The annual Nobel season has ended and, aligned with tradition, experience has combined with expertise (and, possibly, a bit of lobbying), for yet another instance of the triumph of the 60+ generation.
The last of this year’s awards was announced yesterday – the Nobel for Economics which went to Dr Richard Thaler (72), professor at the University of Chicago School of Business.
Dr Thaler’s area of specialisation: Behavioural Economics. Reports have him as the father of the “nudge” theory with its thrust on a persuasive approach for influencing decisions as opposed to one of authoritative enforcement. Actions can be mandated provided there is an opt-out provision.
It does not matter if it is politics or corporate governance or even people’s self-interest, what is significant is that the “nudge” theory is integral to economics and finance.
I must confess though that I am no economist, but my learning pursuits, (or should I say exploits?) involve one of the six Nobel Prize categories!
Nudge or Hegemonic Drive?
I have no deep knowledge of the Nudge Theory as well, just a superficial understanding. That is bound to gain stronger focus with Dr Thaler winning the award.
When Indian Prime Minister Narendra Modi imposed demonetisation in an out-of-the-blue decision, that was to plunge the nation into an economic mess, there was no evidence of any nudging, just a hegemonic drive.
Still, Dr Thaler was quick to put forth an appreciative Tweet on Mr Modi’s sudden ban on 500- and 1000-rupee notes, only to express surprise and dismay when pointed out that 2000-rupee notes were being introduced.
But going by his first Tweet, I cannot help asking “where is the nudge theory in demonetisation, Dr Thaler?” To me, there is a contradiction inherent in his initial reaction. But then nudging is also meant to signal decisions taken in the interest of the people even if thrust down their throats!
That is not the case in India with demonetisation having triggered an economic slowdown and led to the loss of millions of jobs and of 120+ lives (they were those who died standing in queues for hours together to draw/deposit their money).
Multiple Disciplines Coming into Serious Play
Dr Thaler’s focus appears to be on a combination of behavioural finance, public policy, political concepts, human psychology, philosophy, social sciences, rationality and even self-control. That is an interesting dimension to Economics, with multiple disciplines coming into serious play. So, what is missing? I guess that will be application of common sense, atheism and marketing!
I won’t be surprised if in the future a professor of history wins the Nobel for Economics. After all, didn’t a musician/lyricist win a Nobel for Literature last year – Bob Dylan!
Dr Raghuram Rajan, former Governor of the Reserve Bank of India (RBI), also teaches at the same institution. When Dr Rajan rejoined the university after a three-year tenure with the RBI, Dr Thaler is said to have tweeted: “India’s loss is the university’s gain.”
Dr Thaler is an accomplished economist, and now a Nobel Laureate, so any suggestion of professional rivalry will be petty. I will stay clear of that.
Incidentally, Dr Rajan was among the six economists named by Clarivate Analytics as potential Nobel winners. While Dr Thaler was not one of the six, his name did figure among the list of additional contenders.
Dr Rajan (54), who became the IMF’s youngest ever Chief Economist in 2003, is much younger but more popular than Dr Thaler, having shot into international notice in 2005 when at a forum he predicted the 2008 global economic crisis, which was at odds with other distinguished economists, including former Federal Reserve chairman Alan Greenspan.
His prediction was met with disapproval, even derision. However, as it turned out, it was not clairvoyance without basis. It emerged out of a deep, incisive assessment of the systemic risks facing the economy with questionable instruments such as credit default swaps. His prognosis of a meltdown became reality three years later. Dr Rajan was among the earliest of economists to have foretold the crisis.