Richard H. Thaler’s contributions to behavioural economics (The 2017 Nobel Memorial Prize in Economic Sciences)

Abstract

The article provides evidence on how Richard H. Thaler has contributed to the development of behavioural economics. Particular attention is paid to the practical significance of Thaler’s research papers that suggest incorporating psychologically realistic assumptions into analysis of economic decision-making. The article is specifically concerned with the growing importance of determining a range of drivers which actually rather than theoretically influence decisions in conditions of uncertainty. The study reveals in what ways limited rationality, social preferences and lack of self-control systemically affect making individual decisions, and how they influence market condition.

The author considers the concept of mental accounting, which helps to explain how people simplify the process of making financial decisions by creating separate accounts in their minds and thus focusing on the narrow impact of each individual decision rather than on its overall effect. This article also shows how aversion to losses can explain why people value the same item more highly when they own it than when they don’t. The idea of ‘libertarian paternalism’, which aims to ensure optimal choice among multiple options, is interpreted.

Special attention is drawn to the fact that Richard H. Thaler has built a bridge between economic and psychological analysis of making some decisions. His empirical outcomes and theoretical conclusions play an important role in taking behavioural economics from the fringe to the academic mainstream, and have a substantial impact on research in economic and political fields.