Is 'Nudging' the New Tipping Point in Human Development?

This is essentially a review of a fascinatingly engaging  book by Professor Richard Thaler (University of Chicago), 2017 Nobel prize in Economics and Professor Cass Sunstein (Harvard University). It is entitled Nudge: Improving Decisions About Heath, Wealth, and Happiness.  The major premise of the book is that most human beings do not make decisions in the way that is often characterized in elementary economic text books.  This premise is supported by a wealth of evidence that provides a wide array of suggestions about how individuals, policy makers, governments, the private sector and civil society can make better choices that benefit society as a whole. It has been aptly described as a manifesto to help people, government agencies, companies and charities make better decisions.
The methodology used to analyze how the environmental conditions often influence choices fall under the rubric of Behavioral Economics, a relatively  new area of research combining economics and psychology. This innovative approach to documenting human behavior demonstrates that the apparently 'free choices' people make are affected by the way 'options' are presented to them.

This book is indeed relatable.  It conveys difficult principles through a range of palatable examples.  Among the most salient include:

• How much we eat depends on what’s served on our plate.  
• What foods we pick from the cafeteria or buffet table  depends on whether the salads or the desserts are placed at eye level.
• What magazines we buy depend on which ones are on display at the supermarket checkout line.
• How  choices are presented,  bias our decisions in one direction or another with consequences  on the future prospects of individuals and societies. These include: How much families save and how they invest?  What kind of mortgage they take out? Which medical insurance they choose? What cars they drive?.

According to the authors,  whoever presents choices, frame them, that in some way, will affect the  decisions of individuals. Hence no decision is "neutral". Presenting choices is tantamount to a "nudge".  This line of argument applies to a wide array of familiar areas: saving, borrowing, energy consumption, smoking, teenage pregnancy and many others.  Most interesting is the advice they provide about saving more and diversifying investments; about not buying insurance with bigger deductibles than you can afford or paying  for extended warranties.

Most obvious is their concern about  governments playing a better role in guiding choices. As a result, they demonstrate the  familiar arguments for why people should simply be left to make choices on their own, and especially for why government should stay strictly out of the way,  as having little practical force. Of great significance is that "in many important areas of choice that matter, the operative question is not whether to bias people’s decisions, but in which direction".

Thaler and Sustein provide several  examples of a nudge as "anything that influences our choice".   

a)  A successful nudge  is exemplified in a 'Save for Tomorrow's program',  where
     firms offer employees an opportunity to join  and automatically increase saving
     rates whenever an employee gets a raise.   

b)  Nudges that make a difference through 'choice environments'  lead to better
    investments, more retirement savings, less obesity, more charitable giving, a
    cleaner planet and improved educational  system.

c)  Nudges that are   promoted through 'choice architecture' define  the context in
     which you make your choice.  There are those that will influence what you
     choose to eat like displays of food in a cafeteria.  Others that make rules about
     what you see/know or what you do not,  such as doctors, employers, credit card
     companies, banks and even parents. They show that by carefully designing the
     choice architecture,  dramatic improvements in the decisions are more likely to
     be made by individuals and groups.   

d) Nudges as essential ingredients of appropriate public policy  steer people
    toward healthier, safer, more prosperous lives while also addressing pressing
    issues like environmental damage and the rising cost of health care. They take
    account of the odd  realities of human behavior like the deep and unthinking
    tendency  to conform.

"NUDGE is about choices -- how we make them and how we're led to make better ones"

There is much more to this book. The authors show that it is possible for people to make better choices and retain or even expand their freedoms. They illustrate how people go into 'auto pilot mode'  by procrastinating because a decision is hard; because too many choices result in information overload; because the world has become complicated; and because the high stakes for achieving in the current environment make people tense.

This book is both amusing and elucidating.  It has been described as 'a jolly economic romp but with serious lessons within'. The distinguished professors chose to label  their approach as "libertarian paternalism" Herein lies a cause to ponder. Libertarian: as people retain the right to make their own choices. Paternalism: as  governments, employers and those in charge continuously nudge people in the direction that they think will make them better off.  The unresolved issue is whether libertarian paternalism can unify the left and the right ideologically as the authors seem to suggest or is it the tipping point in our understanding of human development.    

Reference: Richard H. Thaler and Cass R. Sustein,  Nudge Improving Decisions About Health,   Wealth and Happiness Revised and Expanded Edition Penguin Books , 2009 (New York Times Best Seller)


Eddie Greene

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