A screen shows the picture of economist Richard H. Thaler, who has won the 2017 Nobel Economics Prize announced in Stockholm on Monday. (Henrik Montgomery/TT via AP)
STOCKHOLM: The Nobel economics prize has been awarded to Richard Thaler of the University of Chicago for research showing how people’s choices on economic matters — whether on savings or game shows like Deal or No Deal — are not always rational.
The 9-million-kronor ($1.1-million) prize was awarded to the academic for his “understanding the psychology of economics,” Swedish Academy of Sciences secretary Goran Hansson said Monday.
The Nobel committee said that as a pioneer in behavioural economics, Mr Thaler has built a bridge between economics and psychology to show a “more realistic analysis of how people think and behave when making economic decisions”.
It said his research has expanded economic analysis by considering three psychological traits: limited rationality, perceptions about fairness and lack of self-control.
Speaking by phone to a news conference immediately after he was announced as the prize winner, Mr Thaler said the most important impact of his work is “the recognition that economic agents are humans” and money decisions are not made strictly rationally.
Mr Thaler had a cameo alongside pop star Selena Gomez in the film The Big Short, about the global financial crisis. In the scene, he explains the “hot hand fallacy”, in which people think whatever’s happening now is going to continue to happen into the future.
Asked at the news conference Monday if he thought this observation applied to the US president, who had success as a business executive before entering politics he said: “As to President Trump, I think he would do well to watch that movie.”
In 2008, Mr Thaler co-wrote a paper examining the choices contestants face in games such as the TV show Deal or No Deal, including about how early outcomes affect decisions later in the game. In the paper, Mr Thaler and the authors say that contestants become bolder in their choices when their initial expectations of how much they would win are shattered, whether by big losses or big gains.
On Monday, Mr Thaler told the news conference that he will likely use the prize money in ways consistent with his research.
“I will say that I will try to spend it as irrationally as possible,” he said.
The economics prize is something of an outlier — Alfred Nobel’s will didn’t call for its establishment and it honours a science that many doubt is a science at all.
The Sveriges Riksbank (Swedish National Bank) Prize in Economic Sciences in Memory of Alfred Nobel was first awarded in 1969, nearly seven decades after the series of prestigious prizes that Nobel called for. Despite its provenance and carefully laborious name, it is broadly considered an equal to the other Nobel and the winner attends the famed presentation banquet.