Nudged into behavioural biases

Harvinder Khetal

Economics: The subject comes with a heavy baggage, one that most ordinary folks feel lighter and better without. The theories and mathematical models around which markets, money, inflation and banking revolve seem too dense and opaque for the comprehension of an average bloke. We are happy going about our everyday affairs, our money matters limited to day-to-day earnings and expenditures. Things beyond that are left to experts to handle and take care of, if at all. As it is, an average bloke rarely has much left to play with or compute after his/her essential needs of food, clothing and shelter are met. At best, s/he may have an interest in stories of the rich and prosperous people and nations. This, at times, may cause some sense of scarcity. But this feeling of inadequacy is quickly quelled by the equally compelling tales of the poor and pitiable people. And, one feels grateful for what one has and goes on with life and its vicissitudes, indebted by the occasional small pluses and add-ons.

One does not meddle into economics, accountancy or bookkeeping (occupation of keeping records of the financial affairs of a business) as these seem to be financial muddles too boring for comfort. More so, if they are of the Nobel-winning variety. One dismisses them as being rocket science.

But when the Nobel for economics was announced this time last week, it nudged me to look deeper. It related to the basic commerce that we all indulge in our everyday life: decisions related to personal investments, to our grocery picks, to which college to send our kids to, to the causes we champion. And, often we realize that our choice was not quite apt or that it was wrong. 

Richard H Thaler got the Swedish Academy prize for his work on behavioural economics and the 'nudge' theory that nudged economics into being reshaped which in turn nudged changes in public policy. The guru of behavioural economics upturned the traditional premise that we all make informed and rational choices. Upsetting the conventional applecart was an arduous task. But the economist successfully demonstrated that individuals routinely make irrational decisions and illogical or biased choices regarding their economic interests even as they simultaneously believe that they are totally rational. 

Pretty much identifiable, isn't it? After all, few would be able to say that some of their decisions did not fare as well as they had thought they would and they suffered losses. This is because, the economist explains, being human, we are susceptible to biases that can lead us to blunder.

This is where Thaler's policy of 'nudge' comes in. The policy focuses on how to “nudge” people toward making better choices in the face of behavioural biases. One way could be to give default options in pension or savings plans. If left to an individual to enroll in a plan, it is likely to lead to delays and losses as s/he dithers. In contrast, people are often enrolled by default in a basic scheme, which they can change later if they want to. Not surprisingly, economic giants such as the governments of the US and the UK or World Bank have “nudge” units working on how public policy can be improved by taking into account limited cognitive capacity of individuals. The nudge is implemented in areas of savings, taxpaying, encouraging healthy behaviour and reducing energy use.

The oddities in human behaviour are put in the highly influential bestseller book titled “Nudge” by Thaler and Cass Sunstein. They say:

A nudge, as we will use the term, is any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting fruit at eye level counts as a nudge. Banning junk food does not.

Well. Well. The art of the nudge does seem to be highly gainful. It reminds me of an old colleague who used to smoke like a chimney. And, once when his little daughter got to know that smoking is injurious to health on one May 31, anti-tobacco day, she mentioned it to him. The doting dad was immediately nudged into giving up the harmful habit.

If nudge doesn't work, one works only when push comes to shove. The idiom push comes to shove means when the pressure is on or when the situation is critical or urgent and it is time for action.

By the way, don't say nudge twice — that is nudge nudge —unless you want to suggest that there is a sexual meaning in something that has just been said. Wink wink also means the same.

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