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.
Visa takes blame for duplicate transactions affecting Coinbase users
Discover what the future holds for blockchain technology in the next #IGCryptoChat this week
4 alternative cryptocurrencies to Bitcoin
Why Trump should say grace for Catholics when downing his Filet-O-Fish
Warren Buffett seals investment on Teva Pharmaceutical
This fast-growing organic products stock already has space on Whole Foods’ shelves
Cannabis acceptance grows as hemp industry leader PotNetwork Holding breaks CBD sales records
The CBD industry is enjoying a boost from the lifestyle sector
Why Vapor Group Inc. might be the breakout penny stock you’ve been looking for in 2018
When you should consult your financial advisor
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
Featured2 days ago
CBD stocks emerge strong in the growing cannabis industry, marijuana legalization
Crypto1 day ago
One of America’s oldest gold mines enters the crypto-century
Featured1 day ago
This hemp market player’s growth is about to go into overdrive
Entrepreneurship5 days ago
Woman to Watch: Hudson’s Bay CEO Helena Foulkes
Featured5 days ago
5 ways investing in STEM programs could benefit city education
Crypto1 day ago
Could Global Blockchain Technologies change the way we invest in cryptocurrency?
Commodities5 days ago
Cellulosic ethanol production needs to step up to meet expectations
Business4 days ago
Disney announces price hikes for Disneyland tickets in the US