Nudge: Improving Decisions About Health, Wealth, and Happiness | 
 enlarge | Authors: Richard H. Thaler, Cass R. Sunstein
Publisher: Yale University Press
Category: Book
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Media: Hardcover
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Pages: 304
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Dimensions (in): 9.4 x 6.2 x 1.2
ISBN: 0300122233
Dewey Decimal Number: 330.019
EAN: 9780300122237
ASIN: 0300122233
Publication Date: April 8, 2008
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Amazon.com
Amazon Best of the Month, April 2008: Debit or credit? Paper or plastic? Lease or buy? Public or private school? Have you made the right choices? Probably not, according to the important new research on the science of choice. In clear and entertaining style, Nudge: Improving Decisions About Health, Wealth, and Happiness provides a crash course on how and why humans are prone to make bad choices, and what we can do about it. Through dozens of eye-opening examples, authors Richard Thaler and Cass Sunstein demonstrate how "choice architecture"--a fancy term for the particular scenario or context in which we are asked to make a decision--can actually nudge us toward making better decisions. More importantly, the authors show that by putting the right "nudges" in place, choice architects (who range from cafeteria managers to divorce lawyers) can substantially improve just about everything important to us, from our retirement savings to the health of our planet, without removing our range of options. Recommended for fans and foes of Freakonomics and Predictably Irrational. --Lauren Nemroff
Questions for Richard Thaler and Cass Sunstein
  Amazon.com: What do you mean by "nudge" and why do people sometimes need to be nudged? Thaler and Sunstein: By a nudge we mean anything that influences our choices. A school cafeteria might try to nudge kids toward good diets by putting the healthiest foods at front. We think that it's time for institutions, including government, to become much more user-friendly by enlisting the science of choice to make life easier for people and by gentling nudging them in directions that will make their lives better.
Amazon.com: What are some of the situations where nudges can make a difference? Thaler and Sunstein: Well, to name just a few: better investments for everyone, more savings for retirement, less obesity, more charitable giving, a cleaner planet, and an improved educational system. We could easily make people both wealthier and healthier by devising friendlier choice environments, or architectures.
Amazon.com: Can you describe a nudge that is now being used successfully? Thaler and Sunstein: One example is the Save More Tomorrow program. Firms offer employees who are not saving very much the option of joining a program in which their saving rates are automatically increased whenever the employee gets a raise. This plan has more than tripled saving rates in some firms, and is now offered by thousands of employers.
Amazon.com: What is "choice architecture" and how does it affect the average person's daily life? Thaler and Sunstein: Choice architecture is the context in which you make your choice. Suppose you go into a cafeteria. What do you see first, the salad bar or the burger and fries stand? Where's the chocolate cake? Where's the fruit? These features influence what you will choose to eat, so the person who decides how to display the food is the choice architect of the cafeteria. All of our choices are similarly influenced by choice architects. The architecture includes rules deciding what happens if you do nothing; what's said and what isn't said; what you see and what you don't. Doctors, employers, credit card companies, banks, and even parents are choice architects.
We show that by carefully designing the choice architecture, we can make dramatic improvements in the decisions people make, without forcing anyone to do anything. For example, we can help people save more and invest better in their retirement plans, make better choices when picking a mortgage, save on their utility bills, and improve the environment simultaneously. Good choice architecture can even improve the process of getting a divorce--or (a happier thought) getting married in the first place!
Amazon.com: You are very adamant about allowing people to have choice, even though they may make bad ones. But if we know what's best for people, why just nudge? Why not push and shove? Thaler and Sunstein: Those who are in position to shape our decisions can overreach or make mistakes, and freedom of choice is a safeguard to that. One of our goals in writing this book is to show that it is possible to help people make better choices and retain or even expand freedom. If people have their own ideas about what to eat and drink, and how to invest their money, they should be allowed to do so.
Amazon.com: You point out that most people spend more time picking out a new TV or audio device than they do choosing their health plan or retirement investment strategy? Why do most people go into what you describe as "auto-pilot mode" even when it comes to making important long-term decisions? Thaler and Sunstein: There are three factors at work. First, people procrastinate, especially when a decision is hard. And having too many choices can create an information overload. Research shows that in many situations people will just delay making a choice altogether if they can (say by not joining their 401(k) plan), or will just take the easy way out by selecting the default option, or the one that is being suggested by a pushy salesman.
Second, our world has gotten a lot more complicated. Thirty years ago most mortgages were of the 30-year fixed-rate variety making them easy to compare. Now mortgages come in dozens of varieties, and even finance professors can have trouble figuring out which one is best. Since the cost of figuring out which one is best is so hard, an unscrupulous mortgage broker can easily push unsophisticated borrowers into taking a bad deal.
Third, although one might think that high stakes would make people pay more attention, instead it can just make people tense. In such situations some people react by curling into a ball and thinking, well, err, I'll do something else instead, like stare at the television or think about baseball. So, much of our lives is lived on auto-pilot, just because weighing complicated decisions is not so easy, and sometimes not so fun. Nudges can help ensure that even when we're on auto-pilot, or unwilling to make a hard choice, the deck is stacked in our favor.
Amazon.com: Are we humans just poorly adapted for making sound judgments in an increasingly fast-paced and complex world? What can we do to position ourselves better? Thaler and Sunstein: The human brain is amazing, but it evolved for specific purposes, such as avoiding predators and finding food. Those purposes do not include choosing good credit card plans, reducing harmful pollution, avoiding fatty foods, and planning for a decade or so from now. Fortunately, a few nudges can help a lot. A few small hints: Sign up for automatic payment plans so you don't pay late fees. Stop using your credit cards until you can pay them off on time every month. Make sure you're enrolled in a 401(k) plan. A final hint: Read Nudge.
Product Description
Every day, we make decisions on topics ranging from personal investments to schools for our children to the meals we eat to the causes we champion. Unfortunately, we often choose poorly. The reason, the authors explain, is that, being human, we all are susceptible to various biases that can lead us to blunder. Our mistakes make us poorer and less healthy; we often make bad decisions involving education, personal finance, health care, mortgages and credit cards, the family, and even the planet itself. Thaler and Sunstein invite us to enter an alternative world, one that takes our humanness as a given. They show that by knowing how people think, we can design choice environments that make it easier for people to choose what is best for themselves, their families, and their society. Using colorful examples from the most important aspects of life, Thaler and Sunstein demonstrate how thoughtful “choice architecture” can be established to nudge us in beneficial directions without restricting freedom of choice. Nudge offers a unique new take—from neither the left nor the right—on many hot-button issues, for individuals and governments alike. This is one of the most engaging and provocative books to come along in many years.
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| Customer Reviews: Read 5 more reviews...
This book is a great challenge May 6, 2008
4 out of 5 found this review helpful
If I can read this book and am not internally conflicted at times, that should scare you (as it may indicate that I think my preferences are always best); however, the book's premise is so valid that the concept must be not only fleshed out in detail, but it must be implemented in some fashion (as the book points out, it cannot not be implemented). The good news is that I was internally conflicted (over which option towards which one should nudge another) and I think most readers will be as well.
The opening story of the school cafeteria sets the stage well and makes the premise clear: people make choices and the way we structure those choices influences the choices they make whether we intend to influence them or not. In light of this, why not choose to influence people to make good choices?
The difficulty is in determining what the good choices are. The book argues that the good choices are those that the people would make for themselves if they had all the best information. However, one still has to ask how one can trust the government to provide all the best information and to even use that with integrity to help people make good choices. It is a difficult dilemma - particularly in modern America where there is such distrust for government.
At the same time, I would certainly rather the school cook place the healthy foods where my child is most likely to choose them than to place the unhealthy foods there. That is a pretty clear decision; however, how does one decide on issues like health insurance and savings. The book suggests that we should make individuals "work" to opt-out of insurance or savings rather than to "work" to opt-in. The point is that people are more likely to have health insurance if the default, with a new job, is that it is taken out of their pay. Additionally, people are more likely to invest in a 401k if the default is that it is taken out of their pay and, unless they make a decision to do otherwise (presumably at the time of hire), it will continue to be.
This seems like a good practice until you realize that the company is defaulting to taking money from the employee and using it for the "employee's good". I can certainly see a time period of struggle where employees may be suing their employers for taking their money without their "explicit permission". That is that since it was a default and not a granting of permission it could be problematic. I supposed time and courts will tell.
This is a tremendous book that brings an important topic to the forefront. Do we need to consciously help people make "better" decisions or can we allow them to make "mistakes" and learn or not learn from those? It does seem to have implications on free will, but at the same time so does doing nothing. This, I'm sure, will become an excellent debate in the coming decades.
Nudge for goodness sake May 3, 2008
5 out of 6 found this review helpful
Nobody forced my neighbor to buy that expensive plasma TV. After reading Nudge now he knows why he spent so much more money than he intended. It seemed like such a bargain, standing right next to a much more expensive set in the store display. In Thaler and Sunstein's terms, the store nudged him to buy that TV. They organized the choice set in a way that gently moved him towards what they want him to do. They got him to buy a pricey TV by taking advantage of the principle of contrast. Such psychological biases have been exploited since the beginning of human commerce to sell us things we don't need. This book makes a compelling argument that the same psychological biases can be used to get us what we really want.
After reading Nudge it is easy to understand how small things can make a big difference. For instance, most people I know would like to save more money; most of them don't. Nudge convincingly argues that people can, and should be helped to do that. Very few of us can commit to saving more money today, but most of us can commit today to save more money tomorrow. This human tendency can be used to help people save, and Nudge describes how several companies have already implemented such programs successfully by nudging employees to committing in advance to save part of a future salary increase.
By relying on a large body of work in Psychology and Behavioral Economics, Thaler and Sunstein elegantly argue that people have predictable, systematic biases and that this knowledge can be put to work to help all of us.
Their basic thesis is simple and brilliant: First, how options are presented matters. There is no neutral way to present options. If you present the salads first in a buffet, people will eat more healthy food than if you put salads at the end. Second, don't reduce choice, but organize the options so that people will be more likely to end up with what they themselves would prefer. This is as true for the salad bar as it is for health care.
This amazing book is useful for individuals and policy makers. Policy makers should be interested because such "choice architecture" is strictly non-partisan. Individuals should be interested because this book will nudge them to improve their life their way.
Economics and Politics as Choice Architecture April 28, 2008
2 out of 3 found this review helpful
Some designers think that Schiphol in Amsterdam is the world's finest airport. Its layout is logical and efficient, internet terminals are numerous and free, and stores are so attractive that locals come to the airport to shop. Even the men's urinals are innovative - they contain a small ceramic fly baked into the target zone. The fly reduces mopping by 80% by reminding men to focus their efforts.
Richard Thaler and Cass Sunstein cited the strategic placement of ceramic insects as an example of a "nudge" - a low cost incentive to make the right choice. If you read the blog Jam Side Down, from which this review is condensed, you are very likely to read this book. If you liked Freakonomics, Predictably Irrational, or The Logic of Life, you will like Nudge even better - it packs about 50% more insight per page and the insights matter more. If you follow the blogs or columns of Tyler Cowen, Thomas Sowell, or Robert Samuelson, you are in for a treat.
The book is full of both ideas and of examples like the ceramic fly that leave you thinking "why don't we always do it this way?"
The authors are faculty of the University of Chicago and both distinguished scholars. Thaler is famous for pioneering "behavioral economics" which studies the influence of social, cognitive, and emotional biases on economic decisions. Cass Sunstein is a comically prolific legal scholar who has written about roughly every legal topic there is. His CV lists twenty-eight books and more than three hundred articles (and cautions that it displays only "a very partial listing"). They are tightly connected to the Obama campaign. Austin Goolsby is Obama's lead economic advisor and Thaler's colleague and soulmate. Sunstein was Obama's colleague on the law faculty and is leaving Chicago to become the director of Harvard's Program on Risk Regulation.
Sunstein and Thaler embrace a political philosophy that they term "libertarian paternalism". They deeply respect the right of individuals to make their own (even palpably stupid) choices and would far prefer to see government guide choices than ban activities.
The philosophy at first appears oxymoronic - "libertarian" being conservative to the extent that it is laissez faire and "paternalism" being liberal to the extent that it favors state intervention or protection. Squaring the tension between these ideas is the task and the beauty of the book. The central thesis of Nudge is that like it or not, the way we structure choices creates incentives. Structuring smarter choices provides people with a nudge.
The authors argue that whether we want to or not, we architect choices all the time. They open with a fine example of a school cafeteria that discovers that it can nudge kids towards better diets by putting healthy foods at eye level and in front. They assert further that we can use the emerging science of choice architecture to nudge people to make choices that are healthy, pro-education, financially intelligent, and environmentally sound. You don't ban stupid choices - but you create non-punitive incentives for good ones (for example, you make organ donation an opt-out, not an opt-in program. You save tens of thousands of lives every year and nobody is any worse off for having structured the choice more intelligently). The notion of choice architecture is the great idea at the heart of the book.
But why do we need to nudge? Well, because we often make choices that are not in our self interest - especially if the decisions are complex, infrequent, or make a difference someday instead of now. In these cases, markets fail because choice fails. Humans (as opposed to the fictional "Econs" that the authors mock throughout the book) appear to be well-designed to make simple decisions with immediate consequences such as stepping off of the curb - although the authors point out that in the more touristed precincts of London, even that decision benefits from the "Look Right" nudge on the sidewalk.
Humans (think Homer Simpson, not Econs like Star Trek's Mr. Spock) think poorly when the choices are overly complex or can be delayed without immediate cost (or worst, both). Signing up for a complex mortgage or not joining a 401k plan is painless today -- and who can really figure out the implication of all of those choices? The authors argue that a nudge will at least stack the deck in our favor and reduce the frequency and severity of bad choices.
A good example of smart choice architecture is the Save More Tomorrow Plan which Thaler developed in the mid nineties. Instead of asking employees to save more and reduce their take home pay, a Save More Tomorrow Plan asks employees to check a box to increase their savings rate each time they get a raise. Over time, the result is a dramatic increase in savings as employees commit to save instead of spending future income. With a nudge, Thaler has promoted voluntary savings, preserved choice (employees can opt-out, although few do) and added little if any additional administrative cost.
Transparency figures prominently in many of the nudges that the authors recommend. They urge that credit card companies be required to annually disclose how much we've spent on late fees and interest payments and to do it online using standardized definitions that permit consumers to compare the cost of alternative cards (something that is gruesomely difficult today).
Unfortunately the book stops short of applying "libertarian paternalism" to more controversial nudges - perhaps because the authors do not agree on what to do. Outlawing paid sex or recreational drugs is understandable because these frequently represent poor choices but the cost of prohibition clearly exceeds the social benefits. Libertarian paternalism can contribute to a better choice architecture in these controversial cases. Since tenure is a valuable nudge given to faculty so that they enjoy complete freedom to explore society's most challenging and controversial problems, the reluctance of the authors to do so suggests either caution bordering on cowardice or, dare we say it, a failed nudge.
Second best book I've read on human decisions April 24, 2008
5 out of 6 found this review helpful
Thaler and Sunstein are among another wave of academics that help keep my home town, Chicago,on the intellectual hilltop. This wasn't exactly what I was expecting, since the title seems to indicate something about decision psychology in general not a particular political ideology. But it is a good book and quick read. Whether or not you agree with the political conclusions, the lessons are well-taken.
This is the third book I've read this year that cites Kahneman & Tversky regarding human decision-making quirks. I found Hubbard's How to Measure Anything: Finding the Value of "Intangibles" in Business to be the most enlighening of all the books in this genre. Nudge may be a close tie with Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets.
Economics as though real humans mattered April 22, 2008
3 out of 4 found this review helpful
Nudge's purpose is to use our understanding of Man As He Is to build better policies. Rather than assume a perfectly rational human who can parse long, complicated documents with his mighty, limitless brain, Man As He Is sometimes skims and can be deceived by cleverly worded contracts. Man As He Is is often aware of his own limitations: he'll flush his cigarettes down the toilet to prevent his future self from doing what his present self knows to be harmful; he'll promise to start exercising tomorrow; and he'll curse himself for procrastinating. Perfectly Rational Man -- whom Thaler and Sunstein call an "Econ," to be contrasted with a "Human" -- would never have these problems. Econs sit down with (notional) pencil and paper and calmly work out the costs and benefits of all available actions, then take the action that maximizes their present and future happiness subject to a discount rate (future happiness is worth less than the same quantity of present happiness). They don't have an internal procrastinator at war with a rational planner, nor do they ever regret on Sunday morning what they did on Saturday night.
Nudge is for Humans, not Econs. Nudge realizes, for instance, that making 401(k)s opt-out rather than opt-in, and setting a reasonable default investment plan, will lead lots more people to save money for retirement. And now that they've been enrolled, very few people will opt out. This is what Thaler and Sunstein call "libertarian paternalism": giving people a gentle push in the direction of their own best interests (the "paternalism" part), but never taking away choices (the "libertarian" part). People can quit at any time; it's only the default that has changed.
Your 401(k)'s default investment plan is part of what Thaler and Sunstein call "choice architecture." As a 401(k) administrator, I can guide your choices in any number of ways. I can choose opt-in or opt-out; if I choose opt-out, I have to choose a default plan, whereas if I choose opt-in, I have to decide how much prodding to give you. The point is that choice is inevitable. There's no way to avoid structuring the options available to people, so the right thing to do is to pick the best default. Given this realization, most of Nudge will be entirely uncontroversial.
Thaler and Sunstein digest a mountain of psychological research and reassemble it into a convincing story about how to build policies that correct for human failings. Humans can be expected to make the right decision when faced with a routine, concrete problem -- buying food at the grocery store, say -- but all bets are off when we're asked to evaluate a complicated, large-scale problem like the impact of our air-conditioner usage on global climate change. Thaler and Sunstein want to give the market itself a nudge here. They wouldn't insist that we buy only low-power appliances. Instead, they want our appliances to give us simple, immediate feedback on our energy usage: thermometers that reveal moment-to-moment energy costs, say, and EPA fuel-economy infographics that use easy-to-understand metrics like "dollars per year."
Econs may be able to consume any information thrown at them and correctly render a judgment from what they read; Humans have finite attention spans and would rather spend time with their families than pore over fuel-economy tables. If we want Humans to make the best choices, we have to structure their choice environment to make this possible. Nudge is Thaler and Sunstein's brilliant contribution toward this goal.
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