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  HOME | Business & Economy (Click here for more)

Economics Nobel Awarded to Richard H. Thaler for Behavioral Finance Studies

STOCKHOLM – The Nobel Prize in economics was awarded to American professor, author and theorist Richard H. Thaler for his contribution to behavioral economics, the Royal Swedish Academy of Sciences announced on Monday.

Prof. Thaler, of the University of Chicago Booth School of Business, was recognized with the 2017 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel as one of the founders of behavioral economics, which examines how cognitive limitations in human psychology can affect financial markets.

“By exploring the consequences of limited rationality, social preferences, and lack of self-control, he has shown how these human traits systematically affect individual decisions as well as market outcomes,” a press release from the Royal Swedish Academy of Sciences said, listing three areas in which the economics professor is a leading academic.

The professor expounded his theories on the lack of self-control in personal finance in the 2008 bestselling book “Nudge: Improving Decisions about Health, Wealth and Happiness,” co-written by Harvard professor Cass R. Sunstein.

Nudge investigated human psychological tendencies to succumb to short-term temptations when trying to stick to long-term plans.

Arguing that such cognitive phenomena could be applied equally to personal finance, such as saving up for a pension instead of making spontaneous purchases, Thaler offered his theory of nudging as a remedy, a way to encourage long-term thinking in personal finance with positive reinforcement.

Limited rationality involves the theory of mental accounting, a term developed by Thaler that details how people tend to simplify financial decision-making by imagining separate accounts in their mind.

It examines, among other things, how an individual cannot possibly take into account all the personal economic consequences of making a purchase.

Thaler’s research into social preferences in finance looks at how consumer’s deliberate the fairness of their economic decisions.

One example of this, as elaborated by Thaler, is that an umbrella seller who raises their prices during a sudden outbreak of rain may find that potential consumers will boycott their products if they deem it to have contravened what is perceived to be fair.

Thaler, 72, will be awarded nine million Swedish kronor ($1.1 million).

The Economics award is the last of the Nobel prizes to be handed out.

 

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