Updated on September 19, 2019
People are Predictably Irrational – Professor Thaler
Richard H. Thaler was awarded the Nobel Memorial Prize in Economic Sciences on Monday. Way back in 2010, while writing about Choice Architecture as it pertains to advertising, I found his best-selling book “Nudge” rather fascinating.
In a nutshell, the book is about our choices. But it’s not just about how we make them, the authors have also shown us how reasonable choice architecture can nudge us towards making better decisions. And of course, their statements are backed by decades of research in the fields of behavioral economics.
Here’s an excerpt from my post on Choice Architecture and Advertising –
“If books like Nudge by Richard H. Thaler and Prof. Cass R. Sunstein or Predictably Irrational by Dan Ariely are to believed, our mind plays quite a few tricks on us, and those tricks actually influence our day to day decisions! This piqued my interest in the subject and I realized along the way just how invaluable this field of study, known as Behavorial Economics, is for the advertising industry.”
To read more, hop on to The Business of Advertising.
Prof. Thaler also appeared in the 2015 film “The Big Short,” which in my opinion, is one of the best depictions of the 2008 housing bubble, the fiasco that led to the financial crisis.
Mainstream economics simply surmised that people behave rationally. But according to the good professor, one has to keep in mind that people are human, not flawless robots. People behave irrationally, yes, but they do so consistently. And it is this consistency that will help us foresee, and in some cases, shape behavior.
When behavioral economists say that people are predictably irrational, it’s the word predictable that will make all the difference in the world. Now you see where marketing and advertising comes in.
Sure, governments around the world have experimented with his model to drive everything from school lunch programs to retirement savings plans. But I am intrigued by the implications it has for understanding buyer behavior and buyer motive. It ties in well with my current pursuit of Web Analytics.
When Prof. Thaler was asked how he would spend his prize money of about $1.1 million, he said that he would “try to spend it as irrationally as possible.”
On that note, don’t ask me why there is a picture of fall foliage at the beginning of this post. I am discussing behavioral sciences here, a topic that has nothing to do with the four seasons of New England. Well, what can I say? In keeping with the topic at hand, I am trying my best to be irrational as well.