Nudge

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



Overview

Nudge is about choices—how we make them and how we can make better ones.

Nudge draws on decades of behavioral science and economics research. Nudge provides why we're worse at making decisions than we think and show us how sensible “choice architecture” can successfully nudge people toward making better decisions.


Cafeteria Example

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Imagine a network of public schools in your area. All of these schools share one food director whose job is to select the food from which students can choose and then organize the lunch line at each of the schools.

The students eating in the cafeteria grab a tray and then walk down the line. The students add to their tray the food they want to eat and at the end of the line they pay for only what they've taken. The lunch line in this context is very similar to a modern salad bar. Want extra carrots? Add them. Want to skip to the onions. No problem.

The food director likes to think creatively so she set up an experiment. She wanted to know if the order of the food would affect the student's choices. In some schools she placed the desserts near the front of the line, in other schools she placed the desserts near the end of the line, and in a third group of schools the desserts were in a completely separate line.

The results were dramatic. Simply by rearranging the cafeteria, she was able to increase or decrease the consumption of many food items by as much as 25 percent.

School children, like adults, can be greatly influenced by small changes in the context.

This influence can be exercised for better or for worse. She knows that she can increase consumption of healthy foods and decrease consumption of unhealthy ones.

This prompts one of the central questions of the book. Should she?

The book provides five choices with what the she might choose:

  1. Arrange the food to make the students best off, all things considered.
  2. Choose the food order at random.
  3. Try to arrange the food to get the kids to pick the same foods they would choose on their own.
  4. Maximize the sales of the items from the suppliers that are willing to offer the largest bribes.
  5. Maximize profits, period.

Each of these options have specific advantages and disadvantages. The decision may not be as clear as it appears. 


Choice Architecture

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We make choices such as the cafeteria example every day. Choices can be big or small, deliberate or subconscious.

Like the students influenced by the order of the food, we too are influenced by the way information is presented to us. The way choices are designed, whether we like it or not, can have an impact on our decisions. The people who create and design the decisions are called choice architects. 

A choice architect has the responsibility for organizing the context in which people make decisions.

Many people turn out to be choice architects without knowing it or planning on it. The food director's job, for example, was to choose the food the students could eat. However, aspects of this job-organizing the lunch line-inadvertently made her a choice architect. She can influence other people's decisions from behind the scenes.

Choice architects can be people who design voting ballots, doctors who have to describe a list of alternative treatments, the people who design the form for employees to enroll in healthcare, or even a parent describing possible educational options to their child.

Small and seemingly insignificant details can have major impacts on people’s behavior. This is because they focus the attention of users in a particular direction. A good rule of thumb is to assume that “everything matters.” 

The insight that “everything matters” can be both paralyzing and empowering. 

Our food director, like the best designers in the world, won't ever be able to design something that's perfect for everyone. However, she can design something that will have beneficial effects. She can nudge.


Biases and Blunders

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Nudges, as discussed later, are ways of pushing us to make better decisions. We need this help. We are, as a species, fairly bad at making decisions.

Our lives are busy and complicated. We can't spend all our time overthinking and analyzing everything. We use rules of thumb because they are quick and useful for cutting down the thinking involved. Unfortunately, these same helpful rules of thumb also lead us to systematic biases.

I'll just briefly summarize three of the biases mentioned in Nudge.

Anchoring:

Anchoring is a bias in which one relies too heavily on one piece of information.

Guessing the Size of Milwaukee: 

  • A resident of Chicago will know that Milwaukee is a major city, but not as large as Chicago, so the person may take the population of Chicago, roughly 3 million, and guess Milwaukee is one-third the size, arriving at 1 million. 
  • A resident of Green Bay, which has a population of around 100,000, might know that Milwaukee is larger than Green Bay, and triple the population of their home city to arrive at a guess of 300,000.
This process is called “anchoring and adjustment.” You start with some anchor, the number you know, and adjust in the direction you think is appropriate.

Both residents anchored their guess to a piece of information they knew which led them them far from the correct answer. The real population of Milwaukee is about 600,000.

Availability Heuristic: 

Predicting the frequency of an event based on how easily an example can be brought to mind.

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.
Homicides are more available than suicides, and so people tend to believe, wrongly, that more people die from homicide.

Problems are that easily remembered events may inflate people’s probability judgments. If no such events come to mind their judgments of likelihoods might be distorted downward.

Representative Heuristic: 

The idea is that when asked to judge how likely it is that A belongs to category B, people answer by asking themselves how similar A is to their image or stereotype of B. That is, how “representative” A is of B.

The most famous example of this bias involved a hypothetical woman named Linda.

In this experiment subjects were told the following: “Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice and also participated in antinuclear demonstrations.”

Then the participants were asked to rank the most likely futures for Linda. There were eight options and the two crucial answers were “bank teller” and “bank teller and active in the feminist movement.”

Most people said that Linda was less likely to be a bank teller than to be a bank teller and active in the feminist movement.

This is an obvious logical mistake. It's not possible for any two events to be more likely than one of them alone. By definition it's more likely Linda is a bank teller than a feminist bank teller, because all feminist bank tellers are bank tellers.

This is the representativeness heuristic: Linda’s description seems to match “bank teller and active in the feminist movement” far better than “bank teller.”

Further Reading:

  • For more on biases, read Thinking Fast and Slow by Amos Tversky and Daniel Kahneman
  • For more on the Availability Heuristic, read my post on it here.

Liberterian Paternalism

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The authors, Thaler and Sunstein, are keenly aware that these two words are not particularly endearing. Both are weighed down by stereotypes from popular culture and politics. Even worse the two words seems to be contradictory. 

The authors argue that if the words are properly understood, both concepts reflect common sense, and they are far more attractive together than alone.

The problem with the terms is they have been captured by dogmatists.

Libertarian:

The libertarian aspect of our strategies lies in the straightforward insistence that, in general, people should be free to do what they like—and to opt out of undesirable arrangements if they want to do so.
— Thaler & Sunstein

The late Milton Friedman urged that people should be “free to choose.” The authors want to design policies that maintain or increase freedom of choice.

Libertarian paternalists want to make it easy for people to go their own way; they do not want to burden those who want to exercise their freedom.

Paternalism:

The paternalistic aspect lies in the claim that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better.
— Thaler & Sunstein

The authors argue that institutions and governments should steer people’s choices in directions which will improve their lives.

Social science research has shown for decades that individuals make pretty bad decisions. Institutions and governments should influence choices in a way that will make choosers better off, as judged by themselves.

Libertarian Paternalism:

Libertarian paternalism is a relatively weak, soft, and non-intrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened.

If people want to smoke cigarettes, to eat a lot of candy, to choose an unsuitable health care plan, or to fail to save for retirement, libertarian paternalists will not force them to do otherwise, or even make things hard for them.

The approach the authors recommend is still paternalistic, because the choice architects consciously attempting to move people in directions that will make their lives better. They nudge.


What is a Nudge?

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A nudge 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.

To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates.

Examples of Nudges:

  • Putting the fruit at eye level counts as a nudge. Banning junk food does not.
  • Switching from opt-in to opt-out retirement plans counts as a nudge. Mandatory savings does not.

Many of the policies recommend in this book can, and have been, implemented by the private sector (with or without a nudge from the government).

Employers are important choice architects for many of the examples provided in this book. Employers can help nudge in important areas such as health care and retirement plans.

But as the authors show, the same points that justify libertarian paternalism on the part of private institutions apply to government as well.


WHERE TO BUY

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Buy the book on AmazonBarnes and NobleBAM, or just Google it. (I receive no kickback or commission for these links or summaries. See my disclosure for more.)

EVEN MORE GREAT STUFF IN THIS BOOK:

  • Biases and Blunders - Anchoring, Availability Bias, Representativeness Bias, Optimism and Overconfidence, Status Quo Bias, and more
  • System 1 and System 2 in our Brains
  • Why we tend to follow the herd
  • The importance of making good decisions
  • Opt-in versus Opt-out systems
  • Nudging people to save more money
  • How to increase organ donations
  • How to reduce carbon emissions
  • How to have more successful marriages
  • And much, much more!
Erik Cianci