Book Review NUDGE Improving Decisions about Health, Wealth and Happiness,-Richard H. Thaler, Cass R. Sunstein

Abstract

The book begins with an Introduction and is divided into five major parts- Humans and Econs, Money, Health, Freedom and, finally, Extensions and Objections. The Introduction mentions an experiment carried out by Carolyn (a hypothetical friend of the reader and a director of food services in a large city school system) in which she shows how the way of displaying the food changes the choices made by the kids. The authors designate Carolyn the “Choice Architect’ who influence or ‘nudge’ the food choices people make by changing the context; while they espouse the movement of ‘Libertarian Paternalism’ in which paternalists are they who make easy the choices made by people by helping them preserve their freedom or liberty. The libertarian aspect deals with the ‘freedom of choice’ and qualifies paternalism to mean ‘liberty-preserving’.

The need for a Nudge arises because real people don’t think like Econs (Homo- Economicus); rather, they are Humans (Homo-Sapiens). Econs make perfect and unbiased forecasts, that is, they are systematic; whereas, Humans are fallible, prone to errors, and their decisions are flawed and biased. ‘Status quo bias’ says that the humans stick to status-quo and prefer to go with the default options in a situation where they are faced with multiple choices between picking a default (recommended feature) and making a custom choice. It’s human nature to stick with the default choices. Thus, nudges are for Humans where they are free to choose while going with the preferred decision in a predictable situation mandated by a posteriori experience; and Incentives are for Econs, who respond to externalities like falling tax to buy more now but not to nudges like saving now and buying later, even at the cost of giving up pleasure, to avert a crisis like rising prices as demand grows. This book highlights how Nudge can be used to improve the decisions made by people by improving the number of choices (Just Maximize) and a little bit of interference (Libertarian Paternalism). Authors list various examples of improving the choice architecture like - designing user friendly environments, choices made of health insurance and retirement benefits etc.