Richard Thaler wins the Nobel prize for economic sciences

An economist who recognises that human behaviour is not always strictly rational

The credit-card bill arrives. You have enough money in a savings account to pay it off—the sensible thing to do, arithmetically speaking, since the interest rate on the credit-card balance far exceeds that earned on the savings. Yet you leave the savings untouched, and pay only as much of the bill as your current-account balance allows. What looks a daft choice to most economists makes perfect sense to Richard Thaler, who on October 9th was awarded the Nobel prize for economics for his work in behavioural economics. Mr Thaler helped demonstrate how human reasoning diverges from that of the perfectly rational homo economicus used in most economic modelling. The world, and the field of economics, is better for his contributions.

 

Economists mostly recognise that normal people fall short of perfect rationality in day-to-day decision-making. Economic modelling requires simplification, however, and economists generally suppose that theories assuming people are well-informed and rational offer the best available account of economic activity. Over time, however, scholars have built up an imposing list of the ways in which humans systematically refuse to behave as the models predict. Economists such as Herb Simon (who won the Nobel in 1978), Daniel Kahneman (2002) and Robert Shiller (2013) are celebrated for their contributions to this effort. But perhaps more than any other scholar, Mr Thaler lifted behavioural economics to prominence, and helped put its lessons into practice.

THE credit-card bill arrives. You have enough money in a savings account to pay it off—the sensible thing to do, arithmetically speaking, since the interest rate on the credit-card balance far exceeds that earned on the savings. Yet you leave the savings untouched, and pay only as much of the bill as your current-account balance allows. What looks a daft choice to most economists makes perfect sense to Richard Thaler, who on October 9th was awarded the Nobel prize for economics for his work in behavioural economics. Mr Thaler helped demonstrate how human reasoning diverges from that of the perfectly rational homo economicus used in most economic modelling. The world, and the field of economics, is better for his contributions.

Economists mostly recognise that normal people fall short of perfect rationality in day-to-day decision-making. Economic modelling requires simplification, however, and economists generally suppose that theories assuming people are well-informed and rational offer the best available account of economic activity. Over time, however, scholars have built up an imposing list of the ways in which humans systematically refuse to behave as the models predict. Economists such as Herb Simon (who won the Nobel in 1978), Daniel Kahneman (2002) and Robert Shiller (2013) are celebrated for their contributions to this effort. But perhaps more than any other scholar, Mr Thaler lifted behavioural economics to prominence, and helped put its lessons into practice.

- The Economist

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