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sumatra_squall 's review for:
Nudge: Improving Decisions about Health, Wealth, and Happiness
by Richard H. Thaler, Cass R. Sunstein
The title of this book "Nudge: Improving Decisions About Health, Wealth and Happiness" might be overreaching it a tad but Thaler and Sunstein's discussion on "choice architecture" is a great read. Essentially, Thaler and Sunstein argue that contrary to conventional economic theory, humans do not act like the rational homo economicus who is capable of processing hundreds of choices, weighing their costs and benefits rationally and systematically. Real humans have difficulty handling complexity. They get tired, confused and they are influenced by their emotions (e.g. over-optimism, loss aversion, inertia), environment and peers. We use tools like anchoring, the "availability heuristic" (where we assess the probability of events by trying to see how readily examples come to mind), and representativeness to help us make sense of info. These tools, while useful as navigational devices, can sometimes lead us down the wrong path. That's why choice architecture, or the way we structure choices, matters as much, if not more so, than the choices themselves.
The idea is, if you understand how real humans think and process information, you can design how choices are presented and nudge people towards making better decisions. For example, setting decent default choices taps on our sense of inertia and tendency to stick with the status quo. Providing meaningful feedback helps pp learn from their mistakes and improve decision making as they go along (e.g meters that tell you how much electricity you're consuming and how much it's costing you). Providing appropriate incentives - and not just the quantum but the salience of these incentives since people may overlook a lump sum incentive, but not recurrent ones - can also nudge people towards better decisions. We can use social norms to nudge people to do the right thing (e.g. not littering, paying taxes on time). Structuring complex choices - e.g. by filtering - and mapping, to help pp map the info provided to them onto parameters that are meaningful to them (what does all this mumbo jumbo on duration, service levels, technology used etc mean in terms of how much I have pay out of pocket?) are other strategies we can employ to guide better decision making.
Some of the examples Thaler and Sunstein use are familiar - e.g. the structuring of retiring plans to get pp to commit upfront to saving more when they earn more, and how the incidence of organ donation rises if, as a default, pp are required to indicate if they don't want to donate their organs, rather than the reverse - and some of their suggestions e.g. to privatise marriage seem like a forced attempt to demonstrate the vast applicability of choice architecture. But overall, Nudge is a thought provoking read and its breezy tone - Thaler and Sunstein adopt a bantering, collegial tone throughout the book - makes it an accessible read about a serious topic.
[Edit: Read the 2021 updated version. Some of the things that stood out for me reading this version a decade after I read the original book was the observation that curation is another powerful tool for choice architecture; "small shops compete via curation, while online megastores use navigation tools to make finding and choosing among so many options easy....good curation combines getting rid of bad options and introducing novel ones...choice architecture in [various] domains must use some combination of curation and navigation tools. If they don't, people will flounder." Thaler and Sunstein also advocate making things fun to induce people to do the right thing, e.g. rewards and lotteries to encourage recycling or picking up after oneself.
In 2021, Thaler and Sunstein introduce the term "sludge", which they define as "any aspect of choice architecture consisting of friction that makes it harder for people to obtain an outcome that will make them better off (by their own lights)". Think: extensive paperwork that you have to fill in, bureaucratic red tape and hurdles to cancel a subscription, long waits (e.g. TSA clearance procedures at the airport)
The 2021 version also has updated examples and advice, for instance:
- suggesting that governments make all disclosures machine readable to make it easier for people to shop around for the best deals by sharing that data with third party intermediaries who aggregate deals from all providers in the market and match you with the best one.
- advising people to avoid "deductible aversion" and to choose the largest deductible available when purchasing insurance (Thaler and Sunstein go as far as to say that the reader can "skip the rest of the chapter if you promise to follow this one rule of thumb")]
The idea is, if you understand how real humans think and process information, you can design how choices are presented and nudge people towards making better decisions. For example, setting decent default choices taps on our sense of inertia and tendency to stick with the status quo. Providing meaningful feedback helps pp learn from their mistakes and improve decision making as they go along (e.g meters that tell you how much electricity you're consuming and how much it's costing you). Providing appropriate incentives - and not just the quantum but the salience of these incentives since people may overlook a lump sum incentive, but not recurrent ones - can also nudge people towards better decisions. We can use social norms to nudge people to do the right thing (e.g. not littering, paying taxes on time). Structuring complex choices - e.g. by filtering - and mapping, to help pp map the info provided to them onto parameters that are meaningful to them (what does all this mumbo jumbo on duration, service levels, technology used etc mean in terms of how much I have pay out of pocket?) are other strategies we can employ to guide better decision making.
Some of the examples Thaler and Sunstein use are familiar - e.g. the structuring of retiring plans to get pp to commit upfront to saving more when they earn more, and how the incidence of organ donation rises if, as a default, pp are required to indicate if they don't want to donate their organs, rather than the reverse - and some of their suggestions e.g. to privatise marriage seem like a forced attempt to demonstrate the vast applicability of choice architecture. But overall, Nudge is a thought provoking read and its breezy tone - Thaler and Sunstein adopt a bantering, collegial tone throughout the book - makes it an accessible read about a serious topic.
[Edit: Read the 2021 updated version. Some of the things that stood out for me reading this version a decade after I read the original book was the observation that curation is another powerful tool for choice architecture; "small shops compete via curation, while online megastores use navigation tools to make finding and choosing among so many options easy....good curation combines getting rid of bad options and introducing novel ones...choice architecture in [various] domains must use some combination of curation and navigation tools. If they don't, people will flounder." Thaler and Sunstein also advocate making things fun to induce people to do the right thing, e.g. rewards and lotteries to encourage recycling or picking up after oneself.
In 2021, Thaler and Sunstein introduce the term "sludge", which they define as "any aspect of choice architecture consisting of friction that makes it harder for people to obtain an outcome that will make them better off (by their own lights)". Think: extensive paperwork that you have to fill in, bureaucratic red tape and hurdles to cancel a subscription, long waits (e.g. TSA clearance procedures at the airport)
The 2021 version also has updated examples and advice, for instance:
- suggesting that governments make all disclosures machine readable to make it easier for people to shop around for the best deals by sharing that data with third party intermediaries who aggregate deals from all providers in the market and match you with the best one.
- advising people to avoid "deductible aversion" and to choose the largest deductible available when purchasing insurance (Thaler and Sunstein go as far as to say that the reader can "skip the rest of the chapter if you promise to follow this one rule of thumb")]