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Armendariz uses Nobel Prize winner’s work with his students

Barry McNamara
Carly Dunham '21 of Illinois City, Ill., and Michelle Zelnio '20 of Bettendorf, Iowa (far right), explain “The Ultimatum Game,” their version of Richard Thaler’s dictator game, during this year’s Summer Opportunity for Intellectual Activity poster session. The students conducted their research under the direction of Ramses Armendariz, assistant professor of political economy and commerce.
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MONMOUTH, Ill. – A leading contributor to behavioral economics won this year’s Nobel Prize in Economics, and at least one Monmouth College professor has explored his work in the classroom.

Richard Thaler, whose work has persuaded many economists to pay more attention to human behavior, was awarded the prize on Oct. 9.

“This recognition shows the importance of this subfield in the progress that economics has seen in the last 30 years,” said Monmouth’s Ramses Armendariz, an assistant professor of political economy and commerce.

Before behavioral economics was born, Armendariz said economists “modeled humans’ choices in a quite simplistic way, ignoring the impact of psychological, social, cognitive and emotional factors in these orders.”

“This situation changed in the ’80s, when behavioral economics introduced these factors employing theories and techniques derived from psychology and neuroscience, and now we have a broader understanding of the decision-making process,” said Armendariz.

Armendariz noted three particular contributions by Thaler that were mentioned by the Nobel committee – mental accounting, fairness and the lack of self-control.

Mental accounting explains how people simplify financial decision-making by creating separate accounts in their minds, focusing on the narrow impact of each individual decision rather than its overall effect.

Thaler and his colleagues devised “the dictator game” to help measure attitudes toward fairness, and Armendariz had his students in last summer’s research program conduct their own dictator game study.

Related to self-control, Armendariz added, “Thaler has also shed new light on the old observation that New Year's resolutions can be hard to keep.”

Thaler is the rare economist to win a measure of fame before winning the prize. He co-authored the best-selling book, Nudge, about helping people to make better decisions. Thaler also had a cameo appearance with the singer Selena Gomez in the 2015 film The Big Short, which told the story about causes of the 2008 financial crisis.