Have you been nudged?

I listen to lots of podcasts, I was recently listening to the podcast of BBC Radio 4’s More or Less programme which in their words “explains – and sometimes debunks – the numbers and statistics used in political debate, the news and everyday life”.

A recent podcast was on the awarding of the Nobel Prize for Economics to Richard Thaler a behavioural economist. His most famous work is on why people make bad or irrational choices, he came up with the term “nudging” which helps people to make better decisions.

An example of this is now used in workplace pensions, most people know that they should save when they are working for a time when they are not working. However, in the real world saving for some far distant time is low on their list of things to do. Auto Enrolment now “nudges” you in to making a better decision by taking the choice of contributing out of your hands by doing it automatically for you. Although you can still choose to opt out if you wish. Libertarian paternalism at work!

What I particularly took from the podcast was a comment he made at the end which although directed at the young, I think applies to all. In essence he said individuals should have a well-diversified portfolio of investments tilted towards shares, don’t check your valuations often and stay away from the financial pages in the papers. Why? Because if you check the values often when the values are falling you will be miserable. During the credit crunch investors sold out of shares and didn’t start buying again in significant numbers until 2013 when the markets had largely recovered. So in his words “the only way to protect yourself from being stupid is not to look”

As a client of mine you may have heard something very similar!