American economist Richard Thaler has won the 2017 Nobel Prize for Economics.
Thaler was recognized for his work as a behavioral economist. That means he studies the reasons behind the economic decisions people make.
Thaler received the prize partly for his research into why people often make irrational financial decisions. The Royal Swedish Academy of Sciences announced the $1.1 million prize on Monday.
Speaking of the prize money, Thaler told reporters in Chicago after the announcement, “I will spend it as irrationally as possible.”
Things people do to make financial decisions
The award committee said Thaler explored “the consequences of limited rationality, social preferences, and lack of self-control.” It said the American economist’s work has shown how human qualities affect people’s individual decisions and the movements of financial markets.
Thaler developed the theory of “mental accounting.” It describes how people create separate accounts in their minds to try to simplify financial decision-making.
He described how this can lead to less rational financial decisions like saving for a vacation while paying high credit card interest.
His research, Bloomberg noted, showed that people often choose short-term pleasures, “which is why many people fail to plan and save for old age.”
The Reuters said Thaler’s research showed that such traits “as lack of self-control and fear of losing what you already have” can cause people to make bad short-term decisions.
One of those, Thaler noted, was keeping stock shares that have lost value or selling them too soon when they have gained value.
Thaler helped develop the “nudge” theory. It is the idea that small incentives can influence people to make good decisions. He said people should be permitted to make their own choices, but society “should actively try to guide individuals in the right direction.”
Cass Sunstein and Thaler wrote about the idea in the 2008 book “Nudge.”
The theory has been used by political candidates as they work to influence voters and government officials seeking to make changes in society.
Other areas also interested Thaler. He studied fairness. He found that people can accept increasing prices if the costs of many things are going up. But he found that they strongly disapprove of companies that raise prices simply because of high demand for one product.
Bloomberg called Thaler’s Nobel Prize “a reward for 40 years of work spent studying human bias and temptation.”
Thaler is considered one of the first behavioral economists. His field, once criticized, has grown in popularity among economists over the last 10 years.
The economist even briefly appeared in the 2010 movie, “The Big Short,” about the global financial crisis.
Thaler is a professor of behavioral science and economics at the University of Chicago Booth School of Business.
The economics prize was created in 1968 in memory of Alfred Nobel after his death. Since then, 79 individuals have received the prize. The first woman winner was Elinor Ostrom in 2009.
American have received about half of the Nobel Prizes for economics.
I’m Mario Ritter.
VOA News Writer Isabela Cocoli wrote this story from Washington. We also used reporting by the BBC, the Reuters news agency, PBS and Bloomberg. Christopher Jones-Cruise adapted the reporting for Learning English. Mario Ritter was the editor.
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Words in This Story
irrational – adj. not rational, not based on good judgment or reason
consequences – n. the results of an action
preferences – n. things that are liked or preferred more than others
account – n. a record of money paid, owed or received
incentives – n. reasons to do something
bias – n. believing in one side of an idea at the expense of the other
temptation – adj. the desire to have something