tag:theconversation.com,2011:/africa/topics/richard-thaler-10806/articlesRichard Thaler – The Conversation2021-12-17T12:54:42Ztag:theconversation.com,2011:article/1739372021-12-17T12:54:42Z2021-12-17T12:54:42ZWill there be a ‘Santa Claus rally’ in the stock market this year?<figure><img src="https://images.theconversation.com/files/438190/original/file-20211217-27-hzh3oo.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Yule never make sense of it. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/santa-claus-drive-rocket-launch-smoke-1233772156">Rai Dztor</a></span></figcaption></figure><p><a href="https://eu.tennessean.com/story/opinion/2017/12/25/yes-virginia-there-santa-claus/978121001/">In 1897</a>, the American newspaper editor Francis Pharcellus Church penned a famous reply to a young reader who wrote in with doubts about the existence of a certain old man in a red suit who spent a lot of time around chimneys: “Yes, Virginia, there is a Santa Claus”. </p>
<p>The average investor is a little older than eight-year-old Virginia, but this is the time of year when they raise their own doubtful version of this question – namely, will there be a “Santa Claus rally” before the end of the year?</p>
<p>In the financial press jargon, the Santa Claus rally refers to an expected increase in stock market returns at the end of the year. The reference to Christmas is actually a little misleading, because the rally typically refers to the last five trading days of the old year and the first two trading days of January. </p>
<p>Unlike the old man in red, there is certainly no doubt that Santa Claus rallies do exist. They have failed to visit Wall Street <a href="https://www.stocktradersalmanac.com/">only five times</a> in the past 20 years, creating a profitable opportunity to buy shares just before the rally starts and then sell just before it ends. Not only that, the absence of a Santa Claus rally has been <a href="https://lplresearch.com/2020/12/23/do-you-believe-in-the-santa-claus-rally/">associated with</a> a weaker January, rendering it an important indicator. </p>
<h2>What explains the Santa Claus rally?</h2>
<p>According to economic theory, however, the Santa Claus rally should not exist. 2013 Nobel prize winner <a href="https://www.chicagobooth.edu/review/eugene-fama-efficient-markets-and-the-nobel-prize">Eugene F Fama’s</a> theory of market efficiency says that share prices should include all available information on companies and the wider economic outlook, making it impossible for past market trends to be used to predict future prices.</p>
<p>Indeed, there are various other explanations for Santa Claus rallies. It is the end of the US tax year, when investors tend to sell some assets at a loss to claim relief on capital gains. Institutional investors go on holiday, leaving more traders in the market who are perhaps less cautious or informed. On top of that, there will be individuals investing their end-of-year bonuses, while prices can be moved more easily at a time when the volume of transactions in the market is quite low. </p>
<p>Yet this is not the whole story. Just as the ancient Romans believed in the influence of the calendar on everyday life, sorting the days into <em>fasti</em> (good days) and <em>nefasti</em> (bad days), there is plenty of evidence that <a href="https://www.aeaweb.org/articles?id=10.1257/jep.1.2.169">something similar </a> happens in stock markets. </p>
<p><a href="https://econpapers.repec.org/article/ucpjnlbus/v_3a4_3ay_3a1931_3ap_3a415.htm">Back in 1931</a> a Harvard graduate student named MJ Fields <a href="https://pubs.aeaweb.org/doi/pdf/10.1257/jep.1.2.169">wrote a paper</a> identifying a “weekend effect”, in which Fridays tend to generate higher stock market returns while Mondays are typically associated with lower ones. Since then, researchers have been able to demonstrate numerous other shifts in returns related to certain times in the calendar. </p>
<p>According to the “<a href="http://arno.uvt.nl/show.cgi?fid=129529#:%7E:text=Rozeff%20and%20Kinney%20(1976)%20performed,other%20months%20was%20only%200.5%25.">January effect</a>”, sizeable gains tend to be made in the stock market in January, especially by the stocks of <a href="https://www.sciencedirect.com/science/article/abs/pii/0304405X83900259">small companies</a>. There’s a “<a href="https://www.sciencedirect.com/science/article/abs/pii/0304405X879006630">turn of the month effect</a>”, related to the first four trading days of the month, and a “<a href="https://www.jstor.org/stable/2962097">holiday effect</a>”, with pre-holiday days attracting higher returns than the average. Even the <a href="https://www.sciencedirect.com/science/article/abs/pii/0304405X86900449">time of day</a> matters, as opening prices tend to be higher for the first 45 minutes on a Monday, in a sort of “extension of the weekend effect”.</p>
<p>So how to square all this with the idea of ultra-rational traders making decisions using all the available information at their fingertips? Behavioural economics is helpful here with its ideas about the psychology of decision-making, much of which stems from the work of another Nobel prize winner, <a href="https://theconversation.com/why-richard-thaler-won-the-2017-economics-nobel-prize-85404">Richard Thaler</a>, who won in 2017. </p>
<p>This boils down to the idea that investors’ feelings might influence their trading behaviour: gloomy moods on Monday when they return to work, the uplifting Friday feeling of the weekend ahead, and of course Christmas cheer and the optimistic sense of a new year around the corner. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/438173/original/file-20211217-27-46308t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A Christmas stocking and a sign that says 'Define good'" src="https://images.theconversation.com/files/438173/original/file-20211217-27-46308t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/438173/original/file-20211217-27-46308t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/438173/original/file-20211217-27-46308t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/438173/original/file-20211217-27-46308t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/438173/original/file-20211217-27-46308t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/438173/original/file-20211217-27-46308t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/438173/original/file-20211217-27-46308t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Santa Claus rallies make a little more sense when you study behavioural economics.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/OGbB2HYaHyo">Mata Massokosta</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Nonetheless, there are caveats. For one thing, the huge rise of <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12186">trading bots</a> over the past couple of decades – they <a href="https://www.mordorintelligence.com/industry-reports/algorithmic-trading-market#:%7E:text=Algorithmic%20trading%20is%20accounted%20for,most%20liquid%20in%20the%20world.">now control</a> over half of US stock trading – undermines the idea of emotionally susceptible traders. Trading bots definitely don’t get the blues when they go back to work on a Monday. </p>
<p>More generally, we need to beware of reading too much into calendar effects. We carried out a simple experiment by looking at the correlation between stock market returns and one of our birthdays. This should clearly be irrelevant for the FTSE, and yet it turns out to be a bad trading day, with negative returns of 65% over a number of years. So it seems we can add the “birthday effect” to the list of red letter days. </p>
<h2>What to expect this year</h2>
<p>The charts below show the past six years of returns in the FTSE over the festive season (click to make them bigger). They show that Santa failed to visit Wall Street altogether in 2015, and did not always give investors an easy ride in other years either: you still had to time your buying and selling very carefully. So although the chances of a Santa Claus rally are reasonably high in any given year, you need to realise that the prospects are not as rosy as historical averages might suggest. </p>
<p><strong>Festive FTSEs, 2015-20</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/438048/original/file-20211216-21-2sa5ta.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Charts showing six years of FTSE action around Christmas" src="https://images.theconversation.com/files/438048/original/file-20211216-21-2sa5ta.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/438048/original/file-20211216-21-2sa5ta.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=437&fit=crop&dpr=1 600w, https://images.theconversation.com/files/438048/original/file-20211216-21-2sa5ta.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=437&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/438048/original/file-20211216-21-2sa5ta.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=437&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/438048/original/file-20211216-21-2sa5ta.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=549&fit=crop&dpr=1 754w, https://images.theconversation.com/files/438048/original/file-20211216-21-2sa5ta.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=549&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/438048/original/file-20211216-21-2sa5ta.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=549&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">FTSE daily returns calculated by the authors on the close prices</span></span>
</figcaption>
</figure>
<p>So will festive 2021 be the season for investors to be jolly? It’s so difficult to predict these things in advance. Certainly with the dark shadows of rising inflation, central banks tightening monetary policy, concerns over government debts, rising energy prices and new waves and variants of COVID, a Santa Claus rally might seem like a much-needed Christmas gift. </p>
<p>But if it happens, be wary: once the January optimism is over, there are currently many reasons to think there might be further losses ahead.</p><img src="https://counter.theconversation.com/content/173937/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A surge in stock markets towards year end goes against the idea of rational traders, yet it often happens.Gabriella Legrenzi, Senior Lecturer in Economics, Keele UniversityReinhold Heinlein, Senior Lecturer in Economics, University of the West of EnglandScott Mahadeo, Senior Lecturer in Macroeconomics, University of PortsmouthLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/889702017-12-21T14:25:25Z2017-12-21T14:25:25ZBehavioral economics finally goes mainstream: 4 essential reads<p>The year 2017 may turn out to be when behavioral economics entered the mainstream after a leading practitioner in the field won a Nobel prize for his work. </p>
<p>Behavioral economics is the study of how psychology affects the economic decision-making processes of individuals and institutions. Research in the field has led governments like those in the U.K. and U.S. to create teams of behavioral scientists to find ways to tweak citizens’ behavior to improve their welfare, for example, by helping more people enroll in retirement plans.</p>
<p>Throughout 2017, we asked experts in economics, psychology and other areas to address the power of this burgeoning field, as well as its potential for misuse. </p>
<h2>1. Ethics of ‘defaults’</h2>
<p>One of the ways behavioral scientists try to nudge people’s behavior is through “default” choices. </p>
<p>For example, by setting the default option for an employee’s 401(k) enrollment to “yes,” it’s much more likely that he or she will save for retirement because it forces workers to make an active choice to decline the program. But if the default is set to “no,” participation in the program is usually a lot less because people tend not to bother. </p>
<p>Another example is making being an organ donor the default choice when getting a driver’s license.</p>
<p>Is it ethical to ask people to “opt out” rather than “opt in”? <a href="https://theconversation.com/default-choices-have-big-impact-but-how-to-make-sure-theyre-used-ethically-65852">It’s a question</a> Northeastern University’s Mary Steffel, Indiana University’s Elanor Williams and University of Cincinnati’s Ruth Pogacar explore in recent research. </p>
<p>“The power of defaults to guide people’s choices has made them an extremely popular way for policymakers and marketers alike to nudge people toward a particular decision,” they wrote. “But defaults can also be used to help businesses profit from consumers, sometimes by prompting people to choose things that are not in their best interests.”</p>
<h2>2. Do people like to be nudged?</h2>
<p>Beyond the ethics, do people actually like when governments nudge them toward “better” behavior through defaults, labels and other means?</p>
<p>Who better to answer this question than Cass Sunstein, who co-wrote “<a href="https://yalebooks.yale.edu/book/9780300122237/nudge">Nudge</a>,” one of the seminal books on behavioral economics. The term quickly took off as shorthand for the kind of small interventions governments have been using to help citizens make better decisions. His co-author, Richard Thaler, won the 2017 Nobel prize in economics.</p>
<p><a href="https://theconversation.com/do-people-like-government-nudges-study-says-yes-85567">Sunstein’s research suggests</a> the answer is “yes,” most people “welcome nudges that help them live better lives.”</p>
<p>“I have found that this enthusiasm usually extends across standard partisan lines,” he explained. “This is an important finding because it suggests that most people do not share the concern that nudges, as such, should be taken as manipulative or as an objectionable interference with autonomy. By contrast, a lot of people object to mandates and bans, apparently on the ground that they limit freedom.”</p>
<p>He concludes: “If we really care about welfare, autonomy and dignity, nudging is often required on ethical grounds. We need a lot more of it. The lives we save may be our own.”</p>
<h2>3. Behavioral science wins its second Nobel</h2>
<p>In October, the University of Chicago’s Richard Thaler won the Nobel for his work in three areas: “limited rationality,” “social preferences” and “lack of self-control.”</p>
<p>Jay Zagorsky, an economist at Ohio State University, <a href="https://theconversation.com/economist-who-helped-behavioral-nudges-go-mainstream-wins-nobel-85430">explained</a> what made the award – the second that has gone to a pioneer in behavioral economics – significant. </p>
<p>“It may be hard to believe, but before these scholars came along, many economists assumed that humans acted like Spock on "Star Trek,” he wrote. “People were supposed to be perfectly rational calculating machines that looked at all the information and made correct choices. However, even a most casual view of the real world suggests this is not a good assumption.”</p>
<p>Thaler’s award “highlights the growing importance of incorporating how humans actually behave into economic thinking,” he continued. </p>
<h2>4. The dark side of the ‘nudge’</h2>
<p>But just as this knowledge can be used to improve the welfare of citizens and consumers, it can also be used for more nefarious purposes. For example, nudges can be used both to increase turnout on Election Day or suppress the votes of certain groups. </p>
<p>“This can be positive to the extent that those designing interventions have good intentions,” <a href="https://theconversation.com/can-trump-resist-the-power-of-behavioral-sciences-dark-side-71782">writes</a> Jon M. Jachimowicz, a Ph.D. student in Management at Columbia University. “But what happens when someone uses these insights to systematically influence others’ behavior to favor his or her own interests – even at the expense of everyone else’s?”</p>
<p>Jachimowicz describes the successes of governments in the U.K. and U.S. in using behavioral science for positive ends and then considers its dark side, along with his fear that President Donald Trump or others might abuse the power of nudges.</p><img src="https://counter.theconversation.com/content/88970/count.gif" alt="The Conversation" width="1" height="1" />
After two Nobel prize wins for behavioral economists, the burgeoning field has demonstrated its importance in shaping effective economic and government policy.Bryan Keogh, Managing EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/855802017-10-17T11:03:19Z2017-10-17T11:03:19ZWhat the mainstreaming of behavioural nudges reveals about neoliberal government<figure><img src="https://images.theconversation.com/files/190469/original/file-20171016-30957-8rzoov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hand-person-pushing-figures-stairs-do-732105820?src=M3XN652sOB9jb3uwS6KG8w-1-50">Gajus/Shutterstock</a></span></figcaption></figure><p>Most of us think nudge theory is about trivial things, like getting us to <a href="https://theconversation.com/should-you-be-nudged-into-better-health-without-you-even-knowing-84601">drink fewer fizzy drinks</a> or getting men to take better aim at the urinal. We should stop and think harder, however, about the darker side of nudge, and what it tells us about this age of neoliberal government.</p>
<p>Nudges are self-explanatory: they nudge people to make different choices. Through tiny changes to our everyday environments, people with an interest in the choices we make have realised how easily they can influence these choices, often at little cost, and without us ever noticing. It might be through the layout of a supermarket display, the wording of a tax letter or, yes, <a href="https://nudges.wordpress.com/the-amsterdam-urinals/">the etching of house flies on urinals</a>. Nudging targets the many small, unconscious, automatic decisions we all make, all the time. And it does so “for our own good”, or at least that’s what we’re normally told.</p>
<p>It’s easy to see how this might feel manipulative. So it’s perhaps not surprising that the widespread use of nudging by governments has been criticised as such by a <a href="http://www.slate.com/articles/health_and_science/new_scientist/2013/07/nudge_critiques_is_nudging_behavior_unethical_infantilizing_coercive_or.html">diverse chorus</a>. Is it really the job of government to make my choices for me? What if I want to be unhealthy, or aim at a different part of the urinal? </p>
<p>There is something unpalatable in the current cultural obsession with nudge. And we should be doubly alert to it following the near-unanimous media praise <a href="https://theconversation.com/why-richard-thaler-won-the-2017-economics-nobel-prize-85404">which greeted the announcement</a> that Richard Thaler – “godfather” of nudge theory – had <a href="https://www.newstatesman.com/politics/economy/2017/10/how-nobel-prize-winner-richard-thaler-gave-free-market-dogma-makeover">won the 2017 Nobel prize in economics</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/190586/original/file-20171017-30386-1k3z4j9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/190586/original/file-20171017-30386-1k3z4j9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/190586/original/file-20171017-30386-1k3z4j9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=366&fit=crop&dpr=1 600w, https://images.theconversation.com/files/190586/original/file-20171017-30386-1k3z4j9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=366&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/190586/original/file-20171017-30386-1k3z4j9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=366&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/190586/original/file-20171017-30386-1k3z4j9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=460&fit=crop&dpr=1 754w, https://images.theconversation.com/files/190586/original/file-20171017-30386-1k3z4j9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=460&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/190586/original/file-20171017-30386-1k3z4j9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=460&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Target practice?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/fly-outflow-urinal-austria-720077350?src=jxXvayb7DWD-EVbVpqH3Jg-1-1">P.Fabian/Shutterstock</a></span>
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<h2>Neoliberal nudging</h2>
<p>Think of the Nobel Prize as a form of public validation. The winner is the chosen spokesperson for that profession at that time. Granting Thaler the prize in economics is like saying: “This is what good economics looks like, right now.”</p>
<p>So what does behavioural economics – the “science” behind nudging – really look like? First, notice that it’s not about normal economic things like prices, supply chains or demand curves. It’s about us: a population of individuals. More specifically, it’s about our psychologies: our instincts, emotions, and evolved cultural habits. Our uncontrolled impulses and moments of weakness. Nudge seeks to know, categorise and quantify such things, so they can be exploited by governments, corporations, or anyone interested in managing our everyday conduct. </p>
<p>This is the first creed of the contemporary neoliberal approach to government. The term neoliberalism has moved from the academic margins to the journalistic mainstream and caused some misunderstandings and conflicting definitions along the way. A core feature agreed upon by most, however, is that neoliberalism governs a population through the choices and freedoms of individuals. </p>
<p>If there’s an obesity problem, we need individuals to <a href="http://www.behaviouralinsights.co.uk/trial-results/behavioural-insights-and-healthier-lives-our-new-report-with-vichealth/">change their lifestyle choices</a>. Climate change? Get people to <a href="http://www.scpclearinghouse.org/sites/default/files/behavioral_insights_consuming_differently_consuming_sustainably-2.pdf">change their consumption</a>, <a href="http://www.thehuntingdynasty.com/2012/05/bin-recycling-behaviour/">recycling</a> or <a href="http://www.steerdaviesgleave.com/The%20US%20federal%20and%20UK%20governments%20have%20their%20Behavioural%20Insight%20teams%20%28or%20%27nudge%20squads%27%29%20and%20now%20Steer%20Davies%20Gleave%20does%20too%21">travel behaviours</a>. Urinals not doing their job? Get men to pee straighter. An emphasis on the individual as both the cause and the solution for all these problems is a key hallmark of the neoliberal era.</p>
<p>And how exactly does nudge understand our psychological lives? The main headline in work like Thaler’s is that people aren’t as <em>rational</em> as we thought. In other words, most of our decisions aren’t based on perfect cost-benefit calculations of the kind that economists have long assumed and that computers are good at making. This might not come as much of a surprise to most, but for professional economics it has been a game-changer. And of course, perfectly rational is how we should be – who would want to be irrational after all? So the nudgers are there to do the maths for us. They know what’s best for you.</p>
<h2>Death of the social</h2>
<p>Awarding a Nobel Prize to one of the key figures responsible for bringing the whole gamut of human emotion and inner psychological experience into the realms of economics sends a strong message. </p>
<p>Through the psychology of choice, features of our everyday lives that we might prefer to consider private have become paramount public concerns. They are now the domain of our public institutions of government, for which an economic lens is the sole means of knowing the small thing that former British prime minister, Margaret Thatcher, <a href="https://www.theguardian.com/politics/2013/apr/08/margaret-thatcher-quotes">claimed never existed</a> in the first place: society.</p>
<p>Writing in 1958, Hannah Arendt <a href="https://monoskop.org/images/e/e2/Arendt_Hannah_The_Human_Condition_2nd_1998.pdf">foresaw in The Human Condition</a> the depoliticising and dehumanising effects when public, social life is increasingly understood via the science of individual behaviour. The behavioural sciences, wrote Arendt, would:</p>
<blockquote>
<p>Reduce man as a whole, in all his activities, to the level of a conditioned and behaving animal. </p>
</blockquote>
<p>Almost six decades later, have a think about this next time you’re choosing toothpaste or, more importantly perhaps, deciding who to vote for. Don’t just rely on instincts that are being shaped and nudged as you go about your day, and don’t be afraid to question whether you really are thinking for yourself.</p><img src="https://counter.theconversation.com/content/85580/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rupert Alcock received funding from the ESRC.</span></em></p>Governments gently cajoling people towards better life choices is only one side of the nudge theory.Rupert Alcock, Research Associate, SAFE SEAS, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/855672017-10-11T19:02:27Z2017-10-11T19:02:27ZDo people like government ‘nudges’? Study says: Yes<figure><img src="https://images.theconversation.com/files/189823/original/file-20171011-9777-513r2q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A product's calorie label is a common form of nudging behavior. </span> <span class="attribution"><span class="source">AP Photo/Jacquelyn Martin</span></span></figcaption></figure><p>On Oct. 9, Richard Thaler of the University of Chicago <a href="https://theconversation.com/economist-who-helped-behavioral-nudges-go-mainstream-wins-nobel-85430">won the Nobel Prize</a> for his extraordinary, world-transforming work in behavioral economics. In its <a href="http://www.kva.se/en/pressroom/pressmeddelanden/ekonomipriset-2017">press release</a>, the Royal Swedish Academy of Sciences emphasized that Thaler demonstrated how nudging – or influencing people while fully maintaining freedom of choice – “may help people exercise better self-control when saving for a pension, as well in other contexts.” </p>
<p>In terms of Thaler’s work on what human beings are actually like, that’s the tip of the iceberg – but it’s a good place to start.</p>
<p>In 2008, Thaler and I wrote “<a href="https://yalebooks.yale.edu/book/9780300122237/nudge">Nudge</a>,” emphasizing the massive potential of seemingly small interventions that steer people in particular directions but that also allow them to go their own way. That’s how a GPS nudges. Other common nudges include a calorie label, a reminder that you have a doctor’s appointment next week, a warning that a product contains peanuts and so-called default rules, such as automatically shifting a small percentage of your salary to a pension program unless you opt out. </p>
<p>Some skeptics have raised concerns that <a href="http://blogs.lse.ac.uk/politicsandpolicy/nudges-manipulate-except-when-they-dont/">nudging can be akin to manipulation</a>. My research shows most people disagree – and welcome nudges that help them live better lives.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/189829/original/file-20171011-9733-1js51wf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/189829/original/file-20171011-9733-1js51wf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=301&fit=crop&dpr=1 600w, https://images.theconversation.com/files/189829/original/file-20171011-9733-1js51wf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=301&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/189829/original/file-20171011-9733-1js51wf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=301&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/189829/original/file-20171011-9733-1js51wf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=379&fit=crop&dpr=1 754w, https://images.theconversation.com/files/189829/original/file-20171011-9733-1js51wf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=379&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/189829/original/file-20171011-9733-1js51wf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=379&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The FDA uses cigarette warnings to nudge behavior.</span>
<span class="attribution"><span class="source">AP Photo/Evan Vucci</span></span>
</figcaption>
</figure>
<h2>A world of nudges</h2>
<p>In <a href="http://www.behaviouralinsights.co.uk/">numerous</a> <a href="https://theconversation.com/how-the-science-of-human-behavior-is-beginning-to-reshape-the-us-government-48145">nations</a>, public officials have been drawn to nudges, especially in recent years. </p>
<p>In the United States, the United Kingdom, Canada, the Netherlands and many other nations, officials have used nudges to implement public policies. Examples include disclosing information about the ingredients of food, providing fuel economy labels on cars, offering warnings about cigarettes and distracted driving, automatically enrolling people in pension plans, and requiring disclosures about mortgage payments and credit card usage. With an emphasis on poverty and development, the World Bank devoted <a href="http://www.worldbank.org/en/publication/wdr2015">its entire 2015 report</a> to behaviorally informed tools, with a particular focus on nudging. Examples cited include setting defaults that encourage saving and texting reminders to help people to pay bills on time.</p>
<p>The reason for the mounting interest is clear: If governments can achieve policy goals with tools that do not impose high costs – while preserving freedom of choice – they will take those tools seriously. </p>
<p>But governments also care what citizens actually think. Do they approve of nudges?</p>
<p>My research, analyzed in my book, “<a href="https://www.cambridge.org/core/books/the-ethics-of-influence/E29EDE19EBCB53F6D8691730668115F7">The Ethics of Influence</a>,” supports a single and perhaps surprising conclusion: In many nations, strong majorities favor nudges – certainly of the kind that have been seriously proposed, or acted on, by actual institutions in recent years. My surveys show that people like mandatory calorie labels. They favor graphic health warnings for cigarettes. They approve of automatic enrollment in savings plans. In general, they like nudges that promote healthy and safety, and have no ethical complaints.</p>
<p>In the United States and Europe, Professor Lucia Reisch of Copenhagen Business School and I have found that this enthusiasm usually extends across standard partisan lines. In the United States, it unifies Democrats, Republicans and independents. This is an important finding, because it suggests that most people do not share the concern that nudges, as such, should be taken as manipulative or as an objectionable interference with autonomy. By contrast, a lot of people object to mandates and bans, apparently on the ground that they limit freedom.</p>
<h2>When nudging goes wrong</h2>
<p>At the same time, <a href="https://www.cambridge.org/core/books/the-ethics-of-influence/E29EDE19EBCB53F6D8691730668115F7">most people reject nudges</a> that are taken to have illegitimate goals. Nudges that favor a particular religion or political party will meet with widespread disapproval, even among people of that very religion or party. </p>
<p>This simple principle justifies a prediction: Whenever people think that the motivations of public officials are illicit, they will disapprove of the nudge. To be sure, that prediction might not seem terribly surprising, but it suggests an important point, which is that people will not oppose nudges as such. Everything will turn on what they are nudging people toward. </p>
<p>Most people also oppose nudges that they see as inconsistent with the interests or values of the people whom they affect. </p>
<p>If public officials nudge people to give money to a cause they dislike, citizens will disapprove. More surprisingly, they will also dislike it if officials adopt a default rule by which citizens automatically give their money to a good charity. Apparently people think that if they are going to give to charity or lose some of their money, it had better be a result of a conscious choice. By contrast, most people favor automatic voter registration and automatic enrollment in pension plans and green energy, apparently because citizens think that those nudges are in most people’s interests. </p>
<h2>Why we need more nudging</h2>
<p>Simple as they are, these principles capture most people’s ethical judgments in many nations (including the United States and Europe): Nudges are acceptable, even wonderful, if they will promote people’s health, safety or welfare. They are unacceptable if they have illegitimate goals or if they would compromise the interests or values of the people they affect.</p>
<p>It is true, of course, that surveys cannot settle the ethical issues. We need to investigate the ethical issues in some depth. As “The Ethics of Influence” shows, that investigation requires us to investigate some big philosophical issues, involving human welfare, human autonomy and human dignity. </p>
<p>One of my conclusions is that if we really care about welfare, autonomy and dignity, nudging is often required on ethical grounds. We need a lot more of it. The lives we save may be our own.</p><img src="https://counter.theconversation.com/content/85567/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cass Sunstein has in the past received funding from Pepsi and from the US government. I do not receive any funding now, but I was a consultant for Pepsi over the summer of 2017, and I worked in various positions in the US government from 2009-2012.</span></em></p>Government initiatives to prod people to make better decisions got a lot of attention after Richard Thaler won a Nobel in economics for his working on nudging.Cass Sunstein, University Professor, Harvard UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/854302017-10-09T18:52:43Z2017-10-09T18:52:43ZEconomist who helped behavioral ‘nudges’ go mainstream wins Nobel<figure><img src="https://images.theconversation.com/files/189440/original/file-20171009-6960-9uqy7s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As a founder of behavioral economics, Thaler has helped change the way economists look at the world.
</span> <span class="attribution"><span class="source">AP Photo/Paul Beaty</span></span></figcaption></figure><p>The <a href="http://www.kva.se/en/startsida">2017 Nobel Prize in economics</a> was awarded to University of Chicago’s <a href="http://faculty.chicagobooth.edu/Richard.Thaler/index.html">Richard Thaler</a> for his work in <a href="https://theconversation.com/us/topics/behavioral-economics-14384">behavioral economics</a>, which is the integration of economics with psychology. </p>
<p>While the award was not a total surprise, since Thaler’s name was floated earlier on the <a href="https://blogs.wsj.com/economics/2017/10/03/who-will-win-the-2017-nobel-prize-in-economics/">list of potential winners</a>, it highlights the growing importance of incorporating how humans actually behave into economic thinking. It marks the second time a pioneer in the burgeoning field of behavioral economics – which hardly existed a few decades ago – has won a Nobel, the first being psychologist <a href="https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2002/">Daniel Kahneman</a> in 2002. </p>
<p>It may be hard to believe, but before these scholars came along, many economists assumed that humans acted like <a href="http://www.startrek.com/database_article/spock">Spock</a> on “Star Trek.” People were supposed to be perfectly rational calculating machines that looked at all the information and made correct choices. However, even a most casual view of the real world suggests this is not a good assumption.</p>
<p>So who is Thaler and what’s so important about his work?</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/189442/original/file-20171009-6984-1ymailk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/189442/original/file-20171009-6984-1ymailk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/189442/original/file-20171009-6984-1ymailk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/189442/original/file-20171009-6984-1ymailk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/189442/original/file-20171009-6984-1ymailk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/189442/original/file-20171009-6984-1ymailk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/189442/original/file-20171009-6984-1ymailk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Before Thaler and his peers came along, economists assumed people behaved a lot like Spock.</span>
<span class="attribution"><span class="source">AP Photo/Bob Galbraith</span></span>
</figcaption>
</figure>
<h2>Thaler’s impact</h2>
<p><a href="http://faculty.chicagobooth.edu/Richard.Thaler/vitae/CV.pdf">Richard Thaler</a> was born in 1945 in East Orange, New Jersey. He studied at Case Western and the University of Rochester, where he earned a Ph.D. in economics in 1974. </p>
<p>His doctoral thesis offered one of the earliest <a href="https://books.google.com/books/about/The_Value_of_Saving_a_Life.html?id=luXjtwAACAAJ">estimates of the value of saving a life</a>, calculations that <a href="http://www.law.harvard.edu/programs/olin_center/papers/pdf/Viscusi_517.pdf">governments</a> and businesses use to determine how much they should spend to prevent fatalities. For example, when the government is considering new air quality regulations that will cost companies money, it compares the price tag against the value of lives saved if the changes are implemented. </p>
<p>Thaler estimated that a life saved was worth about <a href="http://www.nber.org/chapters/c3964.pdf">US$200,000</a> in 1967 dollars, or about <a href="https://www.bls.gov/data/inflation_calculator.htm">$1.5 million</a> in 2017 terms. Today, government agencies value a life <a href="http://www.nytimes.com/2011/02/17/business/economy/17regulation.html">five to six times higher</a> than that. </p>
<p>Thaler may be best-known for the bestselling book “<a href="https://yalebooks.yale.edu/book/9780300122237/nudge">Nudge</a>,” which he co-wrote with Harvard law professor Cass Sunstein. “Nudge” is credited with inspiring former Prime Minster David Cameron to create the U.K.’s <a href="http://www.behaviouralinsights.co.uk">Behavioral Insights Team</a>, which uses psychological principles to improve the effectiveness of public services. Former President Barack Obama <a href="https://theconversation.com/how-the-science-of-human-behavior-is-beginning-to-reshape-the-us-government-48145">set up a similar group</a> in the White House.</p>
<p>Thaler and Sunstein argue people should not be forced to do things with bans or laws. Instead, small interventions, or nudges, that make the right choice easier are the best way to go. They offer examples such as putting healthy food where people can see and reach it easily while relegating unhealthy options to out-of-the-way spots. Since people usually make the easy choice, moving food around will result in less junk food being eaten.</p>
<p>Another example is making automatic retirement contributions the <a href="https://theconversation.com/how-the-science-of-human-behavior-is-beginning-to-reshape-the-us-government-48145">default choice</a> when someone begins a new job. This means new employees will have to fill out paperwork to stop contributions instead of to start them. As a result, more people save for retirement.</p>
<p>More specifically, the Royal Swedish Academy of Sciences selected Thaler for his <a href="http://www.kva.se/en/pressroom/pressmeddelanden/ekonomipriset-2017">work in three areas</a>: “limited rationality,” “social preferences” and “lack of self-control.”</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/189441/original/file-20171009-6973-acys7v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/189441/original/file-20171009-6973-acys7v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/189441/original/file-20171009-6973-acys7v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/189441/original/file-20171009-6973-acys7v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/189441/original/file-20171009-6973-acys7v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/189441/original/file-20171009-6973-acys7v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/189441/original/file-20171009-6973-acys7v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Thaler and Sunstein showed how making healthier options more visible makes it more likely people will choose them.</span>
<span class="attribution"><span class="source">AP Photo/Hans Pennink</span></span>
</figcaption>
</figure>
<h2>Limits of our reason</h2>
<p>Thaler pointed out that because people often can’t solve many problems in their economic lives, they simplify and use rules of thumb. These simplifications, however, lead to strange and sometimes bad choices.</p>
<p><a href="http://www.washingtonpost.com/wp-dyn/content/article/2007/05/19/AR2007051900316.html">Mental accounting</a> is one area of strange choices that Thaler was the first to identify. Because our financial lives are complex, we mentally put money in separate buckets and spend only the money available in that bucket. </p>
<p>For example, <a href="http://www.economiapsicologica.com.br/wp-content/uploads/2009/05/thaler-mental-accounting-and-consumer-choice.pdf">Thaler describes a couple</a> who receives $300 in cash compensation from an airline for lost baggage. The couple takes the $300 and spends it on a fancy dinner. They splurged for the dinner only because, in their heads, they classified $300 as a windfall. But if their salaries had simply increased by a total of $300, they would likely not have splurged on eating out but instead mentally classified the extra money as spending for rent and other bills.</p>
<h2>Adding emotion to economics</h2>
<p>He also won the Nobel for his work on social preferences and fairness. </p>
<p><a href="http://www.jstor.org/stable/1806070">Thaler, with co-authors Kahneman and Canadian economist Jack Knetsch</a>, showed in 1986 how customers don’t expect companies to maximize profits in all situations. For example, when there’s a blizzard, people don’t expect stores to raise the price of shovels, even though demand will naturally soar as the snow piles up. Thaler and his co-authors showed that customers will tend to punish businesses that do. This is a surprising result since it shows that businesses that maximize <a href="http://businessmacroeconomics.com/">profits</a> in the short term, as many do, can be penalized in the long term if customers think the companies are acting unfairly.</p>
<p>This work has relevance today for understanding consumers’ reactions to drug companies pushing <a href="https://www.nytimes.com/2017/09/17/insider/insider-high-drug-prices-opioids.html">prescription drug prices ever higher</a> and to businesses <a href="http://www.businessinsider.com/price-gouging-in-texas-gas-prices-hurricane-2017-9">price-gouging</a> after hurricanes. Thaler points out <a href="http://www.jstor.org/stable/2647056">that emotions</a>, like feelings about fairness, are an important but overlooked area of economics.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/189439/original/file-20171009-6990-13dgu9j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/189439/original/file-20171009-6990-13dgu9j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=437&fit=crop&dpr=1 600w, https://images.theconversation.com/files/189439/original/file-20171009-6990-13dgu9j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=437&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/189439/original/file-20171009-6990-13dgu9j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=437&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/189439/original/file-20171009-6990-13dgu9j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=550&fit=crop&dpr=1 754w, https://images.theconversation.com/files/189439/original/file-20171009-6990-13dgu9j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=550&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/189439/original/file-20171009-6990-13dgu9j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=550&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Daniel Kahneman makes a toast with his wife Anne Treisman after winning the Nobel Prize in economics.</span>
<span class="attribution"><span class="source">AP Photo/Daniel Hulshizer</span></span>
</figcaption>
</figure>
<h2>Paying for self-control</h2>
<p>A third area cited by the Swedish Academy was the contribution Thaler and economist Hersh Shefrin made on ideas about <a href="https://www.jstor.org/stable/1806070?seq=1#page_scan_tab_contents">self-control</a>.</p>
<p>The economists noted that people spend money to avoid making poor choices or to avoid engaging in the wrong kinds of behaviors. For example, Thaler and Shefrin wrote that people “pay to go to ‘<a href="http://www.foxnews.com/travel/2013/04/22/americas-top-10-weight-loss-resorts.html">fat farms</a>’ which essentially are resorts that promise not to feed their customers.”</p>
<p>Individuals not only pay for self-control but also create special rules to ensure they don’t go beyond self-imposed limits. Smokers, for instance, often buy cigarettes by the pack instead of by the carton. This ensures they smoke less each day, even though they pay more per cigarette. </p>
<p>Thaler’s work on self-control is becoming more important as the internet and almost instant delivery make more of the <a href="https://www.amazon.com/Temptation-Finding-Self-Control-Age-Excess/dp/0143120808">world’s temptations easier to access</a> without waiting. Understanding how people actually operate results in better public policies that can achieve the same results without costing people money.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/189443/original/file-20171009-6999-ui1k38.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/189443/original/file-20171009-6999-ui1k38.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/189443/original/file-20171009-6999-ui1k38.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/189443/original/file-20171009-6999-ui1k38.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/189443/original/file-20171009-6999-ui1k38.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=487&fit=crop&dpr=1 754w, https://images.theconversation.com/files/189443/original/file-20171009-6999-ui1k38.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=487&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/189443/original/file-20171009-6999-ui1k38.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=487&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Even though regular smokers would save money by buying cigarettes by the carton, many purchase one pack at a time as a means of self-control.</span>
<span class="attribution"><span class="source">AP Photo/Ed Wray</span></span>
</figcaption>
</figure>
<h2>It’s all about us</h2>
<p>The award is worth <a href="https://www.nobelprize.org/nobel_prizes/about/amounts/prize_amounts_17.pdf">9 million Swedish kronor</a>, which at today’s exchange rate is about $1.1 million. Unfortunately for Thaler, since he is an American, the <a href="https://taxfoundation.org/nobel-prize-award-subject-income-taxation/">entire award is taxable</a> income – unless it is donated to a charity.</p>
<p><a href="https://www.nytimes.com/2017/10/09/business/nobel-economics-richard-thaler.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=second-column-region&region=top-news&WT.nav=top-news">Asked how he would spend the money</a>, he said: “This is quite a funny question… I will try to spend it as irrationally as possible.”</p>
<p>The Nobel Memorial Prize in Economic Science, the only award not created by <a href="https://www.nobelprize.org/alfred_nobel/will/">Alfred Nobel in his will</a>, also brings enormous prestige to the winner. Economist Friedrich Hayek, who won the prize in 1974, <a href="https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-speech.html">said it confers</a> on an individual an “influence over laymen: politicians, journalists, civil servants and the public generally.”</p>
<p>Beyond this influence, why should you care? The <a href="https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/">list of past economics Nobel Prize winners</a> contains many people whose work is fascinating to economists but whose relevance to the lives of regular people is tenuous. </p>
<p>Richard Thaler’s work, however, has direct relevance for pretty much everyone. His early research helps save lives. His later research helps people save for retirement and helps save us from our own worst tendencies. The Swedish Academy made an astute choice in lauding his work.</p><img src="https://counter.theconversation.com/content/85430/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Richard Thaler won the 2017 Nobel Prize in economics for his groundbreaking work incorporating how humans actually behave into economic thinking.Jay L. Zagorsky, Economist and Research Scientist, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/779272017-05-25T10:20:52Z2017-05-25T10:20:52ZOur ‘selfish’ genes contain the seeds of our destruction – but there might be a fix<figure><img src="https://images.theconversation.com/files/170358/original/file-20170522-25008-1fmr6bo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Flawed.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/dna-molecule-located-front-colored-background-143348383?src=jcWIVlvK8cEfb5WZWboRiA-1-26">Shutterstock</a></span></figcaption></figure><p>The human race is in so much trouble that it needs to colonise another planet within 100 years or face extinction. So <a href="http://www.cnbc.com/2017/05/05/stephen-hawking-human-extinction-colonize-planet.html">says</a> the physicist Stephen Hawking in an upcoming BBC documentary, Stephen Hawking: Expedition New Earth. According to Hawking, “with climate change, overdue asteroid strikes, epidemics and population growth, our own planet is increasingly precarious”. </p>
<p>If this makes you nervous, it should. Colonising another planet will be much easier said than done, and lots of people would likely be left behind to face whichever disaster comes first. So is there an alternative?</p>
<p>You first have to appreciate that this is mainly a population issue. According to the <a href="http://www.htxt.co.za/2017/04/26/world-population-crosses-7-5-bil/">official count</a>, the number of humans recently passed the 7.5 billion mark. While estimates of the carrying capacity of Earth vary widely, most people would accept we are causing serious damage. And with the population <a href="http://www.un.org/en/development/desa/news/population/2015-report.html">set to</a> hit nearly ten billion by 2050, that may be <a href="http://www.un.org/esa/population/publications/wpm/wpm2001.pdf">as much as</a> ten times more than the planet’s resources can sustain. </p>
<p>If we could yet reverse <a href="http://www.telegraph.co.uk/news/2016/06/06/falling-birth-rates-could-spell-end-of-the-west---lord-sacks/">this growth</a>, we might be able to avoid Hawking’s solution (at least if we are prepared to ride our luck over the asteroid strike). Standing in our way are two flaws hardwired into human DNA: our genes and our inability to make rational choices. If we can overcome them, I would argue that our days on this planet may not be numbered after all. </p>
<h2>Fatal flaws?</h2>
<p>Our genes problem famously stems from Richard Dawkins’ <a href="https://archive.org/stream/TheSelfishGene/RichardDawkins-TheSelfishGene_djvu.txt">The Selfish Gene</a>. It contains the idea that all organisms are merely conduits for genes that hop from generation to generation through different bodies. They do this purely in their own interests, not necessarily the interests of the organisms themselves. </p>
<p>Our genes have been able to do this because our ancestors were unable or unwilling to resist the urge to procreate. We have stemmed this <a href="https://www.theguardian.com/society/2016/jul/18/how-uk-halved-teenage-pregnancy-rate-public-health-strategy">to some extent</a> by teaching kids about contraception (notably by appealing to “selfish” arguments about their future happiness, not saving the planet). Nonetheless the population continues to grow. </p>
<p>Also relevant is another idea in The Selfish Gene known as kin selection. It suggests that not only is our ultimate drive to spread the genes contained within our bodies, we are also compelled to protect and nurture the genes in our relatives – and by extension the people in our motherland. </p>
<p>Originally <a href="http://nectunt.bifi.es/to-learn-more-overview/kin-selection/">discussed by</a> Darwin, this idea implies we are all essentially racist – consciously or subconsciously favouring those who share our genes. It is one of the <a href="http://discovermagazine.com/2011/jan-feb/03">more controversial</a> areas in The Selfish Gene, since it is difficult if not impossible to separate nature and nurture. All the same, the fact that we have more genes in common with people closer to home means there is at least an evolutionary argument for favouring them. </p>
<p>If the idea is right, it is an additional explanation for our inability to think in terms of what is best for humanity as a whole. If you were to reduce your population on behalf of humanity, for example, it might mean fewer young people – threatening economic problems. One solution is immigration from countries who have many young people. But are we prepared to supplement our own gene pool with young foreigners? </p>
<p>Something else in our nature may also be driving us towards unprotected copulation. Just as we are prisoners to the desire of our selfish genes, we also find it difficult to think unemotionally. In his bestselling book from 2011, <a href="http://www.goodreads.com/book/show/11468377-thinking-fast-and-slow">Thinking, Fast and Slow</a>, the Nobel laureate Daniel Kahnemann convincingly explained why we struggle to make good choices to seemingly simple problems, particularly those with a strong emotional element. That includes resisting the urge to breed. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/170360/original/file-20170522-25027-fcfcrs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/170360/original/file-20170522-25027-fcfcrs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/170360/original/file-20170522-25027-fcfcrs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/170360/original/file-20170522-25027-fcfcrs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/170360/original/file-20170522-25027-fcfcrs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/170360/original/file-20170522-25027-fcfcrs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/170360/original/file-20170522-25027-fcfcrs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/170360/original/file-20170522-25027-fcfcrs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Daniel Kahnemann, author of Thinking, Fast and Slow.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/erikbenson/9585678357">Buster Benson</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
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</figure>
<p>If he is correct, it means that even appealing to people’s own rational self-interest about population control would not be enough. As for arguing it would benefit the greater good of humanity, we may as well forget it. As Kahnemann <a href="https://www.theguardian.com/science/2011/nov/14/daniel-kahneman-psychologist">himself said</a> in an interview, you can’t learn your way out of this trap. “It’s not a case of ‘Read this book and then you’ll think differently’. I’ve written this book, and I don’t think differently.” </p>
<h2>What it means</h2>
<p>Is there any hope of addressing these aspects of the human condition? Certainly there is no general acceptance that human breeding is a bad thing, and not just when other nationalities do it. Even people who understand that there are way too many humans continue to produce their own little addition. And in our societies, we overwhelmingly celebrate births as great thing. </p>
<p>Overriding our drive to procreate is therefore a monumental task. We know that education can work <a href="https://www.theguardian.com/society/2016/jul/18/how-uk-halved-teenage-pregnancy-rate-public-health-strategy">up to a point</a>. And in some countries birth rates <a href="http://data.worldbank.org/indicator/SP.DYN.CBRT.IN">are already</a> falling, so that’s a start. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/170361/original/file-20170522-25048-18mnpnf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/170361/original/file-20170522-25048-18mnpnf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/170361/original/file-20170522-25048-18mnpnf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=672&fit=crop&dpr=1 600w, https://images.theconversation.com/files/170361/original/file-20170522-25048-18mnpnf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=672&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/170361/original/file-20170522-25048-18mnpnf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=672&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/170361/original/file-20170522-25048-18mnpnf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=845&fit=crop&dpr=1 754w, https://images.theconversation.com/files/170361/original/file-20170522-25048-18mnpnf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=845&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/170361/original/file-20170522-25048-18mnpnf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=845&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">One child China.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/xianmay-22-2009-familys-way-on-97300949?src=-o2YiveIPpfEpxPwCsofEQ-1-11">TonyV3112</a></span>
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<p>Potentially we can learn from China’s controversial one child policy. It did reduce the number of humans born in that country. If we could overcome the <a href="http://www.aljazeera.com/indepth/features/2017/01/child-policy-affected-china-170129130503972.html">intolerable suffering</a> that it caused by aggressively implementing a policy of true equality of opportunity for men and women at the same time, it may yet be workable. </p>
<p>To help win hearts and minds for such a change, we may be able to draw on a technique called “nudge” – as described in <a href="https://www.theguardian.com/books/2008/jul/20/politics.society1">the 2008 book</a> of the same name by American academics Richard Thaler and Cass Sunstein. Nudging essentially persuades people to adopt behaviours that are better for either them or society as a whole. It has been <a href="https://theconversation.com/the-potential-of-behavioural-economics-beyond-the-nudge-43535">shown to</a> work on many people without them being conscious of it. </p>
<p>But first, it needs to become more widely recognised that we are at war with our own biological constraints. In the decades to come, it is just possible that we will be able to create a new civilisation somewhere else in the solar system or even beyond. But staring back at those settlers in the mirror will still be the same fundamentally flawed humans. Instead of running away, wouldn’t it be better to stand and fight?</p><img src="https://counter.theconversation.com/content/77927/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Baird does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Stephen Hawking thinks we need to leave the planet. Do we?John Baird, Senior Lecturer, Zoology, University of AberdeenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/275762014-06-05T00:31:47Z2014-06-05T00:31:47Z‘Nudging’ people towards changing behaviour: what works and why (not)?<figure><img src="https://images.theconversation.com/files/50206/original/r9r9mhgy-1401857662.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">'Nudge' theory - a form of behavioural economics - encourages rather than coerces. </span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>Earlier this week an impressive cast of academics, policy experts and business leaders gathered in Sydney at the inaugural <a href="http://bx2014.org/">Behavioural Exchange meeting</a> to talk about “nudges”.</p>
<p>Made famous by Richard Thaler and Cass Sunstein’s 2008 <a href="http://en.wikipedia.org/wiki/Nudge_%28book%29">book</a>, nudges build on almost half a century of work at the intersection of psychology, behavioural economics and policy. </p>
<p>In a nutshell, a nudge is an attempt to make judgements and choices easier – but not in a coercive way. </p>
<p>The pioneers of the approach are the UK Behavioural Insights Team who in conjunction with UK government led by prime minister David Cameron have used nudges to increase the number of organ donors, improve payment rates of fines, and make job-seekers more engaged and involved (among many other things). </p>
<p>Some of these successes have been replicated by the <a href="http://bi.dpc.nsw.gov.au/">Behavioural Insights Team</a> here in NSW. For example, a study run with the State Debt Recovery Office (SDRO) demonstrated that fine notices which included a prominent “PAY NOW” stamp, and used wording like “you owe” rather than “amount owed” led to significant improvements in payment rates in comparison to a standard letter.</p>
<p>These success stories are encouraging, but they belie an important question that was perhaps not given enough attention at the meeting. Why do some nudges work and others fail?</p>
<p>The standard argument is that nudges work because they make choices simpler by capitalising on the “boundedly rational” nature of human decision making. But how, exactly, they work and which aspect of the “choice architecture” is simpler, more engaging, or more influential, can be unclear.</p>
<h2>PAY NOW or ‘you owe’</h2>
<p>For example was it the “PAY NOW” or the “you owe” that changed payment rates? This might not matter. If the goal is to improve the outcome (that is, encourage people to pay a fine on time), then perhaps understanding the process is not so crucial.</p>
<p>From a psychological perspective, however, it is also important to understand the process or the mechanism. For instance, in the SDRO study, a letter that had the words “ACT NOW” instead of “PAY NOW” was not so successful in changing behaviour – why not? </p>
<p>We can speculate but we don’t really know. Knowing why is important not just academically, but also from a practical perspective. If we don’t know why a nudge worked in the first place – and then it stops working (e.g., people return to being tardy fine-payers) – we may not know how to get it working again. Not knowing the why also makes it more difficult to generalise nudges to other contexts.</p>
<p>As many of the speakers at the conference acknowledged, a lot of the successful nudges have not been in place long enough to judge their long term success. Again, sometimes this may not matter – if the nudge is a “set and forget” such as changing defaults to become an <a href="http://www.sciencemag.org/content/302/5649/1338">organ donor</a>, then nudging people to make the “right” choice once is enough. But nudging repetitive behaviours (for example, energy use in the home) is likely to require repeated reminders to avoid relapses or people becoming habituated to the message.</p>
<h2>Replication and the danger of file drawers</h2>
<p>Via teleconference, Richard Thaler reminded the audience of the key importance of replicating successful nudges – and also of recording and telling people about “failed” nudges.</p>
<p>Psychology has been through a painful period of self-reflection recently due to highly publicised <a href="https://theconversation.com/does-thinking-about-professors-make-you-more-intelligent-13876">failures-to-replicate</a>. Part of the problem has been a publication bias whereby experiments that “don’t work” get stuck in the file drawer and <a href="http://www.nature.com/news/nobel-laureate-challenges-psychologists-to-clean-up-their-act-1.11535">no one learns from them.</a></p>
<p>The field of Behavioural Insights would do well not to fall foul of a file draw problem and to resist the temptation to over-sell the product too soon. It is worth remembering that much of the pioneering work of <a href="http://www.sciencemag.org/content/185/4157/1124.abstract?maxtoshow=&HITS=10&hits=10&RESULTFORMAT=&fulltext=Judgment+Under+Uncertainty%253A+Heuristics+and+Biases&searchid=1&FIRSTINDEX=0&resourcetype=HWCIT">Daniel Kahneman and Amos Tversky</a> – on which Behavioural Insights are based – focused on situations when people’s reasoning did not “work”. We learn from errors and failures as much as from successes.</p>
<p>The machinery for doing this replication work is readily available. One of the most important messages of the meeting was emphasising the use of randomised controlled trials and the need for repeated testing and adaptation. </p>
<p>But these sorts of trials are expensive and time consuming and in some sectors there may not be much appetite for replications with larger samples. Once something “works” there might be a temptation, amongst some, to just “run with it”. It is crucial, however, for the continued success of the field that these replications are done (despite the clear practical challenges), and that failures to replicate are reported. </p>
<p>The enthusiasm for and promise of behavioural insights was very evident over the two days of the conference. The future appears bright for practitioners of “BI”, but as UK’s Behavioural Insights director David Halpern noted in his closing remarks, one needs to be cautious and not get swept up in the rhetoric. </p>
<p>Focusing a little more on the “why” and “why not” questions might just provide the kinds of insights necessary to nudge the field forward.</p><img src="https://counter.theconversation.com/content/27576/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ben Newell attended Behavioural Exchange 2014 as a guest of the Alfred P. Sloan Foundation. Ben Newell receives funding from the Australian Research Council.</span></em></p>Earlier this week an impressive cast of academics, policy experts and business leaders gathered in Sydney at the inaugural Behavioural Exchange meeting to talk about “nudges”. Made famous by Richard Thaler…Ben Newell, Associate Professor of Cognitive Psychology, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.