The behavioral finance theorist, Richard Thaler, explores an example from his book “Nudge”: how images of flies on airport urinals reduce male spillage.

Question: What is a “nudge”?

Richard Thaler: Let me give you an illustration of a nudge. It’s funny, it’s one paragraph in our book, but it’s by far the most famous example from the book. It turns out some genius who, an economist in fact, allegedly at least, an economist who works for the Amsterdam International Airport Schipol, got the brilliant idea to etch the image of a housefly in the urinals in the men’s bathrooms at the airport. This image of a housefly, it looks extremely realistic. You can see a picture of it on our website nudges.org. It’s located just near the drain. It turns out, that men, when they’re taking care of their business, they’re not fully attending to the task at hand, but, I’m sure there’s an evolutionary explanation for this, if you give them a target, they will aim. According to the people who run the airport, spillage has been reduced by 80%. That housefly has become my favorite illustration of a nudge.

So, what’s a nudge? A nudge is some small feature of the environment that attracts our attention and alters our behavior.

Question: What is the difference between a nudge and a push?

Richard Thaler: It comes down to values. When should we nudge and when should we shove, I think, it’s a political judgment. Obviously in some situations we need shoves, we need laws. Fraud is against the law, murder is against the law, drunk-driving is against the law. We don’t need just nudges.

On the other hand, sometimes we can combine the two. So for example, in some states if you’ve been convicted of DWI, Driving While Intoxicated, after you serve your sentence and you get your license back, you also have to equip your car with some device that requires you to pass some sobriety test before you turn the car on. I think that’s probably a good rule. So we can push the two but. Where we’re going to go on various public policy issues will be a political decision, where of course, people will differ.

Recorded on: June 19, 2009.