Showing posts from October, 2017

Predictable Irrationality

Professor Richard Thaler of the University of Chicago has been honored with the 2017 Nobel Memorial Prize in Economic Sciences.
For 200 years, economists have argued (and continue to argue) that humans arerational.
Economists would probably be the first to accept that the assumption is far from being perfect. The holy grail of rationality is so deeply embedded in economic theory that any alternative is looked down upon.
Professor Thaler is the proponent of behavioral economics – a branch of economics that studies human behavior without making lofty assumptions.
Professor Thaler’s basic argument is that humans are not rational.
The argument that humans are not rational by itself is not profound. The practical usefulness of the argument is that certain types of irrationality can be predicted. The predictability of certain types of irrational behavior has significant implications for everything from individual happiness to public policy.
Consider his phenomenal 1985 paper on mental accounting …