The Nobel Prize for Economics was on Monday awarded to Richard H Thaler. Thaler is professor at the University of Chicago for his “contribution to behavioural economics”. “He’s made economics more human,” the Nobel jury said, calling Thaler “a pioneer” on integrating economics and psychology.
Born 1945 in East Orange, Professor Thaler has been awarded the Nobel Prize for his work on integrating economics with psychology. In a statement, issued, the The Royal Swedish Academy of Sciences said that the Sveriges Riksbank Prize in Economic Sciences, in memory of Alfred Nobel 2017, has been awared to Richard H Thaler for having incorporated psychologically realistic assumptions into analyses of economic decision-making.
“By exploring the consequences of limited rationality, social preferences, and lack of self-control, he has shown how these human traits systematically affect individual decisions as well as market outcomes,” the statement read.
Over the last few days, former RBI Governor and renowned economist Raghuram Rajan was also among those speculated to having been nominated for the top prize. The Nobel Prize Committee does not reveal the names of those nominated for 50 years.
“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.”
His work even earned him a glamorous foray into the movie business when he made a cameo appearance, alongside Christian Bale, Steve Carell and Ryan Gosling, in the 2015 movie “The Big Short” about the credit and housing bubble collapse that led to the 2008 global financial crisis. Thaler told the Nobel committee by videoconference he was “pleased” by the award.
“Well, I was pleased. I no longer will have to call my colleague Eugene Fama ‘Professor Fama’ on the golf course,” he joked, referring to his University of Chicago colleague who won the prize in 2013.
“I think the most important recognition is that economic agents are human, and economic models have to incorporate that,” he said. The 72-year-old takes home the nine million kronor (USD 1.1 million) prize sum.
Thaler is a professor at the University of Chicago – a school popular with the Nobel economics committee. Of 79 laureates so far, more than a third have been affiliated with the university’s school of economics.
One of the founders of behavioural finance, which studies how cognitive limitations influence financial markets, Thaler developed a model for explaining how people tend to focus on the narrow impact rather than the overall effect of each decision they make, which is called limited rationality.
This includes the study of how people’s loathing of losses can explain why they value the same things more when they own them as opposed to when they don’t, which is called the endowment effect.
Influential in theoretical and experimental research on fairness, Thaler showed “how consumers’ fairness concerns may stop firms from raising prices in periods of high demand, but not in times of rising costs”, the Nobel economics committee said in a statement.
Along with his colleagues, Thaler created a tool called “the dictator game” that was used in several studies to measure people’s attitudes to fairness from around the world.
And what about keeping New Year’s resolutions? Thaler has shown that they can be hard to keep — no matter how much people wish to fulfil them.
Using a planner-doer model, Thaler showed how short-term temptations disrupt people’s plans to save for their old age, rainy days or live a healthier lifestyle.
“In his applied work, Thaler demonstrated how nudging — a term he coined — may help people exercise better self-control when saving for a pension, as well in other contexts,” the Nobel jury said.
Fittingly, Thaler’s family name comes from the Germanic word for “dollar”.
Last year, the Nobel Economics Prize went to British-American economist Oliver Hart and Bengt Holmstrom of Finlandfor their research on contract theory, which has helped design insurance policies and executive pay.
The economics prize is unique among the Nobel awards in that it was created by the Swedish central bank in 1968 — the others were all set up through the 1895 will of Swedish inventor and philanthropist Alfred Nobel.
(With AFP inputs)
Here is a video of Professor Thaler speaking about behavioural economics