In the 1940s, economics started getting highly mathematical. It was basically because economists weren't smart enough to write down models of real behavior that they started writing down models of highly rational behavior - and they kind of forgot about humans.
Interpretation
Richard Thaler critiques the shift in economics towards overly mathematical models that neglect human behavior.
In this quote, Richard Thaler reflects on the evolution of economics in the 1940s, pointing out that the increasing mathematical complexity in economic models led to a disconnection from real human behavior. Thaler argues that economists, faced with the challenge of accurately representing the intricacies of human actions, opted for simplified rational models instead, resulting in a neglect of the essential factors that drive genuine human decisions.
In practice
During a lecture on the evolution of economic theory, one might use this quote to highlight the importance of human behavior in economic models.
The ability of businesses to monitor our behavior is already a fact of life, and it isn't going away. Of course we must protect our privacy rights. But if we're smart, we'll also use the data that is being collected to improve our own lives.
If you're trading individual securities, you're almost certainly making a mistake. Because most professional managers can't outperform their benchmarks, and there's little reason to think that individuals can.
When an economist says the evidence is "mixed," he or she means that theory says one thing and data says the opposite.
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My thesis topic was 'The value of a human life.' I asked people a question: 'Suppose you had some risk, a one in a thousand risk of dying - how much would you pay to eliminate it?'
We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.
The real bosses, in the capitalist system of market economy, are the consumers.
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
We plutocrats need to get this trickle-down economics thing behind us: this idea that the better we do, the better everyone else will do. It's not true. How could it be? I earn 1,000 times the median wage, but I do not buy 1,000 times as much stuff, do I?
It certainly is dangerous that there are only a few clubs left in Europe that can afford to pay millions. At the end of the day however, the spectators decide the rates of pay - by watching the games and consuming the goods and services advertised on sports TV programmes.
Burdening people with debt is an old deal not a new deal.
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