US economist Richard Thaler won the Nobel Economics prize on Monday for showing that economic and financial decision-makers are not always rational, but mostly deeply human.
Bridging the gap between economics and psychology, Mr Thaler’s research focuses on behavioural economics which explores the impact of psychological and social factors on decisions by individuals or groups in the economy and financial markets. “He’s made economics more human,” the Nobel jury said, calling Mr Thaler “a pioneer” on integrating economics and psychology.
Mr Thaler is well-known for co-founding the “nudge” theory, which demonstrates how people can be persuaded to make decisions that leave them healthier and happier.
He has advised several governments. Former British Prime Minister David Cameron set up a team in 2010 nicknamed the “nudge unit” to reshape a swath of policies to gently prod Britons to make the right decisions. His work even earned him a glamorous foray into the movie business when he made a cameo appearance in the 2015 movie The Big Short.
One of the founders of behavioural finance, which studies how cognitive limitations influence financial markets, Mr Thaler developed a model for explaining how people tend to focus on the narrow impact rather than the overall effect of each decision they make, which is called limited rationality. This includes the study of how people’s loathing of losses can explain why they value the same things more when they own them as opposed to when they don’t, which is called the endowment effect.
The 72-year-old takes home the $1.1 million prize sum, which he jokingly said he would “try to spend as irrationally as possible”.
