Nobel Laureate Richard H. Thaler

The Human Side of Economics

As a graduate student in economics, Richard H. Thaler divided his time between studying economic theories and collecting stories that appeared to undermine those theories.

At a dinner party, for instance, he whisked away a bowl of cashews to prevent his guests from ruining their appetites for dinner. Economic theory posits that it’s always better to have more choices, so why were his guests happy to see the cashews disappear?

On another occasion, he and a friend had free tickets to a basketball game 75 miles away but skipped it because of a snowstorm. Had they paid for the tickets, Thaler knew, they would have gone to the game—despite the prevailing economic belief that sunk costs don’t matter.

How to reconcile these instances of irrational behavior with the standard economic assumption that people act in their best interest? That question put Thaler on a path to a groundbreaking career in the field now known as behavioral economics.

Influenced by the work of psychologists Daniel Kahneman and Amos Tversky, Thaler began to apply insights from psychology to examine how everyday people make economic decisions. In his pioneering research, he has studied everything from self-control and loss aversion to how consumer concerns about fairness affect business practices.

In the international best seller Nudge, for instance, he and law professor Cass R. Sunstein outlined ways to leverage psychology to guide people toward better choices—such as automatically enrolling employees in a retirement plan, or making organ donation the default mode on driver’s licenses. Today, countries and businesses all over the world are using his frameworks to encourage saving and improve lives.

In 2017, Thaler won the Nobel Prize in Economic Sciences in recognition of these contributions. “Thaler’s work has had a significant impact on real-world policymaking,” said Per Strömberg, chairman of the Nobel Committee, in the award ceremony. “His idea of nudging people to save more has helped to create literally billions of dollars of retirement wealth for ordinary people throughout the world.”