By Shivam Saklani
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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