The 72-year-old American behavioural and economic scientist is a professor at the University of Chicago Booth School of Business in Illinois.
He is originally from New Jersey.
The Royal Swedish Academy of Sciences, which presents the prize, said he explores "how limited rationality, social preferences and lack of self-control affect individual decisions and market outcomes".
They commended him for his contributions, which they declared "have built a bridge between the economic and psychological analyses of individual decision-making".
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
The prize amount for Mr Thaler is nine million Swedish krona, or just over $1.4 million.
He told the Nobel committee by video conference he was "pleased" by the award.
“I no longer will have to call my colleague Eugene Fama 'Professor Fama' on the golf course,” he joked, referring to his University of Chicago colleague who won the 2013 Nobel Economics Prize.
The Illinois university is popular with the Nobel economics committee. Of 79 laureates so far, more than a third have been affiliated with its School of Economics.
Mr Thaler made a cameo appearance in the 2015 movie "The Big Short" about the credit and housing bubble collapse that led to the 2008 global financial crisis.
Last year, the award went to British-American economist Oliver Hart and Bengt Holmstrom of Finland for their research on contract theory, which has helped design insurance policies and executive pay.
The economics prize is unique among the Nobel awards in that it was created by the Swedish central bank in 1968. The others were all set up through the 1895 will of Swedish inventor and philanthropist Alfred Nobel.
-With AFP
