on October 27, 2009
The good part of this book is that it contains a lot of practical and nonpartisan policy advice, such as requiring corporations to sign people up for the 401(k) by default and then letting them opt out. This is an example of what they mean by "nudge". You don't need to coerce people; since something has to be the default option you can at least give them intelligent defaults.
The bad side of the book is its poor understanding of human nature. Libertarian economists such as Gary Becker have been aggressively promoting free markets based on a mathematical vision of rational decision making. Needless to say, this vision could only apply to ultra-logical people like Mr. Spock - the notorious Homo economicus. The breakthroughs of behavioral economics teach us that real people do not act like Mr. Spock. This book does an excellent job explaining the major findings of behavioral economics. But rather than try to understand the richness of real human behavior, most behavioral economists tilt towards the opposite extreme. They pronounce humans as irrational and filled with hidden biases. Homo economicus has been replaced by Homo irrationalus.
That's unfortunate because the real story of human nature is far more interesting. Consider the case of loss aversion (pp 33-34). In a classic experiment which has been replicated hundreds of times, students were randomly given free coffee mugs. The mug-less students were asked how much they would pay to get a mug and the students with mugs were asked how much they would want in order to sell their mugs. It turns out that students with mugs wanted an average of about twice as much as the mug-less students were willing to pay! This goes by the name of loss aversion, the endowment effect, and the status quo bias. It is labeled a bias because a self-respecting member of Homo economicus would think about how often he drinks coffee, how often he does the dishes, and how many mugs he currently has. Based on this analysis he would put a price on a new coffee mug. That price would not influence by whether or not he just got a mug for free. But in fact this behavior is rational. Richard Thaler and Cass Sunstein conclude that "loss aversion operates as a kind of cognitive nudge, pressing us not to make changes, even when changes are very much in our interests." (p.34)
The method behind our seemingly irrational madness is found in a classic problem in game theory - the game of hawks and doves. Hawk and dove are different strategies people can use when they are in a conflict over a prize. The prize could be anything. For butterflies it could be a sunlit leaf because male butterflies have more mating success when they occupy such a position. For feral horses it could be a pool of water (Herb Gintis reviews the literature in _The Bounds of Reason_). Doves are sharers. When two doves see a prize they will share it. When two hawks see a prize they will fight over it. When a hawk meets a dove the dove will yield the prize to the hawk. A world of all doves is basically a communist utopia where everyone shares everything. It is also efficient because people maximize the use of available resources (prizes). The problem is that it is not what biologists and game theorists call an evolutionary stable strategy. It can easily be invaded by hawks. The first person to switch to the hawk strategy will get the entire prize without cost wherever he goes. Over time more and more and people will play hawk. That's inefficient because the cost of fighting must be subtracted from the value of the prize.
We have a problem. A world with doves is efficient but unstable. A world with hawks is inefficient but stable. The evolutionary biologist John Maynard Smith found the answer - the bourgeois strategy. That means "play hawk when you own the prize and dove when someone else does." A world of bourgeoisie is efficient because it eliminates fighting as effectively as the dove strategy. It is also an evolutionary stable strategy that cannot be invaded by hawks. That's because hawks are basically parasites on doves - they need the free prizes to offset the cost of fighting. A necessary consequence of adopting the bourgeois strategy is that people will value prizes that they own more than prizes that other people own. That's the real reason for loss aversion. It is not a "bias" but an efficient and stable strategy that provides the strategic foundation for the rule of law. The cost of enforcing the law goes up with the number of people who are trying to break it. If people did not have a sense of loss aversion then there would be more useful trades - but there would also be conflict and fighting over prizes.
That is just one example and this is already a long review but these kinds of lessons underlie nearly all of the so-called "biases" that Thaler and Sunstein identify. If you want to learn about Homo economicus then pick up _The Economics of Life_ by Gary Becker. If you want to about Homo irrationalus then buy this book. But if you want to learn about Homo sapiens then you will need to look elsewhere. I recommend starting with Gut Feelings: The Intelligence of the Unconscious_ by Gerd Gigerenzer. It is the book that _Blink_ by Malcolm Gladwell should have been. Books that talk discuss the hawk-dove game and other fascinating results out of evolutionary game theory are pretty scholarly. Games in Economic Development only requires high school algebra and you can easily skip over the math. I also think that most people interested in this book would enjoy Filthy Lucre: Economics for People Who Hate Capitalism. It is an accessible but sophisticated look at modern economics, including some behavioral economics.
on March 23, 2008
Richard H. Thaler and Cass R. Sunstein are both professors at the University of Chicago and where the Chicago school was once famous for the Milton Friedman doctrine of free markets (look where they've got us today!) Thaler and now his Law professor friend Cass Sunstein have swung the pendulum the other way.
Here in Nudge, they argue that totally free markets can lead to disasters precisely because human individuals are not actually very good decision-makers. As Behavioural Economists (Kahneman & Tversky Judgment under Uncertainty: Heuristics and Biases- who credited Thaler as being a key inspiration - and Dan Ariely, whose Predictably Irrational: The Hidden Forces That Shape Our Decisions has become a best seller) argue, we are riddled with little psychological tics in our decision-making processes. We buy things, then suffer remorse. We get confused by choices and often make no choice at all.
But where Ariely keeps his discourse in the world of the day to day, Thaler and Sunstein develop an argument that is political - and is bound to cause heated debate. What they argue is that, in the face of our decision-making weaknesses, Governments and Businesses can help "nudge" us in the right direction. The elephant in the room can be benign.
They call their viewpoint `libertarian paternalism' and what they argue is that it would be a good thing for some gentle nudging of the citizenry in the right direction. As Thaler said recently in the New York Times: "In light of human limitations, Cass Sunstein and I argue for policies that we call libertarian paternalism. Although the phrase sounds like an oxymoron, we contend that it is often possible to design policies, in both the public and private sector, that make people better off -- as judged by themselves -- without coercion. We oppose bans; instead, we favor nudges."
How does a Government do this without imposing laws and edicts. A primary argument is that defaults can be set that counter the tendency by humans to procrastinate or make no decision. One example is the Save More Tomorrow Plan which Thaler developed back in 1996 as an employer sponsored retirement plan for employees. Instead of presenting the details and asking employees to consciously sign-up to increase their savings each time they got a pay rise, the plan presented the details and asked employees to basically check the box if they wished in future to automatically increase their savings as their pay went up. To pre-commit. Such schemes have proved very successful, yet they offer the same free choice, though with a different default.
As Thaler argues: "Since it is often impossible for private and public institutions to avoid picking some option as the default, why not pick one that is helpful?"
Another form of nudge might be the act of disclosure. Thaler & Sunstein argue, for example that credit card companies should issue annual statements that tell us how much we've spent this year on late fees and interest. Again: we have the complete freedom to use cards as we want, but the additional information may help us reframe our own spending strategies. Or how about stickers on new cars that show how much gasoline each vehicle would burn over the next 5 years under typical usage. Hold that Hummer.
These are examples of what the authors call helpful "choice architecture." Nice phrase. The architecture puts our options on more clear display.
I must say, I like the thinking here, and it gives credence to agent-based simulation modelling I've carried out whereby small changes can lead to big effects.
But this volume is about more than modelling and mere theory. One cannot help but think that the book has been timed to coincide with the meltdown of the present economy. The free market, the totally free market, the authors implicitly argue, needs quite a nudge itself. Rather than seeking highly regulated solutions, the better response might simply be a series of tweaks to the choice architecture that influences our spending, saving, health care and borrowing patterns.
The authors present a clear argument and no doubt it will cause heated and lively debate. This book has landed like a rock, right into the centre of the current and somewhat stagnant economic pond. It will definitely cause ripples. Well worth reading.
on June 30, 2009
I liked the beginning of the book, but it became repetitive and boring after first three chapters. It could be due to the fact that I generally agree with the major premise of the book: people should be "nudged" to make a decision that will make them better off. And yes, the nudge should be transparent and not synonym to manipulating people's minds. And yes, the government has my permission to nudge me in the right direction; if as a result I will make a decision (for example) to exercise more and eat less junk food.
(As a side note, I will be happy to have such a smart government. Or well, this could be an issue. But this is a subject for another book).
I got it, and I don't need three chapters to convince me. Am I alone in this?
I was much more interested in why and how our brain works to react to the "nudges" ("popular psychology" side that was almost non-existent), than in authors' rebukes to the opponents of "libertarian paternalism" - the political implementation of their theory. The other thing that annoyed me was the authors' attempt to be funny and coin terms, names and definitions that were supposed to make the book readable. Instead, it got annoying after the third appearance of the term "libertarian paternalism" and after the fifth time I saw the term "Econ" (used for infamously rational person from economics textbooks).
I had an opportunity to listen to Thaler's presentation on this subject and it was lively and interesting. He is a brilliant speaker with many great ideas; unfortunately, it didn't translate into the brilliant writing.
I would still recommend the book for the ideas of "nudges" in different areas (personal finance, energy conservation, marketing, politics and everyday life). However, it fells short on the inspirational side. You shouldn't be able to put this book down. But you are.
on November 3, 2010
This book covers a lot of ground, and none of it is covered with any rigour or depth.
There are occasional interesting pieces of insight - for example, if you want people to reduce their energy usage, it may be enough to tell above-average users that they are in that category - below-average users, not so much, they may then use more energy - but you can counter this by a nice smiley emoticon next to where that fact is displayed (implying they're doing a great thing by using less energy) and their usage will stay low.
The problem is, to gain these nice pieces of insight, I had to dig through much much more content that was not covered well.
Here are some of the the things you'll find in this book
- A superficial review of psychology research concerning a few factors on how people make choices (For example, too many choices lead to overwhelm and bad decisions. Another example - people can be influenced to make a bad decision if others around them are making bad decisions).
- A explanation of how people can be helped to make good choices, for example with food, by where food is placed on store shelves (e.g. at eye level vs not).
- Many many pages of excruciating detail on why choices of medical insurance plans can be a complex and painful process. Ditto for how the complexity of investing can lead to bad investment choices. None of this is original.
- A fairly basic solution proposed to complexity of choices - regulations to require providers to provide information on the implications of their choices - for example, lenders should provide documentation of the implications of a given choice of loan - what you'd end up paying over time (not just at the time of initial "special deals") and what the worst case scenario would imply in terms of costs for you. This information, the authors advise, should not be buried in the fine print. Very very obvious stuff.
- A chapter on making organ donation to be opt-out instead of opt-in. One of the better chapters, with some evidence given of it having worked in some countries. But could have been dealt with in a few paragraphs, did not need to be stretched to a chapter (admittedly a short chapter).
- Some attempts at philosophical argument for why governments should be allowed to "nudge" people to better choices, but not done to any depth or rigour.
- Several side comments that did not provide any new insights - for example, that the principle of what actions are being taken by those in authority should be transparent might have prevented the atrocities at Abu Ghraib. Again, nothing original here.
- Several trite pieces of advice about how publicising a commitment you've made (e.g. to lose weight) and setting up disincentives for failure (e.g. a certain amount of money to be donated to a cause you disapprove of) can help you achieve the goal. Again, nothing new here.
- A more reasonable chapter on privatizing marriage - the goal being to allow religious groups to endorse marriages based on their convictions, but for all partnerships to be granted equal legal status. Not really related to the concept of nudging though, and drawn out and padded with sociological thoughts on what function marriage has historically served, which does not seem to be the authors' field of expertise.
- Random pieces of advice such as permitting motorcycle riders to not wear helmets if they take extra training and show evidence of medical insurance. If I could be sure that they are also paying higher insurance premiums I might not be too annoyed at that one, but the authors don't venture into this area of discussion so again I felt their treatment of this topic was incomplete.
- A recommendation that the Social Security Administration assist those claiming benefits by making more clear at what age you should start collecting the benefits if you want to obtain the maximum amount of money by it (allowing for things like, maybe I'm ok with less money if I want it sooner). Having a payer assist a payee in taking maximum advantage is nice and altruistic, good luck with getting that happening.
Overall it felt like the authors had a collection of unrelated instances of advice that they were trying to force to fit the concept of a "nudge".
If you are interested in this kind of content from a psychology viewpoint, read Freakonomics (Dubner and Levitt), Predictably Irrational (Ariely), Influence (Cialdini), Tipping Point (Gladwell). For the investment advice and bits of self-help associated with that, David Bach does a better job in his various books.
on March 31, 2008
"Buy on apples, sell on cheese" is an old proverb among wine merchants. Taking a bite of an apple before tasting wine makes it easier to detect flaws in the wine, and the buyer who does so will not as easily make the mistake of paying more than the wine is worth. Cheese, on the other hand, pairs well with wine and enhances its flavor, so a seller who offers cheese may command a higher price for the wine (and may even deserve it, if the wine is intended to be drunk with cheese).
The proverb captures important psychological nuances of choice. The same product - a bottle of wine or a risky medical procedure - may be perceived differently depending on its context, and it is often possible to arrange the context to influence a choice while still maintaining the decision maker's autonomy.
The practice of structuring choices is called "choice architecture" in a brilliant and important new book, Nudge, by University of Chicago Distinguished Professors Richard Thaler (Business) and Cass Sunstein (Law). Nudge lays out the groundwork for the science of choice architecture in investing, insurance, health care delivery, and other areas, and argues for a "libertarian paternalism" in which choices are structured to make it more likely that a decision maker will select what is considered the most beneficial option, without impairing the ability to decision makers to select other options. For example, making enrollment in 401(k) plans automatic for new employees, with a form for opting out, is likely to result in greater retirement savings than an opt-in system, without limiting anyone's freedom to choose.
Thaler and Sunstein apply the principles of choice architecture to a few problems in health care (How could Medicare part D be improved? How can organ donation rates be increased? Why shouldn't patients be allowed to waive their right to sue for medical negligence in return for cheaper health care?) But the concepts in the book go beyond their specific examples and could prove very useful to practicing clinicians, who, they note, are often in the position of being choice architects for their patients.
Their principles of choice architecture (paraphrased by me and focused on physicians helping patients make decisions) are:
* Make sure incentives are aligned with desired outcomes
* Help patients map outcomes of different alternatives into formats they can understand (a major focus of Medical Decision Making as well)
* Arrange default options to favor better health. Pediatricians have done a good job of making vaccination a default option.
* Provide timely and relevant feedback about choices and outcomes. A patient seeking to lose weight needs to experience feedback in the form of measurable progress soon enough that they are not discouraged.
* Expect error and develop systems to prevent, detect, and minimize it. For example, pill cases and inhalers with dosage counters are simple and valuable ways to reduce the frequent errors people make in remembering medication. Psychological research provides direction as to what kinds of errors are to be expected when people are making decisions.
* Structure complex choices to reduce the difficulty of making good decisions. In many ways, that's what medical decision making -- and Medical Decision Making -- is about.
I highly recommend Nudge. It's a great read, and has the potential to change the way you think about clinical practice and medical decisions.
An interesting work. . . . It speaks of how conditions can be changed and perhaps improved by "nudging" people. Rather than "beating up" on people, subtly nudge them. Fascinating reading and very provocative. Is nudging good? Or manipulative?
The authors, Richard Thaler and Cass Sunstein, faculty at the University of Chicago, define a "nudge" as (Page 6): ". . .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." Indeed, they define their perspective as "libertarian paternalism." They believe in freedom but also wish to use "nudges" to induce people to improve their health, and live longer and happier.
One simple example? Has any male ever used a urinal with a fly painted onto it? This simple nudge reduces "spillage" by 40% as males involuntarily try to hit the "target." In the process, there is a benefit, less smelliness and messiness in the restroom.
The book applies the nudge argument to investments, health, school choice, organ donation, the environment, marriage, and so on. In each case, they try to show how nudges and libertarian paternalism can improve the quality of life of individuals as well as providing social benefits.
Questions do arise, as the authors themselves admit. Is this a manipulative approach? Do we subtly manipulate people into doing things that they might not voluntarily wish to do? Thaler and Sunstein address these issues. Each reader will have to determine how well they succeed. A provocative and fascinating work, well worth reading.
on June 7, 2013
I accidentally stumbled upon a group of books that support a theory I call "our little fake worldviews." My theory is, basically, that large amounts of things we believe -- and do so very firmly in some instances -- aren't even true.
The first in the series I found was "Mistakes Were Made (But Not By Me), by Carol Tavris and Elliot Aronson. This book was followed by, The Self Illusion: Why There Is No "You" Inside Your Head, by Bruce Hood. Both of these books are highly recommended. Later, I found "Thinking, Fast and Slow," by Daniel Kahneman, which I'm reading now.
The basis of the books are that people are terribly easy to manipulate. For example, if you can prime someone by asking the question in a certain way, you can skew the answers given to the question. For example, if you ask the question, "Did Gandhi live to be 144 years old?" You can make people give a much higher age of death for Gandhi than his actual age when he died. Why? Because by inserting "144 years old" into the question, the majority of people start at 144 years old and go down, having a mental image of a very old man in the process (This example was actually from "Thinking, Fast and Slow," by Daniel Kahneman).
The first section of Nudge is very similar to the above books, being filled with interesting studies that show how little there actually is to "us." While very good, unfortunately, some of the studies had actually been covered in the above books somewhere. At some points, it seemed that entire paragraphs were interchangeable between books, as there were sections that I remember almost word for word from other books. I'm not sure who quoted, who, though, or which books even.
The second section of the book is about retirement plans, investing, insurance, etc. The connection to the first section is that, if people are "nudged" in the right direction (by subtle manipulation), the public at large can be pushed in a direction that benefits both the individual and society as a whole. The authors seem to think they are taking a libertarian position while doing their nudging, but as someone who has studied a lot of libertarians philosophy, nothing really jumped out at me as being overtly libertarian in origin.
Unfortunately, the authors are very long winded. The first section of the book is admittedly really interesting. However, if you don't actually have investments, stock, or retirement plans at work, you can just skip the second half of the book. It is tedious and boring.
While I'm sure the book may be of some help to people who actually have investments, stock, retirement plans, etc., this book could be skipped in favor of the similar but better books mentioned above. If you are interested in this book because of its purported libertarian leanings, I would suggest something from Ron Paul instead.
All in all, I am not disappointed for buying the book, but I sure wouldn't put this at the top of my list for must reads.
on April 15, 2012
This book is highly political, despite what the authors might tell you. It is also a book for and by the urban liberal elite, again despite what the authors might claim otherwise. That said, it's a must-read book for those interested in decision architecture in the public sphere.
I wish the authors had not claimed to appeal to conservatives. It's not clear wether they know what having a conservative POV means. For example, a conservative would not consider removing the word "marriage" from 1,000,000 pages of public documents in order to "simplify" the distinction between the legal partnership status and the religious union of two people. One doesn't need to count the unintended consequences & unintentional costs to realize that this is not a minor change.
Nor do the authors help their cause by suggesting (in the same sentence) that scuba diving clubs and the Catholic Church should be free to marry whomever they like, free of government interference. That might appeal to some extreme libertarians, but certainly not to conservatives -- religious or otherwise.
All of that said, this is an important read. Thaler and Sunstein wrote the book about how to frame government choices. Others did not. So they will be on countless government panels helping to frame future choices on behalf of our government. What they say matters.
If conservatives object to some of Thaler & Sunstein's ideas, they should write their own book.
PS The authors were part of a White House committee that pushed out Mrs. Obama's "food plate" to replace the food pyramid in public schools. This is a perfect summary of the policy approaches within this book: helpful nudges that might improve students understanding of the balanced diet principle... backed by a large top-down government rollout costing taxpayers over $100M.
on July 27, 2011
This book is an unequivocal "dummies' guide" to how current power structures use unconscious manipulation for various forms of social control. Though many of the examples provided to articulate the book's fundamental ideas seem trivial and benign, one mustn't put forth much effort to extrapolate how the widespread apathy, misinformation, and malleability needed in order to 'Nudge' citizens toward more 'automated' decisions or outcomes presupposes a highly complacent and disengaged population. Moreover, the authors not only seem contented with fostering the easily exploitable human characteristics which lead to automated decision making, but have the gall to say that it is in our (we, the general, non-elite, decision-ratifying populace) best interest. So long as the real decision making 'Econs' - i.e. the social, political, economic, and academic elite - are the ones nudging us plebeians towards choices deemed acceptable for us, all is well, calm, and as it should be.
There is, of course, an alternative narrative that can be constructed, namely one that portrays our tendency towards unreflective (re)actions and hierarchical subjugation as categorically negative; one that does not perceive a condescending analysis of how humans (besides the authors and their peers presumably) make decisions as quaint or endearing. The only problem with this narrative is that it doesn't coincide with the current power structures that Sunstein and Thaler are apart of, and wont serve to profit the advertising and PR industries billions of dollars a years.
Worth reading if you're unfamiliar with why current sociopolitical/economic trends are steamrolling forward with little to no resistance. If that is something you're already educated on and are not interested in its perpetuation, then I can comfortably suggest you apply your time, money, and, most importantly, intellect elsewhere.
on May 22, 2008
The sub title of the book "Improving Decisions about Health, Wealth and Happiness" should have been a hint at what the book was really about which is "choice architecture" a way to further "libertarian paternalism" meaning that if choices are presented to you in a certain way, you'll make better choices and it'll seem like you're making the choice of your own free will instead of being "nudged" into making the "right" choice.
I'm a big fan of learning why we make the types of choices we make and possibly how to influence those choices. I'm also a big fan of learning how to make better choices for myself.
This book, however, leans heavily to the public policy side of things like how to get people to choose more wisely for retirement savings and the like. It really isn't about Health, Wealth and Happiness. It's about creating systems to "nudge" people into making choices they might not otherwise make.