The Rise of Behavioral Economics and Its Influence on Organizations

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by Francesca Gino October 10, 2017

Richard Thaler, the University of Chicago professor who just won the Nobel Memorial Prize in Economic Sciences, has inspired scholars across different disciplines and fundamentally changed the way we think about human behavior. He is considered the father of behavioral economics — a relatively new field that combines insights from psychology, judgment, and decision making, and economics to generate a more accurate understanding of human behavior.

Economics has long differed from other disciplines in its belief that most if not all human behavior can be easily explained by relying on the assumption that our preferences are well-defined and stable across time and are rational. Back in the 1990s, Thaler began challenging that view by writing about anomalies in people’s behavior that could not be explained by standard economic theory. For instance, in 1991, he started a column in the The Journal of Economic Perspectives with two other colleagues that was all about such anomalies.

Among his many achievements, Thaler inspired the creation of behavioral science teams, often call “nudge units,” in public and private organizations around the globe. Together with Cass Sunstein, he wrote a book in 2008 called Nudge: Improving Decisions about Health, Wealth, and Happiness, which suggests that there are many opportunities to “nudge” people’s behavior by making subtle changes to the context in which they make decisions — a topic I’ve also explored.

Analysis – The key takeaway from this article is the idea of taking “opportunities to nudge people’s behavior by making subtle changes to the context in which they make decisions”. This is captivating to me, as it broadens my scope of inquisition with regards to the psychological factors at play in the access vs. ownership model. I am also interested to learn more about behavioral economics and how that relates to our society’s push for sustainability, while exploring this idea of a contextual change to decision making, exemplified by the COVID-19 crisis.

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