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Tuesday, 30 June 2009 03:25

Richard Thaler and Cass Sunstein Explore the Nudges and Nudgers That Shape Our Lives

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A BUZZFLASH INTERVIEW

Our goal is to give benevolent nudgers an instruction manual.  The evil nudgers have already mastered most of these tools, alas.

-- Richard H. Thaler, Coauthor with Cass R. Sunstein of Nudge: Improving Decisions About Health, Wealth, and Happiness

* * *

Nudge

In a most intriguing yet wonkish book -- Nudge: Improving Decisions About Health, Wealth, and Happiness -- Professors Richard Thaler and Cass Sunstein (who has been nominated by President Obama to serve as "regulatory czar" overseeing the White House Office of Information and Regulatory Affairs*) bring the world of behavioral economics down to a very entertaining and user-friendly plane. Talking about choice architecture, they give concrete examples in chapter after chapter of how real people pick and decide their way through life, sometimes effectively, other times to their own detriment. They look at all kinds of institutional "nudges" that influence choices, from street stripes painted to fool drivers into slowing down, to targets in urinals that, well, you get the picture -- nudges are everywhere. And the authors show ways we can all nudge and get nudged more wisely. Sometimes, it's as simple as designing a better form or engineering-in a better default option.

Unhappy about your retirement plan choice? This book will help you think about how you picked it. Eager to save the planet? This book identifies painless ways to help do that. There's plenty, too, about political choices and existing or potential governmental nudging. How about privatizing marriage, fixing Social Security, or simplifying tax returns? It's all in the book.

BuzzFlash found much to like in Nudge. It's one of those books that sticks with you, making you more self-aware and alert to possibilities. Our thanks to Richard Thaler and Cass Sunstein for simply illustrating choice architecture concepts and showing the value of implementing simple but significant changes.

* * *

BuzzFlash: In Nudge, you talk about everyday decisions people have to make – what will a hungry kid choose from the school cafeteria line, or which Medicare Plan D drug coverage will a retiree choose?  Choice architects are the people or committees that help shape those decisions by making it easier or more appealing to pick one thing and not the other. Is that a fair summary of the role of bureaucrats and managers who have the power to offer choices?

Richard H. Thaler: Yes, Good start!Richard H. Thaler

BuzzFlash: Nudges by your definition are well intentioned. Benevolent nudgers “are self-consciously attempting to move people in directions that will make their lives better.”  Can you contrast that to a more nefarious choice architecture?

Richard H. Thaler: Nudgers CAN be well-intentioned but can also be self-interested.  We are being nudged all the time by marketers, religions, spouses, etc.  Sunstein and I did not invent nudging!  Our goal is to give benevolent nudgers an instruction manual.  The evil nudgers have already mastered most of these tools, alas.

BuzzFlash: You use a term that by your own admission is off-putting -- “libertarian paternalism” -- to describe your belief that choice architects can and should help nudge people to do what’s good for them. Did you write Nudge, in part, to replace that term with a friendlier frame?

Richard H. Thaler: We actually love the term libertarian paternalism, but we might have kinky tastes.  Still, we recognize that "nudging" rolls off the tongue a bit easier, and if that helps get the message across we are happy to use it.

BuzzFlash: Americans have a lot of bad habits environmentally. We make many thoughtless choices that we might regret, like using a lot of plastic. Do you know of any nudges coming our way to encourage greener choices?

Richard H. Thaler: We devote an entire chapter of Nudge to these issues. Here are two examples.  There is a devise called the Ambient Orb that can be installed in homes.  It is a bulb that glows red when lots of energy is being used. Putting these in homes reduced energy use during peak periods by 40 percent!

It is also possible to nudge people via social comparisons.  Including information on an energy bill about how much energy a family is using compared to their neighbors reduces usage by 2-6 percent.  While this may seem small, it costs nothing, so why not do it?

BuzzFlash: The Obama Administration, of which your friend and coauthor Cass Sunstein is now a part, is focused on getting healthcare reform enacted now. What kind of nudge could help build-in cost controls for that?

Richard H. Thaler: Sadly, hospitals cause infections as well as cure them. Research has shown that adopting simple checklists can reduce some of these infections (such as those that occur from installing a central line) to virtually zero. Simply telling nurses that they are supposed to remind doctors to wash their hands helps!

BuzzFlash: How is a nudge different from an incentive?

Richard H. Thaler: Good incentives are part of proper choice architecture, but nudging can go further.  So, for example, raising the cost of energy will reduce usage, but so will making the usage more salient as with the Ambient Orb.  We should use both tools.

BuzzFlash: The idea of nudges is an idea of behavioral economics – incorporating what we know about the way people act into our theories about economic activity. Have particular psychologists had a big influence on you or contributed to that field?

Richard H. Thaler: The two psychologists that had the biggest influence on behavioral economics were Daniel Kahneman and the late Amos Tversky.  They both helped shape my career, and Kahneman remains my dearest friend to this day.

BuzzFlash: In the healthcare debate, one side has raised fears that there might be no "choice" if there is a public plan. Is that a legitimate concern?

Richard H. Thaler: It all depends on the rules of engagement, but this fear seems largely illogical.  As the President said in a recent press conference, businesses usually think the government can't do anything right, so why should they think that the government will be such a fierce competitor that all the private companies will be driven out of business?  The Post Office competes with FedEx and UPS in package delivery, and all their firms are still in business.

Of course, the government could create rules that give a public plan an unfair advantage, but the debate should be about those rules rather
than the idea itself.  To me a public option is neither good nor bad per se,
it all depends on the details.

BuzzFlash: Let’s agree that reform-minded choice architects should be building in nudges. At what level does that need to happen? Does the President nudge? The Congress? Or a policy wonk laboring away in a little-known agency’s basement office?

Richard H. Thaler: Everyone can and does nudge, from the President on down.  Parents are nudging their kids every day (and vice versa).

BuzzFlash: Can big business be nudged? Can Washington?

Richard H. Thaler: We can nudge both big business and Washington by requiring better disclosure.  The Obama administration has announced that firms will soon have to disclose their carbon emissions. This will serve as a nudge to carbon hogs.  Next let's make Congress more transparent!

BuzzFlash: Thank you for helping us better understand the choices we make and why. Nudge provides tremendous food for thought and should help bring change for the better.

Richard H. Thaler: Thanks for having me on.

* * *

BuzzFlash email interview conducted by Christine Bowman.

Resources:

Author bios

*Recent News Item: Saxby Chambliss putting a hold on Cass Sunstein for the regulatory post

A BUZZFLASH INTERVIEW

Read 1075 times Last modified on Tuesday, 30 June 2009 04:07