Why Richard Thaler won the 2017 economics Nobel Prize

The 49th Sveriges Riksbank prize in economic sciences – commonly referred to as the Nobel Prize for economics – has been awarded to Richard H Thaler for his contributions to behavioural economics. He was a key proponent of the idea that humans do not act entirely rationally. By applying insights from psychological research, he helped the world better understand people’s economic decision-making in particular.

Thaler published extensively in the field of finance. He pinpointed the difference between the predictions in financial literature, which assume that people act perfectly rationally to maximise their expected profits (the idea of the homo economicus), and what actually happens on the markets.
Thaler was on many people’s list of Nobel favourites. But since the award already went to Daniel Kahneman in 2002 for behavioural economics and then jointly to Eugene Fama, Lars Peter Hansen and Robert Shiller in 2013 for financial markets, his chances seemed relatively slim. But the Great Recession – caused by financial markets seeming to behave “irrationally” – brought a lot of attention to research that extensively cites Thaler’s 40-year long academic career. He even made a guest appearance in the film The Big Short to explain why banks kept buying and selling bad debt to their detriment.
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