As the Nobel Prize announcements season ushers in, most newspaper columns focus on ideas and impressions the world community must think about.
The declaration of Richard Thaler as the winner of this year's Nobel Prize in Economics is no exception to this trend. Several commentaries have since appeared trying to connect behavioural economics with psychology. His ideas around rationality, social preferences and the modalities of explanations like mental accounting, behavior finance, dictator game, planner-doer model, and of course, nudging are being explained in all different combinations. As he has been already writing in newspapers, particularly in New York Times, raising interesting questions, enough is already on the table to absorb.
His work is being analysed in the light of similar contributions by people like Daniel Kahneman, Amos Tversky, and George Akerlof. They are all part of the current revolution that actually confronted upfront the idea of market and the centrality that they achieved in the wider economic philosophy and approaches. Though American media and commentators from that part of the world have focused Thaler’s work more in the context of markets and human behavior, I feel Nobel Prize to Thaler is the last nail on Washington Consensus (a set of broadly free market economic ideas, supported by prominent economists and international organisations, such as the IMF, the World Bank, the EU and the US).
Centrality of markets dominated the structural adjustment programmes and economic reforms agenda all through the decades of 1980s and 1990s, when markets and countries collapsed, jobs were lost, political turmoil and unbridled exploitation ran all across. When in 1993, the World Bank came up with the East Asian miracle, the role of state was completely missing from the scene.
Sachin Chaturvedi
The nudging is actually about that. The centrality of society, its ethos and value system and the idea of Asian connect is truly the very culture, collective pragmatism for economic growth with greater inclusion. The governments that use and guide markets, maybe through nudging, are likely to be more successful in promoting growth than those that allow free hand to market forces.
The Nobel citation for Thaler has links to the ideas of Aristotle and Adam Smith. The era of Washington Consensus separates these threats which we witnessed in this part of the world. It was the ingenuity of the developing countries that could help them survive the onslaught of market forces and their intrusion in the policy space that developing countries always tried to protect. Here the work of another Nobel laureate Ostrom is also of great significance.
The behaviour of individual and tragedy of commons must be seen together. Irresponsible individual behaviour is unlikely to confine the Wall Street and financial markets. They are evident all across and in all spheres of our lives, affecting the common pool resources that Elinor Ostrom took pains to write home about. Interestingly, Ostrom’s concerns about “commons” and identification of design principles that help to protect them started with analysing “local” phenomena.
Today, we are talking about managing “global” commons—an exercise the 'Washington Consensus' failed to come to terms with. Unanimous adoption of SDGs is a clear move to ensure “responsible production and consumption” to sustain mankind and the Mother Earth in the form of a “global common”.
Chapter 16 of the book by Thaler and Sunstein Nudge: Improving Decisions About Health, Wealth, and Happiness, published in 2012, begins with the following lines:
“In this book we have made two major claims, the first is that seemingly small features of social situations can have massive effects on people’s behavior; nudges are everywhere, even if we do not see them. Choice architecture, both good and bad, is pervasive and unavoidable, and it greatly affects our decisions. The second claim is that libertarian paternalism is not an oxymoron. Choice architects can preserve freedom of choice while also nudging people in directions that will improve their lives.”
Incidentally, the chapter is titled, The Real Third Way!
(The author is director general, Research and Information System for Developing Countries)
