
The Prize in Economic Sciences 2017 - aq3cn
https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2017/press.html
======
KingMob
While I love the behavioral economists (esp. Kahnemann and Tversky), a _lot_
of psychologists have told economists for a _long_ time that assuming basic
rationality as a starting point was a fundamental error in the field. Taking
it as an axiom has led to all sorts of misguided efforts and wasted time.

From the article:

"That's the point: It's obvious to anyone who pays any attention at all to
himself or his fellow human beings that we are not maximizers, or optimizers,
or logical, or even all that sensible."

and

"[his professors] argued that human irrationality didn't matter, for the
purpose of economic theory, because it wasn't systematic."

~~~
pcarolan
Physicists assume things are spheres and use that to solve a bunch of
problems. It's important to know 'why' economists use this abstraction for
modeling before patently dismissing it. Economists notice that on average,
people in the aggregate tend to behave rationally sometimes. Scrutiny should
be applied to the assumptions, but it can still help explain economic systems.

~~~
titzer
In some cases, abstraction can be done without loss of accuracy. For example,
in physics we can assume that charges bounded inside a sphere can be modeled
as a point charge at the center of the sphere. It's not just a simpler model;
it's mathematically equivalent, and provably so.

~~~
ghaff
There are a _lot_ of simplifications that get used in physics and engineering
calculations. Ideal electrical circuits, ideal gasses, thin cylinder walls,
lossless collisions, etc. etc. Whether or not a given simplification is
appropriate depends on the situation (how much accuracy is needed? how close
the simplification is to reality? what's the cost of not simplifying?)

~~~
notahacker
And in some respects, the simplifications are even _more_ justified in
economics than physics. Friction between atoms doesn't tend to reduce when
people start writing papers finding interesting results contingent on friction
being significantly above zero; January increases in stock prices _do_ shrink
to the point where they don't represent a viable trading opportunity when
traders read papers by Thaler et al on lack of any informational or tax reason
for "January effects"

------
indescions_2017
Excellent pick! Applied "nudge theory," or "libertarian paternalism," is
proving to be the panacea for massive social change. From NYC's decision to
offer free lunches for all public school students. To the design of recycle
bins in Amsterdam. Simple yet intuitive communication of the optimality of
rational choosing, without penalizing too harshly our irrational tendencies.

I think the next logical extension of neuroeconomics is neuropolitics. Viewing
powerplays between Trump <\--> Kim or Netanyahu <\--> Putin through the lens
of game theory where all actors are moving optimally toward a "win" condition
provides diminishing returns. Watching leaders actions as the result of
irrational biases operating with imperfect information is proving a closer
model of reality.

~~~
steve_barton
> From NYC's decision to offer free lunches for all public school students.

Wait, what?! Why would the city spend money on subsidising the lunch of
children with parents rich enough to send them to a public school?

~~~
jk563
I've always found this stupid in the UK. Not only do we call paid for schools
Public Schools, but we simultaneously call them Private Schools. It makes no
sense!

[EDIT] wrong parent, right thread. Meant to reply to chrisseaton

~~~
chrisseaton
Only seven schools in the UK are actually 'public schools'. It's a precise
legal status. So 'private school' and 'public school' does not mean the same
thing.

Originally they were the only schools that educated members of the general
public, rather than people just from the local village or church or things
like that, so the name does make sense.

~~~
jk563
Oooo, thanks for that! Know of anything where I can read more / see the legal
definitions?

~~~
chrisseaton
[https://en.wikipedia.org/wiki/Public_Schools_Act_1868](https://en.wikipedia.org/wiki/Public_Schools_Act_1868)

------
bambax
An irrational thing Amazon knows and many, many other online sellers don't:
people don't want to pay for delivery.

That is, they'd much rather pay $20 total with free delivery, than, for
example, $15 for the goods + $3 for delivery.

It's amazing the number of non-Amazon online shops who still don't seem to
know this.

~~~
ekianjo
> $15 for the goods + $3 for delivery.

It's more simple than that: most people, me included, hate to see the price
change just before you press the ordering button, just because shipping fees
were not included. What Amazon does well is that it tells you exactly how much
you will be billed from the get go (even when you have to pay for shipping,
it's not hidden.)

~~~
puranjay
As an amateur dabbler in conversion rate optimization, it's stunning what
disclosing shipping policies upfront does to conversion rates.

I've seen cart abandonment drop by 50% or more simply by including shipping
price and policies on the pricing page.

People will spend $20 extra to hit the $50 minimum free shipping threshold
than spend $5 on shipping for a $30 order.

(Keeping low cost, high utility items in stock and available near checkout is
highly recommended. For one fashion retailer, showing a bunch of socks and
undergarments under 'recommendations' for orders below the free shipping
threshold dramatically increased conversion rate. Everyone needs extra socks.
If you've bought a $45 pair of jeans, adding a $5 pair of socks to hit the
free shipping limit is "rational" for most people)

~~~
ghaff
>I've seen cart abandonment drop by 50% or more simply by including shipping
price and policies on the pricing page.

To be fair I assume that some number of people never start shopping because
they don't like the shipping policies.

That said, people have gotten conditioned with a lot of "free" shipping or
free shipping over a certain amount. So when they hit final checkout and are
presented with what seems to be expensive shipping, they'll often almost
reflexively close the page.

>People will spend $20 extra to hit the $50 minimum free shipping threshold
than spend $5 on shipping for a $30 order.

Raises hand :-) I think the shipping charge feels like throwing money away.
Whereas adding the item feels like "Surely I can find some item I want at
effectively a 25% discount." But, yeah, most of this isn't economically
rational. It was all very eye-opening when I was first exposed to this sort of
thing 30 years ago and it's been useful in a lot of contexts.

------
nickik
Honestly, I really don't really like this pick.

Behavioral economics is extremely popular, especially outside economists
themselves. But the problem is that it keeps repeating the same findings. We
get it, people are not rational. You can read 150 year old economics books
that mention these things. There is a 'behavioral economics' movement every 40
year.

The research that I find 100x more interesting is the research that actually
looks at real world institutions and tries to figure out how it is possible
that these things work even if you assume irrational humans. Why can you get
almost anything delivered in 2 days if every single human in the chain is
highly irrational.

The Nobel in 2009 was about those sort of things, but they don't get enough
attention.

~~~
bluetwo
"Limited rationality" not "highly irrational".

The traditional economic view is people act in their own self-interest. I
would summarize this research by saying people act in their own _perceived_
self-interest. Lots of times the two align, but there are cases when they
don't, which I do find interesting and worthy of research.

~~~
nickik
Point taken.

I think the research is very valid and interesting. I just question if this is
most importent, or just a whats by far the most popular economics subject in
the mainstream.

Its a good PR move for the constent critics economics suffer from.

------
throwaway287391
I have a question about an example referenced in the Bloomberg article linked
from a previous discussion [1]. Quoting from the article:

> He began with his own students, telling them to imagine that by attending
> his lecture, they had exposed themselves to a rare fatal disease. There was
> a 1 in 1,000 chance they had caught it. There was a single dose of the
> antidote: How much would they be willing to pay for it?

> Then he asked them the same question, in a different way: How much would
> they demand to be paid to attend a lecture in which there is a 1 in 1,000
> chance of contracting a rare fatal disease, for which there was no antidote?

> The questions were practically identical, but the answers people gave to
> them were -- and are -- wildly different. People would say they would pay
> two grand for the antidote, for instance, but would need to be paid half a
> million dollars to expose themselves to the virus.

Would classical economics really predict that people would give the same
answers to these two questions? The article claims the two situations are
"practically identical" but to me they seem clearly different: it makes
perfect sense to me that many people would pay less of their money for the
antidote knowing they've been exposed vs. the amount they'd need to be paid to
voluntarily expose themselves to the risk.

As a simple example, if one only has $1000 to their name, then $1000 is the
max they could possibly pay for the antidote (assuming they can't get a loan),
yet I'd expect that most wouldn't be willing to expose themselves to that risk
just to double their money. I thought utility theory in classical economics
recognized that the marginal utility of going from $1000 to $2000 is less than
the marginal utility of going from $0 to $1000.

[1]
[https://news.ycombinator.com/item?id=15432905](https://news.ycombinator.com/item?id=15432905)

~~~
savanaly
There is the endowment effect, and then there is the effect of the diminishing
marginal value of money. You're talking about the latter and it certainly is
recognized in economics just about as far back in its history as you care to
look. But Thaler was trying to demonstrate the former and it's the sort of
insight he won the prize for theorizing about.

~~~
throwaway287391
I see, thanks for the response. I guess I just dislike the example because it
fails to untangle these two effects :)

------
stablemap
He has a few popular books that are worth reading. The recent _Misbehaving_ is
in part a memoir of his work.

[http://www.misbehavingbook.org](http://www.misbehavingbook.org)

~~~
reubensutton
I enjoyed this much more than Thinking Fast and Slow

------
option_greek
I always wondered if Satoshi was not anonymous, whether he would have been
nominated for Economic nobel. Of course, most of the ideas were pre-existing
but he did put together the final pieces. But then he could very well be
behind bars now based on how the story unfolded.

~~~
mathattack
I can't imagine him winning it. The Nobels in Economics are exclusively
academics with large bodies of peer reviewed work. The ones who have veered
towards practical projects (or hedge funds) still have long formal academic
histories. The committee [0] is 100% academics. Unless Satoshi had a strong
background of other papers in esteemed journals, he wouldn't win it. (It's not
a "pop culture" prize like Peace)

[0] [https://www.nobelprize.org/nobel_prizes/economic-
sciences/pr...](https://www.nobelprize.org/nobel_prizes/economic-
sciences/prize_awarder/committee.html)

------
baron816
Seems like a rational choice.

------
amrrs
Considering the fact that Richard Thaler made a cameo in The Big Short Movie
that was primarily demeaning Wall Street Banks and Economists who played along
in the crisis, itself makes him an Economist who stands out.
[http://www.chicagobusiness.com/article/20160226/NEWS01/16022...](http://www.chicagobusiness.com/article/20160226/NEWS01/160229871/u-of-
c-prof-in-big-short-cameo-is-a-stock-picking-star)

~~~
VHRanger
I mean that doesn't really make him stand out; most economists will agree with
the Big Short's account of the crisis.

Except perhaps the coffee shop discussion at the end where Steve Carrell
states banks did it because they expected to get bailed out (all evidence
points that they didn't expect to get bailed out a priori and that they simply
did it because shareholders and managers are greedy short sighted morons).

That said, Thaler is an excellent choice

~~~
FabHK
Well, bankers did have an incentive to make bigger bets though, because on the
upside they'd win more, and on the downside, well, who cares, the bank might
go bust or be bailed out - it doesn't really matter, the downside (for the
managers) is floored. Nobody has gone to jail, right. And then, to the extent
that their assumption was that the payment system and economy does not
collapse, it was predicated on a public bail out.

Anat Admati, Stanford econ prof, has a popular book out, _The Bankers ' New
Clothes_ that makes a case for much simpler and stricter bank regulation
(basically, force them to hold much more capital (i.e. equity)), which makes a
lot of sense to me.

~~~
VHRanger
Agreed, bank managers need to face personal consequences for reckless behavior
that has negative externalities on society.

I'm personally in favor of criminal prosecution but I don't see that
happening. Indeed I'm generally in favor of keeping banks large for returns to
scale benefits, but the political perversion of large banks may offset that
benefit

------
dang
A Michael Lewis article about Thaler was also posted:
[https://news.ycombinator.com/item?id=15432905](https://news.ycombinator.com/item?id=15432905).

Edit: also a Thaler article from 2015 at
[https://news.ycombinator.com/item?id=15433053](https://news.ycombinator.com/item?id=15433053).

------
ghaff
While his co-authored Nudge is an easy read and is probably better known, his
more recent Misbehaving gives a good account of how his career and the field
developed.

It’s really interesting stuff. I actually had a couple of grad courses with
Thaler when he was at Cornell. I still have a draft copy of one of his earlier
books in Behavioral Decision Theory somewhere.

------
jsnk
Check out this Econtalk podcast with Richard Thaler [2006]
[http://www.econtalk.org/archives/2006/11/richard_thaler_1.ht...](http://www.econtalk.org/archives/2006/11/richard_thaler_1.html)

------
sjg007
Haven’t read this but if individuals aren’t economically rational, is the
collective group? Or because we are organied in a hierarchy of decision makers
(e.g. companies) are we always irrational?

~~~
nickik
There is a lot of research that tries to figure out how things actually work
even if you assume irrational humans (or collectives).

[https://en.wikipedia.org/wiki/Institutional_economics](https://en.wikipedia.org/wiki/Institutional_economics)

You can do the same thing with business. They are also not purely rational but
the market causes those to die who are to irrational.

------
paulpauper
isn't the prize usually awarded to multiple people? lucky guy gets to keep all
the $ then

~~~
DominikPeters
25 out of 49 econ nobel prizes were awarded to one person only.
[https://www.nobelprize.org/nobel_prizes/facts/economic-
scien...](https://www.nobelprize.org/nobel_prizes/facts/economic-
sciences/index.html)

------
dominotw
from his amazon book

>By a nudge we mean anything that influences our choices. A school cafeteria
might try to nudge kids toward good diets by putting the healthiest foods at
front.

Hasn't this been tried in schools, does it actually work? Also, isn't this
common sense ?

------
peterwwillis
I don't understand why this field exists. They take observations of human
behavior that have been common sense since... well, since humans have used
money, and then try to wrap it in some sort of "scientific process" to prove
these things empirically as if they weren't already obvious. Is it because
economic theorists before had such stupid ideas and now they have to disprove
every old unrealistic theory step by step?

~~~
titzer
> They take observations of human behavior that have been common sense
> since... well, since humans have used money, and then try to wrap it in some
> sort of "scientific process" to prove these things empirically as if they
> weren't already obvious.

Welcome to Science, dude. Its bread and butter, repeatable experimentation, is
the proving ground on which common sense is either quantified or rejected.
This is how we climb out of the muck of our stupid prejudices.

------
TomorrowMars
Economic Sciences deserve to take over the whole Nobel prize. They should get
all the prizes. They have proven themselves as the ultimate woodo wizards of
"applied" scientists.

If you go to source page, you will see that the full name of the prize is "The
Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel"

Why? There is no Nobel prize for economics.

This was a self-congratulatory add-on instituted by bankers in an attempt to
add respectability to the turbulent industry of studying abstract virtual
value that is not just affected, but created by the observer. Let me repeat
myself. There is no Nobel prize for economics.

The fact that the majority of people here, and worldwide, fail to notice that,
is the only proof needed that economics is the ultimate science of them all.

And the sweet little Swedes had to bail out their bankers after the US fiasco.
At least the bankers spend some of that taxpayer money to keep the "prize"
going.

~~~
hudibras
[https://news.ycombinator.com/item?id=12678598](https://news.ycombinator.com/item?id=12678598)

[https://news.ycombinator.com/item?id=9915943](https://news.ycombinator.com/item?id=9915943)

[https://news.ycombinator.com/item?id=13702830](https://news.ycombinator.com/item?id=13702830)

[https://news.ycombinator.com/item?id=8448602](https://news.ycombinator.com/item?id=8448602)

etc...

We get it, the economics prize is not a true Nobel prize. It's tiresome to
hear it every time the prize is mentioned.

~~~
noddy1
Actually, it does need to be repeated, because economists and their opinions
and their "evidence" are being given too much credit by politicians and
laypeople.

