Richard Thaler wins 2017 Nobel prize in economics – as it happened

Last modified: 01: 05 PM GMT+0

Professor of behavioural sciences and economics at University of Chicago given annual economics award

Summary: the last Nobel prize of the year

So we’ve had the Nobel prizes for this year, with the economics award the last on the agenda.

It’s gone to US economist Richard Thaler for his work on behavioural economics. He plans to spend the prize money “irrationally”, he told the awards committee.

Here is our news story on the award:

And here is an explanation of his speciality, behavioural economics:

Behavioural economics incorporates the study of psychology into the analysis of decision-making behind an economic outcome – such as the factors leading up to a consumer buying one product instead of another.

Unlike the field of classical economics – whereby decision-making is entirely based on cold-headed logic – behavioural economics allows for irrational behaviours and attempts to understand why this might be the case. The concept can be applied in miniature to individual situations, or more broadly to encompass the wider actions of a society or trends in financial markets.

Brexit is one example of how behavioural economics can be useful. As a pioneer of the subject, Thaler has suggested the theory can help explain how the narrow vote to leave the European Union was influenced by gut choices, as opposed to rational decision-making

The theory is particularly useful for companies and marketeers looking to boost sales by encouraging changes in behaviour by consumers. It can also be used for the purposes of setting public policy.

Thaler is particularly well-known for his work on “nudge theory,” a term that he coined to help explain how small interventions can encourage individuals to make different decisions. Nudges can, however, be manipulative to the detriment of individuals.

On that note, we’re closing for the day. Thanks for all your comments, and we’ll be back tomorrow.

Thaler will be giving a news conference in Chicago later, and here are the details:

Watch the live broadcast of the news conference with #NobelPrize winner Prof. Richard Thaler at 11 a.m. CDT:

— UChicago (@UChicago) October 9, 2017

Here’s Michael Lewis, author of the book The Big Short which was subsequently made into the film in which Richard Thaler appeared, on the new Nobel prize winner, from 2015.

And here is Thaler and Selena Gomez in that very film:

Richard Thaler father of behavioural economics and Selena Gomez in the Big Short


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Just over a year ago Thaler and fellow Nobel prize winning economist Eugene Fama took part in an interesting debate about whether markets were efficient or irrational.

He also commented on Theresa May’s speech - not the parts that received the most commentary - but on her organ donor plans, in response to another tweet:

Theresa May presumed consent for organ donation’s policy was borrowed from the book “Nudge” credit to @R_Thaler & Libertarian Paternalism

— Younes El-Ghazi (@youneselghazi) October 4, 2017

No! We prefer the current model of "prompted choice" which was adopted by the Cameron government.

— Richard H Thaler (@R_Thaler) October 4, 2017


He just won the Nobel Prize. His last 3 tweets are about Expedia's online interface, the Cubs & helping others. Congrats, #richardthaler

— David Beard (@dabeard) October 9, 2017

Thaler has criticised the Brexit vote as a prime example of irrational behaviour.

He told Business Insider just ahead of the UK referendum vote:

Most voters aren’t really thinking about it in a very analytical way… The people behind the leave campaign are voting with their guts. There’s no spreadsheet. This is much like a divorce without a prenup.

You’re voting to leave, and we’ll take care of all the financial details later.

Congratulations to Richard Thaler, winner of the 2017 prize in Economics! #NobelPrize @UChicago @ChicagoBooth

— National Science Fdn (@NSF) October 9, 2017

Thaler was apparently slow to wake up when the committee called him with the news of his award, but was unsurprisingly pleased with the news.

His biography on the University of Chicago website lists one of his interests as “fine wine” which will no doubt be part of a celebration later.

His personal website is here but so far, no mention of the Nobel prize.

Here is one of the committee members talking about Thaler, and explaining what behavioural economics is:

"He's made economics more human" - Peter Gärdenfors on Richard Thaler, just awarded the Prize in Economic Sciences.

— The Nobel Prize (@NobelPrize) October 9, 2017


Here’s our story on Thaler’s award:

The 2017 Nobel prize in economics has been awarded to the US academic Richard Thaler of the University of Chicago for his contribution to behavioural economics.

The prize, worth 9m Swedish kroner (£845,000), is not among the Nobel Foundation’s official awards for literature, peace, medicine, physics and chemistry, but was established separately by Sweden’s central bank, Sveriges Riksbank, in memory of the Swedish chemist Alfred Nobel.

The Royal Swedish Academy of Sciences described Thaler as a pioneer of behavioural economics, which had progressed in recent years from a fringe and somewhat controversial field of research into a mainstream component of the economics profession.

His research was praised for incorporating psychological assumptions into analyses of economic decision-making. The prize-givers said his work had shown how the limitations of an individual’s knowledge in the decision-making process, as well as the consequences of social preferences and a lack of self control, can affect people’s decisions as well as market outcomes.

Thaler, born in New Jersey in 1945, is a career academic and a Charles R Walgreen distinguished service professor of behavioural science and economics, and the director of the Center for Decision Research at the University of Chicago’s Booth School of Business. He made a cameo appearance in the 2015 film The Big Short, sitting beside Selina Gomez at a blackjack table.

He is a leading proponent of “nudge theory”, a concept of behavioural science that suggests small interventions in the environment, or incentives, can encourage people to make different decisions.

The full report is here:

Here is the citation on Thaler’s research on self-control:

In the twelfth song of the Odyssey, Circe warns Odysseus about the Sirens, who lure sailors with their enchanting singing. Odysseus who, like his crew, wanted to return home to Ithaca, solves the problem by plugging the crew’s ears with beeswax and then tying himself to the mast, with strict orders to the crew to ignore whatever he says until they are out of harm’s way. Odysseus’ problem is the epitome of this dilemma at all levels of our life, when we are tested by short-term temptations that threaten long-term wellbeing. This could be food and drink, smoking, consumption, saving for distant goals, or post-retirement planning. A person who chooses a longer education has a lower income during their studies, but can in return look forward to benefits in the future.

Experiences that are close in time take up more of our awareness than those that are further off; a thousand krona next year is perceived as worth less than a thousand krona today, regardless of whether it is an income or an expense. In traditional economic theory this is described using discounting – the assumption is that both income and expenses reduce by a constant factor with every passing month or year. Using such an assumption, the ranking of two future alternatives will always remain the same.

However, as Odysseus’ dilemma demonstrates, it is possible to change your mind when choosing between two options. The explanation is that experiences that are close in time take up more of our awareness – we discount more rapidly early on.

(It almost goes without saying of course, that Thaler was not one of the favourites to win the economics prize).

And here is an interview with the Financial Times (£) from last year.

Here’s a piece from 2008 by Aditya Chakrabortty on Thaler, including how he was being wooed by the UK conservative party:

Here’s more from the citation on Thaler’s research on fairness, complete with umbrella anecdote:

When making decisions, people not only take what is beneficial to themselves into account. They also have ideas about what is fair, and they can consider other’s welfare in both a positive way – through cooperation or solidarity – and a negative way – such as through jealousy or malice. Large-scale experiments conducted by Richard Thaler and other behavioural economists, have shown that notions about fairness play a major role in decision-making. People are prepared to refrain from material benefits to maintain what they perceive as just distributions. They are also prepared to bear a personal cost for punishing others who violate basic fairness rules, not only when they themselves are affected but also when they see someone else affected by injustice.

One frequent objection is that results from laboratory experiments cannot be transferred to real life, but it is easy to find examples where fairness considerations have an impact outside the laboratory. Unexpected rain can create an unexpectedly high demand for umbrellas, but if a shopkeeper then raises their price to match the high demand, many consumers react negatively and feel that the shopkeeper has behaved greedily.

And here is Thaler in the Big Short, with Selena Gomez:

Noblista Richard Thaler wystąpił w jednej ze scen filmu The Big Short. Razem z Seleną Gomez tłumaczył czym są syntetyczne CDO @TOKFM_NEWS

— Magda Paciorek (@PaciorekMagda) October 9, 2017

One of Thaler’s theories is about “mental accounting”. The citation describes this as using different reference points to help make decisions, which vary from situation to situation: “One reference point could be the price for which we bought an item, or the lowest price we find when searching on the internet, and we use this reference point to assess whether we have made a “good deal”. In his research, Thaler has provided numerous examples of how mental accounting using differing reference points may lead to decisions that appear strange when evaluated from a traditional economic perspective.”

An example:

“A consumer who finds out that the watch she is about to buy is 100 Swedish krona cheaper in another shop. She chooses to go to the other shop if the watch costs 1,000 krona but won’t do so if it costs 10,000 krona even though the saving in krona is the same. The explanation is that she focuses on the percentage, rather than on the actual saving relative to the reference point.”

More on Thaler’s research is here.

The citation defines behavioural economics as “a research field in which insights from psychological research are applied to economic decision-making. A behavioural perspective incorporates more realistic analysis of how people think and behave when making economic decisions, providing new opportunities for designing measures and institutions that increase societal benefit.”

The committee is asked about the lack of women winners of the Nobel prizes, and the panel says they are concerned and they are taking measures to improve the situation. They think things will improve and hope it will be different in five to ten years time.

Thaler is asked about the Chinese economy, but says he is not really an expert on that. And he is now gone.


Thaler on Hollywood and spending his prize money "irrationally"

He is asked about his “short Hollywood career” - he was in The Big Short - saying someone successful in something is assumed to be successful going forward, and how that could apply to Donald Trump.

Thaler says he is disappointed his Hollywood career was not part of the official speech giving him the award. As for Trump, he says “he would do well to watch that movie.”

Asked how he will spend the prize money, Thaler says he will try to spend it “as irrationally as possible.”


Thaler is on the phone to the press conference now.

He is asked what the most important aspect of his research is.

He says it is the recognition that economic agents are human, and that economic models have to incorporate that.

Richard Thaler
Richard Thaler Photograph: Richard Saker/The Observer

The citation says Thaler has incorporated psychologically realistic assumptions into analyses of economic decision-making. He has shown how the following three traits affect individual decision-making, as well as market outcomes:

Limited rationality: 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. He also showed how aversion to losses can explain why people value the same item more highly when they own it than when they don’t, a phenomenon called the endowment effect. Thaler was one of the founders of the field of behavioural finance, which studies how cognitive limitations influence financial markets.

Social preferences: Thaler’s theoretical and experimental research on fairness has been influential. He showed how consumers’ fairness concerns may stop firms from raising prices in periods of high demand, but not in times of rising costs. Thaler and his colleagues devised the dictator game, an experimental tool that has been used in numerous studies to measure attitudes to fairness in different groups of people around the world.

Lack of self-control: Thaler has also shed new light on the old observation that New Year’s resolutions can be hard to keep. He 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 shortterm 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 – a term he coined – may help people exercise better self-control when saving for a pension, as well in other contexts.

The committee said: “Richard Thaler’s contributions have built a bridge between the economic and psychological analyses of individual decision-making.”


This year’s prize is awarded to RIchard H Thaler for his contributions to behavourial economics.


And we’re off.

With just a few minutes to go, here is a live link to the announcement of the Nobel Prize in Economics, which is also at the top of this blog:


#Turkey's lira is now the second-worst emerging currency this year. $TRY

— jeroen blokland (@jsblokland) October 9, 2017

Turkish lira under pressure

Rising tensions with the US have hit the Turkish lira, which tumbled around 6% at one point before recovering some ground.

The US has suspended handling all regular visa applications in Turkey after a member of its embassy staff was arrested, prompting a heavy fall in the Turkish currency.

The lira is currently down 2.5% at 3.7 per dollar, having touched 3.9 overnight. Hussein Sayed, chief market strategist at FXTM, said:

The Turkish Lira was the worst performing currency early Monday, after the U.S. and Turkey announced the suspension of visa services for citizens looking to visit each country. Traders responded aggressively to the news, sending the Lira more than 6% lower against the U.S. currency - its steepest decline since 15 July 2016, when Turkey witnessed the bloodiest coup attempt in its political history.

However, the Lira managed to recover more than half of its losses, as investors viewed the recent tensions as controllable. With Turkey increasing political ties with Russia and Iran, and Washington continuing to support Kurdish groups, the political risk premium is likely to keep pressuring the Lira. However, it would require far more escalation to see the currency trading near January lows of 3.94.

Meanwhile the main Turkish stock market index, the BIST 100, has fallen 3.5%.

And here’s something on the only woman to win the Economics prize:

#NobelFacts In 2009, the 1ST woman was awarded the Prize in Economic Sciences - Elinor Ostrom!

— The Nobel Prize (@NobelPrize) October 9, 2017

Here are some facts and figures about the Nobel Prize in economics:


It’s striking that only one woman has won the prize since it was first awarded in 1969. And if this year’s winner is indeed one of the favourites, it will remain that way.

Back with the pound, and the currency is shrugging off the latest Brexit worries and political problems. Connor Campbell, financial analyst at Spreadex, said:

Sterling is using Monday’s bone dry economic calendar as an opportunity to claw back some of last week’s rather severe losses.

One could argue that such a data-less day would only throw a harsher spotlight on the latest round of Tory turmoil. Predictably the weekend’s papers were full of reports of party infighting, with one group urging Theresa May to say goodbye to Boris Johnson, and another, more Brexity cabal attacking the pro-EU Chancellor Phillip Hammond.

However, sterling seems to have steeled itself somewhat over the weekend, calming the value-eroding jitters that plagued last Thursday and Friday. Perhaps the fact that nothing more dramatic happened – no resignations or comments from Johnson etc – has eased some of the currency’s fears.

Regardless, it is making a decent fist of taking the edge off its recent losses; cable’s up 0.4%, pushing the pound back above $1.31, while its half a percent rise against the euro sees it just under €1.12. Of course, in the context the last few weeks, sterling is still struggling; the fact it has (so far) started the week on the right foot, however, is an important step on its potential road to recovery.

Understandably, given its recent reliance on a weakened pound, the FTSE wasn’t too enthused about the currency’s comeback, though it did manage to hold above 7500 after the bell. The Eurozone indices were far perkier; the DAX hit a new high after climbing 0.3%, and is inches away from crossing 13000, while the CAC surged 0.5% to graze 5375.

It's fake Nobel prize day everybody!

— Yiannis Βaboulias (@YiannisBab) October 9, 2017

Millennium and Copthorne jumps 23%

One notable mover in the markets in hotels group Millennium and Coptthorne.

Its shares have soared 23% to 554p on news that Singapore’s City Developments has offered to buy the shares in the group it does not already own. The move values M&C at around £1.8bn.

Given City Developments already indirectly owns 65.2%, a bid for the rest should not have come as too much of a surprise to the market, but still, the offer at 552.5p a share looks generous enough.

The Millennium Biltmore Hotel in Los Angeles
The Millennium Biltmore Hotel in Los Angeles Photograph: Emily Berl/The Guardian


FTSE dips but Dax hits new peak

European markets have got off to a mixed start.

The FTSE 100 is down 0.06%, not helped by the slight strengthening of the pound which is not helpful to the overseas earners which dominate the index.

But Germany’s Dax has added 0.2% and ouched a new all time high while France’s Cac has edged up 0.1%. Spain’s Ibex is up 0.6% despite the continuing concerns about Catalan independence.

Earlier German industrial output beat expectations, rising 2.6% in August compared to a 0.1% fall in July and forecasts of a 0.7% increase.


But here’s a cynical reminder about predictions about the winners:

Predictions of who will win economics Nobel are about as reliable as economists' prediction of what will happen to the economy..

— Stanley Pignal (@spignal) October 7, 2017

Indeed last year’s winners, Oliver Hart of Harvard, and Bengt Holmström of MIT, were not top of the lists of likely recipients.

My colleague Richard Partington has been looking at the runners and riders, who include the former governor of the Reserve Bank of India and a string of US academics. His full report is here:

The Agenda: Annual economics prize in focus

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone crisis and business.

We’ll mainly be concentrating on the annual Nobel prize in economics, due to be announced in a few hours in Stockholm.

And first things first. It comes up every year, but just to be clear, the economics prize is not one of the ‘proper’ Nobel prizes like the literature and peace awards handed out last week.

Officially it is known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. It was set up by the Sveriges Riksbank (Sweden’s central bank) in 1968 and is awarded by the Royal Swedish Academy of Sciences on the same principles as the Nobel prize.

But it’s still the biggest prize in economics, worth 9m Swedish kronor (£848,091) and awarded in the past to illustrious names such as John Hicks, Jan Tinbergen, John Nash, and Joseph Stiglitz, 78 in all since it was established.

Last year it was won by UK-born Oliver Hart of Harvard University and Bengt Holmström of the Massachusetts Institute of Technology for their work on contract theory, covering a range of issues from executive pay to public-private partnerships.

It comes at a time when economists, and experts in general, have been coming under increasing pressure with the rise in populism and the dismissal by some of their worth (step forward Michael Gove for one).

But with the global economy still suffering the effects of the financial crisis and the likes of Wolfgang Schaeuble warning of the prospect of another bubble, there is still a need for expert economic analysis. And we’ll soon see who is deemed to be top of the field at the moment.

The announcement is due around 11.45am in Sweden, or 10.45am in the UK....

Otherwise it’s a fairly quiet start to the week. The pound is edging higher against the dollar after last week’s declines, while stock markets are expected to be rather subdued to start with:

Our European opening calls:$FTSE 7515 -0.10%
$DAX 12976 +0.16%
$CAC 5374 +0.27%$IBEX 10182 -0.04%$MIB 22451 +0.26%

— IGSquawk (@IGSquawk) October 9, 2017


Nick Fletcher

The GuardianTramp

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