When Prof. Richard Thaler, behavioral science and economics, University of Chicago, first stepped onto Cornell’s campus to take on a professorship at the Graduate School of Management, he was already working on material that won him a Nobel prize on Monday.
Thaler took home the prize in what was apparently an overdue win for the 2017 Nobel Memorial Prize in Economics Sciences, The New Yorker said. Thaler turned economists’ attention to human behavior in a discipline perhaps better known for its emphasis not on humanity, but on the numbers.
“In order to do good economics, you have to keep in mind that people are human,” Thaler told The New York Times after his victory was announced.
Thaler’s genius comes from questioning a simple but precarious assumption: that human behavior is inherently rational. Thaler, who has been a long time partner of Princeton psychologist Daniel Kahneman — also a Nobel Prize winner — questioned this assumption, arguing that people behave in predictably irrational ways, The Times reported.
For example, Thaler argued for making participation in retirement plans or school lunches the default, according to the report. As people are far less likely to act than to stay with the status quo, more people would benefit if the status quo were the more wholly beneficial option.
Thaler’s field is far from typical in economics. His field of behavioral economics, drifting outside the mainstream, made him a less likely recipient of the Royal Swedish Academy of Science’s greatest academic honor.
“Everybody knew that he was bright, that he was brilliant,” Kahneman said in an interview with The New Yorker. “But he wasn’t doing what they considered to be economic research. He wasn’t doing anything mathematical. His story is the success story of behavioral economics.”
Thaler’s 1980 paper “Toward a Positive Theory of Consumer Choice” was one of the first instances of his publicly proposing his theory, according to The New Yorker. By the time he found his way to Ithaca, he was maintaining his connection with Kahneman, publishing papers on topics such as loss aversion and the “winner’s curse” paradox.
One of Thaler’s greatest contributions globally is his “nudge” concept, summing up the theory that offering slight adjustments to behavior can have dramatic effects, The Guardian reported, crediting his discoveries for Britain’s decision to make organ donations an “opt out” policy. The U.S. Department of Health, too, has adopted such principles to deter smoking.
Though it would be a stretch for Cornell to claim Thaler as its own, he has further ties to upstate New York beyond the Ithaca campus. Thaler earned his Ph.D. in 1974 from the University of Rochester, according to the Wall Street Journal. But by 1995, he was on his way to the University of Chicago — and on his way to causing major waves in economic and behavioral research.
Though it has been a while since Thaler has had any presence on the Cornell campus, Cornell students may best recognize him from his brief cameo in The Big Short, where he appeared alongside Selena Gomez to explain the hot hand fallacy, or the false belief that when one wins one round, they are more likely to win the next.
A New Jersey native, Thaler was hailed as a “pioneer” by the Nobel committee for his work in making “economics more human,” The Guardian reported.
“The most important lesson is that economic agents are humans and that economic models have to incorporate that,” Thaler said to PBS.