American economist, Richard Thaler, famed for being a pioneer in behavioral economics has been conferred the Nobel Prize in Economics.
He is a professor at the University of Chicago. He is the author of the best selling book “Nudge”
The Nobel Peace Prize (Norwegian: Nobels fredspris) is one of the five Nobel Prizes created by the Swedish industrialist, inventor, and armaments manufacturer Alfred Nobel. The edition was held in 1901. The recipient is selected by the Norwegian Nobel Committee, a five-member committee appointed by the Parliament of Norway. The award recognizes those who have made significant contributions in the field of humanity in chemistry, literature, peace, physics, or physiology or medicine. The winners get a prize money of US$1,110,000, a medal and a certificate. Past winners in this category include Indian economist Amartya Sen.
Richard H. Thaler is an American economist. He is currently the Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. He is considered to be one of the founding fathers of behavioral economics. He worked in collaboration with another economist, Daniel Kahneman in the development of this field.
Unlike classical economics, behavioral economics also factors in the study of psychology into the analysis of decision-making behind an economic outcome. For instance, economists in this field consider factors that result in a consumer buying one product instead of another. Classical economics argues that decisions are made through cold logical reasoning. However, Thaler and his collaborators theorized differently. This kind of economics was nicknamed “nudge” economics.
He appeared in 2015 film “ The Big Short “, delivering what is surely one of the most widely viewed tutorials in the history of economics , on the causes of the 2008 financial crisis.
Previous winners of the Nobel prize for economics:
2016: Oliver Hart and Bengt Holmstrom
2015: Angus Deaton
2014: Jean Tirole
2013: Eugene Fama, Lars Peter Hansen and Robert Shiller
2012: Alvin Roth and Lloyd Shapley
2011: Thomas Sargent and Christopher Sims
2010: Peter Diamond and Dale and Christopher Pissarides
2009: Elinor Ostrom and Oliver Williamson
2008: Paul Krugman
2007: Leonid Hurwicz, Eric Maskin and Roger Myerson
2006: Edmund Phelps
Even though Brexit took many experts by surprise, Thaler argued that behavioral economics could explain the result. Thaler noted that psychology played a role in the process arguing that people relied on their gut reaction to vote, thus resulting in the narrow margin that voted in favor of Brexit.
Thaler was an advisor to former US President Barack Obama who relied on nudge economics to draft many of his policies. United Kingdom also has been influenced by Thaler’s work. The nation under the direction of former Prime Minister David Cameron, set up a “nudge unit.” Its goal is to find innovative ways of changing public behavior.
The Royal Swedish Academy of Sciences hailed Thaler’s victory noting, that his theory explains "how people simplify financial decision-making by creating separate accounts in their minds, focusing on the narrow impact of each individual decision rather than its overall effect.
One of the Nobel prize judges, Per Stroemberg, said Prof Thaler's work had explored how human psychology shaped economic decisions. Stroemberg said, “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.”
Indian economist and former Governor of the Reserve Bank of India, Raghuram Rajan, was also reportedly in the shortlist for this year. The Wall Street Journal has reported that Rajan was one of the six economists to have been seriously considered for the honor. Rajan’s entry was due to his contribution to corporate finance.
Our assessment is that Thaler’s ability to humanize complex economics has changed the way governments draft policies specifically geared at changing people’s behavior and decisions.