Book Review: Nudge, Richard H. Thaler and Cass R. Sunstein

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

 

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

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

 

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.

 

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.

 

If you are interested in political policy also see:

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

 

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

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

Book Review: Political Tribes, Amy Chua

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

 

Political Tribes, Amy Chua

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

 

Tribalism is a form of macro-group identification that runs much deeper in the human psyche than we may realize. Humans are hard-wired to belong. Group identification starts in infancy with family bonding, but quickly we start learning who is “us” and who is “them.” Even babies react differently to photos of strangers depending on the ethnicity of the subjects; photos of people that “look” like the ethnic group the baby is from are generally received more positively by the baby. As we grow, other tribal identifiers become important: language, dress, religion, accent. Although we Americans live in a multiethnic society, these innate needs to belong to a group are no less important to us. Ignoring their existence can lead us to misinterpret the world we live in, and can create tensions and conflicts that could be avoided with a little more awareness.

 

Americans tend to ignore the power of tribalism. We do this at our peril, and to our disadvantage in both national and international politics. Amy Chua diagnoses this often willful ignorance in her book Political Tribes, and shows numerous specific examples of how the failure to account for tribal behavior has hurt us.

 

We seldom think about tribalism within America, and indeed, Chua describes America as being unique in creating a tribe of its own, one that supersedes typical tribal delineators of ethnicity, religion, economics, language, etc. Within this super tribe, though, are also harbingers of new tribes forming. The 2016 election was possibly a foretaste of tribal fracturing; coastal elites were surprised by the collective electoral power wielded by less affluent whites from the midwest and south. The growing multiethnicity of America may also harden those tribal differences, as the increasing population of Asian and Hispanic residents diminishes the relative power of poor and middle class whites.

 

Many of Chua’s examples come from recent foreign policy mistakes. America learned some of the wrong lessons from her successes rebuilding Germany and Japan after World War II. Both of those countries were largely homogeneous, essentially comprised of one tribe of people. Japan had long been that way. Though there are minorities in Japan, they are very small in number compared to the predominate Japanese people and do not factor largely in political or economic decision making. Germany’s single tribe was created through violence and ethnic cleansing: the Holocaust and purging of ethnic minorities under the Nazi regime. The end result for both countries was an internal unity that, even in defeat, created an environment amenable to democratic reforms. Thus the rapid democratization and economic growth seen after World War II was in no small measure a result of the already unified and largely homogenous populations of those countries.

 

Vietnam may have been America’s first and greatest military defeat, but before the military defeat was a failure to understand the tribal dynamics of the country. Vietnam was far from the unified population found in Japan or Germany. Not only were there numerous people groups native to the peninsula, but there were centuries of interaction with China along with a significant minority of ethnic Chinese within the country. This minority held disproportionate power, especially economically. This power imbalance led to resentment and mistrust, and when first the French and later the US took the side of the hated elites, popular resistance and opposition was assured. Chua’s analysis is that the Cold War backdrop that featured so prominently in American planning and understanding of the war and the entire context in Vietnam masked the real situation: the Vietnamese people were tribally motivated to assert their independence from their Chinese minority, and far from being interested in the Communist/Capitalist battle for the world they were completely focused on asserting their own will within their own borders.

 

More recently, both Iraq and Afghanistan have occupied American attention and have been occupied by American troops for almost two decades. Both have eluded resolution through military and political measures, through Republican and Democratic administrations. And both countries are highly tribal. Shia and Sunni and Kurd tribes in Iraq have been rivals for centuries, separated by both religious differences and competing economic interests. Multiple tribes inhabit the land of Afghanistan, but the ethnic Pashtuns have dominated both government and economic spheres for generations. This has led to resentment and conflict between the differing tribes, often resulting in bloodshed. Into this morass of tribal rivalries and ethnic hostility within the countries America sent troops, usually without knowledge of the history or traditions that ran deeper than any political structures. Without that key local knowledge, that understanding of tribal passions and historical animus, Americans often deepened rifts and created or exacerbated hostilities that perhaps could have been avoided with a deeper understanding of the tribal divisions that predated their arrival.

 

Chua warns that no tribe easily or willingly lets go of power, influence, or wealth. If we continue to ignore the power of tribalism, we may find ourselves consumed by its power within our own borders.

 

Nonfiction: American Nations: A History of the Eleven Rival Regional Cultures in North America, Colin Woodard

For a different perspective on internal cultural differences within the United States, Colin Woodard’s book American Nations: A History of the Eleven Rival Regional Cultures in North America is IMO (in my opinion) a more hopeful look at both what separates us as a country and what binds us together. Woodard identifies ethnic and cultural heritages that continue to echo and shape us, both making us one nation and making us distinct peoples within that nation. Woodard observes that many of these regional differences carry influence even upon newcomers and immigrants: in many ways Vietnamese immigrants to Houston will, within a generation, be more similar to other Texans than they will be to people who may share their lineage but settled in California instead. Although there are concerns about what divides these nations, there is also great encouragement that the power of American ideals and ideas continues to unite people who choose to settle here.

 

If you are interested in political policy also see

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

 

Political Tribes, Amy Chua

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