Richard Thaler wins Nobel prize

Thaler wrote Nudge, with Cass Sustein in 2008, which introduced the concepts of behavioural economics and how it can be used to tackle society’s problems.

The Royal Swedish Academy of Sciences said: "In total, Richard Thaler’s 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 behavioural economics, which has had a profound impact on many areas of economic research and policy."

It cited his work on limited rationality, social preferences and lack of self-control, where he has shown how these human traits affect individual decisions as well as market outcomes.

Thaler developed the theory of mental accounting, explaining how people simplify financial decision-making by creating separate accounts in their minds, focusing on the narrow impact of each individual decision rather than its overall effect.

His theoretical and experimental research showed how consumers’ fairness concerns may stop firms from raising prices in periods of high demand, but not in times of rising costs.

And he has also showed how to analyse self-control problems using a planner-doer model, which is similar to the frameworks psychologists and neuroscientists now use to describe the internal tension between long-term planning and short-term doing. Succumbing to short-term temptation is an important reason why our plans to save for old age, or make healthier lifestyle choices, often fail.

In his applied work, Thaler demonstrated how ‘nudging’ may help people exercise better self-control when saving for a pension, as well in other contexts.