This year’s Nobel Prize in economics will be awarded to the man behind the ‘nudge theory’: Richard Thaler. In 2005, he was awarded an honorary doctorate by Erasmus University. Professor Kirsten Rohde explains why his work is so important to behavioural economics.
Richard Thaler, 72, who was awarded an honorary doctorate by Erasmus University in 2005, is the winner of this year’s Nobel Prize in economics. The American will be awarded the prize because he bridged the gap between economics and psychology. He is famous for his ‘nudge theory’. But what exactly is nudging? Kirsten Rohde, Professor of Behavioural Economics, explains.
‘It is partly because of him that psychology has been incorporated into economic science’
What is nudging?
“Every day, we are faced with a lot of decisions. Do we walk the stairs or take the lift? Do we eat pizza or broccoli? Do we smoke a cigarette or not? Many of these decisions are made unconsciously and automatically. Nudging is a gentle push towards the ‘right’ decision. We are all constantly being nudged, without being aware of it. Do you want students to have a healthier diet? Make sure the first thing they see in the cafeteria is a lot of fruit. Do you want people to smoke less? Put an image of a sick lung on a pack of cigarettes. In this way, all people are unconsciously pushed in a certain direction.”
Why is Richard Thaler so important in this field of study?
“He is a pioneer in the field of behavioural economics. It is partly because of him that psychology has been incorporated into economic science. In association with Cass Sunstein, he wrote the 2008 book Nudge. In this book, they showed that the human decision-making process can be influenced without any financial incentive and without imposing any rules or bans.”
How are we being nudged?
“Take the government, for example, which is increasingly aware of the fact that, in addition to legislation, subsidies and taxes, you can use psychological factors to steer people’s behaviour in a certain direction. A funny example would have to be the ‘piano stairs’ that played music at Rotterdam Central Station for a year. The steps making up the staircase had been equipped with special sensors. As a result, you’d be treated to piano music if you opted to take the stairs rather than the escalator. This gave people an incentive to get some exercise.”
Can you name a benefit of nudging?
“It increases people’s autonomy, because they always enjoy the freedom to make their own decisions. If there are no consequences, people can choose to deviate from the direction in which they are being nudged. For instance, you will not be fined if you choose to go your own way.”
Does nudging have any disadvantages?
“Yes, some people feel it does. It’s a bit patronising when the government gets involved in our personal lives. For instance, people want to make up their own minds about whether or not to light a cigarette.”