Thaler’s contribution, and what his win means for the industry
With Thaler winning the Nobel this week, I took some time to reflect on his work and how his ideas have influenced me and the direction of Gravity. When looking back, it seems to me that Thaler has been at the heart of two tectonic shifts in the way we think about economics, policy and business. I've unpacked these two shifts below.
A shift towards a more realistic model of human behaviour
The first is the work he did with other leader's in the field such as Daniel Kahneman, showing that people depart from rational decision making in consistent ways, meaning these deviations can be anticipated and catered for. Although this seems trivial at a glance, what it ignited was a massive shift away from the ivory tower economists, contemplating 'how people ought to behave', and toward an appreciation of 'how people actually behave' and then designing policies, programs, products, services and communications to accommodate this. Many describe his work as having made economics more human, and this is exactly what they are talking about.
In my opinion, the single most important consequence of this idea has been the rise of experiment-driven, evidence-based approaches and the reason why mantra's like BIT's 'Test, Learn, Adapt' have become so salient.
Leading practitioners are starting to wake up to the value the behavioural scientific literature provides, as well as realising that their job doesn't stop with just understanding it. The practitioner’s role is about building informed assumptions based on the existing evidence, and then running field trials to understand the impact of particular tactics within their specific context of interest. The design of everything from policies to products has been shown to improve when adopting this approach, and I think Thaler's ideas had a lot do with it, especially in the public space.
Challenging the assumption that big behaviour change require equally sizable interventions
The second shift is even more relevant to practitioners. As Rory Sutherland often remarks, we frequently seem to unknowingly apply a learnt heuristic when trying to solve a big behavioural challenge. This heuristic is that as the size of the problem increases, we often assume that the size of the solution required increases proportionally. What Thaler has shown the world is that this assumption is wrong and dangerously inefficient. There are many behavioural design examples, including his very own solutions, which prove that when tackling big problems, often subtle, smartly designed nudges can have a great impact.
Thaler's Nobel win will no doubt shine a spot light on the field, which of course will be hugely valuable. However, there are a lot of seemingly simple concepts on the front cover of the field, that if taken at face value may cause distress and negative knee jerk reactions. A useful role for the field’s academics and practitioners is to fight against these predictable misconceptions when they arise and make sure new comers to the field get as clear a picture as possible of them. What, for example, is the best way to explain why neutral choice architecture doesn't exist or how randomised field experimentation is actually more ethical than not doing so. Without the right mental models in place, detractors could easily persuade new comers that we are just manipulative puppet artists who treat citizens like Skinner's pigeon or rats in a lab. We need to work hard to make sure this doesn't happen.