Behavioral economics a Nobel cause

U.S. professor wins prize

STOCKHOLM — The Nobel prize in economics was awarded Monday 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.

Thaler won the $1.1-million prize for “understanding the psychology of economics,” Swedish Academy of Sciences Secretary Goran Hansson said Monday.

Thaler is considered a founding father of behavioral economics, a field that shows that far from being the rational decision-makers described in economic theory, people often make choices that don’t serve their best interests. That could include 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 behavior has economic consequences: People spend more than they should and don’t save enough for retirement. They make investments when prices are already dangerously high.

The Nobel committee said Thaler has provided a “more realistic analysis of how people think and behave when making economic decisions.”

Asked by phone at a news conference what he planned to do with his prize money, Thaler joked that he intended to spend it “as irrationally as possible.” `

In an interview later with The Associated Press, Thaler offered a deeper response that drew on the philosophy of his work:

“In traditional economic theory, it’s a silly question. And the reason is that money doesn’t come with labels. So once that money is in my bank, how do I know whether that fancy bottle of wine I’m buying (is being paid for by) Nobel money or some other kind of money? The serious answer to the

question is that I plan to spend some of it on having fun and give the rest away to the neediest causes I can find.”

In 2015, Thaler provided a cameo alongside pop star Selena Gomez in the film “The Big Short,” about the global financial crisis. In the scene, Thaler explains the “hot hand fallacy,” in which people think whatever is 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, President Donald Trump, who had some success as a business executive before entering politics, he said: “As to President Trump, I think he would do well to watch that movie.”

In 2008, Thaler co-wrote a paper examining the choices contestants face in games such as the TV show “Deal or No Deal,” including about how early outcomes affect decisions later in the game. In the paper, Thaler and the authors find that contestants become bolder in their choices when their initial expectations of how much they would win are shattered, whether by big losses or big gains.

SCOTT OLSON/GETTY The University of Chicago’s Richard Thaler draws a crowd after Monday’s announcement.