Question

why the Nobel Prize in Economics in 2017 was awarded to Richard Thaler, and (2) whether/why students studying managerial economics should be especially interested. ( In your own words please)

Answer 1

(1)

The 2017 Nobel prize in economics was awarded to Richard H. Thaler, an American economist at the University of Chicago, for his contributions to behavioral economics.

Thaler won the award, worth 9 million Swedish krona ($1.1 million), for enhancing the “understanding of the psychology of economics,” the prize committee said. They described Thaler as a pioneer in the study of how and why people don’t always make rational economic decisions. His work explores “the consequences of limited rationality, social preferences, and lack of self-control,” which reveal how humans’ flaws “systematically affect individual decisions as well as market outcomes.”

Thaler was born in 1945 in New Jersey. Speaking after receiving the award, he said that one of the most important aspects of his work is to stress that economic agents are human, and economic models must take that into account.

The University of Chicago describes his research as examining into the implications of what happens when the standard economic assumption that everyone in is rational and selfish is relaxed. In 2008, he co-authored the influential book Nudge: Improving Decisions about Health, Wealth and Happiness with Cass Sunstein, explaining how behavioral economics can inform better public policy decisions.

(2) What does Managerial Economics mean?

Managerial economics, used synonymously with business economics. It is a branch of economics that deals with the application of microeconomic analysis to decision-making techniques of businesses and management units. It acts as the via media between economic theory and pragmatic economics. Managerial economics bridges the gap between "theory and practice". Managerial economics can be defines as:

According to Spencer and Siegelman:

“The integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management”.

Why it may be important to students studying managerial economics?

(i) It studies the problems and principles of an individual business firm or an individual industry. It aids the management in forecasting and evaluating the trends of the market.

(ii) It is concerned with varied corrective measures that a management undertakes under various circumstances. It deals with goal determination, goal development and achievement of these goals. Future planning, policy making, decision making and optimal utilization of available resources, come under the banner of managerial economics.

(iii) Managerial economics is pragmatic. In pure microeconomic theory, analysis is performed, based on certain exceptions, which are far from reality. However, in managerial economics, managerial issues are resolved daily and difficult issues of economic theory are kept at bay.

(iv) Managerial economics employs economic concepts and principles, which are known as the theory of Firm or 'Economics of the Firm'. Thus, its scope is narrower than that of pure economic theory.

(v) Managerial economics incorporates certain aspects of macroeconomic theory. These are essential to comprehending the circumstances and environments that envelop the working conditions of an individual firm or an industry. Knowledge of macroeconomic issues such as business cycles, taxation policies, industrial policy of the government, price and distribution policies, wage policies and antimonopoly policies and so on, is integral to the successful functioning of a business enterprise.

(vi) Managerial economics aims at supporting the management in taking corrective decisions and charting plans and policies for future.

(vii) Science is a system of rules and principles engendered for attaining given ends. Scientific methods have been credited as the optimal path to achieving one's goals. Managerial economics has been is also called a scientific art because it helps the management in the best and efficient utilization of scarce economic resources. It considers production costs, demand, price, profit, risk etc. It assists the management in singling out the most feasible alternative. Managerial economics facilitates good and result oriented decisions under conditions of uncertainty.

(viii) Managerial economics is a normative and applied discipline. It suggests the application of economic principles with regard to policy formulation, decision-making and future planning. It not only describes the goals of an organization but also prescribes the means of achieving these goals.