On Richard Thaler Receiving The Nobel Prize

October 12, 2017
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On Richard Thaler Receiving The Nobel Prize

This is a Sveriges Bank Prize in Economic Science in Memory of Alfred Nobel that I should approve of unequivocally, and I do approve of it. Dick Thaler has long been known to be on the list of likely recipients since at least when Daniel Kahneman shared it with Vernon Smith back in 2002, although I sort of thought the award just a few years ago for Robert Shiller would put Thaler’s off a bit. Nevertheless, I approve of behavioral economics, so I was mistaken not see another award being given for it this soon, and with Thaler clearly a deserving and top candidate for it.

Indeed, I am the founding editor-in-chief of a journal called the Review of Behavioral Economics (ROBE), and back between 2001-2010 I edited the Journal of Behavioral Economics and Organization (JEBO). One of Thaler’s most important papers back in 1980, his fourth most cited, “The Pure Theory of Consumer Choice,” in which he introduced the concept of mental accounting, the first item cited by the Nobel committee in announcing his award, and the paper that I know he long considered the one that would get him the prize (which he long expected to receive), was the second paper every published in JEBO, which should make me even more pleased. Indeed, I recognize that there is an important element of justice in his prize given that he “wandered in the wilderness” for many years, publishing in oddball journals such as JEBO in its beginning and Marketing Science and other such, until much later when his ideas became more accepted, and he finally began hitting the top journals. So, he deserves credit for struggling with ideas that were not accepted and helping to make them become accepted, such as through his column in the Journal of Economic Perspectives on “economic anomalies” from 1987-1990, with some people saying he is the first person to get a Nobel for having a column in the JEP, not entirely false that observation.

So why am I not jumping up and down as much as I probably should be and might be? Maybe for me this is like the prize for Paul Krugman, which I also think was deserved, but which I thought should have been shared with others. I think that is kind of what I am thinking, although I recognize that there is a fairly long list of people who might be the others sharing, with such figures as Camerer, Rabin, Loewenstein, Fehr, Gintis, List, and more as possibilities. It is not obvious which of these should be pushed forward to share it with him now. Indeed, if one looks at Google Scholar citations, one finds him somewhat ahead of all those, with over 110,000, while several of those have around 80,000 and none of them more than that. So, they are not far behind, but they are behind, and it is not obvious again, which of them should be pushed ahead of the others.

In this regard, this prize may resemble that for Jean Tirole. At the time many other names were pushed forward as perhaps deserving to share it with him, I shall not reproduce it But, as with this one, the list was long, and it was not obvious which of those should be pushed forward. And, curiously, Tirole’s Google Scholar citations are about as numerous as Thaler’s, and he was also clearly ahead of this other batch, many of whom were bunched together. So, maybe I should just stop second guessing this one and simply be pleased that behavioral economics is again getting recognition, and that one who long struggled “in the wilderness” with many good and original ideas has indeed received it.

Addendum, 10/10: I think I know part of what has me bothered. It is much of the poorly informed commentary about this prize, especially claims that seem to suggest that Thaler along with Kahneman and Tversky invented or “fathered” behavioral economics, a view that has been enhanced by Kahnemans’s own public comments. When Vernon Smith, “father of experimental economics,” shared the prize with Kahneman in 2002, many were worked up that Charlie Plott did not share it, but the Nobel committee made it clear the missing man was the then already dead Amos Tversky, with in effect Thaler another missing man. So, he has clearly been way up on the list. What he has done has probably succeeded both through JEP and his Nudge book and his public policy work and appearance in a movie, convinced lots of people that behavioral econ should be taken seriously. That is certainly important, but being a good publicist is not the same thing as inventing, although he has been respoinsible for many new ideas in behavioral econ.

So, in 1978, the year before Thaler met Kahneman and Tversky to supposedly “father” behavioral econ, Herbert Simon received the Nobel for discovering “bounded rationality.” He also coined the term “behavioral economics,” and given its then still unacceptability, his award was criticized by many economists, especially some at Chicago such as George Stigler. Even those at MIT did not like it and continued with their usual fully rational homo economicus models, even if they were less loud about criticizing the award to Simon, who had died by the time Kahneman and Vernon Smith got their prize in 2002. So, Simon should be viewed as the “father” of modern behavioral economics, although many earlier economists, including Keynes, but also many classicals, expressed and discussed what we now view as behavioral economics ideas. An early classic of the view, now faddishly cited by many behavioral economists (and written about at length by Vernon Smith) is the excellent Theory of Moral Sentiments by Adam Smith, which went into three editions, and which he considered to be his most important work, well ahead of his more orthodox Wealth of Nations.

Barkley Rosser

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