Thaler awarded Nobel Prize for his work in behavioural economics

The Nobel Prize in economics has been awarded to Richard Thaler of the University of Chicago for research showing how people’s choices on economic matters — whether on savings or game shows like Deal or No Deal — are not always rational.

The 9-million kronor (US$1.1million) prize was awarded to the academic for his work in “understanding the psychology of economics,” Swedish Academy of Sciences secretary Goran Hansson said Monday.

Thaler is considered one of the founding fathers of behavioural economics, a field that shows that far from being the rational decision-makers described in economic theory, people often make decisions that don’t serve their best interests. That could include, for example, refusing to cut their losses when their investments plunge in value or making big bets at the casino because they are convinced their hot streak will continue.

The illogical behaviour has economic consequences: People don’t save enough for retirement. They make investments — in houses in the mid-2000s, for instance, when prices are dangerously high.

Speaking by phone to a news conference immediately after he was announced as the prize winner, Thaler said the most important impact of his work is “the recognition that economic agents are humans.”

In 2015, Thaler had a cameo alongside pop star Selena Gomez in the film The Big Short, about the global financial crisis. In the scene, he explains the “hot hand fallacy,” in which people think whatever’s happening now is going to continue to happen into the future.

Asked at the news conference Monday if he thought this observation applied to the U.S president, who had success as a business executive before entering politics he said: “As to President Trump, I think he would do well to watch that movie.”