Some thoughts by Prof. Hogarth on Prof. Thaler’s award of the Nobel Prize in economics

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By Orestis Vravosinos (Economics ’18)

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Universitat Pompeu Fabra and BGSE Emeritus Research Professor Robin M. Hogarth shares some thoughts in the light of Prof. Thaler’s award of the Nobel Prize in economics.

1. What would you deem to be the most significant contributions of Prof. Thaler?

Prof. Hogarth: “I’m very glad that Thaler got the Nobel Prize, because it’s a recognition that the field of behavioral economics has to be taken seriously. He has made the field more popular and two of his books are quite interesting. Even though from an academic point of view ‘Nudge’ may not be so strong, in both ‘Nudge’ and ‘Misbehaving’ Thaler has done a very good job in explaining things and making behavioral economics accessible to the wider public. ‘Nudge’ has spurred the creation of nudge initiatives in the UK and the US.”

Prof. Thaler has greatly contributed in popularizing behavioral economics and manifesting the insight it can offer in practice and policy, especially though the use of nudges bringing nudge theory to prominence. However, as is most times the case with influential research, Prof. Thaler’s work has also been a matter of controversy, as criticism of what is called ‘libertarian paternalism’ has developed. Concerns have been raised both in regards to freedom of choice (e.g. Mitchell, 2005; Veetil, 2011) and the efficiency or optimality of paternalistic policies (e.g. Rachlinski, 2003; Mitchell, 2005; Glaeser, 2006).

2. How do you think concerns regarding the use of nudges can be alleviated? Do you think there needs to be any form of regulation on it?

Prof. Hogarth: “Thaler and his co-authors have supported nudge coining the term ‘libertarian paternalism’. Although I don’t think the term makes much sense, I don’t see what is wrong with governments saying that some things are better for people than others; advertisers do it all the time.

In some EU countries there is a total rejection of organ donation after death, while in others almost total acceptance and the reason is the difference in the default option on the driving license among countries. I don’t see why this is wrong; since a default has to be chosen, why not choose the one that is on average better for everybody? Provided that people can still go against the default, if they want to. Governments should be able to use as much social science knowledge as they want. As long as there is “good knowledge”, why should we ignore it? Whether it comes from sociology, psychology, anthropology, economics or whatever, we should use it, as long as it is good for the society.

I don’t think there is any need for regulation of nudge. One should not regulate how advertisers advertise the products, as long as they say the truth. Similarly, governments or agencies should be allowed to design choice; they just need to be honest and clear about it.”

3. Are there any other thoughts you would like to share in the light of this year’s awarding of the Nobel Prize in Economics?

Prof. Hogarth: “Another interesting aspect of Thaler’s work is that it has managed to make an impact without being heavily mathematical. The other point I would like to make is that Thaler owes a tremendous debt to Tversky and Kahneman. Prospect theory provided a framework for explaining things Thaler thought of.”

We kindly thank Prof. Hogarth for sharing these thoughts with us.

References

Glaeser, E. L. (2006). Paternalism and Psychology. The University of Chicago Law Review, 73(1):133-156

Mitchell, G. (2005). Libertarian Paternalism Is an Oxymoron. Northwestern University Law Review, 99(3):1245-1277.

Rachlinski, Jeffrey J. (2003). The Uncertain Psychological Case for Paternalism. Northwestern University Law Review, 93(3):1165-1225.

Veetil, V.P. (2011). Libertarian paternalism is an oxymoron: an essay in defence of liberty. European Journal of Law and Economics, 31: 321-334.