Published: 2017-10-09 16:03:33 BdST
Influential in the field of behavioural economics, his research showed how traits such as lack of self-control and fear of losing what you already have prompt decisions that may not have the best outcome in the longer term.
"I think the most important impact (of my research) is the recognition that economic agents are human and economic models have to incorporate that," Thaler, a professor at the University of Chicago Booth School of Business, said in call broadcast at the Nobel news conference.
Awarding the 9 million Swedish crown ($1.1 million) prize, the Royal Swedish Academy of Sciences said: "Richard Thaler's contributions have built a bridge between the economic and psychological analyses of individual decision-making."
"His empirical findings and theoretical insights have been instrumental in creating the new and rapidly expanding field of behavioural economics, which has had a profound impact on many areas of economic research and policy."
Thaler brought to prominence the idea of "nudge" economics, where individuals are subtly guided toward beneficial behaviours without heavy-handed compulsion, the theme of a 2008 book he co-wrote which caught the eye of policymakers around the world.
In researching how self-control - or the lack of it - Thaler touched on an age-old problem: why New Year's resolutions to change aspects of your life are notoriously hard to keep.
The issue has relevance for economics as individuals' tendency to fall prey to temptation often negatively affects plans to, for instance, save for retirement.
Together with Professor Cass Sunstein, he argued that society - while maintaining freedom of choice - should actively try to guide individuals in the right direction.
Their book, titled 'Nudge: Improving Decisions about Health, Wealth, and Happiness' became popular with some western politicians seeking ways to encourage their citizens to save and live healthily, without incurring voters' wrath for raising taxes or banning behaviour outright.
"This has also been used in public pension systems in the United States and the general idea of 'nudging' ... has made a breakthrough in public policy making," Torsten Persson, economics prize committee member, told Reuters.
"There's also a nudging unit for the UK government, there's one for the Australian government, it even affects the Swedish government when they think about these things."'
David Laibson, chair of Harvard University’s economics department, said many of Thaler's theories have been widely applied by business and government, aiming to get individuals to do a range of actions such as paying parking tickets and getting flu shots.
"If you live in a developed country, there's some firm or entity that has read these ideas and started to affect your life," Laibson said.
Influential in academic circles, the movie-going public may have noticed Thaler make a brief cameo in the 2015 film "The Big Short", explaining the so-called "hot-hand fallacy" where past success is expected to also warrant success in the future, with pop star Selena Gomez.
Asked how he would spend his prize money, Thaler said:
"I will spend it as irrationally as possible."
Many Americans, no women
The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel's 1895 will.
Economy is the last of this year's Nobels, with prizes for physiology or medicine, physics, chemistry, literature and peace awarded last week.
The United States has dominated the economics prize, with American economists accounting for roughly half of laureates since the inception of the award. Indeed, between 2000 and 2013, US academics won or shared the prize every year.
While Americans have dominated the Nobel science and economics prizes, another category of researchers -- women -- have been few and far between. Indeed only one woman -- Elinor Ostrom in 2009 -- has won the economics prize to date, and not a single individual woman won any Nobel award in 2017.
"We are disappointed looking in a larger perspective that there aren’t more women who have been rewarded," the Academy's secretary general Goran Hansson said.
He said the Academy would hold a conference to discuss the issue and nominators will be asked to identify women scientists for recognition and also consider ethnic and geographic diversity.
"We are concerned, we are taking measures. I hope that in five years, ten years, we will see a very different distribution," Hansson said.