Behavioral Economics

A wonderful article on the Edge. Like most articles there, it is difficult to explain concisely, but the author basically starts from different premises when compared to traditional Economists.

The author contends that traditional Economic theory considers humans to be infinitely wise and with no self control problems. However, real humans are driven my emotions as well as logic, and have serious issues with self control.

In order to take this into consideration and use it for welfare of the society, the author advocates "Libertarian Paternalism". The Libertarian part involves making sure freedom of choice always exists. The Paternalism part involves nudging individuals towards behavior that is helpful to society.

A great (and extremely funny) example of "nudging" people to do the right thing by changing a small thing in the environment is an example of a German Airport urinal, where they have a fake fly baked into the urinal. They notice that people aim at the fly and hence don't spill, thus reducing cleaning costs!

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