THE NOBEL PRIZE IN ECONOMICS
By Viraj Mehta
This year, the Nobel Prize in Economics went to Richard Thaler, a professor of economics and behavioural sciences at the University of Chicago. His work on behavioural economics has led to him getting the esteemed prize.
Behavioural economics combines psychology with decision making behind an economic outcome. It helps to predict the actions of individuals and the economy to government decisions. In this case, Thaler said that the Brexit vote was based on acting on gut decisions, not rational thinking. Thaler has also helped to start “Nudge” theory, which has helped to boost tax and reduces bad habits of society such as smoking. This has been very useful for the British economy, especially after Brexit. This theory won him the Nobel Prize. Behavioural economics is very important for decision making as governments consult behavioural economists to see how the public could react to this. This is important as they want to stay in power, so they try their best to keep the public happy, whilst keeping the economy in balance.
Surprisingly, he appeared in a film about the financial crash in 2015 called The Big Short. Richard Thaler said that it helped him to understand economic decisions. Also, when asked how he would spend the prize money, he said “as irrationally as possible”, referring to his theory about rational thinking.
The Nobel Prize in Economics is one of the highest achievements for any economist and its history is as prestigious as its recipients. Former prize-winners include Milton Friedman, Robert Solow, John Nash, Amartya Sen, George Akerlof and Joseph Stiglitz, both of whom are also behavioural economists.
Some of you must be thinking how this fits into your everyday life. Well, to answer your question, if behavioural economics was not pioneered, then the government would make very rash decisions and people would not understand why recessions happen and how psychology can link decisions to economic models. So, one’s whole life revolves around the decisions made by superior people and so by behavioural economics. Congratulations to Richard Thaler for winning the 2017 Nobel Prize in Economics.