Richard Thaler’s long overdue Nobel prize

This week, it was announced that Richard Thaler had been awarded the Nobel prize for economics. It is long overdue. Here is why.

Thaler is best known for his 2008 book Nudge: Improving Decisions About Health, Wealth and Happiness which he co-authored with Cass Sunstein. He was a summation of his many years of work on behavioural economics. You can read my review here.

This understates his contribution though: Thaler is considered by many to be the father of behavioural economics.

To understand why that is important, we need to look at what behavioural economics is. Economics, as a subject, has been around for thousands of years. Except that in many ways it really hasn’t. Traditionally, at least in recent tradition, it has focused on building financial models based on people making perfectly rational decisions.

Take the free market, for example. If you put prices up, you decrease demand. It’s nice and simple.

But then Thaler came along and said: “hang on, do people act like rational beings all of the time?” The answer, of course, was no. And a new field of economics was born: behavioural economics. The study of what people actually do.

But what exactly is non-behavioural economics? The more you think about it, the more you realise that we can basically can anything we thought we knew about economics beforehand, because all economics should be behavioural economics. Models that use “econs” rather than “humans” do not work in the real world. Which is where all research should eventually have some kind of relevance.

So, well done to the Nobel prize selection committee for making such an excellent choice. In a perfect world, it would have happened much sooner. But the selection committee, like the rest of us, are humans, not econs.

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This entry was posted on Wednesday, October 11th, 2017 at 11:00 am and is filed under News, Thoughts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.