Richard Thaler was involved in several of the experimental studies that pointed to the pervasive presence of behavioural biases, which eventually forced the discipline to change how it models economic agents.
In the academic world, the ultimate turf war is not over coveted professional awards and positions, or even the pages of prestigious journals. It is over coverage in textbooks. As Paul Samuelson once said, “I don’t care who writes a nation’s laws – or crafts its advanced treaties – if I can write its economics textbooks.”
When I started my academic career at the University of Chicago in the late nineties, I used to teach microeconomics to undergraduates. The assigned textbook was Intermediate Microeconomics by Hal Varian, then in its fourth edition. Most of the book covered standard topics like consumer and producer behaviour, market equilibrium and departures from the perfect competition paradigm, such as monopoly and aspects of public economics. None of these topics had changed much in content or style in almost half a century. Newer areas such as game theory, information economics and auction theory had just earned their chapters. Behavioural economics had no chapter of its own at the time. A field that questioned the assumption of rational economic agents – a basic cornerstone of economics – was viewed as a bit strange, pursued by eccentrics, subversives or visionaries, depending on one’s perspective.
Richard Thaler had just joined Chicago but was appointed in the business school, and not the economics department, the ultimate centre of orthodoxy in economics. The general attitude there towards Thaler’s specialisation ranged from indulgent scepticism (yes, we need to engage with a whole range of ideas, however outlandish they may be) to downright dismissiveness (if people are not rational, markets will discipline them or they will not survive).
Fast forward 20 years. Thaler just won the Nobel Prize…