How do I find and set my $EDITOR environment variable?

You can set the $EDITOR variable with this command:

export EDITOR="/usr/bin/nano"

This will define the variable EDITOR for the current session and pass it into the environment of all its child processes. To set it permanently you must define it in one of the system configuration files. The highest level at which you can do this is to set it in /etc/environment. This defines it globally:

PATH="/usr/local/sbin:/usr/local/bin:/usr/sbin:/usr/bin:/sbin:/bin:/usr/games:/usr/local/games"
EDITOR="/usr/bin/nano"

Check that variable is defined:

$ echo $EDITOR
/usr/bin/nano

Editor's note: it's often preferable to put environment variables in your own ~/.profile, which is a lot easier to fix if something goes wrong.

Add line

export EDITOR=nano

to your ~/.profile and ~/.bashrcas in following picture. Do not put quotes around nano

and then run

source ~/.profile 
source ~/.bashrc

at the prompt after modifying .profile and .bashrcfor the modification to take effect.

Now the %edit in ipython will open nano.

~/.bashrc will be called for interactive + non-loginshell

whereas ~/.profile will be called for interactive + login shell

In your case it is enough to just add it in ~/.bashrc instead of ~/.profile.