Economist Rabin
wins prestigious fellowship for work on human
behavior
By Kathleen
Scalise, Public Affairs
Posted July 12, 2000
Matthew Rabin, a professor of economics whose work integrates psychological research with formal economic models, is one of 25 recipients nationwide of a prestigious MacArthur Foundation "genius" fellowship.
Rabin, 36, will receive a $500,000 cash award over the next five years with no restrictions on how the money may be used. The John D. and Catherine T. MacArthur Foundation announced the new fellows on June 13.
"MacArthur Fellows are chosen for their exceptional creativity, record of significant accomplishment and potential for still greater achievement," said fellows program director Daniel Socolow in a foundation news release. "This new group of fellows is a wonderful collection of extraordinary minds in motion."
This is the fourth consecutive year that a member of the Berkeley community has received a MacArthur Foundation Fellowship.
Knowing that human behavior such as procrastination, addiction and playing fair can affect the choices people make and produce subsequent economic outcomes, Rabin works on explaining the effect mathematically. Although the MacArthur Foundation describes him as a pioneer in behavioral economics, Rabin doesn't think he is.
"I call what I do 'second-wave behavioral economics,' " he said. "The pioneers were psychologists who came along 15 years ago and convinced economists that some of their assumptions were wrong. Now, people like me are working to carefully adjust the models and formalize the effect."
Rabin "has done more than anyone to bring insights from psychology into mainstream economic analysis," said Maurice Obstfeld, chairman of the economics department. "He has shown economists the way toward a rigorous yet more realistic analysis of human behavior."
Rabin said his work helps explain "addiction, dieting, procrastination, everything that makes us human but would never be predicted by economic models."
The models most in need of revamping, Rabin said, include ways consumers handle credit card debt and stock market behavior in which investors infer too much from to little information.
"An investor can do well two months in a row just by luck, and people will think he's a genius," Rabin said. "Then, they may pay a lot for his advice and it may not be worth anything."
Rabin's work on smoking patterns and addiction suggests that cigarette taxes would have to be a lot higher to discourage use. He also has worked extensively on procrastination and how it adversely affects saving rates and retirement outcomes.
"It doesn't take much of a self-control problem and a desire for immediate gratification to really hurt yourself economically," he said.
Rabin's colleague, Ted O'Donoghue, an assistant professor at Cornell University working in the same field, said such work is very important to the future of economics.
"It is very useful for starting to think about the ways people might make errors in how they care for themselves," Donoghue said. "Economic models say people don't make errors; psychological theories say, 'Yes, they do.'"
Rabin currently is working on a book that will be an economist's guide to psychology.
As of yet, Rabin has no idea what he will do with the MacArthur money, which he was surprised to receive. MacArthur fellows typically don't know they are being considered for the prize until they are told in a congratulatory phone call.
"When I got the call, I think I said, 'Thank you,'" Rabin said, laughing. "I don't know the proper etiquette when someone gives you a half-million dollars."
July 12 - August 16,
2000 (Volume 29, Number 1)
Copyright 2000, The Regents of the University of
California.
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