The latest Nobel Prize for Economics was awarded to the University of Chicago’s Richard Thaler. He’s known as a leading thinker in behavioral economics, or how people really make decisions instead of assuming everyone is rational and seeks to maximize economic benefits. One good summary of his work is here, and another is here.
Thaler’s research is even changing football. His paper with Cade Massey, Overconfidence vs. Market Efficiency in the National Football League looked at “right to choose decisions” in the player draft. On the one hand, millions of dollars are made and lost on these decisions and they are being made repeatedly by professionals; thus, the case for rational decisions would seem to be strong. But on other hand, people are overconfident, they tend to make extreme forecasts, there is a winner’s curse, there is a false consensus effect (you think that everyone likes what you like), and there is present bias. These biases all suggest that decisions might be made poorly, even given the big stakes. Massey and Thaler find that it’s the latter.