Richard H. Thaler is awarded the Nobel Prize in Economics


At the age of 72, the American Richard H. Thaler has been awarded the Nobel Prize in Economics. The reason for such a distinction is his contribution to behavioral economics. In other words, Thaler has included psychology in the study of economics.

The American economist Richard H. Thaler was born in New Jersey in 1945. He is currently developing his professional work as a teacher at the University of Chicago. His work highlights his research on the lack of self-control of citizens in their individual decisions or the study of social preferences. For this, Thaler will receive a Nobel Prize in Economics that has an endowment of 1.1 million dollars.

Against traditional views of the economy, in which it is assumed that people can freely access information and use it to make decisions that allow them personal gain, Thaler introduces new variants of human psychology. And it is that economic decisions are influenced by aspects such as limited rationality, the perception of justice or the lack of individual self-control.

Thaler's theories

His work has been decisive in linking economics and psychology. This is where the so-called "behavioral economics" comes into play. Among the most notable aspects of work as an economist we find the theory of mental accounting. In accordance with this theory, Thaler argues that individuals make individual decisions (create separate accounts), taking into account how those determinations will affect globally. Another peculiarity of the theory of mental accounting is the so-called “endowment effect”, that is, there is more fear of losing an asset when it is owned than when the individual does not have it.

A second key concept in Thaler's theories is social preferences. Thaler argues that people make economic decisions not only thinking about what may be fair for them, but for others. In Thaler's own words, individuals “are prepared to abstain from material gain in order to maintain what they perceive as a fair distribution. They are prepared to bear a personal cost if they thus punish others who violate the basic rules of what is fair. " In this way we see how Thaler takes into account the perception of justice in people's economic decisions.

Economics are not just numbers and figures, as Thaler shows us that feelings and emotions come into play. The individual can respond in a positive way, seeking cooperation and common welfare, but negative factors, such as envy or selfishness, can also come into play.

Some scenarios that Thaler proposes is that consumers do not tolerate excessive price increases in situations of high demand. One example Thaler draws on is that consumers will not consider it fair for an umbrella seller to noticeably increase prices on a rainy day. On the other hand, workers will not consider a cut in their wages fair either, so they will be directly opposed to these measures. But workers will admit increases in their wages below the increase in inflation, even if this means a loss of their purchasing power.

Lack of self-control is one of the most important factors in Thaler's research. Thus, Thaler raises the dilemma that arises for everyone between thinking about their long-term financial well-being or more immediate short-term satisfaction. In fact, good long-term planning will adequately contribute to savings. Joking on this point, Thaler declared after being awarded the Nobel Prize in Economics that he will spend the prize endowment "as irrationally as possible."

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