What do you understand by so called 'nudge theory'? Explain while elucidating its impacts for people and government.

Nobel economic prize has been awarded to Richard Thaler who popularized the idea of Nudge theory, work on how human nature affects supposedly rational markets.
Nudge Theory is a concept which proposes that subtle policy shifts can be made to encourage people to take decisions broadly in their self interest. It is a non-coercive and non-penalising method to bring about a behavioral change. For example to raise immunization rates in Rajasthan among children, women who brought their children to dispensaries were given free lentils.
Nudge theory can help government design better social sector schemes for instance only building toilets under Swachh Bharat Abhiyan has not proved effective in making regions open defecation free thus government using advertisements and hiring celebrities to spread the message about importance of cleanliness and hygiene.
It helps governments achieve their desired goal without resorting to coercion and right use of nudge theory can help save resources. People too benefit from these initiatives and feel no force to adopt the change.
It is being adopted by countries across world to bring about desired change in attitude.UK introduced auto enrollments in pension to induce saving for retirement.
NITI Aayog’s initiative to set up behavioural economics units to help governments design incentives so that individual behaviour is nudged in a particular direction is a welcome step

Topics: GS-II: Government Policies and Interventions for Development in Various Sectors