48 pages • 1 hour read
Nudge: Improving Decisions About Health, Wealth, and Happiness
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Humans vs Econs
The authors argue that humans have two modes of thinking: the Automatic System and the Reflective System. As Thaler and Sunstein see it, the classical economic models that rely on rational decision-makers in the marketplace assume that humans only have one mode of thinking: the Reflective System. While the “Econs” of these models might think in logical, deductive, and self-interested terms, humans very often do not. This makes these models useless for real-world applications. Instead, economic models should be based on how real humans purchase, act, and choose based on impulse, intuition, and so on. Better economic policy would pay attention to empirical data derived from behavioral science and psychology. It would be well served if it abandoned the use of the “Econ.” They write:
In accordance with our definition, nudges include interventions that significantly alter the behavior of Humans, even though they would be ignored by Econs. Econs respond primarily to incentives. If government taxes candy, Econs will buy less candy, but they are not influenced by such ‘irrelevant’ factors as the order in which options are displayed. Humans respond to incentives too, but they are also influenced by nudges (12).
Human beings are both more complicated and less rational than Econs. Humans are also the only creatures making real-world decisions in the marketplace. As Thaler and Sunstein write, “Their choices, even in life’s most important decisions, are influenced in ways that would not be anticipated in a standard economic framework” (46). Therefore, economists, and all sorts of choice architects, should attend to the empirical data on human action. Unlike the fictional Econ, which exists only in the metaphorical laboratory, the human, as a real consumer, influences markets.
According to Thaler and Sunstein, an understanding of the data will lead to better decisions in economies and governments. Dropping the model of the Econ in favor of the real-world behavior of human beings shows choice architects how humans have been discovered to act. This, so they hope, can lead to more efficient choice architecture and greater human satisfaction. Nudge theory, and behavioral economics more generally, are becoming more mainstream practices in economics, perhaps because of the positive results they provide.
The Default Option
One thing that can nudge people to accept the option that is in their best interest is the default option. As Thaler and Sunstein write:
Defaults are ubiquitous and powerful. They are also unavoidable in the sense that for any node of a choice architecture system there must be an associated rule that determines what happens to the decision maker if she does nothing. Usually the answer is that if I do nothing, nothing changes; whatever is happening continues to happen. But not always. Some dangerous machines, such as chainsaws and lawn mowers, are designed with ‘dead man switches,’ so once you are no longer gripping the machine, it stops (108).
The choice architect should consider what happens when different choices are made available and when those choices are structured differently. This responsibility cannot be avoided. Doing nothing is a choice. Even forcing people to choose, which can be done by eliminating the default option, is a kind of default option. The choice architect should create a default and a system of nudges that make it as easy as possible for individuals to choose the option that is in their best interest.
Note the various case studies provided on defaults, especially the chapter dedicated to Swedish retirement plans. The Swedes decided to create a retirement system with a default but actively encouraged participants to choose for themselves rather than accept that default. This may have maximized choice, but it did not maximize welfare or retirement savings. Thaler and Sunstein note that several prominent Swedish economists chose the default plan. It was chosen as the default because it’s a good plan. By discouraging the default, the Swedish government detracted from the good of maximizing savings. In this case, maximizing choices did not maximize well-being.
The Morality of Libertarian Paternalism
Libertarian paternalism, as noted above, is the view that choice architects should design systems with nudges that prompt individuals to make decisions that are in their best interests without dictating or mandating the choice. It paradoxically combines the laissez-faire approach of libertarian concern for liberties and paternalistic concern for the welfare of others (even at the expense of their autonomy). Rather than take these two (presumably valuable) norms to be in tension with one another, they are, instead, brought together in a manner that Thaler and Sunstein hope will bring out a higher synthesis.
Libertarian paternalism plays a central role throughout the book and is strongly developed in the chapters on finance, but it is best exemplified in Thaler and Sunstein’s approach to organ donation. When considering the moral milieu of organ donation, they write, “A central goal is to save lives, by making more organs available for use. But that is not the only goal; it is also important to consider potentially competing interests, preferences, and rights” (255). Thaler and Sunstein offer the method of prompted choice, which gently nudges people to become organ donors. It is softer and more libertarian than the German system, which automatically enrolls its citizens as donors. However, it is more paternalistic than the American system, which is based on consent and takes a more hands-off approach. They write:
We favor the policy of prompted choice because there is no evidence that a viable alternative system would save more lives (and hence is superior in terms of the interests of patients), and because we think it does the best job of respecting the rights and interests of Potential Donors and families (256).
The moral superiority of prompted choice (the libertarian paternalist position in the organ donation market) over other potential options resides in its consequences and its strict adherence to fundamental principles. Not only does it take both liberty and social welfare into consideration (two principles usually considered to be in tension with one another), but it also functions well as a utilitarian approach, since it is not inferior to any other system in the consequences it yields, i.e., number of lives saved.
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