Richard Thaler, who was awarded the Nobel memorial prize in Economics on Monday, was born, brought up, educated and spent nearly his entire career in the United States, but he and his field of behavioral economics have a strong Israeli connection.
Among his closest associates are the Israelis Daniel Kahneman, a psychologist and fellow Nobel laureate in economics, as well as Shlomo Benartzi, a behavioral economist who teaches at UCLA. Israeli economist Amos Tversky, who died in 1996, also worked with Thaler in developing the emerging field starting in the 1970s
Thaler also has a connection with a fourth Israeli, Dan Ariely who teaches at Duke University and the person most popularly associated with behavioral economics, but in this case as a rival, say people in the field.
He is a unique person, said Kahneman, speaking from his home in the U.S. He is special because he is brilliant in every respect. He has a wonderful sense of humor, which has played an important role in his career. In the late 70s, he, Amos [Twersky] and I defined our direction. Despite the age difference, he became friends with us.
Behavioral economics, along with the related field of behavioral finance, deals with the effects of psychological, social, cognitive and emotional factors on the economic decisions made by people and institutions and how they affect prices, returns on investment and the allocation of resources.
Kahneman recalled that a critical link in the development of the field came in 1983-84 when they were together at the University of British Columbia in Vancouver and wrote what he said was several important articles together. We complemented each other, Kahneman said.
He characterizes a series of articles that Thaler was invited to write, called Anomalies, for the Journal of Economic Perspectives as a breakthrough for the field. [They] described with immense humor the anomalies if the field of economics. These articles were perfectly clear so that anyone could understand them, Kahneman said.
Benartzi conducted research with Thaler in the area of pensions and has known Thaler since 1989. He sees things that become very clear to everyone only after he has seen them. ... What is special about him is the ability to see the world differently, in such a sophisticated and ingenious way, and make things simple to understand, Benartzi said.
Kahneman and Benartzi both said unreservedly that they were glad Thaler had won the economics prize. Maya Bar-Hillel, professor emeritus of psychology at Hebrew University, who knew him when she was a student of Kahneman, said she had worried that Thaler, 72, might be skipped over for a Nobel.
Ariely, on the other hand, declined to talk about Thaler and made do with a brief statement: I think the awarding of a prize like this is very good for the field and so I am very happy.
Ariely has become the public face of behavioral economics thanks to popular books like Predictably Irrational, a role that people in the small community of behavioral economists say Thaler sees as his. Thaler says that because Ariely is a psychologist by training, he shouldnt be presenting himself as a behavioral economist. (Kahneman is also a psychologist but that apparently didnt bother Thaler.)
Behaviorial economics is more than an academic science and its insights have been employed in the real world, including in Israel where the finance minister formed a team headed by Ariely to apply behavioral economics in policy. Among other things it was used by the Environmental Protection Ministry in designing the rules for discouraging Israelis from using disposable bags by requiring they pay a small fee for them.
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