Nobel prize in economics awarded to Richard Thaler

Pioneer of behavioural economics is best known for ‘nudge’ theory, which has influenced politicians and policymakers

One of the founding fathers of “nudge” theory, which has helped boost British tax receipts and encouraged smokers to become vapers, has been awarded the 2017 Nobel prize for economics.

Nudging stems from the field of behavioural economics, examining how gut instincts can often overrule rational choices, in which Thaler is regarded as a pioneer.

Thaler co-wrote the global bestselling book Nudge: Improving Decisions about Health, Wealth, and Happiness in 2008 with the US professor Cass Sunstein, which brought the theory to wider attention. He was an adviser on the creation of the “nudge unit” at the heart of Whitehall initiated as a pet project by David Cameron in the earliest days of his premiership from 2010 in the coalition government.

The unit was initially focused on public health issues such as obesity, alcohol intake and organ donation, although its scope has ballooned to cover everything from pensions and taxes to mobile phone theft and e-cigarettes. Formally called the Behavioural Insights Team, but widely known after Thaler’s book, the nudge unit is credited with encouraging 100,000 extra organ donations a year and persuading 20% more people to consider changing energy provider.

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Lafayette said:

Nobel prize in economics awarded to Richard Thaler - excerpt:

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Behavioural economics incorporates the study of psychology into the analysis of the decision-making behind an economic outcome, such as the factors leading up to a consumer buying one product instead of another.

The US academic Richard Thaler won the Nobel prize in economics on Monday for his pioneering work in this field. The Royal Swedish Academy of Sciences, which awarded the £845,000 prize, praised Thaler for incorporating psychological assumptions into analyses of economic decision-making.

Unlike the field of classical economics, in which decision-making is entirely based on cold-headed logic, behavioural economics allows for irrational behaviour and attempts to understand why this may be the case. The concept can be applied in miniature to individual situations, or more broadly to encompass the wider actions of a society or trends in financial markets.

Brexit is one example of how behavioural economics can be useful. Thaler has suggested that the theory can help explain how the narrow vote to leave the EU was influenced by gut choices, as opposed to rational decision-making.

The theory is particularly useful for companies and marketers looking to increase sales by encouraging changes in behaviour by consumers. It can also be used for the purposes of setting public policy.

Thaler is particularly well known for his work on “nudge theory”, a term he coined to help explain how small interventions can encourage individuals to make different decisions. Nudges can, however, be manipulative, to the detriment of individuals.

Here are some examples of nudge theory:

Supermarkets
Thaler suggests changes can be made to an individual’s “choice environment” to influence their behaviour. The best example of this comes in the supermarket, where attention can be drawn to certain products to encourage consumers to spend money.

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