These are the big ideas. None are original.
- Human beings are not as rational as the ideal consumer portrayed by Economists.
- Therefore, humans make choices based on rules of thumb such as
- Anchoring (based on the latest information you have; they demonstrate this by asking you to add 200 to the last 3 digits of your telephone number and guess whether Attila the Hun sacked Europe before or after this date; strangely for me the right answer was exactly equal to the last three digits of my telephone number added to 200!);
- Availability (we choose based on the evidence most readily available to us such as the horrendous aeroplane crash in the tabloids),
- Conforming to others,
- the fact that we would rather avoid Losses than make Gains,
- seeking false patterns in random data,
- and sticking to the Status Quo.
- (All of these ideas are much better covered in Stuart Sutherland's Irrationality.)
- A choice architect designs the way we are presented with a choice. There is no such thing as a neutral choice.
- A choice architect can therefore influence our choice by manipulating the choice architecture in line with the rules of thumb. This is a nudge.
- This is morally acceptable within the framework of libertarian paternalism if the nudges influence us to make choices that are in our own best interests. Our best interests can be demonstrated: no one ever makes a New Year's resolution to start smoking or exercise less.
They need to spend some time defending libertarian paternalism from the American right. They argue that it is better that government should nudge us to do what is in our own best interest rather than to force us to do this. They suggest that not all government officials are necessarily incompetent or corrupt. (I think they could go quite a way further here and suggest that it is more likely that a civil servant will try to influence your choice in a way that is good and positive than that a capitalist seeking to maximise the profit of himself or his shareholders will. They do say: "One the face of it, it is odd to say that the public [choice] architects are always more dangerous than the private ones. After all, managers in the public sector have to answer to voters, and managers in the private sector have as their mandate the job of maximizing profits and share prices, not consumer welfare. Indeed, some of those who are most suspicious of governments think that the only responsibility of private managers is to maximise share prices." (p238) )
So far the book has been interesting though not revolutionary. The test of the pudding as always is in the eating. Here they apply their theories to a variety of spheres (health care, pensions, sub-prime mortgages etc; mostly from a US perspective). What do they come up with in terms of practical advice?
- Default options are important but especially so when it becomes difficult to choose. Madly (because of fears of being sued) the default prescription option for seniors under the Bush health care legislation was to pick a plan at random even though in healthcare the past is a pretty good indicator of the future.
- Transparency is good. They recommend that for investment plans etc banks are required to send annual statements detailing all charges to prompt people to consider whether they really made a good choice before. Generally information is good although when the choice becomes complex it becomes critical as to what information you present and how your present it. This too is part of choice architecture.
- Escalators are good. People are more likely to save for their pensions if they are asked to set aside a small amount now with a commitment to an automatic increase every time they get a pay rise.
To keep choice architects on the side of the angels they suggest the slightly novel moral principle (they credit it to the moral philosopher John Rawls) that you should only do what you would not be embarrassed about. If you place mirrors into restaurants to nudge people into eating less you might be happy for this idea to be publicised; you might be less happy if you had used subliminal advertising to achieve the same end.
So overall this was an interesting book although I had encountered most of its ideas before and the practical applications do seem rather limited. I hope there is more potential for the essential idea.
March 2012; 260 pages