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Review: Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler

Nudge: Improving Decisions About Health, Wealth, and HappinessNudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler
My rating: 5 of 5 stars

This book opened my eyes to how humans make decisions, and how easily they can be influenced by their peers and by the way choices are presented to them. Through engaging research and entertaining anecdotes, it shows how to “architect” choices to nudge people towards certain decisions. The authors call this “libertarian paternalism”, because it uses incentives to motivate desired behavior rather than using command and control measures like laws and bans. I highly recommend this book for its practical insight into behavioral psychology and behavioral economics.

In an ideal world, people would have the time, knowledge, and motivation to make the perfect choices. In reality, humans are irrational, emotional, ignorant, apathetic, or downright lazy, so simply providing as many choices as possible rarely works. Libertarian paternalism strikes a balance between freedom of choice and incentivizing behavior.

I read this book because it was listed in .net Magazine’s The top 25 books for web designers and developers. I picked up a few ideas to use when creating websites for my web design business, OptimWise: use incentives to nudge users in certain directions, provide good default options, and gracefully handle user errors.

The authors explain that humans have “automatic” and “reactive” systems; the automatic system is the subconscious, emotional “gut instinct”, while the reactive system is the intellectual conscious. Nudges help the reactive system overpower the automatic system.

The authors use liberal paternalism to advocate specific policies for public and private institutions, dealing with topics in personal finance (saving, retirement, debt, mortgages), health care, education, and politics. They also address the ethical issues of choice architecture.

I love personal finance, so I especially liked seeing how nudges can lead to better retirement saving and investing. The authors show how something as simple as automatic enrollment in retirement plans results in a significant increase in participation.

I liked the RECAP (Record, Evaluate, and Compare Alternative Prices) concept, which says vendors and service providers should give consumers a statement of the costs associated with different hypothetical patterns of service usage to help them make informed choices about things like electricity and gas consumption.

I liked the authors’ idea that people should be able to waive the right to sue for medical malpractice, in exchange for lower medical costs. I’m not sure how I feel about their proposal to privatize marriage; they say this would give religious organizations the freedom to set rules about homosexuality, divorce, etc., while allowing the government to honor civil unions with benefits.

6 principles of good choice architecture
• iNcentives: motivate behavior with incentives
• Understand mappings: show the outcomes that will result from the choices
• Defaults: provide default options
• Give feedback: show people the effect their choices are having
• Expect error: make choices foolproof
• Structure complex choices: present complex choices in easily understood ways

Miscellaneous notes
• The more you ask for, the more you get.
• People hate losses twice as much as they like gains.
• People like to do what they believe most people think is right. They also like to do what most people actually do.

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Would you miss this blog if I discontinued it? Please leave a comment.