Book Review: “Nudge: Improving Decisions About Health, Wealth, and Happiness” by Richard H. Thaler and Cass R. Sunstein

This book is all about Libertarian Paternalism or Nudges designed to steer people’s choices toward a desired outcome that’s good for the individuals. Certainly the same methods can be applied to commercial purposes.

The authors offer many ways to design the choice architecture such that people may end up choosing to save more for IRA (default to x%), donate to more organs upon deaths (default to donate organs and need to opt out), and etc.

An interesting solution proposed by the authors to the perennial conflict of same-sex marriage is to make marriages private contracts instead of the recognized statues by states, which are only required to issue Civil Union license. I think this is a great idea. It’s time to separate the religion from the state.

Another interesting idea is to make the high-school students fill out an application to colleges before graduation. This did increase the college enrollment by leaps and bounds for one state.

All these nudge schemes play into several of human natures: inertia (status quo bias, rules of thumb), anchoring (residual/subconscious thought from previous conversation), representativeness (bias), optimism and overconfidence, fear of loss more than the joy of gain, fear of unknowns, ignorance of underlying issues (solution: quick feedback like SmartMeter), following the herds, framing of the questions, spotlight effect (people are not paying attention to you as you think), and etc.

And all of the natures have to do with our reflective system (rational) vs. automatic system (fast and instinctive). This is an interesting read.