This is getting monotonously regular, but it’s still a boost for our reputation. Richard Thaler, 72, a professor of behavioral science and economics at our Booth Business School, just won the Nobel Prize for Economics. He wrote the bestselling book Nudge, which I haven’t read, but I’m sure some readers have, so weigh in below. As the New York Times reports,
Richard H. Thaler was awarded the Nobel Memorial Prize in Economic Science on Monday for incorporating a more realistic understanding of human behavior into economic theory, and for using the resulting insights to improve public policy.
Professor Thaler, an economist at the University of Chicago’s Booth School of Business, is a pioneer of the discipline known as behavioral economics, which marries the work of psychologists with that of economists to produce better models of human decision-making.
The Nobel committee, announcing the award in Stockholm, credited Professor Thaler with taking the field from the fringe to the academic mainstream. The committee also noted that his work had driven a wide range of public policy improvements, notably a sweeping shift toward the automatic enrollment of workers in retirement savings programs.
Professor Thaler said on Monday that the basic premise of his approach to economics was that, “In order to do good economics, you have to keep in mind that people are human.”
Asked how he would spend the prize money, he replied: “This is quite a funny question.” He added: “I will try to spend it as irrationally as possible.”
Some of his work:
Professor Thaler’s academic work can be summarized as a long series of demonstrations that standard economic theories do not describe actual human behavior.
For example, he showed that people do not regard all money as created equal. When gas prices decline, standard economic theory predicts that people will use the savings for whatever they need most, which is probably not additional gasoline. In reality, people still spend much of the money on gas. They buy premium gas even if it is bad for their car. In other words:, they treat a certain slice of their budget as gas money.
He also showed that people place a higher value on their own possessions. In a famous experiment, he and two co-authors distributed coffee mugs to half the students in a classroom, and then opened a market in mugs. Students randomly given a mug regarded it as twice as valuable as did the students who were not given a mug. This pattern, which Professor Thaler labeled an “endowment effect,” has since been demonstrated in a wide range of situations. It helps to explain why real markets do not work as well as chalkboard models.
I suspect, but can’t be arsed to look it up, that the University of Chicago has more economics laureates than any other school. It’s almost a requirement for a senior economist at this school to have made the trip to Sweden.
Here’s the announcement from the Swedish Academy of Sciences. If you won the contest (and you’ll have to tell me), email me or post below; as you recall, you had to be the first person to guess one prizewinner in at least two categories.
His research noted in the article seem to me to be based on older Social Psychology research that showed the many subjective, non-rational factors in decision-making.
Still, kudos on a fine career.
My wife, who is into psychology, described a recent lecture by an economist professor on behavioural economics as Pysch 101.
Sounds like the sort of research Dan Ariely has become famous for, too.
I mentioned something similar in an earlier thread. I have a book I bought on eBay for £40. I wouldn’t sell it if you offered me £200 for it yet if I didn’t have it I would not pay £100 for it. That makes no sense at all in classical economic terms.
I studied economics in the Eighties. It bored the crap out of me because it bore no relationship to how people act. In recent years economics has got more interesting because it has started dealing with humans instead of Vulcans.
While checking my mail a moment ago I saw another post of the blog and thought I recognized the name ”Thaler” from a tweet I saw earlier today and lo and behold I was right:
https://twitter.com/nntaleb/status/883689826335281153
Will take me a while to make sense of most of the critique, but suffice it to say Taleb is not a fan of Thaler and his coleages.
And then this:
https://twitter.com/JulianAssange/status/917436164461809664
I really like Taleb, but that page is just about all incomprehensible, to me at least. It’s like a memory jogger for him for a bunch of chapters to write. In general I agree that “survey science “ is bullshit and there is a fair bit of that in behavioral Econ. I don’t know Thaler’s work at all though.
I have some respect for Assange too.
Assange appears to be an unpleasant & rather creepy individual, from accounts I have heard…
Assange is a fraud. And an idiot: “state totalitarianism” is not what Thaler is proposing.
This is the “scientific” level of Mr. Assange: http://www.lawyersgunsmoneyblog.com/2017/09/he-is-what-hes-always-been
He´s full of bullshit.
The University of Chicago has also been a hot-bed of the so-called “law and economics” movement, led by Judge Richard Posner (who coauthored an influential bl*g with another U of C Nobel laureate, Gary S. Becker, until Becker’s death a couple years ago).
Ronald Coase, another UC Nobel winner, practically founded the field of L&E.
Posner recently retired from the bench.
What an amusing answer Prof. Thaler gave to the question – that he would try to spend the prize money as irrationally as he could!
.-
As a social scientist, I like his work. But I like Kahneman better (another Nobel). Both are important: they have contributed to the refutation of pure “rational choice theory”, the standard economic theory championed by other Chicago economists. That theory is (taken as a whole) unrealistic, and false, not scientific, a mere abstraction.
“Nudge” is a book written with Cass Sunstein, a very interesting author.
People who take Econ 101, learn about simple mathematical (or pre-math) supply/demand models, then argue that this is how the world actually works, would be like someone taking middle school physics and insisting forevermore than the Bohr atomic model is how atoms actually work.
Something like that…
This, so very much. To put my own spin on it, “behavioral economics” should be redundant. Everyone ought to realize that economics needs too be about the actual behavior of economic actors. The fact that this is a small subset of economic thinking is a sad commentary.
Exactly.
I thought you needed a Nobel to get tenure in the economics department at U of Ch.
Once at a UC Econ alumni meeting, we had a wager on which of us had been instructed by the greatest number of Nobel winners (or those who would go on to win). I thought I’d win easily with four (Friedman Stiglitz, Becker and Fogel), but someone beat me with six!
A recent book, “The Nobel Factor The Prize in Economics, Social Democracy, and the Market Turn.”by Offer and Soderburg argues that “the Nobel Factor tells how the prize, created by the Swedish central bank, emerged from a conflict between central bank orthodoxy and social democracy. The aim was to use the halo of the Nobel brand to enhance central bank authority and the prestige of market-friendly economics, in order to influence the future of Sweden and the rest of the developed world. And this strategy has worked, with sometimes disastrous results for societies striving to cope with the requirements of economic theory and deregulated markets.
A reviewer commented “At last, two scholars, profoundly versed in the theory, evidence, and history of contemporary economics, puncture the mythology that is the foundation of free-market neoclassical economics. Economics is not science but one policy voice among many others. As Offer and Söderberg document, the pretense of an objective, scientifically based Nobel Prize in Economics has been an artifice of neoliberal propaganda for decades, doing deliberate damage to social democracy. They give a hearing to all sides, and in the end say it like it is. The influence of economics matters a lot and too much of it is sheer theory without evidence.”–Jeff Madrick, author of Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World”
Very interesting.
That was an amusing and completely human answer: “I will try to spend it as irrationally as possible.” The good doctor needs a financial advisor to help him invest and grow his reward in a sound, balanced portfolio. How boring!
If there’s ever a time to spend a windfall irrationally it’s when you’re 72! 🙂
Thaler’s nudge mantra: “If you want to get people to do something, make it easy. Remove the obstacles.”
Finally a Novel laureate I knew by name and works.
Hi Jerry,
I couldn’t find your e-mail address, so I post here. On October 2nd, I named Rainer Weiss and Kip Thorne for Physics, Richard Henderson, Joachim Frank, and Sjors Scheres for Chemistry, and Margaret Atwood for Literature as possible Nobel Prize winners this year. I was able to name two winners in Physics and two winners in Chemistry. So, it seems I qualify.
So it does, I’ll email you using the address you gave when you commented.
I do wonder though, how is one who seems unable to google “coyne, university of chicago” able to win this contest when I didn’t?
The University of Chicago has an impressive track record in producing Nobel laureates in many subjects, according to its own web page:
http://www.uchicago.edu/about/accolades/22/
I count 29 in economics, but an equal number in physics, and if you add 16 in chemistry and 12 in physiology or medicine, UC science has won 57 Nobel prizes. That’s a very impressive total.
Cool! I think the prize to Prof. Thaler is another acknowledgement of the now-accepted paradigm that humans do not always behave rationally when making economic decisions. The book “Thinking, Fast and Slow” by another nobelist Daniel Kahneman had a section on Thaler’s research in the later part of the book.
For another perspective on this award: http://voxpoliticalonline.com/2017/10/09/prize-for-father-of-infamous-tory-nudge-unit-means-nobel-committee-should-be-ashamed/
That´s a stupid perspective. Thaler is not responsible for those decisions, made by the government using the word “nudge” in a different way, for different purposes. Or Thaler was a consultant? Did he wrote the questions, etc.? Bush used the expression “human rights” to make war, are human rights responsible for the war? Assange “thinks” that Thaler is a totalitarian and others “conclude” that he is helping neoliberals! It´s ridiculous…
Thaler is hardly your typical “Chicago School” economist. I was fortunate enough to hear him speak at Cornell a few years ago, and it was most enjoyable and thought provoking. And “Nudge” is very good as well – basically argues for giving people positive incentives for doing the right thing (as opposed to negative incentives like sugary drink taxes).
Finally, a UC economist who makes sense! Ever since US went down the Milton Friedman rabbit hole, it has been hard to accept their findings as having anything to do with reality.
In fact, no one ‘wins’ a Nobel as it is not a competition – it is an award – they are laureates… This was pointed out to me by a chum who works for them!