Nobel goes to Richard Thaler, who made economics human again

WASHINGTON (AP) — People make poor economic choices. They don't save enough for retirement. They refuse to cut their losses on plummeting investments. They buy houses and stocks when prices are high, thinking that what's going up today will keep going up tomorrow.

Richard Thaler of the University of Chicago today won the 2017 Nobel prize in economics for documenting the way people fail to conform to models that assume they always act in their own self-interest.

As one of the founders of behavioral economics, Thaler, 72, has helped change the way economists look at the world.

"Thrilling news," said Thaler's frequent collaborator, Cass Sunstein of Harvard Law School. "He changed economics, and he changed the world."

Far from being the rational decision-makers described in economic theory, Thaler found, people often make decisions that run counter to their best interests. And their actions carry far-reaching economic consequences: Baby boomers failed to save enough for old age. Americans kept buying homes as prices soared above levels that made any economic sense in the mid-2000s, creating a bubble that led to a devastating financial crisis and recession.

To contain the damage from such collective actions, behavioral economists say, policymakers must recognize human irrationality.

"I try to teach people to make fewer mistakes," Thaler said in an interview with The Associated Press. "But in designing economic policies, we need to take full account of the fact that people are busy, they're absent-minded, they're lazy and that we should try to make things as easy for them as possible."

Thaler's work is grounded in day-to-day reality and is connected to popular culture in a way that isn't always true of Nobel-winning economists.

"He's made economics more human," said Peter Gardenfors, a member of the prize committee.