Richard Thaler of the University of Chicago won the 2017 Nobel Prize in Economic Sciences for his work in behavioral economics. Even if you don’t know much about behavioral economics you get it. For those of us in marketing, behavioral economics represents the secret ingredient in the success “sauce” that wins a customer.
The Royal Swedish Academy of Sciences in Stockholm praised Thaler for work that “has incorporated psychologically realistic assumptions into analyses of economic decision-making. By exploring the consequences of limited rationality, social preferences, and lack of self-control, he has shown how these human traits systematically affect individual decisions as well as market outcomes,” in a statement.
Before behavioral economics became a major search term, the concept of influencing choice had been around for some time. This relatively new field studies the effects of psychological, social, cognitive and emotional factors on economic decision-making.
According to “An Introduction to Behavioral Economics” by Alain Samson in behavioraleconomics.com, even though the precepts of economic rationality dominated the field of economic thinking there was a shift in the late 1970s when Amos Tversky and Daniel Kahneman published a number of papers that appeared to undermine ideas about human nature held by mainstream economics. They developed the prospect theory (Kahneman & Tversky, 1979), which demonstrates that decisions are not always optimal. They posited that the way choices are framed influences our willingness to take risks or that it is context-dependent.
Thaler’s work on retirement savings was one of the primary reasons for his winning the Nobel prize. NPR reports that he was an early proponent of employers automatically enrolling their workers in 401(k) programs in preparation for retirement. He was also credited with co-authoring the “Save More Tomorrow” retirement plan that encourages people to put future salary increases toward retirement.