Skip to main content

Nudge

I have recently read Thaler and Sunstein's Nudge.  Thaler is a founding father of behavioural economics and Sunstein is a Harvard law professor, who currently works for the Obama administration.

Nudge is a manifesto for what its authors call Libertarian Paternalism, the idea that governments should design choice architecture to nudge people in the direction that the State (or its expert advisers) thinks is best for individuals and society.  In this world, people are 'free to choose' (to quote the title of the Friedmans' famous book), but government determines the choices people face and may even nudge them in the direction of one particular choice.

The problem with this, of course, is that governments and their advisers as well as their lobbyists have incentives to nudge us in directions which are not optimal for us or society, but which benefit the government and its supporters or financial backers.  See here for more on this critique.

The behavioural economics in Nudge is fascinating, but the authors spend far too much time on how this translates into public policy.  I would have loved them to have spent more time on the theory and more time on how managers and businesses can use behavioural economics to build better companies and organizations.  Anyhow, if you are interested in human behaviour, this book should be on your reading list!  Was that a nudge or a shove?

Nudge: Improving Decisions About Health, Wealth, and Happiness

Popular posts from this blog

The Economics of Global Warming

The Berkeley Earth Project , an independent study of global warming, has found that the earth has become a degree warmer over the past half century.  However, the statistical uncertainty surrounding pre-1920 estimates makes it very hard to say much about long-term trends - click here for graph .  This is one of my concerns with the global warming debate - we simply don't have trustworthy long-run data which looks at temperature changes over the last millennium (or two).  My second concern with the global warming debate is that it is very hard to prove any sort of casual link between global warming and human activity.  The scientists may be able to show correlation between global warming and our production of carbon dioxides etc., but correlation is not causation. My third concern with the debate is  that those who are sceptical or agnostic are stereotyped as flat-earthers or intellectually-challenged crackpots.  This only stifles debate and the progress of science itself. 

Boom and Bust: A Global History of Financial Bubbles

Boom and Bust: A Global History of Financial Bubbles, co-authored with my colleague Will Quinn , is forthcoming in August. It is published by Cambridge University Press and is available for pre-order at Amazon , Barnes and Noble , Waterstones and Cambridge University Press . 

The Failure of Herstatt Bank

As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of