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The Book Club

Richard H. Thaler And Cass R. Sunstein’s “Nudge”

Taken from https://images-na.ssl-images-amazon.com/images/I/81WiT49LwvL.jpg.This is part of my “A Book A Week” endeavour, an extension of The Book Club I started on this blog when I was completing my National Service.

A powerful read, Richard H. Thaler and Cass R. Sunstein’s “Nudge” offers a neat convergence between behavioural economics and public policy, and in this regard it is a helpful complement to Daniel Kahneman’s “Thinking, Fast And Slow” and its focus on behavioural science research. Whereas a criticism of Kahneman’s book was the “so what?” question – the extent to which knowledge of cognitive biases can inform policymaking – the writers here devote large parts of the book to policy questions, big and small, and even to the role of government. Two major claims are made: First, that active engineering of choice architecture is “pervasive and unavoidable”, given that nudges are everywhere; second, that “libertarian paternalism” allows choice architects to “preserve freedom of choice while also nudging people in directions that will improve their lives”.

So, what is a nudge? Changes to seemingly small details – as a result of human behaviour and its psychology – “can have major impacts on people’s behaviour”, and a distinction is therefore also drawn between “Econs” (who make unbiased forecasts) and “Humans” (who predictably err). The mechanisms of nudges and the choice architectures which support them are thus detailed in the first part of the book, while the subsequent chapters are organised in terms of “money”, “health”, and “freedom”, which respectively (and in a modular manner) detail how this mode of “libertarian paternalism” can apply to savings and investments and social security, improvements to healthcare systems, and in the expansion of personal choices. Choice architects are also urged to bear in mind the six NUDGES principles (iNcentives, Understand mappings, Defaults, Give feedback, Expect error, and Structure complex choices), if they wish to improve outcomes for the “Humans”.

Central to these ideas are the two systems which characterise human cognitive thinking (as detailed in the aforementioned “Thinking, Fast And Slow”), and the fallacies or systemic biases (anchoring, availability, representativeness) which result from the interplay between Systems 1 (automatic) and 2 (reflective). Because both businesses and governments can take advantage of these features and of social influences to promote their own causes or agenda, and that choice architecture cannot be avoided, the golden rule of “libertarian paternalism” is: “Offer nudges that are most likely to help and least likely to inflict harm”. “People will need nudges for decisions that are difficult and rare, for which they do not get prompt feedback, and when they have trouble translating aspects of the situation into [easily understood terms]”.

A specific and oft-cited policy recommendation is the RECAP regulation – Record, Evaluate, and Compare Alternative Prices – with the intent of informing consumers of every kind of fee involved in a potential transaction, through disclosure practices.

Undergirding the entire narrative, however, is the assumption that choice architects are necessarily well-intentioned. Quis custodiet ipsos custodes, in other words. In fact, Thaler and Sunstein do mention self-serving experts, or even instances when the engineering of choice architecture goes awry or produces unintended consequences. When entertaining objections towards the end of the book, they do acknowledge the potential of “evil nudgers and bad nudgers” as well as the positives or negatives of subliminal messaging, but they argue that “we try to line up incentives when we can, and employ monitoring and transparency when we cannot”. They go on to cite the “publicity principle” mooted by American philosopher John Rawls, which “bans government from selecting a policy that it would not be able or willing to defend publicly to its own citizens”. Practical implementation of the principle will be more challenging, though cognisance of our human deficiencies should be a good start.

Be that as it may, “Nudge” presents so many viable starting points for public policy formulation. Since the book was written with an American audience in mind, what might be interesting, for example, would be to examine the recommended policies which are already in place in Singapore – such as forced savings in the Central Provident Fund (going a step further, in actively managing the investments and retirement savings) and organ donation under the Human Organ Transplant Act – and the extent to which they have been effective. Thaler and Sunstein do not presume to have the final word on these issues, and hence readers and to-be choice architects must actively evaluate the status quo, problematise arrangements, and find more ways to better and to improve public policies.

About guanyinmiao

A man of knowledge lives by acting, not by thinking about acting. Carlos Castaneda.

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