more important.” —Professor Rich Lyons

Fleeing Nazi Germany

Marschak was born in Heidelberg, Germany, in 1930. His father, Jacob, who was Jewish and from Kyiv, Ukraine (then part of Russia), was a notable figure: As a 19-year-old student opposed to Lenin and the Bolsheviks, he served as labor secretary in a separatist republic in the Caucasus that lasted less than a year. When the Bolsheviks prevailed, Jacob Marschak—who went on to become a prominent economist—fled to Berlin. There, he met Tom Marschak’s mother Marianne, a journalist who earned her PhD and became an influential psychologist, developing the Marschak Interaction Method for observing the relationship between caregivers and children.

Although Tom’s early life in Germany was sunny, the looming threat of Nazism cast a shadow. In 1933, when Tom was 4 years old, his father insisted they flee to the United Kingdom. It was a prescient move as the family escaped the horrors of the Holocaust.

Marschak spoke about his father’s foresight in an oral history he recorded in 2005. “That was amazing foresight because all the other Jewish people with that kind of position said, ‘It’ll pass, it’s nothing, it’s a civilized country,’” Marschak said in the oral history. “He knew better.”

Tom Marshak in Canada in 2017. (Photo courtesy of Merideth Marschak)

In England, Jacob Marschak was made a fellow of All Souls College at Oxford University while young Tom and his sister were put into school—taught in English, a language he had to learn quickly. In 1939, as the war spread, the family decamped to the United States. As they were not British citizens, and Germany had withdrawn citizenship from Jews, they were stateless for a time. Still, with the help of Tom’s father’s academic friends, they settled in New York, where Jacob Marschak took a position at the New School for Social Research.

In 1943, the family moved to Chicago, where Marschak went to University High School—an experimental school attached to the University of Chicago where students could graduate high school in 10th grade and get a bachelor’s degree by 12th grade. The Marschak home during that period was host to a circle of prominent émigrés, including Leo Szilard, the physicist who discovered the nuclear chain reaction process; atomic physicist Hyman Goldsmith; violinist Isaac Stern; and Edward Teller, the father of the hydrogen bomb.

By age 17, Marschak was a college graduate, with honors. He landed on economics as his field of study and headed to Stanford for his doctorate, followed by a job at RAND Corp. in Santa Monica under Charlie Hitch (later president of the University of California).

In 1960, he was hired as an associate professor at Berkeley Haas. “Things were very different then,” he recalled later. “You dressed in a white shirt and a tie, I can’t believe that. I was one of the very first to grow a beard—almost unheard of.”

Marschak lived in Berkeley with his first wife, Dorothy, and their children Debbie, Madeline, and Timothy. In 1968, Marschak’s life was scarred by tragedy when his eldest daughter Debbie, age 10, died in a car accident.

In 1979, he remarried, and he and his wife Merideth had sons Anthony and Daniel. He was a devoted and deeply involved father. “He took us to film festivals, summer backpacking and river trips, enrolled us in summer programs, monitored our education, and kept us in close contact with his side of the family,” recalled daughter Madeline Marschak. “He offered all four of his children unconditional love and support equally. …Tom Marschak was my hero and the best father anyone could hope to have.”

Academic boundary spanner

Academically, Marschak made his mark in economics theory, studying information gathering, information technology, and network mechanisms—complex work that was ahead of its time, Lyons said.

“Tom was an intellectual boundary-spanner from the get-go, having spanned two academic groups at Haas and having spanned in his work even more areas than these two groups traditionally have done,” Lyons said. “His work covered IT, data science, use of data to drive enterprise value: These are some of the defining issues of our current time.”

Marschak was the co-winner of the Koç University prize in 1996. He was an elected fellow of the Econometric Society and the recipient of both a Fulbright-Hays research award, a Guggenheim Fellowship, and a Ford Foundation faculty research fellowship.

“Much of Tom’s work addressed foundational issues of organizational design, such as how the degrees of hierarchy or decentralization affect an organization’s communication costs and ability to achieve its objectives,” said Professor Emeritus Michael Katz, Sarin Chair Emeritus in Strategy and Leadership. “Although this work was abstract, it has important implications for business organizations.”

‘Dry and delicious humor’

A woman with short gray hair and black dress smiles at the camera. A man in suit jack sits at a table holding an hor d'oeuvres on a skewer.
Tom Marschak with Merideth in 2017. (Photo courtesy of Merideth Marschak)

His colleagues at Haas remember him as a generous instructor with a wry sense of humor. “Tom taught microeconomics to a generation of Haas undergraduates,” said Professor Emeritus Jonathan Leonard, George Quist Chair in Business Ethics. “If you could get him to raise an eyebrow, you knew you had said something interesting.”

Merideth Marschak also recalled her husband’s “dry and delicious” humor, as well as his love for outdoor hiking adventures and walking the Bay Area hills up until his last months. He was “unbeatable at trivia and could summon up historic facts and arcane knowledge on request” and also loved to cook for friends and family. “A crowded dinner table was the best fun,” she added. He was delighted when he became a grandfather at age 88.

“He was incredibly generous with his insight and his kindness,” Merideth Marschak said. “He taught us all the value of slowing down, enjoying life, and keeping an open mind.”

Marschak is survived by his wife, Merideth; his children, Madeline, Timothy, Anthony, and Daniel; his granddaughters Lucy and Alice; and nieces Emily and Julie Jernberg. He was predeceased by his sister, Ann Jernberg.

Berkeley Haas launches O’Donnell Center for Behavioral Economics to lead the next generation of research

Established with a philanthropic investment of almost $17 million from Robert G. and Sue Douthit O’Donnell, the new center will bring together the best minds from a wide range of fields.

An aerial view of the Haas School of Business campus showing a wide staircase leading up to an arched entry between two buildings.

Berkeley, Calif.—Ever since Nobel laureates George Akerlof and Daniel Kahneman created a 1987 UC Berkeley course that broke the rigid barrier between psychology and economics, the university has led the way in bringing the once-disparate disciplines together into the field of behavioral economics.

More than 35 years later, the Haas School of Business is launching the Robert G. and Sue Douthit O’Donnell Center for Behavioral Economics to advance the field toward its next stage of evolution.

Portrait of a woman with shoulder-length dark blond hair and purple blazer.
Professor Ulrike Malmendier (Photo: Copyright Noah Berger)

“We went from neoclassical economics that considered humans to be perfectly rational, to behavioral economics that brought in social psychology,” says Ulrike Malmendier, the Cora Jane Flood Professor of Finance, who will serve as the center’s faculty director. “Now we want to move the needle further, bringing together the best minds for rigorous research on human behavior from the sciences more broadly—including neuroscience, cognitive science, biology, medicine, epidemiology, and genetics.”

Funded with a philanthropic investment of almost $17 million by Bob O’Donnell, BS 65, MBA 66, and his wife, Sue O’Donnell, the center aims to become the preeminent hub for the maturing fields of behavioral economics and finance, bringing together leading researchers from a wide range of disciplines for collaboration, conferences, and bootcamps, as well as funding promising PhD students and postdoctoral scholars. The center will also host the prestigious Behavioral Economics Annual Meeting (BEAM), co-founded by Malmendier, every three years.

A nexus for cross-disciplinary research

O’Donnell says he was inspired by the pioneering work of Kahneman, Akerlof, Malmendier, and others who gave Berkeley its leading position in behavioral economics. “UC Berkeley is dedicated to integrating business education with other disciplines on campus, which is essential in this area,” he says. “It should have a center devoted to continuing this work.”

The center, says Berkeley Haas Dean Ann Harrison, will create a far-reaching impact across UC Berkeley, a research powerhouse with many areas of strength. “The goal is to cut through barriers that traditionally hinder research across disciplines, such as different ways of presenting data and publishing results, and bring people together in a different way than what’s usually done,” she says. “The O’Donnell Center will be the nexus of a new form of cross-disciplinary collaboration that pushes behavioral economics toward the future.”

Beyond ‘homo economicus’

Traditional economics was based on the assumption that human beings are perfectly rational, profit-maximizing “robots”—sometimes referred to as “homo economicus” or “economic man,” Malmendier says. Behavioral economics brought in insights from psychology and human behavior to explore the predictable foibles in our thinking, such as decision-making biases, fears of losing out, lack of self-control, and overconfidence. A classic example is Kahneman’s pioneering work with Amos Tversky on loss aversion, which showed that people are willing to take greater risks to avoid a loss than to secure a gain.

These ideas have been integrated into economics and finance departments around the world and have deeply influenced public policy and practice. For example, after Nobel Laureate Richard Thaler and Cass Sunstein developed the concept of the “nudge”—interventions that spur people to act in their own self-interest, such as enrolling in a retirement savings plan—hundreds of “nudge units” were established in governmental and private-sector organizations around the world.

Many other Berkeley Haas researchers helped pioneer this intellectual revolution, including finance professor Terrance Odean, BA 90, MS 92, PhD 97, the Rudd Family Foundation Chair, who was convinced by Kahneman to pursue a doctorate in finance rather than psychology and whose work reveals investors’ flawed decision making.

O’Donnell, the center’s founding donor, says he often applied insights from behavioral economics during his career as a portfolio manager for a large mutual fund group. “It represents a further step in the evolution of financial theory comparable to the development of the efficient market hypothesis,” he says. “When combined with existing financial theory, I believe that its insights enhanced results for my clients.”

Yet, during the 17 years he taught an investment class in the Berkeley Haas MBA program, O’Donnell says he sometimes encountered skepticism when he introduced ideas from the field. “Indeed, one student asked, ‘Isn’t all this kind of woo-woo?’”, he says. “Several years later, that student told me how perspectives from behavioral economics had helped her career in finance.”

Experience effects

Now, after more than three decades of foundational work, it’s time to move behavioral economics past its adolescence, Malmendier says. “Behavioral economics made progress by including psychology, but we didn’t include all the other sciences.”

Malmendier, whose groundbreaking work on “experience effects” earned her a Fischer Black Prize in 2013 for the top economist under the age of 40 and a Guggenheim Fellowship in 2017, has focused on complex economic behaviors. She has studied how stressful experiences with recessions, layoffs, inflation, housing bubbles, and political repression make consumer and investor behavior more cautious and risk averse for years afterward, and she has explored how stress can affect our health, careers, education, and other aspects of life in dramatic ways.

To further that work, Malmendier aims to bring a wider range of researchers together and break down silos. For example, collaborating with neuroscientists, neuropsychiatrists, biologists, medical researchers, and epidemiologists who have studied stress and trauma could more precisely demonstrate how past experiences shape our actions today and across generations. Stress impacts the big variables that economists study, such as completing an education, choosing an occupation, and deciding to have a family, she says.

“As we walk through life, our outlook on the world changes, especially if we suffer trauma,” she says. “Neuroscience says our brain gets rewired. There may be a long-term impact of stress on our longevity, on our aging, and on our health.”

Questioning the status quo

Malmendier, who now serves on the German Council of Economic Experts, is passionate about the potential of behavioral economics to help leaders create better solutions to the most complex and urgent problems of our time—from fighting climate change to battling inflation and avoiding financial crises. “If leaders keep in mind people’s emotions, their personal histories, and their psychologies, they can engineer ways to make things more predictable and give people more control over events help them live better lives,” she says. “That is our ultimate goal.”

Photo of a man with light skin, short brown hair, and glasses, wearing a navy blue jacket with white collared shirt.
Professor Stefano DellaVigna

Moving the field forward will also involve rigorous research to reexamine what has come before. For instance, a recent paper by center co-founder Stefano DellaVigna, the Daniel E. Koshland Senior Distinguished Professor of Economics and professor of business, with Elizabeth Linos of Harvard, suggests that leaders should get more realistic about nudge policies—and better at incorporating them into practice. Two government nudge units opened their records to allow the researchers to look at all their interventions. By examining 126 randomized controlled trials of nudge policies involving 23 million people in the United States, the researchers found that nudge interventions are on average effective, increasing the desired outcomes by about 8%. However, the effects are less than those in published academic papers—about one-fifth the size. The authors attribute the difference to publication bias, or the tendency toward publishing only large, surprising results.

“Our study stresses the importance of research transparency,” DellaVigna says. “This transparent access is quite unique and shows a further innovative impact of behavioral economics, which has led to more evidence gathering within governments.”

In a second paper, DellaVigna and Linos, along with Department of Economics doctoral student Woojin Kim, found that even when nudge policies are found to be effective, public agencies implement them only about a quarter of the time, often due to organizational inertia.

In addition to Malmendier and DellaVigna, the center will include a host of affiliated researchers from Berkeley Haas and Berkeley Economics, as well as from across the university. They include Berkeley Haas professors Ricardo Perez-Truglia, Ned Augenblick, Don Moore, and Gautam Rao, PhD 14—who will join Haas in January from Harvard University—as well as Dmitry Taubinsky of Berkeley Economics and others. The founding gift will establish a permanent endowment to support the center and some of its ongoing activities.


Media Contact: Laura Counts, [email protected], 510.205.9570

How Berkeley Haas research fueled a company that could save Medicare patients from costly mistakes  

Choosing a Medicare plan is both complicated and consequential. Berkeley Haas research has fueled a new company that simplifies the process, promising to save money and improve health for millions of people.

Photo of a woman with gray hair in a ponytail smiling as she looks at a laptop screen showing the Healthpilot website.
Photo courtesy of Healthpilot

It’s Medicare open enrollment season, and the tens of millions of retirees who rely on the government program for health care are grappling with an abundance of options, a dearth of information, and no good way to personalize or compare plans.

“It is not a well-functioning market,” says Jon Kolstad, an associate professor at UC Berkeley’s Haas School of Business who studies the economics of health care. “And yet the choices people make have high financial stakes—consumers are typically on fixed incomes—and critical health implications.”

Kolstad has been studying this challenge since he was in graduate school and, with several academic collaborators, recently helped turn a broad foundation of research into a company centered on helping people make better decisions when choosing a Medicare plan. Healthpilot, which launched in late 2020, uses machine learning to compare Medicare plans and suggest options that are personalized to each person’s current circumstances, projected health needs, and risk tolerance. It’s also free to use.

“We recognized the power of this highly predictive algorithm developed to solve a critical unmet healthcare need for seniors who are evaluating Medicare plans,” says Healthpilot CEO Seth Teich. “We believe that Healthpilot’s platform is a transformative technology that empowers consumers to easily navigate through the complexity of plan choices to find, and enroll in, their best coverage option.”

A desperate need for innovation

People with questions about Medicare enrollment have long relied on phone calls to private agents who walk them through the decision. But there’s a problem: “In reality, these brokers, who are supposed to be experts, do no better at selecting a plan than the average person,” Kolstad says.

In a 2021 paper, Kolstad and several colleagues, including UC Berkeley economist Ben Handel, demonstrated that brokers are prone to the same flawed judgment as everyone else. For instance, they place too much weight on a plan’s premium while overlooking other costs, such as out-of-pocket expenses. The result is that consumers working with brokers pay $1,260 more per year on average than they would if they enrolled in the best plan.

This is not the result of brokers’ bad intentions but simply because solving which plan is best for which person “is a very complex computational problem,” Kolstad says. In fact, the 2021 paper found that when brokers were provided with an AI assistant to help them suggest a plan, they saved consumers about $300 per year. (This is a conservative estimate.)

Healthpilot’s promise lies with its ability to use AI to properly weight the many fixed and projected costs of every available plan, sifting carefully—and impartially—through these multidimensional relationships. The algorithm operates by comparing every Medicare enrollee with millions of similar people and then forecasting the likelihood of different medical complications. By pairing this forecast with known information—including, with users’ permission, secure access to the medications people take and the doctors they see, along with information they provide directly—Healthpilot then determines which plan is ideal and ranks the alternatives.

The algorithm also considers individual appetites for risk. “Some people have very little risk aversion, and they would rather have low payments now and gamble on how they fare,” Kolstad says. “The plan that gets recommended to this kind of person should be different than the plan that gets recommended to someone who is very risk averse, who wants a high premium now in order to know that they’ll be covered.”

Benefiting individuals and the marketplace at large

The financial benefits for individuals are straightforward: Choosing the right Medicare plan generally means better coverage and less expense. These savings also accrue to the federal government, which finances Medicare.

A subtler benefit are gains in well-being and even lower mortality rates. One working paper co-authored by Kolstad found that people who have to pay more out of pocket cut back on important health care services. A related paper, co-authored by Ziad Obermeyer of Berkeley Public Health with researchers at Stanford and Harvard, found that a $100 bump in per-month cost-sharing for drugs—exactly the kind of mistake people make without good guidance—increases mortality by 13.4%, as people forego essential drugs such as blood pressure medication.

Healthpilot is able to deliver these financial and health-related benefits to consumers for free because of the structure of the Medicare market. Since Medicare is a valuable source of revenue for insurance companies, the companies pay commissions to brokers for each person that they enroll. If Healthpilot sends someone to Humana, Humana pays; if instead the enrollee goes to Blue Cross-Blue Shield, then Blue Cross-Blue Shield pays.

That’s a crucial point: Because these commission amounts may vary by carrier, human agents may be biased in their plan recommendation based on the commission they are paid. Healthpilot’s algorithm does not factor commissions into its recommendations and does not steer people toward any particular plan or company based on financial incentives. “There’s no distortion in the platform or plan recommendation, which is unique in the industry,” Kolstad says.

This also has the potential to inspire greater innovation and efficiency in the insurance market as a whole—one of Kolstad’s main interests. As a point of comparison, consider the tech market: When a company like Apple creates a product that people like, they buy it; when it creates a product people don’t like, they don’t buy it. This is quickly reflected in the company’s revenue and share price.

Because insurance products are so much more complicated, consumer decisions rarely reflect clear notions about quality; people often enroll, and stay enrolled, in plans that don’t deliver value. Healthpilot, by sorting people into plans that genuinely benefit them, could bring much greater transparency into the marketplace and produce meaningful information for companies to build better plans, Kolstad says.

“For better or worse, we rely on competing private plans in Medicare. That’s the approach we’ve taken because we believe that a private market will offer innovation,” Kolstad says. “Giving customers a greater ability to match with plans that give them the coverage they want and need will reward innovators. That means Healthpilot isn’t just a digital enrollment solution for consumers but can be a tool to make the whole market function more as it should.”