Image courtesy of Penguin

Here’s my review of Nudge: Improving Decisions About Health, Wealth and Happiness.

Click on the book for the Amazon link, which includes a great interview with the authors.

Book Review
Title: “Nudge: Improving Decisions About Health, Wealth and Happiness”
Authors: Richard H. Thaler and Cass R. Sunstein
Publisher: Penguin, 2009; 320 pages; $16 list

Review Date: September 16, 2009

Life, liberty and the pursuit of happiness — the inalienable rights of every American. Does this mean that Americans view property and the pursuit of happiness as essentially interchangeable? I’ll buy that. Why, then, do so many of our consumer decisions — from what we eat to the mortgage loans we borrow — result in disease and unhappiness?

In “Nudge: Improving Decisions About Health, Wealth and Happiness,” happiness researchers Richard Thaler and Cass Sunstein explore just this question, then provide lots of ways we can all “nudge” each other toward making happiness-creating choices.

At the outset, Thaler and Sunstein boldly declare their intention: to spark a movement of libertarian paternalism (a name they acknowledge is less-than-catchy). The premise? Every element of product design and presentation has the potential to influence a consumer’s selection, whether it be a school kid’s choice of salad vs. Twinkies or a citizen’s decision whether or not to become an organ donor.

Since, as Thaler and Sunstein put it, “everything matters,” government, employers, well-intentioned advisers and even some concerned citizens should become “choice architects” — intentionally, but non-obtrusively influencing others to make choices that are good for them, without forbidding or coercing choices in any significant way.

A titular nudge is any of the things we might do to predictably change someone’s consumer behavior or choice in the direction of their best interests. This is not a Big Brother-type thing, either; Thaler and Sunstein’s idea of what is in someone’s or everyone’s best interests is pretty unassailable.

Things like having health insurance (vs. being uninsured), saving money, and making mortgage commitments that the borrower fully understands at the time they sign up all fall in the category of desirable outcomes that government and vendors could and should encourage.

After briefing readers on the basics of their system, the authors launch right into some proofs that we need nudges, first attacking that perplexing tenet of behavioral economics, which posits humans as rational economic decision-makers. Thaler and Sunstein explore the cognitive biases and blunders, temptations and self-control problems, herd-mentality thinking and other decision traps that render nudges necessary.

The authors go on to brief readers on their key principles of good-choice architecture, ranging from “structure complex choices” to “padding the path of least resistance,” and including the reality-checking “expect error.”

After building the foundations of choice architecture, Thaler and Sunstein shift into case-study mode, tackling individual decision scenarios in the categories of money, health and personal freedoms (e.g., marriage and school choice) and showing how they are currently fraught with landmines frequently resulting in choices against the decision-maker’s best interests.

For each decision dilemma, the authors propose how the government or private industry might design the decision scenario to architect better choices. For instance, in helping consumers make better decisions in the realm of various contracts and financial products — from cell phone plans to student and mortgage loans — the authors propose various specific versions of a “mild” regulatory embodiment of their libertarian paternalism, which they call RECAP, for Record, Evaluate and Compare Alternative Prices.

Interestingly, “Nudge” cartwheels from these specific, regulatory proposals — which get points from me for their elegance and simplicity — to their closing lists of “nudges,” including everything from venture-capital-friendly business plans for commitment services and procrastinators’ clocks to expansion-worthy “nudges” that have been proven on the small scale, like a city-run limo service for drinkers so they don’t become drunk drivers.

Does “Nudge” prove the subtitle’s promise that choice architecture will increase happiness? I’m not sure that it does. But if the inalienable rights of every American include the pursuit of bigger retirement savings, better schools, healthier diets and more sustainable mortgages, we all just might need a nudge, or a few.