Thaler's Prescriptions Come With Potential—and Limitations

  • Nudging has its benefits, though some worry about the costs
  • Behavioral interventions have a mixed record, reports show

The Nobel Winner's Work in Behavioral Economics

Nobel Prize in Economics winner Richard H. Thaler likes to autograph copies of his bestseller with the invocation “Nudge for good.” It often works out that way, but not always.

Richard Thaler

Photographer: Carsten Rehder/picture-alliance/dpa via AP Photo

Thaler’s widely cited book “Nudge: Improving Decisions About Health, Wealth, and Happiness” set out the premise that providing the right context could gently push people to make good choices -- whether that means opting into a retirement plan or eating a healthy meal.

The laureate’s theory has clearly informed public policy design: his co-author Cass Sunstein headed the Office of Information and Regulatory Affairs in former President Barack Obama’s White House, working to bring behavioral economic insights to the public sector, and the Obama administration established a Social and Behavioral Sciences Team that paired with various government agencies. In the U.K., the Conservative government in 2010 set up a Behavioural Insights Team, an office devoted to making use of the fledgling science.

Many of the resulting interventions have been successful. A program to expand credit access to family farms in the U.S. through targeted outreach letters increased the percent of farmers obtaining microloans by 63 percent, for instance. Governments across the world are working to leverage the science, some in partnership with the Behavioural Insights Team, which was spun out of Britain’s Cabinet Office and established as a joint venture in 2014.

‘Highly Problematic’

Yet not all interventions work as intended. For instance, when British authorities added stickers to pregnancy tests in a pilot market that pointed out that the purchaser could easily access help to stop smoking, sign-up rates for the quit-smoking service barely budged, according to a Behavioural Insights Team report. Likewise, an attempt at encouraging voter registration in Wales by sending theoretically higher-impact notification letters and emails had mixed or no results.

And nudging can have a downside, if you ask some critics. Tyler Cowen, a professor of economics at George Mason University and a Bloomberg View columnist, wrote in a 2016 preface to a book on “nudge theory” that “private sector nudge is highly problematic,” such as when doctors and dentists manipulate patients into scheduling more procedures. He also argues that the government could nudge in the direction of more regulation, which he views as a bad thing.

Thaler himself has noted that the private sector can nudge unscrupulously. “Many companies are nudging purely for their own profit and not in customers’ best interests,” he wrote in 2015 New York Times piece.

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