On Monday the University of Chicago’s Richard Thaler won a Nobel Prize for his work in behavioral economics. “Thaler’s work raises important questions about the state’s influence over human action,” says Victor V. Claar in this week’s Acton Commentary.
In some years two or three economists share the prize for their collective contributions to a specific line of inquiry, but this year the 72-year-old Thaler was the sole recipient for his accumulated accomplishments in behavioral economics. Put simply, behavioral economics is the application of insights from other social sciences, such as psychology, to the decision-making that economic agents like you and me face every day. Consider the pesky problem of time-inconsistent behavior. Tomorrow it will be just as important for me to get up and start my day at 5:30 a.m. as it is tonight. The utility-maximizing choice regarding what time to get up shouldn’t depend on when you ask me about it. Yet, even though I set my alarm for 5:30 tomorrow, by the time 5:30 arrives I likely may not follow through on what I know to be the optimal plan—getting up at 5:30—and instead hit the snooze button once. Or twice.