Nobel Prize in economics awarded to Richard H. Thaler of University of Chicago

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Richard H. Thaler of the University of Chicago was awarded the Nobel Prize in economics on Monday for his contributions to the field of behavioral economics.

Thaler, 72, was cited for his research in the psychology of economic decision-making.

His theory explains “how people simplify financial decision-making by creating separate accounts in their minds, focusing on the narrow impact of each individual decision rather than its overall effect,” the Royal Swedish Academy of Sciences said.

Thaler’s work is well known outside academic circles. His 2008 book “Nudge: Improving Decisions About Health, Wealth and Happiness,” which he wrote with law professor Cass Sunstein, became a popular hit.

They argued that by understanding how people make decisions, behavioral economics can be used to tackle many of society’s major problems and influence public policy. Both The Economist and the Financial Times ranked it the best book of the year.

It also influenced how governments made decisions. In 2010, the U.K. established a Behavioral Insight Team, what became known as the Nudge Unit, to create policies to nudge British citizens to make better choices that would save the state money. Thaler was an adviser.

And the Obama administration issued an executive order in 2015 titled “Using Behavioral Science Insights to Better Serve the American People.”

It encouraged executive departments and federal agencies to “identify policies, programs, and operations where applying behavioral science insights may yield substantial improvements in public welfare, program outcomes, and program cost effectiveness.”

The Royal Swedish Academy of Sciences every year awards the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Americans, especially from the University of Chicago, have dominated the award.

Thaler is the 29th winner of the economics prize associated with the school in the past 47 years. The most recent winners were Eugene Fama and Lars Peter Hansen, who shared the 2013 award with Robert Shiller. George Stigler, Milton Freidman and Paul Samuelson were among the most famous winners from Chicago.

Last year, two foreign-born American professors were awarded the prize for their contributions to contract theory — the agreements that shape business, finance and public policy.

The winners were Oliver Hart, now 69, a British born economist teaching at Harvard, and Bengt Holmström, 68, a Finnish economist teaching at MIT.

Hart’s research had found that that privatizing government functions such as schools, hospitals and prisons lead to a reduction in quality greater than the advantages of cost savings. Holmström’s research focused on employment contracts, including between CEOs and shareholders.

The 2013 award winner Shiller, known for his work on bubbles in financial and real estate markets. His name is on a closely followed measure of U.S. home prices.

And the 2008 prize went to Paul Krugman, a liberal columnist for The New York Times and a Princeton professor who won for his work on trade patterns and location of economic activity.

CNNMoney (New York) First published October 9, 2017: 5:56 AM ET

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