Mr. Sunstein and Mr. Thaler say that this apparent contradiction is reconciled through what they call “choice architecture.” This is the deliberate imposition of structure in an environment  etching flies in a urinal  to induce people to make better choices. Consider a cafeteria where healthy foods like fruit and yogurt are placed in a prominent location, while junk foods are relegated to an out-of-the way spot. People are free to choose, but they are being nudged toward healthier decisions.

Similarly, Mr. Thaler and Shlomo Benartzi, an economist at U.C.L.A., applied these theories to 401(k) plans with the “Save More Tomorrow” program, which gives employees the option of increasing payroll deductions in the future. This arrangement acknowledges the human desire to enjoy life now and put off self-discipline  a tendency observed by Aesop’s fable of the ant and the grasshopper and confirmed through much recent behavioral research. With “Save More Tomorrow,” you can have it both ways  consuming as much as you like now, while automatically increasing your savings rate on the next Jan. 1, and in every successive year.

Nudging derives from research by Daniel Kahneman, a Nobel laureate in economics; by Mr. Kahneman’s late colleague, Amos Tversky; and by Mr. Thaler and others over several decades. Mr. Kahneman, a psychologist, gives Mr. Thaler considerable credit for the birth of behavioral economics.

Mr. Thaler has found that people often don’t act rationally and in their own best interests, as is assumed by traditional economic models. He calls such idealized people “Econs,” as distinguished from “Humans.” Econs are walking computers, and behave according to the laws of classical economics; Humans are quirky, like the people you meet on the street. Humans may know that they should eat less and exercise more, but they often miss the mark. They may know that they should save more, but often don’t. And so, Mr. Thaler says, most of us would benefit from a nudge.

DISCLOSURE aimed at enabling people to make more informed choices is often Mr. Thaler’s preferred solution for complex issues involving markets. He cites disclosure rules imposed on mutual funds by the Securities and Exchange Commission that, imperfect as they may be, have allowed third-party firms like Morningstar and Lipper to create Web sites comparing fees and performance. The point is to make it “easier for Humans to make decisions as if they were Econs,” he said. Such comparisons aren’t really possible now when it comes to hedge funds, for which standard, reliable data is not available.

In financial markets, where evidence of irrationality has been abundant lately, he says he would increase regulations, but very carefully. There’s no evidence, he said, that regulators could actually determine appropriate leverage for specific investments, for example, and “heavy-handed regulation” could shut down financial markets and weaken the economy further.