Be cautious of the stock market right now.
Nobel Prize winning economist Richard H. Thaler is deeply puzzled about the low volatility (uncertainty or risk) in the current stock market and continued optimism among investors. He says, “We seem to be living in the riskiest moment in our lives and yet the stock market seems to be napping… I admit to not understanding it.”
When asked if he had anything that might help the Federal Reserve in decision making, Thaler said: “I guess I would use Sherlock Holmes’ strategy of listening to “dogs not barking.”
On Monday, Thaler recieved the 2017 Nobel Prize in Economic Sciences for his work in behavioral economics.
“Richard H. Thaler has incorporated psychologically realistic assumptions into analyses of economic decision-making. By exploring the consequences of limited rationality, social preferences, and lack of self-control, he has shown how these human traits systematically affect individual decisions as well as market outcomes…
Thaler’s contributions have built a bridge between the economic and psychological analyses of individual decision-making. His empirical findings and theoretical insights have been instrumental in creating the new and rapidly expanding field of behavioural economics, which has had a profound impact on many areas of economic research and policy.”
~ Nobel Media Press Release
The Guardian reports that when “asked what he planned to do with his… prize money, Thaler joked that he intended to spend it ‘as irrationally as possible,’ in a nod to his work showing how people’s choices on economic matters are not always rational.”
Thaler is best know for the ‘nudge’ theory, which explains how people may be subtly guided to do what is best for them with the use of prompts. The use of ‘nudge’ tactics has become popular with politicians and policymakers around the world.
Among his other accomplishments, Thaler made a cameo appearance in the 2015 film Big Short, where he explained the ‘hot hand fantasy’ to pop star Selena Gomez.
Nobel Prize for Economic Studies