New Nobel Prize economist Thaler stumped by record markets

U.S. economist Richard Thaler smiles during a news conference after winning the 2017 Nobel Economics Prize
U.S. economist Richard Thaler, of the University of Chicago Booth School of Business, smiles during a news conference after winning the 2017 Nobel Economics Prize in Chicago, Illinois, U.S. October 9, 2017. REUTERS/Kamil Krzaczynski

October 10, 2017

By Ross Kerber

BOSTON (Reuters) – University of Chicago professor Richard Thaler may have won the Nobel Economics Prize on Monday for his work on behavioral economics, but the behavior of investors has him stumped.

Thaler said on Tuesday he is puzzled by the steady rise of global stock markets in recent years, even as many countries are gripped by political and social drama.

“It’s a mystery to me. That, and the unbelievably low volatility in a time of massive global uncertainty seems mysterious to me,” Thaler said in a phone interview from his Chicago apartment.

Thaler also said his field could do more to research how human psychology affects things like inflation or interest rates.

“Behavioral economists have not invested as much in macro as I would like,” he said.

Thaler spoke as U.S. stocks flirted with new record highs on Tuesday. The S&P 500 index is up roughly 14 percent for the year amid optimism about the economy and corporate profits.

Thaler’s humble tone stood in contrast to the wide acclaim he received Monday when the 72-year-old was awarded the 9 million Swedish crown ($1.1 million) prize for his work on how human nature affects supposedly rational markets.

His research showed how traits such as lack of self-control and fear of loss can prompt decisions that have bad long-term outcomes.

Thaler’s work has been applied in many areas such as auto-enrolling workers into retirement savings plans and adjusting their investments according to their age.

Thaler also has done well outside of the academic world, as part-owner of an $8 billion investment management firm in California, Fuller & Thaler Asset Management. It aims to practice financial theory such as looking for cases where other investors over-reacted and sold off too much of a stock based on bad news.

The firm often focuses on small-cap companies, with market values of $3 billion or less, because there are fewer competing investors and thus more opportunities for gains, he said.

Thaler made a short appearance in the Academy Award-winning 2015 film “The Big Short”, explaining the so-called “hot-hand fallacy” in which past success is expected to also warrant success in the future, with pop star Selena Gomez.

Thaler said he rejected an early version of the script, wanting to be sure he spoke accurately for film audiences.

“If I was going to make a fool of myself in a movie at least I’d get the economics right,” Thaler said.

(Reporting by Ross Kerber; Editing by Lisa Shumaker)

  • joe

    Chairman Ben S. Bernanke
    Op-ed column for The Washington Post
    November 5, 2010
    Aiding the Economy: What the Fed Did and Why

    “…..higher stock prices will boost consumer wealth and help increase
    confidence, which can also spur spending. Increased spending will lead
    to higher incomes and profits that, in a virtuous circle, will further
    support economic expansion.”

    For any economist to claim surprise at the elevated markets is really astounding. Market asset inflation was the plan by Central Banks all along and it was communicated by the Fed that it was their intention.
    We’re in the midst of the largest wealth transfer in history, engineered by the banks and investment houses, for the benefit of the banks and investment houses.

    A side effect of the Central Bank’s engineering of the wealth effect is that our complicit government doesn’t have to do their job of sound Fiscal Policy with the Fed’s Monetary Policy as an enabling action.

  • gospursgo

    It’s real simple. The only way to make any interest on your money is to throw it in the market and hope for the best. Putting anything in the bank and hoping for growth is futile. My money market account is paying .o2%. I saw an bank ad that said they’d pay as high as 0.4% on 100K or more. 0.4% is not high.

  • ginjit.dw

    Yeah, more research is needed…and where does that research money go? Maybe in spite of everything, people just feel good!!