Richard Thaler won the Nobel Prize for his work in ‘understanding the psychology of economics’ © REX/Shutterstock

Richard Thaler has been awarded the Nobel Prize for Economics for his work on incorporating insights from psychology into economic theory and policymaking.

The award, which is officially known as the Sveriges Riksbank Prize in memory of Alfred Nobel, was awarded to Prof Thaler for his “contribution to behavioural economics”, the prize committee said.

The US economist is currently professor of behavioural science and economics at the University of Chicago. He is the 79th recipient of the Nobel, which was announced by the Royal Swedish Academy of Sciences in Stockholm on Monday morning. He will receive a prize of 9m Swedish krona ($1.1m).

Economists have traditionally assumed that individuals behave rationally, making decisions on the basis of all the information readily available to them. But Prof Thaler’s work has incorporated insights from psychology to help explain why people actually behave in ways that are not fully rational — for example, struggling to save for retirement and placing a higher value on items or money they already have than on those they might buy or win.

After the prize was announced, Prof Thaler, who is a keen golfer, said he would try to spend the money “as irrationally as possible”.

The insights from his work were summarised in the global bestseller Nudge, which was co-authored with Cass Sunstein, a professor at Harvard. Prof Sunstein quipped on Twitter that the decision to award the prize to Prof Thaler was “an unboundedly rational choice for the Nobel”.

The prize committee said Prof Thaler’s work had inspired many other researchers and transformed the field of behavioural economics, which his work spawned, from being “a fringe and controversial” field to a “mainstream area”.

Tyler Cowan, who is professor of economics at George Mason University, said it was “a well-deserved prize and one that is easy to explain”. He added that Prof Thaler’s work was more wide-ranging than many people appreciated: “He has done plenty and had a truly far-ranging impact, not just in one or two narrow fields.”

Prof Thaler’s work has shown how nudging people can help them exercise greater self-control. These conclusions have been influential in shaping economic policies in recent years.

He served as an adviser to the behavioural insights team, which advised the UK government on incorporating ideas from behavioural economics into policy design. He has also advised the Swedish government on improving the design of their pension system.

Betsey Stevenson, associate professor of public policy and economics at the University of Michigan who served on Barack Obama’s council of economic advisers, said: “Today’s economics students learn about a more recognisable world that incorporates people’s cognitive limitations, difficulties [with] self-control, & social preferences due to [Prof Thaler’s] groundbreaking work.”

Prof Thaler made a cameo appearance in the 2015 film The Big Short, in which he appeared alongside Selena Gomez to explain how synthetic collateralised debt obligations proliferated in the run-up to the financial crisis of 2007-2008.

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