Sunday, March 27, 2011

Nudge : Improving Decisions about Health, Wealth, and Happiness - Richard Thaler & Cass Sunstein

The book build on a premise that we humans are poor at making decisions. Without proper guidance ( nudge) and direction, we often tend to make poor choices. Most our decisions are biased and based on the way it has been arranged. Using various example, the University of Chicago Professors, explains the vulnerability of human in front of options. They tend to follow the status quo, methods of approximation, the herd mentality or peer references. Human also have the strong loss aversion tendencies and are very conscious about the 'spotlight effect' ( thinking others are observing you). Classifying people into 'Econ's ( people with basic economic inclination and can be influenced by economic incentives ) and 'humans" who are usually not so educated and can be influenced by nudges and incentives. The decision from the Econs are based on 'reflective' behavior while that of 'humans' are more 'automatic'. ( There you go, another two terms after Econs and Humans are 'reflective and automated' systems of response)

After a brilliant part 1, where the principles and basics are explained, they authors explains its relevance and importance of "choice architecture" in the daily life , from financial planning , medical options and to social and environment issues. Taking his arguments further, he talks about the role f governments in helping the citizens in using the right choice in medical, financial and social area by choice architecture and appropriate nudge. "Nudge" in their parlance is "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". Free market,economy with its basic architecture of choice and campaigns can mislead the individual and this is where the state to take the necessary steps to help the individual.

Coining the word `libertarian paternalism' , Thaler and Sunstein takes the arguments of state monitored and articulated process of helping decision making. Policies like "Opt-out" instead of Opt-in" and making the default as the most appropriate and work the other choices around this, he says we can bring about significant changes in the way citizens make choices. The say, "We oppose bans; instead, we favor nudges."

The synopsis and the details are here in this wiki page. Beyond the first part of behavior economics, the books turns into some sort of political and social issues. Typical to these kind of books, it is abundant with examples and proofs, often beyond what is necessary.

I'm not sure how much of the later part of the book can be practised. However, this is a very good and engaging read ( especially the initial parts) with a whole lot of case studies and proof points.

Penguin Books

304 Pages

Rs 350

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