Richard H. Thaler’s speech at the Nobel Banquet, 10 December 2017.
Your Majesties, your Royal Highnesses, Excellencies, dear laureates, ladies and gentlemen.
I had to run back because I decided we had a deficiency of toasts. So I will end this with a toast.
I’m truly, truly humbled to be standing here today. My feelings of humility are accentuated by the invidious comparisons with my fellow Laureates. Their discoveries of colliding black holes, genes that know the time of day, and images of biomolecules using cryo-electron microscopy are rather daunting. And what about the beautiful speech Kazuo Ishiguro just gave? Breaking a one year tradition, he managed to win the Literature Prize without a single hit song.
So what did I do to get up here? I discovered the presence of human life in a place not far, far away, where my fellow economists thought it did not exist: the economy.
Instead of humans, the world described by economists in text books is populated by a species referred to as homo economicus but I like to just call them Econs. These Econs solve problems like a super computer, have the willpower of saints, are free of emotion, and have little regard for their fellow Econs.
Now the presence of humans in our economy might seem rather obvious. Customers and employees are human, even most CEOs are quite human. Furthermore economists engage with humans on a rather regular basis, and often find their behaviour to be deeply flawed. Indeed economists love telling stories that ridicule the flawed decision making made by others, such as their spouses, offspring, Deans, students, political leaders, and – please keep this part to yourself – one even hears stories criticising the decision making made by the esteemed members of the Economics Nobel Prize committee. So – not a lot of laughter over there – we have a disconnect between the people economists know and the Econs that appear in their theories.
Over the past 40 years, along with many colleagues, some of whom are here, I have been trying to figure out how to introduce humans into economic theory. We humans are absent minded, tend to be a little overweight, we procrastinate and are notoriously over confident.
To be sure, we still need traditional economic theories. But to make accurate predictions we need to enrich those theories by adding insights from other social sciences. Incorporating human behaviour into economic models improves the accuracy of economics, just as those fancy microscopes improve the resolution of images in biochemistry.
Crucially, once we acknowledge that humans are fallible creatures, we can ask how to help them make better decisions. As Cass Sunstein and I have argued, we can often do so with simple nudges that point people in the right direction, but don’t force anyone to do anything.
We need these helpful nudges now more than ever. Consider the most important issues facing the world now such as climate change, health care, an ageing population, income inequality, xenophobia, and mounting threats to world peace. Each of these problems is, at its heart, behavioural.
But in these times when all news seems to be bad – or fake – I can report on progress. Around the world, governments and NGOs are working with behavioural scientists to design and test scientifically informed policies that are working. People are being helped to save more for retirement, more poor kids – especially girls – are going to school, peasant farmers are retrieving more reliable harvests, and we are all being successfully nudged to use less energy.
So I would like to end this with the toast I promised using a phrase I write when I’m asked to sign books. That phrase which is meant as a plea is “Nudge for good”. Tonight we will modify that phrase to honour Alfred Nobel. So please raise your glasses and join with me in a toast, in the proper Swedish manner of course – no clinking.
Nudge for the greatest benefit of mankind.
Their work and discoveries range from the formation of black holes and genetic scissors to efforts to combat hunger and develop new auction formats.
See them all presented here.