US economist Richard Thaler, one of the founding fathers of behavioural economics, has won the Nobel Economics Prize for his pioneering work to bridge the gap between economics and psychology, the jury said.
“By exploring the consequences of limited rationality, social preferences, and lack of self-control, he has shown how these human traits systematically affect individual decisions as well as market outcomes,” the Nobel jury said in a statement.
Read Thaler’s citation on research on self-control:
In the twelfth song of the Odyssey, Circe warns Odysseus about the Sirens, who lure sailors with their enchanting singing. Odysseus who, like his crew, wanted to return home to Ithaca, solves the problem by plugging the crew’s ears with beeswax and then tying himself to the mast, with strict orders to the crew to ignore whatever he says until they are out of harm’s way. Odysseus’ problem is the epitome of this dilemma at all levels of our life, when we are tested by short-term temptations that threaten long-term wellbeing. This could be food and drink, smoking, consumption, saving for distant goals, or post-retirement planning. A person who chooses a longer education has a lower income during their studies, but can in return look forward to benefits in the future.
Experiences that are close in time take up more of our awareness than those that are further off; a thousand krona next year is perceived as worth less than a thousand krona today, regardless of whether it is an income or an expense. In traditional economic theory this is described using discounting – the assumption is that both income and expenses reduce by a constant factor with every passing month or year. Using such an assumption, the ranking of two future alternatives will always remain the same.
However, as Odysseus’ dilemma demonstrates, it is possible to change your mind when choosing between two options. The explanation is that experiences that are close in time take up more of our awareness – we discount more rapidly early on.
And also his the citation on research on fairness, complete with umbrella anecdote:
When making decisions, people not only take what is beneficial to themselves into account. They also have ideas about what is fair, and they can consider other’s welfare in both a positive way – through cooperation or solidarity – and a negative way – such as through jealousy or malice. Large-scale experiments conducted by Richard Thaler and other behavioural economists, have shown that notions about fairness play a major role in decision-making. People are prepared to refrain from material benefits to maintain what they perceive as just distributions. They are also prepared to bear a personal cost for punishing others who violate basic fairness rules, not only when they themselves are affected but also when they see someone else affected by injustice.
One frequent objection is that results from laboratory experiments cannot be transferred to real life, but it is easy to find examples where fairness considerations have an impact outside the laboratory. Unexpected rain can create an unexpectedly high demand for umbrellas, but if a shopkeeper then raises their price to match the high demand, many consumers react negatively and feel that the shopkeeper has behaved greedily.
How hard I've hustled, how hard I've tried, how I never gave up, how I wanna succeed.