Richard Thaler, a professor at the University of Chicago has won a Nobel Prize for his research in behavioral economics.
The Nobel Prize
University of Chicago’s Richard Thaler was awarded for his research, which showed that people’s economic choices, whether with regards to savings, or on game shows such as “Deal or No Deal,” are usually irrational.
The 1.1 million dollar prize was given for “understanding the psychology of economics,” says Goran Hansson, the secretary of the Swedish Sciences Academy.
Thaler is among behavioral economic field’s founding fathers. The field started as an attempt of explaining why real life results deviated from traditional economics theory. Thaler himself had written a piece called “Anomalies” in the Economic Perspectives Journal” for almost four years to try and challenge the leading way of thinking about economics. The field then showed that people usually make uneconomic decisions.
For example, when investments take a dive in value, people often refuse to cut their losses. Another example is when people make a big bet in a casino, because they had a lucky streak previously, even though your chances of winning are not increased just because you’ve won before.
The Nobel Prize committee said that Thaler provided a “more realistic analysis of how people think and behave when making economic decisions.”
His Comments On The Prize
At the conference following his award, Thaler said that the most vital thing to understand about his work is “the recognition that economic agents are humans.”
Thaler had made an appearance in the movie “The Big Short” about the financial crisis that was happening worldwide. In his scene, he explained the concept of the “hot hand fallacy,” which is when people believe that whatever is happening right now will continue into the future.
At the conference, he was asked if he believed this observation was applicable to President Donald Trump, since he believed he’d be a successful president because he had a successful business career. He responded saying: “As to President Trump, I think he would do well to watch that movie.”
He also commented on the economic consequences of such illogical behaviour, which is that people often do not save enough retirement money. They often make investments, such as in houses during the mid 2000s, when prices were dangerously high.
During the news conference, Thaler said that he’ll make sure to use his prize money in an economically logical manner.
“I will say that I will try to spend it as irrationally as possible,” he said.