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Book Summary Nudge
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BOOK: Nudge: Improving decisions about health, wealth and happiness –Richard Thaler & Cass Sunstein.
Introduction
People can be greatly influenced by small changes in context. The influence can be exercised for
better or for worse.
A choice architect has the responsibility for organizing the context in which people make decisions.
There is no such thing as a ‘neutral’ design – Everything matters.
Nudge: a gentle push.
Libertarian paternalism
Libertarian aspect: people should be free to do what they like – and to opt out of undesirable
arrangements if they want to do so.
Paternalistic aspect: it is legitimate for choice architect to try to influence people’s behavior in order
to make their lives better. Make choosers better off, as judged by themselves.
Libertarian paternalists want to make it easy for people to go their own way.
Nudge: any aspect of the choice architecture that alters people’s behavior in a predictable way
without forbidding any options or significantly changing their economic incentives.
- Intervention must be cheap and easy to avoid.
- Not mandates.
Humans and Econs: Why nudges can help
Homo Economicus: human as great rational being.
Econs: imaginary ‘great’ people.
Humans: real ‘normal’ people.
Human mistakes:
Planning fallacy: the systematic tendency toward unrealistic optimism about the time it takes to
complete projects.
Status quo bias: inertia. People have a strong tendency to go along with the status quo or default
option.
- Never underestimate the power of inertia.
- Power can be harnessed.
A false assumption and two misconceptions
Skepticism about nudges is based on a false assumption and two misconceptions.
False assumption: almost all people make choices in their best interests all the time.
Misconception 1: it is possible to avoid people’s choices.
Misconception 2: paternalism always involves coercion.
Choice architecture in action
Choice architects can make major improvements to the lives of others by designing user-friendly
environments.
Basic principles of good choice architecture:
- Choosers are human, so designers should make life as easy as possible.
- Send reminders, and then try to minimize the costs imposed on those who, despite your best
efforts, space out.
1
, PART 1: Humans & Econs
H1: Biases and blunders
How we think: two systems
Automatic system – system 1.
- Rapid, instinctive.
Reflective system – system 2.
- Deliberate, self-conscious.
Rules of thumb
Rules of thumb can be very helpful, but can also lead to systematic biases.
Anchoring
Anchoring and adjustment: you start with some anchor, the number you know, and adjust in the
direction you think is appropriate. But the adjustment are typically insufficient.
Anchors serve as nudges.
Availability
Availability heuristic: people access the likelihood of risks by asking how readily examples come to
mind.
- Accessibility/salience/vividness/recency.
Representativeness
Similarity heuristic. When people are asked to judge how likely it is that A belongs to category B,
people answer by asking themselves how similar A is to their image of stereotype of B.
- Linda problem.
- Misconceptions of chance.
Optimism and overconfidence
Above average effect: people think they are better than average, even if the stakes are high.
Unrealistic optimism can explain a lot about individual risk taking.
If people are running risks because of unrealistic optimism, they might be able to benefit from a
nudge, if people are reminded of a bad event, they may not continue to be so optimistic.
Gains and losses
People hate losses. Losing something makes you twice as miserable as gaining the same thing makes
you happy. People are loss averse.
Loss aversion operates as a kind of cognitive nudge, pressing us not to make changes, even when
changes are very much in our interests.
Status quo bias
People have a tendency to stick with their current situation.
One of the causes: lack of attention. ‘Yeah, whatever’ heuristic.
If an option is designated at the ‘default’, it will attract a large market share.
Default options act as powerful nudges.
Framing
Choices depend, in part, on the way which problems are stated.
Framing works because people tend to be somewhat mindless, passive decision makers.
Frames are powerful nudges and should be selected with caution.
So what?
2
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