The award – officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel – was given to Thaler for his work in “understanding the psychology of economics”.
"The most important impact of my research is the recognition that economic agents are humans and economic models have to incorporate that," Thaler said on Monday after the prize announcement.
"Richard H. Thaler has incorporated psychologically realistic assumptions into analyses of economic decision-making," the Swedish Academy said in a statement as Göran K. Hansson, secretary general of the Royal Swedish Academy of Sciences, announced the prize in Stockholm.
"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," the statement said.
The prize committee said Thaler has helped transform behavioural economics from “a fringe and controversial” field to a “mainstream area”.
Thaler co-authored the best-selling book Nudge together with Cass Sunstein. It has been hugely influential in shaping economic policies.
Thaler was born in 1945 in East Orange, New Jersey, USA. He is 72 years old and a professor of behavioral science and economics at the University of Chicago Booth School of Business.
Thaler will receive a prize of SEK 9 million.