Just recently, an American professor from the Unversity of Chicago whose research integrates psychology and economics won the Nobel Prize in Economics. This is a pioneering set of studies in his field and has made a mark in both fields of psychology and business. The Royal Swedish Academy of Sciences (RSAS) has granted Prof. Richard Thaler £845,000 or about US$1.11 Million for the said achievement. This academic also best known for his 2008 best-selling book,
“Nudge: Improving Decisions about Health, Wealth and Happiness”.
After the academy’s generous announcement of his win, Prof Thaler was quoted as saying that his biggest contribution to the field was the “recognition that economic agents are human and that economic models have to incorporate that.” For one, he said that the field of behavioral economics can assist in explaining why people chose to leave the EU, popularly known as the Brexit.
So what is this study all about?
Technically, this field is called behavioral economics. Roughly, Wikipedia generally describes it as the study of the effects of psychological, emotional, social and cognitive factors on the business decisions of entities and the resulting market prices, resource allocation and returns.
Prof Thaler created the theory that people making choices such as the Brexit were influenced by gut choices instead of purely rational thinking. Given this theory, marketers and organizations that are seeking to increase their reach and their revenues can definitely profit from this study. The same holds true for those in public governance, especially in making fiscal and monetary policies.
But Thaler’s study is not limited to macroeconomic decisions. He has also conducted studies on people saving so little for retirement, eating patterns of US individuals, NFL teams making poor choices of new players and even e-cigarettes and bathroom cleaners, among others.
On drivers of passenger cars…
He is also known for making a paper on the wrong habits of taxi cab drivers – making it easier to simply rent a limousine, if we may add – wherein they adopt a target income strategy and call it a day once they reach it. He says drivers, especially inexperienced ones, unknowingly make the mistake of working less on good days and more on bad days with the above strategy. This also results to fewer taxi cabs on peak days and hours and more during the non-peak times. The academic used both log sheets from taxi operators and those from the New York City Taxi and Limousine Commissioner. Finally, he proposed that drivers look at their earnings from a monthly rather than daily perspective to somehow correct the phenomenon.
This win is expected to encourage people all over the world to not just subscribe to the study but create studies themselves that will have an impact on the population at large.