The move highlights how behavioral finance and economics have pushed outside academia to affect how investment firms operate.

California-based PIMCO, the renowned fixed-income management firm with $1.76 trillion of assets under management (as at the end of March) has named Nobel Prize winning economist Dr Richard Thaler as senior advisor on retirement and behavioral economics. 

The appointment of Dr Thaler highlights how behavioral economics has broken out of academia and into mainstream business and finance. The subject is about how psychological, cognitive, emotional, cultural and social factors affect economic decisions of people and institutions. Applied to finance, it helps describe how markets can be pulled about in ways that are at odds with more “rational” models of human conduct.

Dr Thaler, is the Charles R Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. He was awarded the Nobel Prize in Economic Sciences in 2017. He is also a co-founder and partner at Fuller & Thaler Asset Management, which uses behavioral finance to manage portfolios of small-cap US equities. 

The firm said that Dr Thaler’s role is to help it understand human behavior more comprehensively and how it affects decision-making such as saving and spending in retirement. As populations age, there is a need for investments to be more finely tuned to handle changing liabilities and saving patterns.

PIMCO recently announced that it is partnering with the Center for Decision Research at the University of Chicago Booth School of Business.