BEIJING, Oct. 10 (Xinhua) -- When asked how he would spend the 9-million kronor ($1.1 million) that comes with his 2017 Nobel prize in economics, U.S. behavioral economist Richard Thaler's reply was telling.
"I will try to spend it as irrationally as possible," he said, echoing his theory that won him the award -- that human beings, far from being the rational decision-makers they are thought to be in conservative economic theory, actually often make decisions that do not serve their best interests.
Two years before hitting the headlines for the Nobel, Thaler did another irrational thing for an academic. He made a cameo appearance in the 2015 Hollywood film "The Big Short" with pop star Selena Gomez.
In the comedy-drama about the credit and housing bubble collapse that led to the 2008 global financial crisis, Thaler reiterates his theory that humans often act in irrational ways.
For instance, he said people kept buying houses in the United States in the 1950s even as prices soared, thinking what was going up today would keep going up tomorrow. Thus they created a bubble that burst and triggered the biggest economic downturn since the 1930s.
Illogical human behavior has economic consequences. To limit damage, economic policy needs to take human foibles into account.
As Swedish Academy of Sciences Secretary Goran Hansson Monday announced Thaler had won the prize for "understanding the psychology of economics," Peter Gardenfors, a member of the prize committee, put his finger on the pulse, saying Thaler has made "economics more human."
The 72-year-old Thaler doesn't only teach behavioral economics in his class, he also implements it there. He expanded the full exam score to 137 from the conventional 100, which meant the pass score also went up to 80. One effect of this was to make students who obtained only the passmark happier though their grade remained the same it would have been in the conventional way, a C.
The combination of psychology and economics in his class shows his tenet that people, the subject of economic activities and decision-making, are affected by various psychological effects. They make mistakes due to irrationality but through some nudging in the right direction, they could be helped to make better decisions. This is the crux of his books "Misbehaving: The Making of Behavioral Economics" and "Nudge: Improving Decisions About Health, Wealth and Happiness".
Critics have said about his books that Thaler brings back analysis on human beings' economy and decision-making to a real but hard ground.
Robert J. Shiller, co-winner of the Nobel economics award in 2013, who predicted the 2008 financial crisis almost one year before the collapse of the financial services firm Lehman Brothers, said Thaler "has been at the center of the most important revolution to happen in economics in the last 30 years."
With his long-time observations and research, Thaler and behavioral economics, once marginalized, strut back into the mainstream, acknowledged as making economic analysis more human and more valuable.
The economics prize is unique among the Nobel awards in that it was created by the Bank of Sweden in the memory of Swedish inventor and philanthropist Alfred Nobel whereas all the other Nobel prizes were established through the will Nobel left in 1895.
