Feel like you don't make the best decisions when it comes to your finances? There may be Nobel Prize-winning research to help you understand why.
The 2017 Nobel Prize in economics was awarded to Richard H. Thaler recently, for his work in "understand[ing] the psychology of economics," according to the Prize committee. Thaler, an American economist at the University of Chicago, and co-author of, Nudge: Improving Decisions about Health, Wealth and Happiness, explains how we can learn about and utilize behavioral economics in order to better inform our decisions. This year, Thaler was awarded $1.1 million with the Nobel prize, for incorporating "psychologically realistic assumptions into analyses of economic decision making."
Translation: Humans aren't perfect, and it is our traits that "systematically affect individual decisions as well as market outcomes."
However, Thaler's idea of nudging--a term he created--is particularly useful for most of us because it offers an avenue for better self-control. If you're an entrepreneur or fitness buff, pay attention: Thaler says that one important reason why our plans to save, or our plans to make healthier lifestyle choices, often fail is because we succumb to short-term temptation. To save more and make better choices, we must recognize our "internal tension between long-term planning and short-term doing."
In building a "bridge between economic and psychological analyses of individual decision making," Thaler's findings and insights show us how our cognitive limitations can influence our own choices and even affect financial markets on the whole.
So don't take it from me, take it from a Nobel Prize winner: When reaching for your wallet or that candy bar, think of how your decisions will affect you in the long-term!