A Founding Father of Behavioral Economics Wins Nobel Prize
Richard H. Thaler
Richard H. Thaler, the University of Chicago economist whose contributions linking psychology to the ‘dismal science’ caught the public’s eye in his co-authored bestselling book Nudge, has received this year’s Nobel Prize in economic sciences.
The Royal Swedish Academy of Sciences cited Thaler’s “contribution to behavioral economics” in announcing the prize, which is officially the Sveriges Riksbank (Swedish central bank) Prize in Economic Sciences in Memory of Alfred Nobel.
Given that behavioral economics is founded on the idea that humans don’t always make the most economically rational decisions, Thaler gleefully told the Nobel committee that he planned to spend his prize money (9 million Swedish kronor, or US$1.1 million) “as irrationally as possible.”
“It’s not that economists believe everyone is rational,” explained Per Strömberg, the chairman of the prize committee. “The issue is that whether the deviations from rationality are important enough and systematic enough to really affect economic outcomes in an important way. Over time, researchers gathered more and more evidence on how human psychology actually deviates from this fully rational model, and Richard Thaler is a pioneer when it comes to incorporating such insights from psychology into economic analysis.”
Thaler is currently the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago’s Booth School of Business, where’s he taught since 1995. He is the director of the Center for Decision Research, and is the co-director (with Robert Shiller) of the Behavioral Economics Project at the National Bureau of Economic Research, or NBER.
Should Governments Invest More in Nudging? | Richard Thaler and eight co-authors writing in Psychological Science conclude that nudging is a valuable approach that should be used more often in conjunction with traditional policies, but more calculations are needed to determine the relative effectiveness of nudging. READ HERE.
He was born in East Orange, New Jersey on September 12, 1945, the oldest of three boys born to a school teacher, his mother, and an actuary, his father. “He thought that if I was a real man, I would have become an actuary, that economics was a poor-man’s actuary,” Thaler would later tell the Chicago Tribune. “He was an influence in that I knew I didn’t want to do that.” Thaler attended Case Western Reserve University and received a bachelor’s degree there in 1967 before earning both a master’s (in 1970) and his Ph.D. in 1974 at the University of Rochester. He would teach at Rochester and Cornell before heading to Chicago, and has had temporary postings at the University of British Columbia, the Massachusetts Institute of Technology, the Russell Sage Foundation and the Center for Advanced Study in Behavioral Sciences (CASBS) at Stanford.
As recounted by another Nobel laureate, Daniel Kahneman, it was while at CASBS that behavioral economics gestated. “The hill on which both the center and NBER are located was also where behavioral economics took shape,” Kahneman has written. “When Richard Thaler 1997-98) heard that Amos [Tversky] and I would be in Stanford, he finagled a visiting appointment down the hill to spend time with us. We spent a lot of time walking around the center and became lifelong friends. Those long conversations and those that Dick had with Amos helped him construct his then-heretical (and now well-established) view of economics, by using psychological observations to explain violations of standard economic theory.”
On his own university website, Thaler explains that he “studies behavioral economics and finance as well as the psychology of decision-making which lies in the gap between economics and psychology. He investigates the implications of relaxing the standard economic assumption that everyone in the economy is rational and selfish, instead entertaining the possibility that some of the agents in the economy are sometimes human.”
“By exploring the consequences of limited rationality, social preferences, and lack of self-control,” the Nobel organization detailed, “he has shown how these human traits systematically affect individual decisions as well as market outcomes.” It concluded, “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.”
While his research helped create a new field, it was his book Nudge: Improving Decisions about Health, Wealth, and Happiness, written with Harvard Law’s Cass Sunstein, which turned Thaler into one of the best-known economists of the day. Published in 2008, Nudge became a popular sensation, selling more than 750,000 and turning Thaler and Sunstein into public intellectuals. Two years after the book appeared Britain’s government opened its “nudge unit,’ or more properly the Behavioural Insights Team, to nudge Britons toward wiser decisionmaking. The United States under President Obama fired up its own version of the nudge unit, the Social and Behavioral Sciences Initiative, although its work was curtailed when Obama’s term ended.
Thaler honed his writing chops by penning the column “Anomalies” in the Journal of Economic Perspectives, turning a number of those pieces into his first public-facing book, 1992’s The Winner’s Curse. His latest book, Misbehaving: The Making of Behavioral Economics, was published in 2015. He is a member of the American Academy of Arts and Sciences, a fellow of the American Finance Association and of the Econometrics Society, and was president of the American Economic Association in 2015.
