The Nobel Prize in Economic Sciences was recently awarded to Richard Thaler, whose work in behavioral economics has been influential in our understanding of human behavior and, perhaps most importantly, the ways it deviates from previously held assumptions.
Many scientists tend to have a specialty in one field, and their knowledge goes deep within that chosen field. But Thaler’s work is particularly notable because it spans two very important disciplines that have major impacts on everyday life: economics and public policy.
As the New York Times elegantly put it when reporting on his award, his “work has persuaded many economists to pay more attention to human behavior, and many governments to pay more attention to economics.” In effect, Thaler’s work debunked the long-held idea that humans act according to an entirely rational set of interests and factors, something which economists have held onto for perhaps too long. According to The Economist, Thaler’s work alongside other advancements in the behavioral economics field have managed to prompt “economists as a whole to back away a bit from grand theorising, and to focus more on empirical work and specific policy questions.”
The crux of Thaler’s thesis isn’t just that humans aren’t entirely rational. It is also that they are irrational in rather predictable ways that can be modeled. For example, “People will refuse to pay more for an umbrella during a rainstorm; they will use the savings from lower gas prices to buy premium gasoline; they will offer to buy a coffee mug for $3 and refuse to sell it for $6.”
Armed with this knowledge, we can design policies and offer choices that are more well-suited to human beings, rather than predictable robots. Thaler posited that we can do this with the practice of “nudging,” a term he coined. As Science News put it, “Policy makers throughout the world, guided by behavioral scientists, are devising ways to steer people toward decisions deemed to be in their best interests. These simple interventions don’t force, teach or openly encourage anyone to do anything. Instead, they nudge, exploiting for good — at least from the policy makers’ perspective — mental tendencies that can sometimes lead us astray.”
There are numerous examples of how policy makers can use the concept of nudging to benefit society, without enforcing draconian laws that can be costly and resource intensive to maintain. This “libertarian paternalism”, as some call it, can take the form of “prodding with e-mail messages, for example, reminding a charity’s past donors that it’s time to give or telling tardy taxpayers that most of their neighbors or business peers have paid on time. To nudge healthier eating, these architects redesign cafeterias so that fruits and vegetables are easier to reach than junk food.” Another prominent example of “choice architecture” is making organ donation programs opt-out by default, rather than opt-in, which results in many more people being on the organ donor registry. Governments including the UK and US have amended their policies on account of Thaler’s research.The implications for Thaler’s nudging theory are far-reaching and go beyond public policy. Indeed, there is a lot you could say about the impact that choice architecture has on tech and user interface design as well. Once we know that “standard economic theories do not describe actual human behaviour” we can design everything from apps to games with that knowledge in mind. This could have implications for, say, how we design payment gateways, privacy policies, and user terms. In a sense, accepting that humans are humans—and that we should treat them accordingly—is at the heart of Thaler’s work.