Richard Thaler: The Father of Behavioural Economics
Richard Thaler: The Father of Behavioural Economics
Bezon Kumar
It was 12 September 1945, the sky of the whole world was covered
with the black cloud of II World War. In such a moment, a child was born to
a Jewish family in East Orange, New Jersey. After a few days, the war
stopped and the whole world started to reform and covered with the shower of peace.
The child is none but the Father of the Behavioral Economics, Nobel laureate
Richard H. Thaler. He was born in a solvent family and grew up with two
younger brothers. His mother, Mrs. Roslyn, was a teacher and later she
became a real estate agent. His father, Mr. Alan Maurice Thaler, was an
actuary at the Prudential Financial in Newark, New Jersey and he
wanted his son will follow his footsteps. But, Thaler
did not do that. From his childhood, he wanted to be a Psychologist. He
married twice in his life. From his first marriage, he has three children.
Later, he married, France Leclerc, an avid photographer and a former professor
at the University of Chicago.
Education
Thaler’s education life is quite diversified. He kept good
signs at all levels of his education life. Thaler completed a graduation degree
from Newark Academy before receiving
his B.A. degree in 1967 from Case Western Reserve University and his M.A. in 1970. From
the University of Rochester, he received his Ph.D. degree in 1974 writing his thesis
on "The Value of Saving A Life: A Market Estimate" under the close supervision
of renowned professor Sherwin Rosen.
Professional Career
Like his education life, his professional career is also
diversified. After completing his studies, Thaler started the journey of his career
at the University of Rochester as a professor. After this, he spent a year,
from 1977 to 1978, at Stanford University collaborating and researching
with Daniel Kahneman and Amos Tversky. At this time, he identified the theoretical framework to
fit many of the economic inconsistencies, such as the endowment effect.
Then he served at the SC Johnson College of
Business at Cornell University as a faculty member for
a long time, from 1978 to 1995. During this period, he wrote many columns
in the Journal of Economic Perspectives
and drew big attention. These columns were published as a book named The
Winner’s Curse by Princeton University Press in 1992. In 1995, Thaler was
offered a distinguished position at the University of Chicago's Booth
School of Business where he has taught ever since. He also served at MIT
and Cornell University.
Academic Contribution
During his whole academic life, Professor Richard H. Thaler has written
many research articles, book chapters, and books. Most of those writings are
about behavioral issues. Among those writings, two books became a very popular
sensation. The first one is Nudge: Improving Decisions about Health,
Wealth, and Happiness. It was published in 2008 and co-authored with Harvard Law’s Cass
Sunstein. This book turned Thaler into a public intellectual and one
of the best-known economists of the day. Motivating by this book,
Britain’s government opened its “nudge unit,’ or more properly the Behavioural
Insights Team, to nudge Britons toward wiser decision making and the United
States under President Obama fired up its version of the nudge unit, the Social
and Behavioral Sciences Initiative. The second one is Misbehaving: The
Making of Behavioral Economics which was published in 2015.
Nobel Prize
Professor Thaler was
awarded 2017 Nobel Prize in Economics
for his core contribution to behavioral economics. His contribution was
at such a level which is completely beyond the
traditional postulations of ancient economics. In this regard, the Chairperson
of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel
2017, Per Strömberg, quoted “it’s not that economists believe everyone is
rational.”
Thaler studied behavioral economics and finance as well as the
psychology of decision-making which lies in the gap between economics and
psychology. Moreover, he investigated the implications of relaxing the traditional
postulations of economics that all agents in an economy are rational, instead of
entertaining the possibility that some of the agents in the economy are
sometimes human. Thaler showed how human traits systematically affect
individual decisions as well as market outcomes by exploring the consequences
of limited rationality, social preferences, and lack of self-control.
Thaler
developed the theory of mental accounting to explain limited rationality. In
this theory, he explained how people simplify financial decision-making by
creating separate accounts in their minds focusing on the narrow impact of each
decision rather than its overall effect. He explained ‘the endowment effect’ by
the aversion to loss can interpret why people value the same item more highly
when they own it than when they don't. Thaler interpreted the phenomenon by
‘social preferences’. Thaler threw new light on the old observation of New
Year's resolutions to explain a lack of self-control. He also shows how to
analyze self-control problems using a ‘planner-doer’ mode. Thaler demonstrated
how nudging may help people exercise better self-control when saving for a
pension, as well in other contexts.
Besides
teaching and research, Richard Thaler also worked as an Adviser of former US
President Barak Obama to make the 2012 election campaign successful. He
also served as the adviser of the UK’s former Prime Minister, David Cameron's
Behavioral Inside Team. He was the President of the American Economic Association
in 2015. Not only these works but he also made a film named The Big Short in 2015 that led to the
2008 financial crisis.
The
contribution of Richard Thaler has built a new bridge between the economic and
psychological analyses of individual decision-making. This ideology has generated
a new hub of research in Economics. For this reason, the world will remember
him over the decades.
The writer is a Teacher and Researcher in Economics of Rabindra University, Bangladesh. Email: bezon.kumar3@gmail.com
Published in The Daily Asian Age on 06 July, 2020 (Edited a little bit)
The writer is a Teacher and Researcher in Economics of Rabindra University, Bangladesh. Email: bezon.kumar3@gmail.com
Published in The Daily Asian Age on 06 July, 2020 (Edited a little bit)
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