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Lesko Financial: Modern View of Money

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Bryanna: This year’s Nobel prize for economics has put a more modern view of money into the limelight. Greg Lesko of Lesko Financial has the details.

Greg: In the past, acclaimed economists from the world of academia were likely to have published complex theories drawn from research and economic models. But this year’s noble prize for economics went to Richard Thaler, whose work in behavioral economics has been embraced by the mainstream and found its way past what many might think of as the stodgy, dusty halls of the university. Behavioral economics is relatively new, and is becoming a foundation for ideas to help people save and invest more and become aware of the many ways they often act irrationally and against their own best financial interests.   

Bryanna:  How is his approach different?   

Greg: Classical economic studies use mathematical models to predict what markets and consumers will dousually in a rational way. Behavioral economics uses ideas from psychology to show how people actually behavior misbehave when it comes to money. Thaler’s book is called “misbehaving” …and shows that people aren’t always rational. For example, people tend to fear loss more than they enjoy gain, which explains why many fail to make the most of their investments.   

Bryanna: How can someone benefit from these ideas? 

Greg: Thaler and other behavioral economists have suggested ways to identify irrational glitches in your own financial decisions and how to counter them.
but bringing behavioral economics into the mainstream will go a long way to helping policy-makers and individuals change the way they think about finances and create new approaches to encourage better decisions.