"People aren't dumb. The World is hard". ~ Richard Thaler

Often referred to as the “Father of Behavioral Economics”, Dr. Richard H. Thaler received his PHD in economics from the University of Rochester in 1974. Behavioral economics, to borrow from Psychology Today, “provides a framework to understand when and how people make errors. Systematic errors or biases recur predictably in particular circumstances. Lessons from behavioral economics can be used to create environments that nudge people toward wiser decisions and healthier lives”. Behavioral economists, put more simply, study how, and why people make decisions. With the end goal of those who Thaler refers to as “Nudge Engineers” is to assist people to make better decisions. These Nudge Engineers could be policy makers, doctors, parents, friends or really anyone who influences anyone else in their decision making process. The discipline is essentially a cross between economics and psychology. While the full breadth of the accomplishments achieved by Thaler and his associates may not be realized for generations, they are nevertheless tangible and in some instances, measurable.

Thaler followed in the footsteps of, and built on the work of Daniel Kahneman and Amos Tversky, two early pioneers in the field of behavioral economics. Kahneman is a Nobel Laureate and had it not been for his death six years prior, Tversky would have also shared in that prestigious honor. It was upon this foundation that Thaler built his Nudge Theory. Thaler has referred to writings by Adam Smith and John Maynard Keynes and pointed to places where they described what has now become known as behavioral economics. Thaler revolutionized the theory by, as he described in his Nobel lecture as recounted during a 2018 Freakonomics Podcast appearance, “my fellow winners had discovered things like gravitational waves, and circadian rhythms. And I discovered the existence of humans in the economy”. Deciding that he was ill suited for mathematical economics and therefore would make a poor theorist, Thaler decided instead to focus on applied economics. Nearly 50 years after making that choice, Thaler was in Oslo, Norway, receiving The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, joining his mentor in that prestigious club.

Along with the majority of other economists, Thaler could probably be accused of believing that he is the smartest person in the room, field or whatever group he might be placed in. That accusation may have some truth. Behind his easy going manner and self deprecating sense of humor that comes through in both his writing style and interviews, is a mind that earned him the 2017 Nobel Peace Prize in Economics. Thaler, and a sense of his personality were on display during an interview with Stephen J. Dubner when he pointed out the most obvious criticism of the award, “There’s a hierarchy in the Stockholm prizes. The Peace Prize is given by Norway, and is done in Oslo. And the hierarchy is: physics, chemistry, medicine, literature, economics. And so my line is that among sciences, the Swedes consider economics just after literature. And that’s because, of course, the economics prize, as we know, and as I’m sure some of your listeners will call in and inform, “You idiots, it’s not a real Nobel prize”. While perfectly willing to acknowledge the slight ascribed to his accomplishment by others, he is not above taking a subtle jab at others in academia.

The end goal of the behavioral economist is to create a better society by helping the members of that society to make better choices. In public policy matters the term used to describe those involved in behavioral economics is a “Nudge Unit”. There are hundreds of these units embedded in different countries around the world. The first of these units was The Behavioral Insights Team in the UK, their mission statement is: “We generate and apply behavioural insights to inform policy, improve public services, and deliver positive results for people and communities.”. The scope of issues tackled by these Nudge Units is broad, varied and spans the spectrum from encouraging better health choices like exercising or quitting smoking, to promoting individual contributions to retirement plans, incentivizing the creation of more fuel efficient vehicles and the decrease of greenhouse gas emissions. In the minds of behavioral economists (or scientists), there is virtually no issue that they cannot improve through the implementation of gentle nudges. For anyone who has ever studied economics or tried to read academic literature written by economists, the process can be tedious and often frustrating. A frequently heard response from an economics professor to a specific question is “Well, it depends”. This is where the psychologists come into the picture. While an economist may understand the why and the how of a question, they are sometimes ill suited to transforming that information into a form that is palatable for the average information consumer.

Among his other contributions, Thaler and his often coauthor Cass Sunstein have advocated for a kind of political identity called “Libertarian Paternalism''. On the surface, the terms “libertarian” and “paternalism” seem to be at odds with each other, but in their words, Thaler and Sunstein define libertarian paternalism as “the strategy to devise policy that will ‘maintain or increase the freedom of choice’ and at the same time ‘make their lives longer, healthier, and better.”. Critics of libertarian paternalism are often concerned about the paternalism portion. Strict libertarians are generally opposed to any form of paternalism where the government or those in authority will use their position and power to undermine the rights of those whom they govern. Any attempt to curtail freedom or liberty is met with opposition from libertarians. Those who ascribe to the paternalistic form of government often engage in behavior that results with certain groups of people being treated like children. Good examples of paternalism include those who attempted to prevent women from voting and were also used to justify slavery.

Understandably, libertarians and many others living in modern countries are opposed to this style of authoritarian government. In this case, the term libertarian paternalism is met with scrutiny. While not paternalism in the traditional sense, libertarians are concerned that the nudges advocated by the libertarian paternalists may eventually evolve from a nudge, into a shove. They worry that the mechanisms put in place to help people to make better decisions to improve their lives may be co opted by those in power to push their agendas and exert their will over the people. In essence, to become direct, wide scale manipulation of the masses. One need not look far to find many examples of governments taking actions restricting the liberty of their citizens under the auspices of “being for their own good”. While the Soviet Union and Nazi Germany come to mind, some would argue that similar curtailments of liberty have happened much more recently in the United States and other western countries. This would not be the first time that well meaning individuals had created and implemented systems that were later used to the detriment, and subjugation of millions. To further give libertarians cause for concern, behavioral economists are especially well suited to create the kind of systems that could be turned against the people.

Fortunately, at least for the present, behavioral economists and those involved with the Nudge Units around the world are focused on improving the human experience. In a 2003 paper by Thaler and Sunstein titled “Libertarian Paternalism Is Not An Oxymoron”, they write “The idea of libertarian paternalism might seem to be an oxymoron, but it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice. Often people’s preferences are ill-formed, and their choices will inevitably be influenced by default rules, framing effects, and starting points. In these circumstances, a form of paternalism cannot be avoided. Equipped with an understanding of behavioral findings of bounded rationality and bounded self-control, libertarian paternalists should attempt to steer people’s choices in welfare-promoting directions without eliminating freedom of choice.”. Given the complexity of the various problems faced by individuals around the world, the behavioral economist strives to simplify their lives by creating default options tailored to be in the best interest of those making these choices. Making enrollment in retirement plans the default option or placing healthy food choices at eye level in a school cafeteria are examples of the nudges employed to help individuals to make better decisions without limiting their freedom of choice.

While Thaler certainly has his detractors, the benefits of his work have rippled across the globe. Whether Thaler will ever be truly credited for his contributions to the betterment of the human race remains to be seen, and for him may be a moot point. In the words of Dr. Stephen Mack on the value of public intellectuals, “all participants in self-government are duty-bound to prod, poke, and pester the powerful institutions that would shape their lives. And so if public intellectuals have any role to play in a democracy—and they do—it’s simply to keep the pot boiling. The measure of public intellectual work is not whether the people are listening, but whether they’re hearing things worth talking about". The very existence of Nudge Units indicates that someone is indeed listening, however for the average person not aware of the existence of behavioral economics, the subtle nudges that have been employed by various governments and institutions may well have a positive effect on their lives and those of their loved ones. For Thaler, being relegated to the relatively obscure annals of economic theory may be an acceptable outcome, so long as his work continues on and produces some meaningful, positive benefit in the lives of people around the world.