U.S. economist Richard Thaler, one of the founding fathers of behavioral economics, was awarded this year’s Nobel Prize in Economics.
“Richard Thaler’s contributions have built a bridge between the economic and psychological analyses of individual decision-making. His empirical findings and theoretical insights have been instrumental in creating the new and rapidly expanding field of behavioural economics, which has had a profound impact on many areas of economic research and policy,” according to the Royal Swedish Academy of Sciences.
Behavioral Economics is the study of psychology as it relates to the economic decision-making process of individuals and institutions, according to Investopedia. The field tries to explain if an economists’ assumptions of utility or profit maximization are good approximations of real people’s behavior and if individuals maximize subjective expected utility.
Professor Thaler of Chicago Booth business school co-wrote the global best seller Nudge, which dived into how people make bad or irrational choices, where the authors tried to demonstrate how “nudging” may help people better exercise self-control, BBC reports.
“I will try to spend it as irrationally as possible!” Professor Thaler said, commenting on how he will spend his earnings from the Nobel Prize.
The Nobel Prize awarding panel argued that Professor Thaler’s insights helped people to recognize marketing tricks and avoid bad economic decisions. Specifically, his insights into the so-called nudging effect to help people do more long-term planning like saving for a pension.
“Richard Thaler’s findings have inspired many other researchers coming in his footsteps and it has paved the way for a new field in economics which we call behavioural economics,” one of the Nobel prize judges, Per Stroemberg, told BBC.
Nudging is part of the field of behavioral economics that examines how gut reactions can often overrule rational choice, which Thaler is seen as a pioneer of. For example, Brexit may be seen as an example of behavioral economics in action, reflecting majority voters whom chose an economically irrational route when given options laid out to them by elites and mainstream media, the Guardian reports.
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