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Henderson on Thaler’s Nobel

Summary:
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

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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.)


David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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