Richard Thaler, the University of Chicago professor who infuses the dismal science with a lighthearted but studious measure of our everyday irrational behavior, was awarded the Nobel Prize for economics yesterday.
“The panel said Prof. Thaler's insights helped people to recognize marketing tricks and avoid bad economic decisions,” the BBC reports. “In particular, his work looked at how to ‘nudge’ people into doing more long-term planning, such as saving for a pension.”
Kamal Ahmed, the BBC’s economics editor, delves more deeply into nudge theory in a blog post. It has become “so famous that the [British] government now has its own Behavioural Insights Team, otherwise known as the ‘nudge unit,’” he writes.
In a short video for his 2016 book, Misbehaving: The Making of Behavioral Economics, “Thaler explains how this book — which chronicles people’s financial misbehavior in things ranging from household finance to TV game shows — and his field of study differ from traditional economic theory,” writes Adam Shell for USA Today.
“It is ‘about the way actual people behave as opposed to the way economists think people behave — [like] people who are highly rational, unemotional creatures, kind of like Spock in the “Star Trek” TV series,’ Thaler explained. ‘The people I study are humans that are closer to Homer Simpson.’”
“We humans don’t always choose the right thing,” [Thaler] continued. “Sometimes we overeat. Sometimes we exercise too little. Many of us have trouble saving enough for retirement.”
“I believe that for the last 50 or 60 years, economists have devoted themselves to studying fictional creatures,” Thaler told NPR’s Shankar Vedantam in a podcast discussion about Misbehaving. “They might as well be studying unicorns.”
“In a series of brilliant and startlingly funny articles published in prestigious academic journals beginning in the early 1980s, [Thaler] pointed out that only economists think that people think the way economists think they think. Instead, non-economists think like human beings: impatiently, inconsistently, easily distracted by irrelevant factors,” writes Jason Zweig for the Wall Street Journal. “Worse, Prof. Thaler pointed out, even most economists think like human beings.”
“The fact that people are human is only interesting if uttered by an economist,” Thaler tells Zweig. “It’s obvious to everybody else.”
In a commentary for the Chicago Tribune titled “How Richard Thaler changed my life (and everybody else’s),” Cass R. Sunstein writes, “with clear examples, a sense of play and a little math, he showed that people just don’t act in the way predicted by standard economic theory.”
“If you give people a mug or a lottery ticket, they will demand a lot more to give it up than they would pay to get it in the first place. People are planners as well as doers, and their decisions can be radically different depending on whether they are planning or doing,” Sunstein continues.
More formally stated, “the announcement from the Royal Swedish Academy of Sciences in Stockholm said the 72-year-old Thaler ‘has 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,’” Scott Neuman reports for NPR.
For example, “observing that inertia limited participation in beneficial programs, like retirement savings plans or school lunch programs, Professor Thaler proposed that governments and employers should make participation the default option. People are free to opt out, but inertia is on the side of the preferred outcome,” Binyamin Applebaum writes for the New York Times.
Thaler’s cell rang at 4 a.m yesterday, writes Susie Allen in a University of Chicago blog post. “The phone number was from Sweden, so ‘I had a pretty good idea what that might be,’ he said. The award was particularly meaningful because behavioral economics was ‘really out in the wilderness 40 years ago,’ when Thaler began his research,” Allen continues.
“‘It’s been a long journey,’ he said, ‘so I’m happy about that.’”
When asked at a news conference yesterday how he would spend the $1.1 million or so he’ll be receiving in addition to the recognition of his influence by his peers, Thaler responded: "I will say that I will try to spend it as irrationally as possible."