Henderson on Thaler's Nobel
By David Henderson
My piece on Richard Thaler appeared in the Wall Street Journal, electronic edition Monday evening and print edition on Tuesday. The Journal titled it “This Year’s Nobel Economist Makes Sense of Irrationality.”
This one took way less time to research because I’ve followed his work for decades–we were young assistant professors together at the University of Rochester in the mid-1970s–and have written about it over the last 9 years. I don’t always agree with him but I think he showed a lot of courage in pursuing his passion when economists around him at the U. of R. were pretty hostile. I wasn’t hostile, just skeptical. I’m less skeptical now about his insights.
Where we part company is that he hasn’t taken advantage of the low-hanging fruit to the extent he can: applying his model of humans to government officials.
Here are the last two paragraphs of my article:
In Mr. Thaler’s influential 2008 book “Nudge,” written with Harvard law professor Cass Sunstein, he advocated “libertarian paternalism”–having government set default rules but allowing people to opt out at low cost. One example is making helmets mandatory for motorcyclists. The libertarian twist? Messrs. Thaler and Sunstein tout writer John Tierney’s idea to let daredevils opt out by taking an extra driving course and showing proof of health insurance.
Mr. Thaler has yet to apply in a serious way his theory of irrationality to government officials. Their bad decisions are even worse because citizens bear most of the costs. It would be great if Mr. Thaler explored this area more. Someone should nudge him.
By the way, I thought co-blogger Scott Sumner’s criticism earlier today was brilliant. Specifically, Scott wrote:
I had thought that the point of behavioral finance was to try to identify areas where the publics’ intuition is in some sense “wrong” and design public policies to nudge them in the right direction. In that case, shouldn’t we be encouraging price gouging, not discouraging it? Especially with public policy. Perhaps President Trump could “name and shame” companies that run out of essential supplies because of an unwillingness to price gouging. (Yes, not likely, I’m just trying to show the logical implications of behavioral economics.)
My manners have actually improved with age, but last night, maybe because I was tired after getting up at 2 a.m. PDT earlier that day, I displayed zero manners. I should have thanked Alex Tabarrok. In recent years, he has been willing to take a quick look at the draft of my WSJ piece and give me comments, with a turnaround of about half an hour. He did that yet again this year. I used two of his four critical comments.
Also, I should thank my lovely wife, Rena Henderson. She’s a professional editor and she also turned it around within half an hour. She made one major suggestion that I didn’t take. So that’s my responsibility.