Richard Thaler – Economipedia

Richard H. Thaler is an American economist born in 1945, who was awarded the Nobel Prize in Economics in 2017. It was precisely his research work in the field of behavioral economics that led him to receive such recognition.

As part of his educational and professional path, Thaler earned his Ph.D. from the University of Rochester while teaching at the University of Chicago Booth School of Business.

As an economist, he has stood out for his work in the area of ​​behavioral economics, a field that studies the way in which human and social emotions, psychology and cognitive tendencies influence when making economic decisions.

Thus, behavioral economics uses disciplines such as economics and psychology together. As a result of the analysis of economic decisions, we can see what their effects are on the formation of prices, the way in which resources are allocated or the obtaining of benefits.

Richard Thaler and behavioral economics

As an expert in behavioral economics, Thaler distinguishes three distinct traits when explaining the way in which human beings make economic decisions. In fact, these traits not only refer to individuals, but also have their consequences on market behavior.

The first of these features is the so-called mental accounting. Thus, Thaler points out that human beings organize their minds in different accounts, analyzing their impact separately instead of evaluating it globally. All of this would lead to decisions made on impulse, such as when a consumer is launched to buy a discounted product without taking into account its price without discount.

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In this section it is also important to take into account the so-called “endowment effect”. This concept implies that we value a good more when we possess it than when we lack it. In other words, it is the fear of losing what we have that makes us value a good more.

Second, we will find the perception of justice and injustice. Precisely this factor can significantly influence the pricing policy of companies. Thus, a company can choose not to increase prices due to the growth in demand, while if costs increase the company will decide to increase prices.

This second feature could be explained by the following example. Given the arrival of rainy days, sellers could take advantage of the situation to raise the price of umbrellas. Now, if the public perceives the price increase as excessive, they will think that the sellers are taking advantage of the situation and would boycott them as opportunists.

Third, Thaler has analyzed the short-term view of individuals. This means that people think more in the short term than in a good organization in the long term.

Richard Thaler: Nobel Prize in Economics

In 2017, Richard Thaler received the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel.

This is due to his contributions to behavioral economics.

Thaler and the shove theory

In order to help people make decisions focused on the long term, Thaler proposed the so-called push theory. In fact, long-term decision-making is something that has far-reaching implications for both politics and the economy.

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Faced with a need to choose between two options, people will opt for the simplest decision and not the most appropriate one. In this way of making decisions, aspects such as lack of time, custom or ignoring the information that is presented to us influence.

In view of these behaviors, Thaler advocates that institutions encourage individuals to make those decisions that are most beneficial to them in the long term. Thus, in the case of retirement, Thaler proposes that administrations encourage savings for the future.

What has been the impact of Richard Thaler’s contributions?

Richard Thaler’s theories have had a great echo in society and the economy. In this sense, in Great Britain, former Prime Minister David Cameron opted to create a “push unit” to guide society’s behavior towards more beneficial long-term decisions.

Thanks to the work of Richard Thaler, Economics and Psychology have come together to respond to human problems and economic decisions. In fact, Thaler’s theories have left an important mark on economic policy.

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