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2017 Nobel Prize for Heretical Economics

The 2017 Nobel Prize in Economics was awarded to Richard Thaler, University of Chicago (they do seem to get a lot of Economics Nobel Prizes) for his work blending psychology with the dismal science, economics.    I quote from the article in the Hill:

The Nobel Memorial Prize in Economic Sciences went to Richard Thaler on Monday to honor his scholarly heresy. His work challenges the central principle of modern economics — the assumption that people are rational…

 

The rationality assumption has a specific meaning to economists: People can make choices, and those choices are mutually consistent. If John prefers an apple to a pear and a pear to an orange, then he also prefers an apple to an orange. With many twists on this theme, this definition of rationality has given economics coherence, rigor and humanity… 

 

Thaler and his behavioralist colleagues, though, correctly note that people are often far from rational, in ways that are essential to understanding human society. For example, rationality implies that more choices are better, but too many menu choices can paralyze diners. Too many investment options can deter people from making financial decisions….

 

Thaler has written on the “winner’s curse” — the observation that those who win auctions are often those who most overvalue the purchase. Sometimes, our choices are mutually inconsistent, or we change our minds erratically. Mainstream economists understand this but find it useful to leave such observations to psychologists and others…

 

But Thaler and crew argue that in certain areas of human behavior.. irrational people can be rather alike, after all. Their irrationality can be consistent and predictable. By exploring these realms, behavioralists find insights where standard economics never sheds light.

–Robert Graboyes, “The Hill” 10/11/2017

One neat application of Thaler’s psychological pruning of economic theory is illustrated in the featured image, “The fly in the urinal”, (from  Schiphol Airport Holland).   The image of a fly was etched into the urinal to reduce spillage and thereby reduce cleaning cost;  it was an eminently successful maneuver, reducing spillage by 80% and cleaning costs by 8%.  (The idea is to give males something to aim at;  I’m going to suggest this to the Principal of our parish parochial school, to improve the boy’s bathroom sanitation.) Thaler  and Sunstein used this in their book  “Nudge: Improving Decisions on Health, Wealth and Happiness”  as an example of a way to promote behavior without regulation or punishment,  what some have called “libertarian paternalism”.

And it isn’t great to see something sensible and useful  acknowledged with a Nobel?

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Bob Kurland, Ph.D.

Retired, cranky, old physicist. Convert to Catholicism in 1995. Trying to show that there is no contradiction between what science tells us about the world and our Catholic faith. Intermittent blogs and adult education classes to achieve this end (see http://rationalcatholic.blogspot.com/ and http://home.ptd.net/~rkurland). Extraordinary Minister of Communion, volunteer to federal prison and hospital; lector, EOMC.
Sometime player of bass clarinet, alto clarinet, clarinet, bass, tenor bowed psaltery for parish instrumental group and local folk group.

9 Comments

  1. A Facebook friend of mine whom some time ago I met virtually on line in the course of my day-job (a “Consilier” with “CNCAN – Comisia Națională pentru Controlul Activităților Nucleare” in Bucharest, Romania) posted a series of articles about Richard Thaler’s Nudge Theory. Apparently you science guys and girls think alike! 🙂 Good post. Thanks.

    PS, Consilier is adviser in Romanian, deriving from the Latin word consiliarius which likewise means counselor / adviser. And Comisia Națională pentru Controlul Activităților Nucleare is the Romanian nuclear energy regulator – the National Commission for the Control of Nuclear Activities. All those words likewise derive from Latin. Not related to this post, but it’s fascinating to see the influence of the Latin in both Dacia and Britannia still present today in both Latin and English. But I digress.

  2. Opps – change:

    Not related to this post, but it’s fascinating to see the influence of the Latin in both Dacia and Britannia still present today in both Latin and English.

    to

    Not related to this post, but it’s fascinating to see the influence of the Latin in both Dacia and Britannia still present today in both Romanian and English.

  3. Thaler is right. S. Armaticus is right. Having spent a lifetime on the marketing side of the auto industry I agree a portion of consumption satisfies irrational desires and fears. I hope he continues in his research.

  4. Thaler’s questioning of the rational consumer is something that I have believed for some time now. I’ve had university level economics courses and I could not swallow the rational consumer argument. I only had to turn on the TV and the radio to see and hear the ads to know that this was nonsense. Ads are heavily into emotional appeals. If the economics rational consumer were true then the best marketing people would come from the planet Vulcan. Ads would be an exercise in raw logic. I don’t think that I could pass the rational consumer test.

  5. I’m not sure that this is, technically, a “heresy.”

    If, however, folks on the Nobel Prize committees are starting to realize that many folks don’t consistently use the reason that’s part of our toolkit – – – I see this is a step toward awareness.

    It’s also, again if true, long overdue. Decades in marketing helped me learn a bit of that craft.

    American marketers learned that folks do not make reasonable decisions when selecting products and services – – – at least as far back as the early 20th century. I don’t have to like it – – – but think there is little point in trying to believe that something is true because I’d like it to be. 😉

    Even business-to-business marketing, the effective sort, uses emotional appeal.

    I don’t actually disapprove. Emotions are part of the human took kit, too. I’ve learned that mine are not trustworthy for decision-making. Alerting me to issues, maybe. Decisions, no.

Comments are closed.