Richard H. Thaler won the 2017 Nobel Memorial Prize in Economic Sciences. "The Nobel committee, announcing the award in Stockholm, said that it was honoring Professor Thaler for his pioneering work in establishing that people are predictably irrational — that they consistently behave in ways that defy economic theory. People will refuse to pay more for an umbrella during a rainstorm; they will use the savings from lower gas prices to buy premium gasoline; they will offer to buy a coffee mug for $3 and refuse to sell it for $6." This defies what current economic models are based off of. "Mainstream economics was built on the simplifying assumption that people behave rationally. Economists understood that this was not literally true, but they argued that it was close enough. Professor Thaler has played a central role in pushing economists away from that assumption. He did not simply argue that humans are irrational, which has always been obvious but is not particularly helpful. Rather, he showed that people depart from rationality in consistent ways, so their behavior can still be anticipated and modeled." I think that this a very modern way of thinking about economics. I actually feel like what Thaler is saying almost seems like common sense. It will be interesting to see how this way of thinking changes the current economic models and their assumptions!
I believe this spotlight on behavioral economics will bring this into thought and study in classrooms across the globe. I believe it is important to be aware of the intersection of economics, sociology and psychology. This connection is important because the classical economic models may predict the actions of a logical human beings, but often fail to predict what will actually happen. In the future, I could see a rise in the prevalence of behavioral economics.
ReplyDeleteBehavioral economist is a very interesting topic and seeing all of the research Richard Thaler has done will only make it grow and get more people to look into it.
ReplyDeleteVery interesting article. I agree with Aaron, these theories by Dr. Thaler have rally been ground breaking and can change the way people look and think about the economy. People are hard to predict and his theory enforces that.
ReplyDeleteThe work done by Dr. Thaler has been amazing and will be extremely vital to the future of economic modeling and decision making, I agree with Drew, that his work and theories almost seem like common sense. Unfortunately, people are not rational and they make certain stupid decisions for reasons unknown. It will be interesting to see the differences of these new assumptions.
ReplyDeleteWith Mr. Thaler carving the way for the new field of behavioral economists, it brings up the question of what other fields will organically form together from coinciding interests. It's amazing to me that different elements of the community are capable of endorsing one another in order to follow a common goal. Maybe this is itself has been demonstrated by one of Thaler and his colleagues experiments.
ReplyDeleteThaler has written a number of books on the subject of behavioral finance, including Quasi-rational Economics and The Winner's Curse. One of his recurring themes is that market-based approaches are incomplete. He has been quoted saying, "conventional economics assumes that people are highly-rational—super-rational—and unemotional. They can calculate like a computer and have no self-control problems." Very interesting guy.
ReplyDelete