The Royal Swedish Academy of Sciences has announced today that it is awarding this year’s Nobel memorial prize in economics to Richard Thaler, for his contributions to behavioural economics. This is the second time this field of study has made it to the Nobel stage, after Daniel Kahneman received the prize in 2002 for his pioneering work on prospect theory in the 1970s.
While Thaler’s academic work is mostly in the field of behavioural finance, he is perhaps best known to the wider public for his bestselling book “Nudge”. Behavioural economics is generally concerned with how unconscious traits and processes shape the decisions we make every day. “Nudging” explores how small changes in the way decisions are presented – the “choice architecture” to use the phrasing of Thaler and co-author Cass Sunstein – can bring about substantial changes in behaviour. For instance, changes in the default around organ donation or pension contribution from “opt-in” to “opt-out” can increase participation massively.
Behavioural economics is already being used by governments, regulators, firms and NGOs around the world to understand people better and to engage with them as human beings, who are influenced by emotions just as much as by conscious thought.
Frontier Economics advises clients on the use of behavioural economics, and works with public bodies, private companies and charities on applying behavioural tools and methods.
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