U.S. academic Richard Thaler, who helped popularize the idea of "nudging" people towards doing what was best for them, won the 2017 Nobel Prize in economics on Monday for his work on how human nature affects supposedly rational markets.
Influential in the field of behavioural economics, his research showed how traits such as lack of self-control and fear of losing what you already have prompt decisions that may not have the best outcome in the longer term.
"I think the most important impact [of my research] is the recognition that economic agents are human and economic models have to incorporate that," Thaler, a professor at the University of Chicago Booth School of Business, said in call broadcast at the Nobel news conference.
Awarding the $1.3-million Cdn prize, the Royal Swedish Academy of Sciences said: "Richard Thaler's contributions have built a bridge between the economic and psychological analyses of individual decision-making."
"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."
Thaler brought to prominence the idea of "nudge" economics, where individuals are subtly guided toward beneficial behaviours without heavy-handed compulsion, the theme of a 2008 book he co-wrote that caught the eye of policymakers around the world.
In researching self-control — or the lack of it — Thaler touched on an age-old problem: why New Year's resolutions to change aspects of your life are notoriously hard to keep.
The issue has relevance for economics as individuals' tendency to fall prey to temptations often negatively affects plans to, for instance, save for retirement.
Together with Prof. Cass Sunstein, he argued that society — while maintaining freedom of choice — should actively try to guide individuals in the right direction.
In total, Richard Thaler’s contributions have built a bridge between the economic and psychological analyses of individual decision-making— @NobelPrize
Limited rationality: Richard H. Thaler developed the theory of mental accounting, explaining how people simplify financial decisions pic.twitter.com/e364VO1BEp— @NobelPrize
Their book, titled Nudge: Improving Decisions about Health, Wealth, and Happiness, became popular with some western politicians seeking ways to encourage their citizens to save and live healthily, without incurring voters' wrath for raising taxes or banning behaviour outright.
"This has also been used in public pension systems in the United States and the general idea of 'nudging' ... has made a breakthrough in public policymaking," Torsten Persson, economics prize committee member, told Reuters.
"Not only in the United States — there's also a nudging unit for the U.K. government, there's one for the Australian government, it even affects the Swedish government when they think about these things."
Thaler’s research is often cited in marketing literature & his insights help us recognise marketing tricks and avoid bad economic decisions.— @NobelPrize
The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel's 1895 will.
- Nobel Peace Prize goes to International Campaign to Abolish Nuclear Weapons
- Kazuo Ishiguro, Japan-born British novelist, wins Nobel Prize
Economy is the last of this year's Nobels. The prizes for physiology or medicine, physics, chemistry, literature and peace were all awarded last week.
The United States has dominated the economics prize, with American economists accounting for roughly half of laureates since the inception of the award. Between 2000 and 2013, U.S. academics won or shared the prize every year.
While few economists are household names, past winners have included Milton Friedman, in 1976, whose work is a cornerstone of current monetary policy, and James Tobin, in 1981, who proposed countries should tax financial transactions.
Some countries in the European Union agreed on such a tax to help fight the debt crisis, but implementation has been delayed, among other things by Britain's decision to leave the bloc.