Richard H. Thaler – Nobel Prize Banquet Speech 2017

Your Majesties, your Royal Highnesses, Excellencies, dear laureates, ladies and gentlemen.

I would like to thank everyone that made this prize possible. It is truly humbling to join the astonishing list of prior laureates.

My feelings of insecurity are compounded by the invidious comparisons with this year’s fellow laureates. Discoveries of colliding black holes, genes that know the time of day, and images of biomolecules at the atomic level using ”cryo-electron microscopy” are rather daunting.

So what did I discover to get up here? I discovered the presence of human life in a place where economists thought it did not exist: the economy.

You might think this to be a rather obvious observation. Customers are human and so are employees. Indeed, even CEOs are usually human. How could economists have missed this?

Of course, economists do engage with other humans on a regular basis, and often find their behavior to be deeply flawed. At economist dinner parties one can often hear them ridiculing the flawed economic choices made by their spouses, Deans, students, political leaders, and even members of the Economics Nobel Prize committee. But these decision making flaws did not make their way into economic theories.

Instead, economic models were populated with ”agents.” These economic agents behave more like robots than humans. They solve problems like a super computer, have the willpower of saint, are free of emotion, and have little regard for their fellow agents. The technical term for these folks is homo economicus but I like to call them Econs.

Over the past 40 years, along with many colleagues, I have been trying to figure out how to do economics with Humans instead of Econs. We Humans are absent minded, a bit over weight, we procrastinate about saving for retirement, and – crucially – we are influenced by many supposedly irrelevant factors: how questions are phrased, what happened yesterday, what’s the default.

To be sure, we still need traditional economic theories. But to make accurate predictions we need to enrich those models by adding insights from other social sciences. Incorporating human behavior into economic models improves the accuracy of economics, just as ”cryo-electron microscopy” improves the resolution of images in biochemistry.

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 via simple nudges that point people in the right direction, but don’t force people to do anything.

We need these helpful nudges now more than ever. Consider the most important economic issues facing the world such as climate change; health care; an aging population; half the world in poverty; xenophobia; and threats to world peace. Each of these problems is, at its heart, about the behavior of humans.

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 behavioral scientists to design and test scientifically informed interventions and the nudges are working! People are being helped to save more for retirement, more poor kids (and especially girls) are going to school and are getting free lunches without being stigmatized, peasant farmers are getting more reliable harvests, and all of us are being successfully nudged to use less energy. And we are only getting started!

So I would like to end with a simple toast. This is phrase I write when asked to sign books. It is simple idea, but an important one, because we are only human.

[End of manuscript]

So I would like to end this with the toast I promised, using a phrase I write when I am asked to sign books. That phrase which is meant as a plea is ‘Nudge for good’. To night 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!

Thank you.

[End of transcript, as per video stream at SVT Swedish Public Broadcasting]

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