Book Review: Nudge

March 17, 2009

Too many choices!

Too many choices!

Improving Decisions About Health, Wealth, and Happiness

Nudge is a readable collection of policy ideas based on the concept of “libertarian paternalism.” What the heck is that? Libertarians believe that people should be free to make their own choices, and that policies should maintain or increase the number of choices available. Those of you familiar with the Chicago school of economics promoted by Milton Friedman will recognize this philosophy. Thaler and Sunstein, the co-authors of Nudge, believe it is also valid to “try to influence people’s behavior in order to make their lives longer, healthier, and better…as judged by themselves.”

The addition of paternalism to the traditional libertarian view reflects the development of behavioral economics over the past several years. While classical economics assumes people act rationally in their own self-interest, behavioral economists have shown that people make poor choices all the time and do not always act in their theoretical self-interest. Christians, I think, should have no problem with this critique of the classical view as 1) self-interested decisions cannot always generate optimal outcomes (as the current financial crisis suggests); and 2) sinners, by definition, make bad decisions all the time.

This perspective gives rise to the theme of “choice architecture.” For example, Nudge begins with the story about a food services director for a large city school system. In an attempt to improve the diet of the school children, she begins to experiment with the cafeteria food layout and finds that the location of food items can dramatically impact what types of foods children choose. Of course, now she has to decide how to use her new power to influence. Does she maximize profits? Maximize consumption of healthy foods? Randomize food location to minimize influence? The food services director has just become a choice architect. (Take a closer look at the layout of your local supermarket and examine how you are being influenced.) Thaler and Sunstein use these concepts to explore policies for retirement saving, social security, health insurance, organ donation, school choice, marriage, etc.

A few observations:

  • Chicago vs. Chicago. It’s nice to see that Thaler and Sunstein, both professors at the University of Chicago, are willing to challenge (however gently) the reigning gospel of the “Chicago School.”
  • Let A Thousand Flowers Bloom? Nudge argues against simple “choice maximization.” Many conservative politicians and policy-makers believe more choices will make things better by promoting competition…period. Thaler and Sunstein argue this is not the case. People often disengage in the face of complex choices. This seems to be a case where practicality is finally gaining ground against ideology. People can’t even read long emails! How you do you expect them to decide among thousands of different retirement funds with no experience or training?
  • Defaults Matter. Should a plan be opt-in or opt-out? This issue rises again and again in Nudge. Although one can argue for one default versus another, Thaler and Sunstein believe the cost associated with opting-out of a default choice should be minimized to ensure defaults are not abused.
  • Privatization of Marriage. This chapter should be particularly interesting reading for the Christian community in light of the highly publicized Proposition 8 campaign in California. Thaler and Sunstein, relying on separation of Church and State, recommend calling all state-sanctioned “marriages” civil unions while leaving it to churches to administer the “marriage” nomenclature. Before all of you start citing Tim Keller’s view on the privatization of religion, re-read the two arguments before jumping to conclusions. Are they talking about the same thing?
  • Parting Shot. Thaler and Sunstein ends the book with rebuttals to anticipated critiques. While some might consider this a softball chapter since the authors can choose which critiques they address, I appreciated the attempt.

I believe the Bible supports choice architecture. Joseph ran away from temptation, after all, just as compulsive gamblers are signing themselves up for no-entry lists at casinos today. Regardless of whether you agree with the policies promoted by Nudge, it offers an interesting perspective on human behavior and decision-making.

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