Richard Thaler: ‘If you want people to do something, make it easy’
The master of behavioural economics on the power of the nudge — and why Remain was destined to lose
The Anthologist doesn’t serve cashew nuts, so I order a bowl of smoked almonds instead. When they arrive, caramelised and brown as barbecue sauce, I ask for them to be put right in front of Richard Thaler. He protests that the waiter isn’t in on the joke.
The readers will be, I assure him. “The educated ones, perhaps,” he concedes.
Those educated readers may know that Professor Thaler is a Nobel laureate economist, but even more famous as the co-author of Nudge. They may even know — from his later book, Misbehaving: The Making of Behavioural Economics — that the 73-year-old is fond of telling an anecdote about a bowl of cashew nuts that sheds light on his approach to economics.
He served the notorious bowl to some guests while dinner was roasting in the oven, then watched everyone compulsively munch on the nuts and gradually spoil their appetites. So Thaler decided to remove the temptation by hiding the cashews in the kitchen. His guests thanked him.
It would be an unremarkable tale, except that such behaviour simply does not fit the rational economic model of human behaviour. Either eat the cashews or don’t eat the cashews, says classical economics, but don’t thank the person who moves them out of easy reach.
Reflecting on such stories helped Thaler create “behavioural economics” — a branch of the discipline that aims at psychological realism. Doing so also helped him with the equally difficult task of persuading other economists to take the behavioural view seriously.
True, it’s just a story about cashews — but if you don’t think short-termism and weak willpower are economically significant in the grand scheme of things, I have a payday loan, a pension drawdown scheme and an auto-renewing
gym membership to sell you.
And, sure enough, Thaler’s ideas about the importance of realistic human behaviour have permeated into the economic mainstream, particularly the study of finance.
His policy proposals have influenced tax collection, organ donation, energy efficiency drives — and most notably pensions, where participation in workplace schemes dramatically increases when people must explicitly opt out if they are not to be automatically enrolled.
Thaler cultivates a happy-golucky persona, a man whose own weaknesses help him understand the weaknesses of others. “You assume that the agents in the economy are as smart as you are,” he once told Robert Barro, one of the pillars of the economics establishment, “and I assume that they’re as dumb as me.” Barro was happy to agree with that.
This sunny July, however, Thaler is a model of self-control. “Notice how many nuts I’ve had so far,” he announces, 20 minutes into our conversation. He gestures for emphasis. “Zero.”
I’m not surprised by that, although I am when Thaler — who struck me as a bon vivant — admits that he has been skipping lunch entirely. He’s in London for a fortnight, teaching a course at the London campus of the University of Chicago Booth School of Business, and after a generous breakfast he says he has neither the need nor the time for lunch.
This may also explain his lack of interest in the restaurant itself. We meet at the business school, and he’s chosen the closest place — announcing “it’s me again” to the waitress who stands outside. I don’t even glimpse the interior of The Anthologist, because she promptly directs us to a pavement table, which has a large masonry wall on one side and on the other — if you squint — a view down Gresham Street to a back corner of the Bank of England. The scooters and trucks roar past a couple of yards away, but Thaler has no trouble making himself heard.
He used to squeeze more out of his annual fortnights in London. “I would spend the morning with the Behavioural Insight Team” — the famous “nudge” unit established by David Cameron and inspired by Thaler’s book with the law professor Cass Sunstein — “then come and teach all afternoon. And then half the nights there would be dinners with friends. And I was comatose at the end of the first week.”
He does admit to having a few dinners planned, though — and to timing his visit to coincide with the Wimbledon Men’s Final. He and his wife, the photographer France Leclerc, had Centre Court tickets. Was he a fan of Djokovic or Federer?
“We support Rafa. Although if he had been playing in a match like that it might have got too much for my wife. She would have been hiding somewhere by the fifth set.”
It was the same on election night: the Trump/clinton contest reduced his wife to a nervous wreck.
“And who were you supporting in that one?” I ask.
He gives me a withering look. “At least credit me with sentience.”
President Barack Obama seemed to appreciate behavioural economics and gave Thaler’s coauthor, Cass Sunstein, a senior appointment. The Trump administration, observes Thaler, has no interest in behavioural economics. “Look, there’s no demand for expertise of any sort . . . The lack of competence and expertise is like nothing anyone has ever seen.”
Whitehall’s Behavioural Insight Team seems to be displaying more longevity than the White House equivalent.
“The key move they made very early on was to extricate themselves from government.” They’re now a semi-autonomous social enterprise in which the Cabinet Office retains a stake. They made that move, of course, before Cameron’s referendum-induced autodefenestration.