Book Review: Nudge: Improving Decisions about Health, Wealth, and Happiness, Richard H. Thaler and Cass R. Sunstein

Book Review Nonfiction: Nudge: Improving Decisions about Health, Wealth, and Happiness, Richard H. Thaler and Cass R. Sunstein

 

I’ll admit, I was hoping to read Nudge and get much smarter about making decisions. That is not exactly what the book delivers. Nudge is more for wonks — geeks focused on government and/or political policy. If you make decisions, set policies, create procedures, or design products that involve choices by other people, then Nudge is definitely for you. If you are looking for guidance in making better decisions for yourself in these matters, well, the lessons are a bit more abstract. Incidentally, Richard H. Thaler, co-author of Nudge, won the 2017 Nobel Prize in Economics for his contributions to behavioral economics, the integration of psychology and economics. For more on the Nobel details see https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2017/press.html

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As an abstract guidance lesson, take the following example from Nudge. Educators in San Marcos, TX, wanted to improve the rates of college admission by graduates from local high schools. Obviously there are any number of things that potentially could have helped: increased emphasis on academic classes, better preparation for college admissions tests, etc. But San Marcos is an area where few parents had ever gone to college. For many students, the idea of college was not something they ever entertained. So San Marcos added a graduation requirement: every graduating student has to complete and submit a college application to the local community college. Counselors from nearby Austin Community College visited with students and helped them complete the application. They also talked to students about how much more money college graduates make (on average) compared to those who only finish high school. They provided financial aid information and assistance with other potential barriers to college attendance. The result: in one year the percentage of San Marcos High graduates who went on to college increased by 11%!

 

That is the kind of Nudge that Thaler and Sunstein are talking about. They coin a phrase, “paternal libertarianism” to describe the type of choice architecture they propose. Anytime a choice is offered, decisions are made as to how those choices are presented. A cafeteria might choose to group foods according to type, according to color, alphabetically, randomly, etc. The location and groupings of the food will influence the choices people make when eating. If it is a school cafeteria, the manager can choose to position the fare in a way that maximizes profit. That, though, may not be in the best health interests of the students. Thaler and Sunstein would propose that consideration must be given to maximizing the health interests of students.

 

The two words of their phrase must balance each other for their proposals to work. “Paternal” implies looking out for the benefit of those making the choices. It assumes that choices can be objectively measured as “better” or “worse.” An insurance plan that covers more medications at a lower price is going to be better than one that covers fewer prescriptions for a higher price, if you are dealing with a population that uses a lot of prescriptions. Thus, if you are presenting insurance plans to (for example) an elderly population, you might “Nudge” them toward making that better choice. This can be done in several ways: listing it first, making it the default choice, advertising it more aggressively, giving it a leading name (perhaps “the BEST insurance”).

 

But they firmly argue that “libertarianism” is equally important. One choice may be objectively better than another for most people, but removing people’s choices is removing their freedom. In the insurance example, they might suggest that the best prescription plan be the default plan for seniors who take a lot of medicine, but they would not want that to be the only choice. What about those seniors who expect to have a lot of surgery but not as many medications? What about those who are in excellent health and would prefer to pay a lower premium? They argue that a nudge is important, but choice is equally important. San Marcos may require applications to the community college, but none of their graduates is obliged to attend. That is a paternal nudge with a libertarian conscience. That hypothetical cafeteria manager may group foods to encourage healthy eating, but she might still provide the option to eat cake and drink soda. That is a paternal nudge with a libertarian conscience. Those are the types of examples that meet with Thaler and Sunstein’s approval.

 

Individually, the best parts of Nudge describe how humans generally make choices. In a word, they make them poorly. So the authors have some suggestions for fooling ourselves into making better choices. One example is in the area of saving. Americans are particularly bad at saving money. But we are good at making well-intentioned promises. They suggest starting saving with a small, easily managed amount of money. Make the withdrawals automatically on your payday so you never actually see the money in your checking account. Then, set up your IRA (or other savings vehicle) to increase that amount by a percentage every year, kicking in at the same time as your annual raise (assuming you get one). This way the amount withdrawn increases as your income increases, and continues to be “hidden” by not appearing in the checking account.  This does not reduce your choices: you can always change or even cancel this process. But it uses some of our own human weaknesses as leverage to attain a desirable outcome.

 

Although the authors do address objections and concerns within the book, I remained cautious after reading it. I see huge advantages to the kind of Nudge – paternal libertarianism they describe. But I also see the possibilities of less altruistic persons using their choice architecture to lead consumers toward decisions that benefit companies and not people.  The authors use the example of Enron, and the way their retirement benefits were geared toward pushing employees to reinvest their retirement money into Enron stock. They use this as a negative example, and indeed when Enron collapsed many of their employees lost their life savings along with their jobs. The authors encourage companies to do the opposite, to promote diversifying retirement investments and promote strategies that are both safe and employee-focused. Other than altruism, though, I am not sure they make a compelling case for companies to do this, and my experience has made me wary of the altruistic motives of most corporations.

 

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I would love to say that reading Nudge will change the way you make decisions and transform you into a healthier, wealthier, and happier human being. That outcome lies beyond the scope of the authors. However, it does give great insight into how choices can be presented in ways that encourage positive decisions and growth. Nudge is worth the read if for no other reason than to understand the motivators behind our decisions (and those behind our choices to NOT make certain decisions). Perhaps understanding ourselves is the best first step toward making better choices.

Book Review: Nudge: Improving Decisions about Health, Wealth, and Happiness, Richard H. Thaler and Cass R. Sunstein

If you are interested in political policy also see

Book Review Nonfiction: Political Tribes: Group Instinct and the Fate of Nations, Amy Chua

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