Zeno Swijtink
07-10-2008, 10:40 PM
Science 11 July 2008:
Vol. 321. no. 5886, p. 203
BOOKS
ECONOMICS: Tilt the Table Toward Good Choices (https://www.sciencemag.org/cgi/content/full/321/5886/203a)
Eric J. Johnson*
Nudge
Improving Decisions About Health, Wealth, and Happiness
by Richard H. Thaler and Cass R. Sunstein
Yale University Press, New Haven, CT, 2008. 303 pp. $26, £18. ISBN 9780300122237.
As described by behavioral economics, our choices and the preferences they represent are a curious mixture. In part they reflect what we want to do and have, but they also reflect the influence of subtle differences in the way the choice is being presented. The problem is not in knowing what good things we want: We all know we want more money when we retire, but we also want to spend now. The challenge is knowing how to trade off these two desirable things: How many expensive dinners would you give up this month for an extra day at a luxurious hotel in 20 years? Because we are uncertain about our tradeoffs, our choices, and the preferences they imply, are influenced by many subtle details of how the question is asked. The most well-documented is the effect of choice defaults: Designating one option as the one that is selected if no action is taken has a material effect on the rate of organ donations across countries and the amount set aside in retirement plans, to give just two prominent examples.
In Nudge: Improving Decisions About Health, Wealth, and Happiness, Richard Thaler, a founder of behavioral economics, and Cass Sunstein, a leading legal scholar and advocate of adding "behavioral" as a prefix to the growing area of economics and the law, come face to face with a dilemma generated by this modified view of preferences: How does government help people when they may be unsure precisely what they want?
Thaler and Sunstein present two separable but related ideas. The first is that the many factors that influence choice represent a choice architecture. The analogy is to the fact that the architect of a building determines quite a bit of the behavior of the building's users through the placement of doors, hallways, offices, and perhaps even bathrooms. Architects of choice can influence what is chosen by adjusting the number of options presented, the salience of different types of information, and the selection of defaults. While it is tempting to suggest that choices ought to be presented in a "neutral" architecture, Thaler and Sunstein point out this is not an option: Every way of presenting a choice will influence the decision-maker in some way. For example, all ways of presenting a choice have a (usually implicit) default, and these options will be chosen more often than if other defaults had been selected by the architect.
What makes Nudge important is not the book's foundational research ideas. Thaler and Sunstein are integrating 30 years of work in the psychology and behavioral economics of decision-making. Rather, it is the realization that anyone who poses a choice is a choice architect--the role is performed by supermarket, stockbroker, doctor, and government agency alike. The concept of choice architecture is a big idea, one clearly worthy of a book on its own, and more than the sketch provided by this review.
Nudge's other big idea covers how government should address the responsibility of influencing choice, an approach the authors call libertarian paternalism. They suggest that government should, often, offer people a choice in matters of public policy, but that this choice be provided with an architecture that favors people's best interest. It is difficult to disagree with some of Thaler and Sunstein's examples. Given that Americans do not save enough toward retirement, it seems responsible to change the default (as has been done in some retirement plans) to a reasonable savings rate rather than the original default of no savings, but give everyone making this decision the option of changing that level. The libertarian part of the term is providing a choice, the paternalistic part is the choice of the default. In the case of retirement savings, this architectural change has been made with broad bipartisan support. While the book contains many good ideas, not all the authors' suggestions are as persuasive, nor do they always follow from choice architecture or libertarian paternalism.
Some might find the idea of government designing an architecture disquieting. Critics on the right might find this version of government "too hard" because it allows government to influence people's choices. Those on the left may claim it to be "too soft" because it allows people the freedom to make mistakes. Yet because it implies a pragmatic and minimalist course, many readers will find that the ideas suggested in Nudge are just right. In an era of limited governmental monetary resources, these ideas seem efficient: they greatly affect behavior with little cost. In an era of partisanship, they reflect a scientifically grounded concept of how a responsible government should pose choices.
The reviewer is at the Columbia Center for Excellence in E-Business, Uris Hall 514, Columbia Business School, 3022 Broadway, New York, NY 10027, USA. E-mail: [email protected]
Vol. 321. no. 5886, p. 203
BOOKS
ECONOMICS: Tilt the Table Toward Good Choices (https://www.sciencemag.org/cgi/content/full/321/5886/203a)
Eric J. Johnson*
Nudge
Improving Decisions About Health, Wealth, and Happiness
by Richard H. Thaler and Cass R. Sunstein
Yale University Press, New Haven, CT, 2008. 303 pp. $26, £18. ISBN 9780300122237.
As described by behavioral economics, our choices and the preferences they represent are a curious mixture. In part they reflect what we want to do and have, but they also reflect the influence of subtle differences in the way the choice is being presented. The problem is not in knowing what good things we want: We all know we want more money when we retire, but we also want to spend now. The challenge is knowing how to trade off these two desirable things: How many expensive dinners would you give up this month for an extra day at a luxurious hotel in 20 years? Because we are uncertain about our tradeoffs, our choices, and the preferences they imply, are influenced by many subtle details of how the question is asked. The most well-documented is the effect of choice defaults: Designating one option as the one that is selected if no action is taken has a material effect on the rate of organ donations across countries and the amount set aside in retirement plans, to give just two prominent examples.
In Nudge: Improving Decisions About Health, Wealth, and Happiness, Richard Thaler, a founder of behavioral economics, and Cass Sunstein, a leading legal scholar and advocate of adding "behavioral" as a prefix to the growing area of economics and the law, come face to face with a dilemma generated by this modified view of preferences: How does government help people when they may be unsure precisely what they want?
Thaler and Sunstein present two separable but related ideas. The first is that the many factors that influence choice represent a choice architecture. The analogy is to the fact that the architect of a building determines quite a bit of the behavior of the building's users through the placement of doors, hallways, offices, and perhaps even bathrooms. Architects of choice can influence what is chosen by adjusting the number of options presented, the salience of different types of information, and the selection of defaults. While it is tempting to suggest that choices ought to be presented in a "neutral" architecture, Thaler and Sunstein point out this is not an option: Every way of presenting a choice will influence the decision-maker in some way. For example, all ways of presenting a choice have a (usually implicit) default, and these options will be chosen more often than if other defaults had been selected by the architect.
What makes Nudge important is not the book's foundational research ideas. Thaler and Sunstein are integrating 30 years of work in the psychology and behavioral economics of decision-making. Rather, it is the realization that anyone who poses a choice is a choice architect--the role is performed by supermarket, stockbroker, doctor, and government agency alike. The concept of choice architecture is a big idea, one clearly worthy of a book on its own, and more than the sketch provided by this review.
Nudge's other big idea covers how government should address the responsibility of influencing choice, an approach the authors call libertarian paternalism. They suggest that government should, often, offer people a choice in matters of public policy, but that this choice be provided with an architecture that favors people's best interest. It is difficult to disagree with some of Thaler and Sunstein's examples. Given that Americans do not save enough toward retirement, it seems responsible to change the default (as has been done in some retirement plans) to a reasonable savings rate rather than the original default of no savings, but give everyone making this decision the option of changing that level. The libertarian part of the term is providing a choice, the paternalistic part is the choice of the default. In the case of retirement savings, this architectural change has been made with broad bipartisan support. While the book contains many good ideas, not all the authors' suggestions are as persuasive, nor do they always follow from choice architecture or libertarian paternalism.
Some might find the idea of government designing an architecture disquieting. Critics on the right might find this version of government "too hard" because it allows government to influence people's choices. Those on the left may claim it to be "too soft" because it allows people the freedom to make mistakes. Yet because it implies a pragmatic and minimalist course, many readers will find that the ideas suggested in Nudge are just right. In an era of limited governmental monetary resources, these ideas seem efficient: they greatly affect behavior with little cost. In an era of partisanship, they reflect a scientifically grounded concept of how a responsible government should pose choices.
The reviewer is at the Columbia Center for Excellence in E-Business, Uris Hall 514, Columbia Business School, 3022 Broadway, New York, NY 10027, USA. E-mail: [email protected]