Richard H. Thaler (; born September 12, 1945) is an American economist and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. In 2015, Thaler was president of the American Economic Association. Thaler is a theorist in behavioral economics. He has collaborated with Daniel Kahneman, Amos Tversky, and others in further defining that field. In 2018, he was elected a member in the National Academy of Sciences. In 2017, he was awarded the Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics. In its announcement, the Royal Swedish Academy of Sciences stated that his "contributions have built a bridge between the economic and psychological analyses of individual decision-making. His empirical findings and theoretical insights have been instrumental in creating the new and rapidly expanding field of behavioral economics."
Personal life Thaler was born in East Orange, New Jersey, to a Jewish family. His mother, Roslyn (née Melnikoff) was a teacher, and later a real estate agent while his father, Alan Maurice Thaler, was an actuary at the Prudential Financial in Newark, New Jersey, and was born in Toronto. He has three children from his first marriage and is now married to France Leclerc, a former marketing professor at the University of Chicago and avid photographer.
Education Thaler graduated from Newark Academy, before going on to receive his B.A. degree in 1967 from Case Western Reserve University, and his M.A. in 1970 and Ph.D. degree in 1974 from the University of Rochester, writing his thesis on "The Value of Saving A Life: A Market Estimate" under the supervision of Sherwin Rosen. He also studied under departmental chair and neoclassicist Richard Rosett, whose wine-buying habits were featured in his research on behavioral economics.
Academic career After completing his studies, Thaler began his career as a professor at the University of Rochester. Between 1977 and 1978, Thaler spent a year at Stanford University collaborating and researching with Daniel Kahneman and Amos Tversky, who provided him with the theoretical framework to fit many of the economic anomalies that he had identified, such as the endowment effect. From 1978 to 1995, he was a faculty member at the SC Johnson College of Business at Cornell University. Cornell established in 1989 the Center for Behavioral Economics and Decision Research, with Thaler as founding director. After gathering some attention with a regular column in the respected Journal of Economic Perspectives (which ran between 1987 and 1990) and the publication of these columns by Princeton University Press (in 1992), Thaler was offered a position at the University of Chicago's Booth School of Business in 1995, where he has taught ever since.
Major works and contributions
Endowment effect Thaler’s studies involving the endowment effect showed that people tend to be neutral towards something if it's not theirs but will pay more money for it if it’s theirs. People rate possessions they own more than possessions they do not own even if these possessions are identical to each other. The traditional economics theory would state that human decisions would be entirely dependent on market value.
Mental accounting Mental accounting is a concept introduced by Thaler to illustrate how people perceive and manage money differently based on its source. We often categorize our money into separate “mental accounts” for various purposes, like our salaries, savings, or unexpected funds like tax refunds and gifts. This can sometimes lead to some puzzling or unexpected financial decisions. For instance, someone might splurge on a luxury item with their tax refund but hesitate to spend the same amount from their regular paycheck. Likewise, a person might be frugal with their savings but quickly blow through a bonus. Thaler demonstrated that these mental accounts significantly influence how we budget, save, and decide to spend. Grasping the concept of mental accounting sheds light on why people sometimes behave in ways that traditional economic theories struggle to explain. It also highlights how even minor changes in how money is labeled or presented can sway our choices.
Myopic loss aversion (MLA) Thaler, together with Benartzi, demonstrated how myopic loss aversion, wherein investor behavior is guided by their aversion to loss over a shorter time horizon, contributes to equity premium puzzles because they tend to underinvest due to loss aversion related to shorter time horizons, even though equity returns have outperformed bonds. The study combined finance and psychology in the behavioral methods of portfolio management.
Choice architecture and libertarian paternalism from nudge Thaler brought forth the concept of choice architecture, which revolves around how the presentation of options can influence the decisions we make. By organizing choices in specific ways, we can guide people toward making better decisions without infringing on their freedom. This notion is part of what Thaler refers to as libertarian paternalism. Take, for instance, how many companies automatically enroll their employees in retirement savings plans. Most individuals remain enrolled simply because it’s the default option, which ultimately helps them save more for the future. Of course, they still have the choice to opt out if they wish. Another example is the simplification of health insurance plans, making it easier for people to identify the best options for their needs. Choice architecture can also be applied in various fields like energy consumption, organ donation, and education. Thaler’s research demonstrates that even minor adjustments in how choices are presented can lead to significant changes in behavior, enabling people to make better decisions while still preserving their freedom to choose.
Writings
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