Nudge theory

Nudge theory

THE HANS INDIA |   Oct 10,2017 , 11:54 PM IST

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US economist Richard Thaler, one of the founding fathers of behavioural economics, has won this year's Nobel Prize for Economics. Prof Thaler, of Chicago Booth business school, co-wrote the global best seller Nudge, which looked at how people make bad or irrational choices.

Judges said he had demonstrated how "nudging" - a term he coined - may help people to exercise better self-control. Thaler and Sunstein defined their concept as: “A nudge, as we will use the term, is any aspect of the choice architecture that alters people's behavior in a predictable way…Nudges are not mandates. Putting fruit at eye level counts as a nudge. Banning junk food does not.”

What is a ‘nudge’? The concept is a relatively subtle policy shift that encourages people to make decisions that are in their broad self-interest. It’s about making it easier for them to make a certain decision.

“By knowing how people think, we can make it easier for them to choose what is best for them, their families and society,” wrote Richard Thaler and Cass Sunstein in their book Nudge, which was published in 2008, writes independent.co.uk. 

According to BBC, Prof Thaler's central insight is that we are not the rational beings beloved of more traditional economic theory. Given two options, we are likely to pick the wrong one even if that means making ourselves less well off…

Tests have shown that putting healthier foods on a higher shelf increases sales. The food is more likely to be in someone's eye line and therefore "nudge" that person towards the purchase - whether they had any idea about the obesity argument or not.

Organ donation is an example of an area where nudge policy has worked. Spain operates an opt-out system, whereby all citizens are automatically registered for organ donation unless they choose to state otherwise.

The theory is the same as relates to pensions: deep down most people want to be donors if they die in an accident and their organs could be used to save someone else’s life but for various reasons never get around to registering. The opt-out system makes it easier for them to do what they really want to do, adds independent.co.uk. 

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