Nobel Laureate Professor Richard Thaler says it’s all tools on deck in the battle to save the planet.
Nudges alone are not enough to avert climate disaster, according to Professor Richard H. Thaler, the co-author of the best-selling book Nudge: Improving Decisions about Health, Wealth and Happiness, that inspired more than 400 behavioural insights units around the world.
Nudges, Professor Thaler said, “can help any problem, but [they are] not the solution to every problem, and maybe not the solution to any problem.”
Speaking via Zoom at an event hosted by the University of Sydney Business School, Professor Thaler, the ‘father’ of behavioural economics, said when it came to effective climate change strategies, he and Sunstein agreed with their more ‘traditional’ economics colleagues.
“We believe that the first step for climate change has to be to get the prices, right. On that we agree with every economist.”
“People think that economists don’t agree about anything. This is one thing. The University of Chicago does a poll every couple of weeks, of about 50 economists of various persuasions. And 100% say we should either have a carbon tax or a cap and trade.”
“And notice, this maintains choice. It’s not like you can opt out of the tax, but you can decide, all right, it’s now going to cost me three times more to drive my car or to heat and cool my home. How am I going to react to that?”
“Same with firms. And the key to climate change, I think, is largely going to be at the organisational level. Individuals matter. But how we generate power, whether we build roads versus transit, what kind of cars we build, how we build them. These are all firm level decisions.”
“Firms maximise profits. If you set the prices right, then they’re going to react, and Elon Musk will have a lot of competition if the price of gasoline goes up by a factor of three.”
Professor Thaler also advocates making public emissions by firms.
“Doing that in some other environmental issues has proven to be quite successful. And firms don’t like being shamed.”
“But I sound like a University of Chicago economist sometimes when I talk about this, because we have got to get the price right.”
Professor Thaler is famous for challenging economic orthodoxy that treats people as economically rational beings – ‘Homo Economicus’. Professor Thaler rejected ‘Econs’ and instead studied what ‘Humans’ actually did – which was frequently to make poor economic decisions.
His work aims to help people live “happier and healthier lives” by ‘nudging’ them with opportunities to make better choices. The framing around how people are offered choices – a printed menu in a restaurant, a list of options on a form – is what Thaler and Sunstein call ‘choice architecture’. While choice architecture is in everything (the layout of a building, the signage in a bookstore) the key to good choice architecture is to ‘make it easy’ for people to achieve their goals.
Professor Thaler was awarded the Nobel Prize in Economics for his pioneering work in behavioural economics. By applying insights from psychological research Professor Thaler helped the world better understand economic decision making.
Watch Professor Thaler discussing how nudges impact our response to climate change
Image: Markus Spiske