US economist Richard Thaler, one of the founding fathers of behavioural economics, on Monday won this year’s Nobel Prize for Economics.
The 72-year-old is a professor at the University of Chicago. He co-wrote the global best-seller “Nudge”, which uses behavioural economics to tackle many of society’s major problems. It spawned “nudge theory” of how to help people make better life decisions.
Among Thaler’s highly-influential theories is that of “mental accounting” — the notion that consumers try to simplify their personal finances by creating accounts in their minds. This focuses the consumer on narrow outcomes, rather than considering the overall impact of a decision on their financial situation. Following the announcement of his prize, Thaler said that his most important contribution to economics “was the recognition that economic agents are human and that economic models have to incorporate that”.
The Nobel committee in an official release stated that Thaler had “built a bridge between the economic and psychological analyses of individual decision-making”.
It added that his efforts to explore the consequences of limited rationality, social preferences and lack of self-control, had shown how these traits systematically affect individual decisions, as well as market outcomes.
“His empirical findings and theoretical insights have been instrumental in creating the new and rapidly expanding field of behavioural economics, which has had a profound impact on many areas of economic research and policy,” it said.
The academic, born in New Jersey in 1945, studied for his Ph.D at the University of Rochester.
Officially known as the Sveriges Riksbank prize in memory of Alfred Nobel, the award winner is selected by the Royal Swedish Academy of Sciences in Stockholm, Sweden.
Thaler will receive 9 million Swedish krona (850,000 pounds) from the committee. Asked how he would spend the prize money, he said: “I will try to spend it as irrationally as possible!
“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,” said Per Stroemberg of the Royal Swedish Academy of Sciences.