5 financial lessons from the winner of the Nobel Prize Richard Thaler

In the early 1980s he published a study in which he outlined his, at first glance, a very radical idea. Most of the colleagues of the University did not take them. However, later Thaler ideas have greatly contributed to the development of modern behavioral economics, which combines elements of economics and psychology. The aim of behavioral economics - to find out why people make certain decisions.

Many studies and discoveries Thaler are huge benefits both for science and for society as a whole.

1. auction winners often lose their money

One of the most popular early worksThe Winner's Curse. Thaler called "winner's curse." Summary presented to her the idea is that the winners of auctions tend to overpay for what they buy.

winner of the curse manifests itself in two cases: when a person pays for some goods greater than its real value, or when buying something that in the end does not justify his expectations. Thaler sure that this phenomenon proves the irrational behavior of market participants.

According to him, the winner curse justified tendency of people make mistakes in an attempt to offer the right price at the auction. In addition, due to the large number of bidders people behave aggressively and compete with each other, simultaneously increasing the price of goods.

2. People exaggerate the value of personal belongings

Another conceptAnomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias. Popularized by Richard Thaler, it is called "the effect of ownership." This phenomenon lies in the fact that people strongly attached to their things and overestimates their value.

The professor conducted an experiment, which was attended by economists and students. Half of which he gave the university coffee mugs and asked everyone to assign them a price. It was found that those students who have had clubs, rated them higher than those who did not have cups.

The reason for this phenomenon may be related to fear of losingWhen people tend to overestimate the pain of losing something and underestimate the pleasure of acquiring it. In one of his worksToward a Positive Theory of Consumer Choice. Thaler argues that the phenomenon of possession effect explains why only a few require a recovery of damages for bad photos displayed.

3. Vision - it is a very useful quality

One of the main reasons why Richard Thaler, it was decided to assign the Nobel Prize - it's his jobAn Economic Theory of Self-Control. on the topic of self-control.

Each of us knows that you need to save for retirement, but relatively few people actually do it. This is because people find it difficult to combine long-term exposure to everyday needs and temptations.

To explain this phenomenon, Thaler has proposed a model called "scheduler / worker", which is widely used by psychologists and neuroscientists. His model explains for example, why people spend on cigarettes, although it understands that abandoning them would allow them to accumulate a decent amount.

This simple discovery has helped identify a way to save more money: Automate the transfer of funds to the bank account.

4. Should pay attention to the fact that the invisible influence on decision-making

Richard Thaler and Cass Sunstein his colleague (Cass Sunstein) developedThe Power of Nudges, for Good and Bad. "Nudge theory" according to which the decision to external factors, the so-called pushing. In other words, it is a way to direct a person in the right direction, that he made the right choice.

Thaler is committed to ensuring that the government realized how people make decisions. For example, he proposes to transfer workers to the automatic retirement savings system, from which it is possible to refuse at will. The goal of his research - teaching encourage people to make the best decision.

5. People overreact to bad news and underestimate the good

Not surprisingly, the Thaler ideas influenced and strategy investment. For example, if the recent investments have brought a small profit, the investor, rapidly reacting to the news, and panicking, only worsens the situation. This has a negative effect on the exchange rate. According to Thaler, many investors it is better not to receive monthly financial reports.