University of Chicago economist Richard Thaler wins the 2017 Nobel Prize in Economics for his contributions to behavioral economics.
Personally, I am happy with this outcome. Thaler is a very good economist whose recognition is long overdue (his sometimes co-author and frequent collaborator, Daniel Kahneman, won the Prize back in 2002).
Over at Marginal Revolution, my GMU professor Tyler Cowen has a great write up on Thaler’s work, including some areas I did not know about.
Two books of Thaler I highly recommend are The Winner’s Curse and Nudge (co-authored with Cass Sunstein, another person worth reading). Both are fascinating, and challenging looks at the standard assumptions of economics and provides surprising insights.
9 thoughts on “Richard Thaler Wins Nobel Prize”
The 2013 winner, Robert Shiller, also has a great book on the topic: Irrational Exuberance. I was fortunate to be in his free online class when he won the prestigious award (he is a fellow University of Michigan graduate).
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While understanding that markets do not always behave with perfect efficiency is definitely worthy of acclaim, it has limited predictive value over efficient market theory. If human psychology and sentiment drive market anomalies, why can you not “beat the market” with portfolios managed by behaviorists?
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I have some thoughts on the EMH I’ll have to share at another time
There are some interesting comments on Tyler’s piece at MR.
Isn’t the term “libertarian paternalism” an oxymoron?
I think the term is meant to describe paternalistic decisions that it is possible to opt out of as contrasted with paternalistic decisions you can’t opt out of. It is reasonable to describe the one you can opt out of as the libertarian one.
This is Thaler describing how he uses the term:
>—“First, let’s be clear about what Sunstein and I mean by libertarian paternalism. We use the word libertarian (small “l”) as an adjective to modify paternalism, and it implies that we advocate policies that maintain people’s freedom to choose at as low a cost as possible. As for paternalism, we say on page five of our book, and repeat ad nauseam, that we call a policy paternalistic “if it tries to influence choices in a way that makes choosers better off, as judged by themselves.” (The emphasis is in the original.) “
“This is Thaler describing how he uses the term:”
Yes, I read that. When he writes: “… it implies that we advocate policies that maintain people’s freedom to choose at as low a cost as possible.” I have to wonder why he thinks there should be a “policy” in the first place that will cost me anything extra? Who, besides me (and of course my dear, saintly mother), is qualified to decide what choices I should make in my own best interests? Certainly not Thaler or Kahneman who don’t even know I exist.
This isn’t just about unchecking a box on an online form,
For example, I appreciate concerns friends and family might have about my drinking lots of sugary soda, but I expect them to advise, not make me pay more for each one as Thaler would recommend through punitive taxes.
He thinks there should be a public policy on the matter because he is not an anarcho-capitalist and it is a matter of public debate. A decision to have no tax is still a policy decision.
In a modern country where the taxpayers pay much or all of the medical bills (that’s all of them) people who consume a lot of sugary drinks will be consuming more health care than people who don’t on average. And more than they would in particular if their sugar consumption had been less. Think of this tax as a user fee for the healthcare system.
In this case the paternalist would really prefer that you choose to consume less sugar than pay a “punitive” tax. But preserving the option to consume the sugar and pay the tax leaves more choice than simply banning some level of sugar content. So it is relatively more libertarian than that alternative in that way. And I trust I don’t even need to explain why it is more paternalistic than not taking an interest in the matter.
When Thaler says the result should leave you happier in the end than if it had been the other way, he does not mean that you will find you have discovered some joy in paying taxes. He means you will prefer the healthier state that results from lower sugar consumption to the sicker state that results from higher sugar consumption.
And by the way, are you sure your saintly mother really approves of your high sugar consumption?
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