American wins economics prize
Nobel Memorial awarded for look at irrationality
WASHINGTON — People make poor economic choices. They don’t saveenoughforretirement.theyrefuse to cut their losses on plummeting investments because they won’t own up to mistakes. They buy houses and stocks when prices are high, thinking that what’s going up today will keep going up tomorrow.
Richard Thaler of the University of Chicago on Monday won the Nobel Memorial Prize in Economic Sciences for documenting the way people’s behavior doesn’t conform to economic models that portray them as perfectly rational. As one of the founders of behavioral economics, he has helped change the way economists look at the world.
“Thrilling news,” said Thaler’s collaborator, Cass Sunstein of Harvard Law School. “He changed economics, and he changed the world.”
Illogical human behavior has economic consequences: Baby
Boomers haven’t saved enough for old age. Americans kept buying houses even as prices soared in the mid2000s, creating a bubble that burst and triggered the biggest economic downturn since the 1930s. To limit the damage, behavioral economists say, economic policy needs to take human foibles into account.
“I try to teach people to make fewer mistakes,” Thaler told the Associated Press. “But in designing economic policies, we need to take full account of the fact that people are busy, they’re absent-minded, they’re lazy and that we should try to make things as easy for them as possible.”
Thaler had a cameo alongside pop star Selena Gomez in the film “The
Big Short” and once analyzed the flawed strategies of participants in the game show “Deal or No Deal.” He’s looked into how taxi drivers decide to spend their days and how school cafeterias should display their food.
Thaler won the $1.1 million prize for “understanding the psychology of economics,” Swedish Academy of Sciences secretary Goran Hansson said Monday. He is the 13th Nobel-winning economist from the University of Chicago.
Asked in a news conference immediately the announcement what he planned to do with the prize money, Thaler joked that he intended to spend it “as irrationally as possible.” ‘
In one study, Thaler and his colleagues looked at how taxi drivers try to balance making money versus enjoying their leisure time. The driver might respond by setting a goal: Once his take from fares reaches a certain amount, he calls it a day. But that would mean that he works shorter hours when demand for taxis is high and longer ones when business is slow. If he took another approach, he could make more money working fewer hours.