In 1968, the Nobel Memorial Prize in Economics was established in memory of Alfred Nobel by the Swedish central bank and awarded by the Royal Swedish Academy of Sciences. This time, the 28th recipient of the prize and along with $1.1 million dollars is an author and a University of Chicago professor, Richard Thaler. He just joined the ranks as one of the six laureates who is currently serving as faculty members at the university.
Considered as the founder of the field of behavioral economics, the 72-year-old professor won the prize as he researched using the psychology and economics of how people make economic decisions.
Thaler’s Nobel prize-winning study revealed that people can be irrational in systematic ways when it comes to economics. Historically, economic theory assumes that humans are well-informed and logical when making decisions, but Thaler’s study debunks this. Moreover, people sometimes act against their best interests from making financial decisions such as saving up for retirement or even competing on game shows.
Thaler’s contributions to economics
The Nobel prize committee credited Thaler for moving economics to a more realistic understanding of human behavior. Thaler’s work has also influenced the improvement of some public policies, such as the automatic enrollment of employees in retirement savings programs.
Moreover, Thaler has played a crucial role by showing that people tend to depart from rationality in ways that are consistent, allowing these behaviors to be anticipated and modeled. He once said at a news conference following the announcement of his win, “In order to do good economics, you have to keep in mind that people are human.”
Apart from helping to influence policy, Thaler has also created investing strategies. A principal at Fuller & Thaler Asset Management, Thaler uses ideas from behavioral science, including the investor’s tendency to overreact to negative news or underestimating the impact of good news to influence investing. Thaler is also an author of books such as “Nudge” and “Misbehaving,” the latter is a book on behavioral economics.
Important money lessons from Thaler
Here are several nuggets of financial wisdom from Thaler:
- Talking to the Associated Press, Thaler said, “I try to teach people to make fewer mistakes. But in designing economic policies, we need to take full account of the fact that people are busy, they’re absent-minded, they’re lazy and what we should try to make things as easy for them as possible.”
- Thaler’s work includes the irrational labeling of money. He discovered that people have a tendency to assign money to certain categories and it can lead to financial errors.
- Together with other behavioral economists, Thaler discovered that people tend to hold notions of fairness that can be confused with classical economic expectations. For instance, an umbrella peddler who raises his prices during strong rain is a way of the seller responding to the demand. According to Thaler, this kind of thinking keeps people from buying things they enjoy.
- Consumer attitudes allow companies to raise prices aggressively even if there’s a justified demand for it.
Mills price hikes to affect wire rod transaction prices
Indorse-ICOCrunch partnership seeks to create better opportunities for ICO investors
Should Trump save coal jobs or train workers in the green energy industry?
What is driving the real estate bubble now?
Driverless cars industry grows with support from governments
Put your money on this Daily Fantasy Sports company ahead of Soccer World Cup 2018 in Russia
Daily Fantasy Sports leader positions to take FIFA World Cup 2018 by storm
Exponential, Inc. founder, Dom Einhorn, thinks charitable fundraising is ripe for disruption
Why courtesy on social media pays off
Santiago: Quirky facts about Chile’s capital
Promoting women’s football in Malta by UEFA projects
Euro NCAP marks its 20th anniversary with two crash tests
European Parliament’s International Trade Committee backs CETA
The American Heart Association has released four new PSAs
PwC presents 20th global CEO survey results in Switzerland
Corporate Social Responsibility2 days ago
Mohawk Group eyes LEED and WELL Building Standard certificates with new showroom
Commodities2 days ago
India takes strides to boost oil production amid rising prices
Agriculture3 days ago
Animal farming industry praises vaccine bank inclusion in Farm Bill as ‘great first step’
Crypto2 days ago
European Parliament votes in favor of new blockchain resolution
Featured2 days ago
Interest rates surge; Iran nuclear deal intensifies global tension
Featured3 days ago
4 reasons to let your team work remotely
Featured2 days ago
PayPal expands in Europe with $2.2B iZettle deal
Business2 days ago
Facebook user data policy: What you need to know