The Nobel Memorial Prize for Economics 2017 is to be awarded to the ‘Nudge Theory’ formulated by Richard F. Thaler (72 years) who has been serving in Booth School of Business of Chicago University, U.S.A. The concept of Economic Theory, the Royal Swedish Academy of Sciences has selected for the Award is unique in combining psychological aspects of individuals (consumers of goods and services put together as ‘product’) in its fold. The economic theory is categorized under the branch, behavioral economics. Richard F. Thaler, the awardee is acclaimed as the father of behavioural economics.
The nudge theory selected for the award has got explicit direct relevance, affecting the economic behaviour of individuals throughout the world. The direct relevance is not confined to any area but it is universal. The ‘nudge theory’ is known for personally prodding people towards rational decision making.
The summary of the economic theory, formulated by Thaler in thus:
The basic tenet in an economic activity is that individuals purchase products to satisfy their wants through the utility of the purchased items. Humans, being rational, their decisions have to be based on their reasoning i.e. the purchasing of goods and services are decided on their necessity, accessibility and affordability. Sometimes, the consumers purchase despite the lack of necessity for such goods and service. It happens by mere observing and imitating the purchasing behavior of people who surround them significantly. The influence of such significance may be numerically more, less or uno in number. It becomes a routine consumer behaviour without application of any rationality or with less rationality. The societal influence also affects the consumer behavior. Purchase and possession of unwanted goods and service are influenced by the perception prevailing in the society wherein the consumer lives, irrespective of its relevance to the purchaser.
Unable to curtail or restrict the desire to purchase products which do not match with their requirements, many consumers lose their cash resources. Had they curtailed their desire and deployed the cash resources in some other alternatives, they would have derived more utility and satisfaction. The consumer must be aware of the avenues of opportunity and cost of deploying their cash resources. To derive full benefit from their cash resources, micro level self control is needed for every consumer.
Sometimes the quality aspect of the products purchasable is compromised, since the preference to the purchase is influenced by listening and yielding to the advertisements for the products. Such preference by individuals is perceived by them as just, despite deficiencies in such goods and services comparatively. The rationality of individuals becomes dismal and the personal preference dominates the behaviour in their economic activities.
Thaler found out the nature of prevailing consumer behaviour as follows:
* Limited rationality
* Social preferences
* Lack of Self-Control
To overcome these limitations, Thaler founded ‘Nudge Theory’ by which the consumers have to be reminded, induced, influenced and educated for the manifestation of his economic behaviour in rationalistic way to choose their choices. Such adoption of approach will favour the effectiveness of consumer behaviour that will result in economic prosperity by avoiding wastage of resources both in monetary and physical terms. Thaler was identified and secluded as ‘nudge economist’ among the fraternity of economists.
The social revolutionary Periyar without any background of formal education beyond primary level served the society, professing application of rationalist faculty in them for their betterment, advancement and peace and happiness. Periyar kindled the rationalist mind that hibernates in people and made people realize the value of Self-Respect so that equality and equal opportunities would be available to all. All in the world are meant for all people.
Such a rationalist approach in individuals especially in the money spending behaviour of people at the time of social, economic and political gathering, event or activity will enhance the value and utility of the resources in the society. In that respect Periyar advocated the transformation of rural areas into urban, where amenities available are in parity to all, and which will have a bearing not only on social equality but on economic front too.
In Indian context, the causative factor of discrimination by caste system will vanish away through rational approach. The advocacy of rationalist approach by Periyar is on overall sphere of human life of which the Nobel awardee, Thaler has studied and researched in a systematic way in the specific space of consumer behaviour.
The knowledge and wisdom of Periyar and his strenuous advocacy to humans has been reflected in the economic theory for which the Nobel Memorial Prize of Economics is to be awarded on December 10, at Stockholm, Sweden, the memorial day of Alfred Nobel.