Nudge: Improving decisions about health, wealth and happiness
How influential do you think you are? And how easily persuaded do you think you or others can be when it comes to important decisions?
The answers can be found in Thaler and Sunstein’s high profile book – Nudge – used by David Cameron’s team and a growing number of private businesses, which outlines the often invisible, but huge influences that come into play when people make decisions.
The bottom line is that people are nudge-able. Their choices, even in life’s most important decisions, are influenced in ways that would not be anticipated in a standard economic framework. – Thaler & Sunstein
If you set the policy or design the form new employees fill in to join the company’s retirement plan, if you are a doctor and describe alternative treatments to a patient, if you are a parent describing educational options to your children, or if you are in sales – you are a choice architect.
As the professors show, no choice can ever really be presented to us in an entirely neutral way, and is influenced by many factors. By understanding better how people behave, and how fallible humans can be, we can make it easier for people to choose what is best for them, and society.
Without wanting to restrict our freedom of choice, the authors demonstrate through extensive research and examples, how it is possible to nudge us, or others, in the right direction.
Thaler and Sunstein believe that organisations have an important role to play in the choices they help employees make – particularly in the areas of healthcare, retirement plans and the environment.
In an accessible style, the authors cover many interesting ideas including:
- Libertarian Paternalism –A proposed new movement where, as liberals, people are free to choose and do what they like. The paternalism refers to the desire to influence people’s behaviour in order to improve lives. Putting fruit at eye level in a café is a nudge, banning junk food is not
- Humans and Econs – Humans are perfectly capable of making their own choices, but would need Einstein’s brain, a computer’s memory and the willpower of Mahatma Gandhi to make the perfect choice every time. Many economic theories base their thesis on this perfect person who will always choose unfailingly well. In the real world, people forget or can’t be bothered to do things, which is why nudges are needed
- Biases and Blunders – Two different types of thinking are at work in our brain: The Automatic system – the quick, instinctive thoughts we have – and the Reflective system – the slower, controlled thoughts. To help us make judgements, we often use a rule of thumb, which can be helpful, but also misleading. Rules of thumb have three elements – anchors, availability and representativeness. Anchors can serve as nudges – e.g. suggesting certain amounts for charitable giving, as research shows that the more you ask for, the more you tend to get. Availability refers to the way we assess risk and how likely something is to happen, often influenced by personal experience or newsworthiness of events like murders or earthquakes. Decisions can be nudged back in the direction of a true probability and increase confidence by reminding people of a similar situation in which everything worked out well
- Optimism and overconfidence – People are unrealistically optimistic even when the stakes are high, often under-estimating the chances of their new business failing or becoming ill. With nudging, you can reduce the risks people take by reminding them of the possibility of bad events
- Framing – Framing decisions works because people tend to be passive decision makers, not questioning the way they have been asked, and are also loss averse. People who are told they will lose money if they don’t conserve energy are more likely to take action than if told they can save the same amount
- Following the Herd – One of the most effective ways to nudge people is social influence. Either through providing information about what most other people do, or through peer pressure. Research has also shown that an individual speaking up confidently and firmly, even if what they say is wrong, will strongly influence what other people in the group decide
- Mindless choosing and self-control – People often go into autopilot mode, and don’t pay attention to the task in hand. Eating is one of the most mindless activities we do, and large plates and portions are a form of choice architecture. Obesity is a growing global problem, and many people never get round to joining their company’s pension plan, even when it’s heavily subsidised. Together, the facts suggest that significant numbers of people can benefit from a nudge which can be as simple as automatically enrolling all employees in pensions, unless they choose to opt out
The authors propose ideas for improving people’s lives in many other ways – from money and investments, to organ donations and marriage.
In their post-script to the book, added following the financial crisis, they highlight how human failings helped lead to the failure of sub-prime mortgages. Perhaps a little more sensible nudging, alongside other measures, might help us avoid the next bubble….
About the authors
Richard H. Thaler is Professor of Behavioural Science and Economics, and Director of the Centre for Decision Research, Graduate School of Business, at the University of Chicago. He is also research associate at the National Bureau of Economic Research.
Cass R. Sunstein is Distinguished Service Professor of Jurisprudence, University of Chicago Law School and Department of Political Science.
All the rage … the issue is not “to nudge or not to nudge”; it is how to nudge well – Matthew Taylor, Daily Telegraph
Hugely influential …. choice architects are everywhere – Andrew Sparrow, Guardian
Author: Richard H. Thaler and Cass R. Sunstein