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By Ian Salisbury
October 9, 2017
In this June 22, 2014 file photo, US economist Richard Thaler poses for a photo during the award ceremony for the world economy prize in Kiel, Germany. The Nobel economics prize has been awarded to Thaler of the University of Chicago for his contributions to behavioral economics.
In this June 22, 2014 file photo, US economist Richard Thaler poses for a photo during the award ceremony for the world economy prize in Kiel, Germany. The Nobel economics prize has been awarded to Thaler of the University of Chicago for his contributions to behavioral economics.
Carsten Rehder/AP

You may never have heard of Richard Thaler. But when he won the Nobel Prize for economics on Monday, personal finance experts let out a big cheer.

That’s because Thaler, who teaches at the University of Chicago, has been a font of insights that have helped Americans save and invest better. Among his biggest successes: inspiring Congress to overhaul the nation’s 401(k) system a decade ago — a change that has helped millions of Americans prepare for retirement.

Thaler is famous for upending what was once economic conventional wisdom — the notion that people are cool, rational economic actors, who can always be relied upon to do what’s in their best interest. Thaler saw us for what we really are. Sometimes we’re lazy or self-absorbed, but we’re also more concerned with what is fair than what is most expedient.

Here is how Thaler himself described his work when Money interviewed him 2015:

Thaler’s insight about “nudges” has influenced everything from how governments collect overdue taxes to how schools get kids to eat more veggies. But one of its biggest successes has come in retirement savings.

In 2006, Washington lawmakers built on Thaler’s research to reform America’s much-maligned 401(k) system. One key change: Instead of companies asking employees to sign up for a retirement savings plan, the new law encouraged employers to enroll workers automatically, but offer the right to opt out to anyone who didn’t want to participate.

The 2006 changes have been widely hailed as a success. In fact, they’re one of the few consumer-oriented reforms in recent years to be embraced by both businesses and consumer advocates. How big is the impact of auto-enrollment? One 2015 Vanguard paper suggested that the practice more than doubles plan participation rates to more than 91% of workers from 42%.

To be sure, the nation’s 401(k) system is still far from perfect. One drawback: While many workers are now automatically enrolled, millions still aren’t saving a big enough portion of their paychecks.

Indeed, in his recent interview with Money, Thaler called for workers to be enrolled at higher savings rates.

All the same, Thaler’s prize reflects a big win for millions of would-be retirement savers who wanted to do better but just needed a little nudge.

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The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

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Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

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