Richard Thaler was awarded the Nobel prize for economics in October, for work that has “built a bridge between the economic and psychological analyses of individual decision-making”. While traditional economics assumes that people are rational actors, Thaler explores the consequences of irrationality, bias and error, and proposes ways that governments, through mechanisms as simple as changing the phrasing on a form, can encourage, or “nudge”, smarter decision-making. Nudge, the 2008 bestseller he wrote with Cass Sunstein, introduced the influential concept of “choice architecture”, while his 2015 book Misbehaving was a personal history of behavioural economics. As the author Michael Lewis put it, he’s “the economist who realised how crazy we are”.
Nick Clegg, meanwhile, is adapting to life outside Westminster. He was leader of the Liberal Democrats between 2007 and 2015, deputy prime minister in David Cameron’s coalition government and MP for Sheffield Hallam for 12 years, before losing his seat to Labour in the last election. He has written a memoir of his time in government and, more recently, a passionate polemic, How To Stop Brexit (And Make Britain Great Again).
Clegg has long been a fan of Thaler’s work. The coalition set up the behavioural insights team, AKA “the nudge unit”, which applied Thaler’s theories to policy areas such as tax, the NHS and charitable giving, with palpable results: one nudge-influenced scheme has added about 100,000 organ donors to the register every year. The two men also share a grim fascination with the psychology behind the upheavals of Brexit and the election of Donald Trump, and the abiding consequences of the 2008 financial crisis. Calm and curious, they are problem-solvers by nature.
The conversation takes place over Skype, when they are both at home: Thaler in Chicago, where he teaches at the Booth School of Business; Clegg in London. Away from frontline politics, Clegg is strikingly relaxed and good-humoured, dressed casually to take his sons to play football after school. A generation older, Thaler speaks with the languid authority of the distinguished academic. And there is much to talk about. Dorian Lynskey
Nick Clegg Well, firstly, congratulations. Having a Nobel prize is pretty extraordinary and rare and amazing.
Richard Thaler All of the above, but it’s been such a blur.
NC Do your colleagues treat you differently?
RT No. Especially at the University of Chicago, we treat everybody the same. Like shit.>
Obama had two laureates on his team. Trump’s is a fact-free White House
NC Well, I guess there’s a certain equality in that. What were the ceremonies like?
RT They’re yet to come. It’s nine days in Stockholm. They get their pound of flesh. There was a [Nobel] event at the Swedish embassy in Washington DC, the highlight of which is normally a visit to the White House. It was scheduled on a day when Trump was on his way back from Asia and I think it disappointed no one – neither Trump nor the laureates.
NC Are there any big thinkers in the Trump administration? Where is the intellectual ballast coming from?
RT The White House and the executive office building are half-full. There are no economists of the standard that both Republican and Democratic presidents have had in their council of advisers over the last 30 years. Obama had two science Nobel laureates on his team. I don’t know of any scientist who’s been hired by this administration, and in fact they’re firing them left and right from the Environmental Protection Agency. It’s a fact‑free administration.
NC Can you nudge us all away from Brexit, please?
RT God knows what to do now.
NC Referenda, I take it, are inimical to everything that behavioural economics believes in, because it compresses so many things into a crude yes‑or-no moment.
RT I think it’s clear that very few, if any, leave supporters did anything equivalent to running a spreadsheet. It’s what my friend Danny Kahneman would call a System 1 vote. I was in the UK quite a bit right before the referendum, and it feels very much like Brexit voters and Trump voters are cousins. They’re angry and it was an expressive vote. Then what? I think the game wasn’t lost at that point. It certainly would have been reasonable to say: “Let’s go see what kind of deal is on offer and then have a second referendum.”
I don’t think I would have even triggered article 50 without substantial prior negotiations about what was on the cards. It’s clear that the UK cannot possibly expect a friendly deal.
NC You’re right on all counts. The thing that is starting to worry me more than anything else is: where does the rage go? Where does the rust belt rage go in America, when building a wall against the Mexicans does not lead to jobs being restored? Where does the legitimate rage among Brexit voters go when they discover that Brexit does not deliver paradise? The worry is that we get into a spiral where one wave of populism begets the next, don’t you think?
RT There may be a wake-up call for many of the voters who switched from Obama to Trump if this Republican tax bill passes, because the distributional consequences of that bill are staggering. To give you an example, there’s a subsidy for private jets, but the bill taxes the waiver of tuition that graduate students get. Why on earth would we put that kind of tax on people who are going to be the future of everything?
NC Here, you’ve got a curious thing. Of course, there was a grassroots eruption of sorts on 23 June 2016, but so many of the vested interests that lined up behind Brexit are profoundly elitist. It’s a curious marriage of understandable widespread discontent with the status quo after 2008, and a really small bunch of people with a lot of money and a lot of power who intervened to push the whole debate in a direction that suits their ideological needs. Is that also something you feel in the Trump phenomenon?
RT Absolutely. Look, 80% of Republicans still support Trump, which is kind of astonishing.>
I am trying to process a conflation of Homer Simpson and Nigel Farage
NC The pulling apart of the generations becomes ever more acute. Here in the UK, asset wealth is almost entirely in the hands of the old, and the young don’t have much of a chance to get their feet on the property ladder. The polarisation of the generations is having a huge effect on politics as well. I wonder how we can nudge folk above a certain age to make decisions that make sense for the younger generation, too? Lots of grandparents voted in the Brexit referendum in a way they knew was not welcomed by their own grandkids. I don’t understand that. Do you?
RT Well, no. Like I say, I think that vote was expressive. Think of Homer Simpson and how he would vote. There’s a famous Simpsons episode, which we quote in Nudge, where Homer is angry about something and wants to go buy a gun to shoot whoever he’s mad at. He goes to the store and he’s told there’s a five-day waiting period. And his reaction is: “Five days? But I’m mad now!”
NC [Laughs.] Brilliant. My mind is trying to process a conflation of Boris Johnson, Nigel Farage and Homer Simpson.
RT Yeah. Mix all of those together and compare them to Spock. People were not voting like Spock. And that’s really the message of behavioural economics. These kinds of decisions are too hard.
NC One thing I’m intrigued by is this increasing conflict between Silicon Valley and public opinion – everything from whether they pay enough taxes to fake news, extremists, monopoly power, you name it. Are you optimistic or pessimistic about tech? Because there’s such an appetite at the moment to think of it as a force for bad.
RT Most technology we just don’t understand, but we don’t want to give up the phone in our pocket and all the other things that have changed our lives so dramatically in the last decade. Personally, I don’t view Silicon Valley as a force for evil. Certainly, it’s right to be concerned about privacy issues. If you combine what your cellphone provider knows about you with what Uber and Amazon and Google know about you, well, I suppose it could be a force for less misbehaving. [Laughs.] I can understand people being fearful of that, but I don’t think any of those people are really interested in spying on us. They’re certainly interested in knowing that we’re walking down the street and we like hi-tech espresso and there’s [a coffee shop] coming up in two blocks. Is that bad? Not necessarily.
Here’s a contrast. One of the problems we face in the US is we have too many choices in healthcare providers. Competition is good, but people are horrible at making complex choices. At the same time, if you go to Amazon, there are three million books for sale and you have absolutely no problem finding the one you want. If you don’t know what you want, they’ll have 10 recommendations for you. So, there’s all kinds of potential help in terms of choice architecture, as we call it. I think there is lots of room for governments to improve the way they interact with their citizens and help them make better choices.