Review of Nudge

Review of Nudge


Nudge: Improving Decisions About Health, Wealth, and Happiness

By: Richard H. Thaler, Cass R. Sunstein
Published: 2009
324 Pages: 324
Page Numbers Source ISBN: 014311526X
Ted’s Rating: 3 of 5 Stars

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Can you create an environment that conditions behavior toward an outcome you desire? This is what Nudge is all about. I decided to read this book after hearing about the Obama administration’s plan to “nudge” people into health care. Their “Behavior Insights Team” seeks to get me to do something! I want to know how they plan to do it and the report I read said that this book influenced their action plan (or perhaps they just nudged me into buying a book from one of their Democrat donors).

Thaler, a business professor, and Sunstein, a law professor, argue in favor of what they call “libertarian paternalism.” It’s libertarian because it’s the person’s choice. It’s paternalistic because the system is setup to “nudge” people toward a particular outcome. I am going review the first part in depth and just provide a few sentences about the balance of the book since most of the ideas are found in Part I

Part I

A choice architect has the responsibility for organizing the context in which people make decisions. (KL  133)

…small and apparently insignificant details can have major impacts on people’s behavior. A good rule of thumb is to assume that “everything matters.” In many cases, the power of these small details comes from focusing the attention of users in a particular direction. (KL  145)

In other words, we argue for self-conscious efforts, by institutions in the private sector and also by government, to steer people’s choices in directions that will improve their lives. (KL  169)

A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. (KL  179)

By properly deploying both incentives and nudges, we can improve our ability to improve people’s lives, and help solve many of society’s major problems. And we can do so while still insisting on everyone’s freedom to choose. (KL  224)

And by insisting that choices remain unrestricted, we think that the risks of inept or even corrupt designs are reduced. Freedom to choose is the best safeguard against bad choice architecture. (KL  268)

Choosers are human, so designers should make life as easy as possible. Send reminders, and then try to minimize the costs imposed on those who, despite your (and their) best efforts, space out. (KL  300)

We shall have a great deal to say about private nudges. But many of the most important applications of libertarian paternalism are for government, and we will offer a number of recommendations for public policy and law. (KL  304)

If incentives and nudges replace requirements and bans, government will be both smaller and more modest. So, to be clear: we are not for bigger government, just for better governance. (KL  315)

Many psychologists and neuroscientists have been converging on a description of the brain’s functioning that helps us make sense of these seeming contradictions. The approach involves a distinction between two kinds of thinking, one that is intuitive and automatic, and another that is reflective and rational. (KL  369) [Ted notes: the authors use the term “Reflective” and “Automatic” in the rest of the book to describe these two behaviors.]

Although rules of thumb can be very helpful, their use can also lead to systematic biases. (KL  425) [Ted notes: The authors describe three rules of thumb: anchoring, availability, and representativeness.]

We can influence the figure you will choose in a particular situation ever-so0sublty suggesting a starting point for your thought process. (KL 452)

How much should you worry about hurricanes, nuclear power, terrorism, mad cow disease, alligator attacks, or avian flu? And how much care should you take in avoiding risks associated with each? What, exactly, should you do to prevent the kinds of dangers that you face in ordinary life? In answering questions of this kind, most people use what is called the availability heuristic. They assess the likelihood of risks by asking how readily examples come to mind. If people can easily think of relevant examples, they are far more likely to be frightened and concerned than if they cannot. A risk that is familiar, like that associated with terrorism in the aftermath of 9/11, will be seen as more serious than a risk that is less familiar, like that associated with sunbathing or hotter summers. (KL  459)

The third of the original three heuristics bears an unwieldy name: representativeness. Think of it as the similarity heuristic. The idea is that when asked to judge how likely it is that A belongs to category B, people (and especially their Automatic Systems) answer by asking themselves how similar A is to their image or stereotype of B (that is, how “representative” A is of B. (KL  485)

Unrealistic optimism is a pervasive feature of human life; it characterizes most people in most social categories. (KL  587)

…loss aversion operates as a kind of cognitive nudge, pressing us not to make changes, even when changes are very much in our interest. (KL  607)

…people have a more general tendency to stick with their current situation. This phenomenon, which William Samuelson and Richard Zeckhauser (1988) have dubbed the “status quo bias,” has been demonstrated in numerous situations. (KL  609)

The idea is that choices depend, in part, on the way in which problems are stated. The point matters a great deal for public policy. (KL  651)

Self-control problems can be illuminated by thinking about an individual as containing two semiautonomous selves, a far-sighted “Planner” and a myopic “Doer.” You can think of the Planner as speaking for your Reflective System, or the Mr. Spock lurking within you, and the Doer as heavily influenced by the Automatic System, or everyone’s Homer Simpson. The Planner is trying to promote your long-term welfare but must cope with the feelings, mischief, and strong will of the Doer, who is exposed to the temptations that come with arousal. (KL  720)

Large plates and large packages mean more eating; they are a form of choice architecture, and they work as major nudges. (Hint: if you would like to lose weight, get smaller plates, buy little packages of what you like, and don’t keep tempting food in the refrigerator.) When self-control problems and mindless choosing are combined, the result is a series of bad outcomes for real people. (KL  746)

In some situations, people may even want the government to help them deal with their self-control problems. (KL  792)

…bans can be seen as pure rather than libertarian paternalism, though third-party interests are also at stake. In other cases, individuals may prefer a less intrusive role for the government. (KL  793)

Mental accounting is the system (sometimes implicit) that households use to evaluate, regulate, and process their home budget. Almost all of us use mental accounts, even if we’re not aware that we’re doing so. (KL  835)

Humans are not exactly lemmings, but they are easily influenced by the statements and deeds of others. (KL  904)

Social influences come in two basic categories. The first involves information. If many people do something or think something, their actions and their thoughts convey information about what might be best for you to do or think. The second involves peer pressure. If you care about what other people think about you… then you might go along with the crowd to avoid their wrath or curry their favor. (KL  919)

The bottom line is that Humans are easily nudged by other Humans. Why? One reason is that we like to conform. (KL  934)

One reason why people expend so much effort conforming to social norms and fashions is that they think that others are closely paying attention to what they are doing. (KL  1025)

The moral is that people are paying less attention to you than you believe. If you have a stain on your shirt, don’t worry, they probably won’t notice. But in part because people do think that everyone has their eyes fixed on them, they conform to what they think people expect. (KL  1038)

In particular, advertisers are entirely aware of the power of social influences. (KL  1088)

The general lesson is clear. If choice architects want to shift behavior and to do so with a nudge, they might simply inform people about what other people are doing. (KL  1122)

Priming refers to the somewhat mysterious workings of the Automatic System of the brain. Research shows that subtle influences can increase the ease with which certain information comes to mind. (KL  1183)

Slightly broadening these findings, social scientists have found that they can “prime” people into certain forms of behavior by offering simple and apparently irrelevant cues. It turns out that if certain objects are made visible and salient, people’s behavior can be affected. (KL  1215)

The three social influences that we have emphasized—information, peer pressure, and priming—can easily be enlisted by private and public nudgers. As we will see, both business and governments can use the power of social influence to promote many good (and bad) causes. (KL  1223)

…people will need nudges for decisions that are difficult and rare, for which they do not get prompt feedback, and when they have trouble translating aspects of the situation into terms that they can easily understand. (KL  1238)

Unfortunately, some of life’s most important decisions do not come with many opportunities to practice. (KL  1266)

…we just want to stress that rare, difficult choices are good candidates for nudges. (KL  1273)

Learning is most likely if people get immediate, clear feedback after each try. (KL  1274)

It is particularly hard for people to make good decisions when they have trouble translating the choices they face into the experiences they will have. (KL  1291)

If consumers have a less than fully rational belief, firms often have more incentive to cater to that belief than to eradicate it. When many people were still afraid of flying, it was common to see airline flight insurance sold at airports at exorbitant prices. (KL  1351)

…many people will take whatever option requires the least effort, or the path of least resistance. Recall the discussion of inertia, status quo bias, and the “yeah, whatever” heuristic. All these forces imply that if, for a given choice, there is a default option—an option that will obtain if the chooser does nothing—then we can expect a large number of people to end up with that option, whether or not it is good for them. (KL  1420)

The best way to help Humans improve their performance is to provide feedback. (KL  1527)

An important type of feedback is a warning that things are going wrong, or, even more helpful, are about to go wrong. (KL  1534)

A good system of choice architecture helps people to improve their ability to map and hence to select options that will make them better off. One way to do this is to make the information about various options more comprehensible, by transforming numerical information into units that translate more readily into actual use. (KL  1564)

Think about mortgages, cell phone calling plans, and auto insurance policies, just to name a few. For these and related domains, we propose a very mild form of government regulation, a species of libertarian paternalism that we call RECAP: Record, Evaluate, and Compare Alternative Prices. (KL  1580)

When we face a small number of well-understood alternatives, we tend to examine all the attributes of all the alternatives and then make trade-offs when necessary. But when the choice set gets large, we must use alternative strategies, and these can get us into trouble. (KL  1599)

Social science research reveals that as the choices become more numerous and/or vary on more dimensions, people are more likely to adopt simplifying strategies. (KL  1615)

The most important modification that must be made to a standard analysis of incentives is salience. Do the choosers actually notice the incentives they face? (KL  1665)

By rearranging the order, and using one small fudge, the following emerges.

  • iNcentives
  • Understand mappings
  • Defaults
  • Give feedback
  • Expect error
  • Structure complex (KL  1688)

PART II

This section is about money related issues with examples from a wide array of financial decisions that people must make.

Automatic enrollment thus has two effects: participants join sooner, and more participants (KL  1806)

Save More Tomorrow invites participants to commit themselves, in advance, to a series of contribution increases timed to coincide with pay raises. By synchronizing pay raises and savings increases, participants never see their take-home amounts go down, and they don’t view their increased retirement contributions as losses. (KL  1870)

When markets get more complicated, unsophisticated and uneducated shoppers will be especially disadvantaged by the complexity. (KL  2240)

In 1989 the average American family owed its credit card companies $2,697; by 2007 that number had grown to about $8,000. And these figures are probably too low because they are generally self-reported. (KL  2389)

…credit cards always mention the minimum payment you can make when you receive your monthly bill. This can serve as an anchor, and as a nudge that this minimum payment is an appropriate (KL  2416)

For mortgages, school loans, and credit cards, life is far more complicated than it needs to be, and people can be exploited. (KL  2422)

Part III & IV

This section applies nudge analysis to problems related to health insurance, organ donations, the environment, school choice, the health care system, and privatizing marriage.

Part V

This section deals with some objections and  then presents a list of possible nudges. I will note just a few here:

A simple nudge would be a Give More Tomorrow program. The basic idea, modeled on Save More Tomorrow, is to ask people whether they would like to give a small amount to their favorite charities starting sometime soon, then commit to increasing their donations every year. (KL  3733)

Anna Breman (2006) has conducted a pilot experiment using this idea in collaboration with a large charity. Donors already making monthly donations were asked to increase their donations either immediately or starting in two months. The latter group increased their donations by 32 percent. (KL  3736)

Summary

In this book we have made two major claims. The first is that seemingly small features of social situations can have massive effects on people’s behavior; nudges are everywhere, even if we do not see them. Choice architecture, both good and bad, is pervasive and unavoidable, and it greatly affects our decisions. The second claim is that libertarian paternalism is not an oxymoron. Choice architects can preserve freedom of choice while also nudging people in directions that will improve their lives. (KL  4128)

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