Book Recommendation: Nudge

Review

Nudge is a book about decisions. It addresses how choices can be structured to yield the best results without eliminating freedom of choice. Richard Thaler is a Nobel prize-winning economist at the University of Chicago. Cass Sunstein is a Holberg prize winner and economist at Harvard Law School. In Nudge, they showcase how and why most of us don’t make the best decisions. They claim that choice by way of framing questions profoundly influences the outcome. People do not present options in a completely neutral manner and thus are inherently biased in one direction or another. This concept applies to the most straightforward topics, such as which foods we purchase. Complex behaviors like investing, selecting insurance policies, retirement plans, taking out a mortgage, and energy consumption are also highly influenceable. Essentially, this text is a triumph of common sense analysis and application.

Thaler and Sunstein adopt the views of “libertarian paternalism”. It’s the contradictory phrase that advocates preserving freedom of choice while nudging via choice architecture to influence the most desirable outcomes. The authors suggest ways of restructuring public policy through

“ways in which governments can do a better job of guiding the choices made by their citizens. The goal, in part, is to nudge people toward healthier, safer, more prosperous lives while also addressing pressing issues like environmental damage and the rising cost of health care”.¹

-Benjamin M. Friedman, NY Times Book Review: ‘Nudge’

Thaler and Sunstein contend that their ideas can appeal equally to both the most liberal and conservative of individuals. While this might be wishful thinking, and some of their recommendations may not be wholly accurate, they base their ideas on sound logic and evidence. This book will certainly influence the way you examine, structure, and respond to choices.

Structure

Nudge is similarly structured to the book Thinking, Fast and Slow by Daniel Kahneman, but is much shorter and easier to read. You can read the review here. The Nudge authors reference Kahneman’s work on rational decision-making, for which Kahneman earned a Nobel prize.

There are five parts of Nudge. Part one introduces the difference between humans and econs. Essentially, econs are completely rational, unbiased beings that make decisions which positively impact their well-being. Humans, well, are not econs. This part of the book covers the biases that humans are susceptible to, why many follow the herd, and why nudges are useful.

Part two is all about money: saving, investing, credit cards, social security, etc. In this section, Thaler and Sunstein dive into what nudges would be useful for increasing the amount of money people save during their working years and reducing debt. The authors also introduce the idea called Save More Tomorrow, which helps people commit to saving more in the future. They also discuss their ideas on privatizing social security.

Part three covers health – both of the environment and of ourselves. This is one section of the book where the authors analyze public policy and provide ideas for selecting the right insurance policies by structuring options better. They also describe how to increase organ donations, of which there is a severe shortage. Shockingly, studies have been done showing that merely changing the default settings when registering for a driver’s license can have profound outcomes on the number of donors.

Part four addresses the preservation of freedom of choice from a libertarian paternalist perspective. The authors

• vouch for more choice in education, as competition is likely beneficial for children
• want to increase the ability of patients and doctors to contract with each other
• want to privatize marriage by insisting on freedom for religious organizations and for people who love each other, omitting the government entirely

The ideas presented on these topics are quite thought-provoking, and they make a good argument.

Part five delves into extensions and objections of nudges. The authors give many more examples of effective nudges and techniques. Furthermore, they address the idea that nudging is a slippery slope. Some may claim that maliciously self-interested people could use nudging for personal gain. The authors concede to this notion and offer suggestions for ensuring the proper application of nudges.

Recommendation

This book is a quick and fascinating read. The authors provide strong evidence for the benefits of nudging people to make better decisions for themselves regardless of the scenario. I think that anyone who wants to open their minds to thought-provoking ideas of how to improve the world through choice architecture should read this book. It’s useful to everyone who must make important choices in their personal and professional lives. It is especially helpful to those who must structure options for others, i.e., policymakers and leaders in any industry. It will change your perspective on the choices presented to you and allow you to make the best decisions possible. It’s a great complement to Thinking, Fast and Slow.