Richard Thaler, a leading light in the field of shedding light on how much our behaviour affects our investment outcomes, has won the 2017 Nobel Prize for Economics.
Bloomberg reported that his body of work “includes insights on the ways in which limited rationality, social preferences and a lack of self control affect decisions that shape market outcomes.”
In a 2009 interview with The Financial Times, Thales said:
“Conventional economics assumes that people are highly-rational – super-rational – and unemotional. They can calculate like a computer and have no self-control problems. They never over-eat, they never over-drink, they save for retirement, just the right amount – first by calculating how much they need to save, then by religiously putting money aside. Real people are not like that.”
Comment: I have long been a fan of Thaler and his work and the field of Behavioural Economics due to the massive influence that behavioural biases can have on investor behaviour and outcomes. When I work with clients I am aware of how some biases can throw people off the track to success and even drag them to ruin. I think that behavioural finance should be studied and understood by everyone – and especially investors – so that we can all make better long-term decisions.
One of the biggest roles an adviser can play is to know and understand how good behaviours can be encouraged and bad behaviours identified and avoided. It can make the world of difference for our clients.
Well done Richard.