Behavioural economics – that branch of the subject which rejects the hyper-rational construct of homo economicus in favour of a more realistic understanding of human behaviour – is now so firmly a part of mainstream policy design that it seems hard to believe that two decades ago almost no one outside of the profession had heard of it.
That changed in 2002, when the Israeli psychologist Daniel Kahneman was awarded a Nobel Prize for his pioneering work with Amos Tversky on integrating the real-world foibles of human psychology into economic analysis. Then in 2008, in their monster best-seller Nudge, the Chicago professors Richard Thaler and Cass Sunstein introduced the wonderful possibility that clever policy might actually subvert the innate cognitive biases identified by Kahneman and Tversky to achieve the Holy Grail of liberal government: getting people to make better choices of their own accord.
What is not widely understood, however, is that Thaler and Sunstein’s nudge theory was only one half of the behavioural economics revolution. The other half has thus far made much more limited inroads into the public’s consciousness. With any luck, however, that is about to change; because its story is told in Under the Influence – an invaluable new book from Cornell University’s Robert Frank, another of the founding fathers of behavioural economics. If policy-makers have any sense, this book will be as important a manual in the 2020s as Nudge was in the 2010s.