4 Lessons we can learn from Richard H. Thaler
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Richard H. Thaler is an American economist who won Nobel Prize for Economy in 2017, thanks to his contribution to behavioral finance.
What is the connection between economy and behavior?
Thaler, in his work, studied the correlation between our bent to speculate about a possible realistic scenario and the economic consequences. The economist thinks specific psychological features lead us to come to certain economic decisions. For example, our social preferences or our difficulty in controlling ourselves influence the market.
What can we learn from Thaler?
He developed a theory in which he declares people are disposed to rationalize financial decision, that is to say they tend to simplify a way of thinking without considering possible long term consequences.
He believes our hostility to the loss of a necessity influences the perception of it: if we own a necessity we will consider it more important than other ones.
Thaler also studied the perception of honesty between a seller and a buyer. If sellers maintain a fixed price, even if demand has increased, buyers will consider them as honest.
He developed also the “nudge” theory. He analyzed human behavior related to long term or short term commitment. The nudge should lightly push someone to correct a behavior without literally force him to do so. It should be imperceptible.
Milan, 26th November 2017