The man who created the “nudge” theory, which has helped the British government raise more revenues and target NHS better, encouraged smokers to become vapers, has been awarded the 2017 Nobel prize for economics. It is the ultimate recognition that behavioural economics has reached home! Richard Thaler co-wrote a bestselling book on the nudge concept – and I was intrigued how a man could have the courage to name a book ‘Nudge’ was it not too gutsy to just have a verb as the name of a book?

Nudge is read by many people of the world – financial advisors form a small part of his audience. His audience include politicians around the world – he had them embracing the notion that people can be influenced by prompts. He said all that it required was changing the words used.

Thaler’s branch of economics has influenced Theresa May’s announcement of an “opt out” policy for organ donations where it is presumed that people wish to donate body parts unless they state otherwise. India should do it quickly – at least for hospital and accidental deaths.

He was an adviser on the creation of the “Nudge unit” at the Whitehall initiated by David Cameron. The unit was initially focused on public health issues such as obesity, alcohol intake and organ donation. 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.

Thaler is a leading voice on how Nudge works. Of course it is not an invention. It is a discovery – which just means that people have been doing this for a long time and now it is being given the name of a science. Imagine a company with 6000 employees – if in every meeting the management asks you ‘Have you started your SIP’ – is that a Nudge or a co-ercion?

A couple of years back I got a copy of Nudge as a speaking fee. The next day was  a long one – I travelled to Delhi (from Mumbai) and this meant about 4 hours of taxi time, 5 hours of sitting in the plane 2 hours in the airport….and it meant I could finish reading Nudge! Surely a gripping book which I could just read from beginning to end in one interrupted reading day!

Nudge theory – as always – has been criticised by the political classes for being paternalistic, while it has also been described as a neoliberal idea by some of the other (Left!) political thought leaders. Unlike the field of classical economics – which assumes that man is a rational animal and decision-making is based on logic and excel sheets – behavioural economics allows for irrational actions and tries to find why this could be the case. The concept is to also see how far we have come fromt he hunter gatherer days. We are clear that our bodies have come – we now know that our physical strength has deteriorated over the decades. We find that Nudge theory can be applied at the micro level to individual situations, or even to more macro level actions of a society or trends in financial markets.

Thaler becomes one more American economist to win a prize!

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  1. Thaler and other thinkers like him are advancing a dangerous concept. Akin to neo-religionism, and supported by most liberal athiests, this concept suggests that Men are not really free and don’t have free will. This dangerous concept has already been ‘Nudged’ out of its resting place, as seen by the popularity of this concept amongst leaders and politicians worldwide.

    First used by shrewd marketers and salesmen to sell people things they didn’t really need or want (selling refrigerators to Eskimoes), this is now assuming dangerous proportions, ultimately affecting how freely Man lives in future.

    “New age Machiavelli” is all I can give Thaler credit for.

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