Monday, 9 October 2017

Richard Thaler wins Noble Prize in Economics

By Shivam Saklani

The US academic Richard Thaler won the Noble Prize on 09-10-2017, for his pioneering work in the field of Economics, for his "Nudge Theory", which explores, how human psychology shapes economic decisions.

Prof. Thaler, currently the Professor of Behavioral Science and Economics at University of Chicago was the 79th recipient of the award, officially known as "Sveriges Riksbank Prize", the award was announced by Royal Swedish Academy of Sciences in Stockholm on this Monday morning. He will receive a prize of $1.1 million.

Economists, till now have been assuming that individuals behave rationally, also called as cold-headed logic, making decisions on the information available to them. Prof. Thaler’s work has helped in finding a reason as to why people behave in ways that aren’t fully rational. The theory states, that, given two options, humans are likely to pick the wrong one, even if it makes them less well-off. Suppose a student is given 2 options, one, to attend the class, another, to miss the class. Now, the decision of most of the students would be the second option, here we observe, that the habit and the interests of the students, who chose second option, overtook the cold headed logic of attending the class, which would have left the students more well off. Nudge theory takes account of these situations, as it based on the simple premise that people often choose, "Easiest over the Wisest!" Brexit can also be a great example of how behavioral economics can be useful, Prof Thaler states that, with a narrow margin, the decision to leave EU was influenced by gut choices, as opposed to rational decision making.

After the prize was announced, taking a light jest, as to how he plans to spend this money, the 72 year old said, "As irrationally, as possible!!"

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