Richard Thaler

Making a list on his blackboard of people’s irrational decisions was capable of driving the economist, Richard Thaler, to one of the most provocative economic conclusions of the time. In fact, his conclusions, though rejected by many people in his field, were the reason for his simple but effective ideas, which are continuously suggesting new strategies to improve human behavior. Through these ideas, Thaler was considered to be the founder of a new branch of economics called behavioral economics. Whereas, his research, though started as economically based, had narrowed the gap between economics and psychology, leading economists to consider understanding human beings’ nature before actually making any conclusion. Such contributions to the economic world were the reason for his recognition as the 2017 Nobel Prize winner in economics.

Thaler seems to follow the view on the world as a place that is complicating the paths toward the best choices. Which seems to be the reason behind what he had accomplished. As a child, Thaler mentioned that he was not well behaved and many people did not “expect much from him.” Even his father who worked as an actuary and grasped Thaler’s interest in mathematics was than disappointed that Thaler decided to take a different path. When asked in an interview with Malcolm Gladwell for the reason behind that, Thaler stated that it was because of what he described as “ridiculously nine hard exams”he had to take. Thaler than discovered his interest in psychology but decided to study economics as he thought it is “practical” and would make it easier to find a job. On 1967 Thaler earned his degree in economics from Case Western Reserve University in Ohio and continued his study at The University of Rochester.

As a graduate student at the University of Rochester on 1970, Thaler’s thesis was on an unusual topic: the prices humans are willing to pay to save their lives or a beloved one (Thaler, 1970). Despite that his thesis was essentially investigating an economic issue, it opened the gate for various questions and interest on human behavior, returning Thaler to into his interest in psychology. Through this paper, Thaler noticed the inconsistency between human behavior or their decision-making process and the economic theories. He realized that people’s decisions do not come from a rational thinking process as standard economic claims, but from environmental factors that shape and influence human decisions. For that reason, in 1977 he traveled to Stanford University to discuss his theory with psychologists such as Daniel Kahneman and Amos Tversky. Through communicating with such figures, Thaler was than capable of expanding on his approach to economics from a psychological angle. In 1985 Thaler published a paper arguing with evidence from the stock market the misbehavior that comes from “overconfidence.” He indicated that as a consequence of the companies success in the first year they then tend to put less effort into studying their choices and end up losing the next year (Thaler, Werner, De Bondt, 1985). Through this paper, Thaler’s ideas started to gain popularity in his field, and he joined The University of Chicago Booth School of Business in 1995.

Even though it was not until 2015 that Richard Thaler published his book on all the misbehaving stories that he documented since graduate school, in 2008 he presented to us one of his most important conclusions from these stories. Thaler with Harvard Professor Cass Sunstein introduced the idea of “nudging”, or influencing people’s behavior through building environmental factors to help them make a better decision. Although this idea may be considered simple to be giving the attention since 2015 countries such as The United States, The United Kingdom, Australia, Germany, and The Netherlands established nudging units to help direct people’s decisions. For that reason, Thaler and many others started measuring the effect of nudging in compare to other traditional governmental or institutional interventions to organize the public. This led them into a result that indicates nudging to be extremely powerful and effective in corresponding to other interventions (Thaler et al., 2017).

This irritated many people at the University of Chicago, especially Liberals who approached Thaler with their concern that his idea would put too much power on the hand of the government, diminishing Laissez-faire or the market control over itself. During an interview on the BBC British show, Newsnight, when such a concern was mentioned to Thaler, he confirmed the good intention behind nudge, declaring that he is against the idea of a government controlling people’s decisions, stating nudging as a completely different approach to guiding the public, where it is still the people who are making their decisions.

Thaler’s unique points on humans specifically and the world in general, promise a change if exploited for the good of society. It is understandable that they are against traditional economics, which is the reason behind the disagreement around it. When was asked on Freakonomics radio if, through his ideas he was able to alter people’s perspectives, Thaler asserted that “it is hard to change people’s mind.” That is for the reason that many economists are concerned with their careers, considering the possibility that these ideas may affect them. However, Thaler is not looking into the short-term effect of his ideas but the long-term outcome that will eliminate restrictions on people’s choices, increase guidance, lead into facilitation and improve understanding of the human limits and needs for support. For that reason, Thaler joked that he is “turned to the strategy of corrupting the youth,” conveying that it is the next generation perspective that is important to him.

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