This Year’s Economics Nobel winner Invented a Tool That’s Both Brilliant and Undemocratic

Richard Thaler, of the University of Chicago, just won the Nobel Memorial Prize in economics for his contribution to behavioral economics — the subfield known for exploring how psychological biases cause people to act in ways that diverge from pure rational self-interest.

Policymakers are more likely to know him for a different reason. Together with his co-author, Harvard Law’s Cass Sunstein, Thaler is responsible for developing and popularizing the notion of “nudges” as a policy tool. Over the past decade, policymakers around the world have taken up Thaler and Sunstein’s ideas, setting up government nudge units and other programs intended to guide people toward choices that are in their best interests. Nudging has become fashionable.

Nudges can be used by both businesses and government to shape the behavior of employees, customers, and citizens. A classic nudge would be when a company automatically enrolls employees in a decent 401(k) plan — but lets them opt out of contributing, if they wish. The non-nudging status quo would require the employees to actively decide to sign up for a retirement plan. Studies have demonstrated that opt-out framing leads to higher enrollment.

Thaler and Sunstein argue that nudging is a win-win. Unlike traditional regulation, it doesn’t force people to make choices that they don’t want to make. Yet unlike a “laissez faire” approach it doesn’t assume that people should be left to make their own choices free of outside interference. Instead, their approach structures choices so that people are going to be nudged into making the choice that is probably best for them.

Access the full article here.

Other Writing:

Essay

How a Single Hard-Charging CEO Helped the US Dollar Take Over the World – with Abraham Newman

Walter Wriston was once one of the most powerful people on the planet. The chairman of the financial giant Citibank and its parent corporation, Citicorp, he was also a man with a vision. Wriston was a globalist who was deeply influenced by economist Friedrich Hayek’s vision of a world in which market freedoms were the ...
Read Article
Academic Article

Introduction: Blogs, Politics and Power – with Daniel W. Drezner

There is good reason to believe that blogs are changing politics, but we don’t know exactly how. Nor do we know whether the normative consequences of blogs for poli- tics are likely to be good or bad. In this special issue, we and our co-authors undertake the first sustained effort to map the empirical and ...
Read Article