Intro: Thaler and Sunstein provide a framework for decision making that can be applied and used across the board for health, wealth, and happiness, as well as other facets of life. They introduce behavioral economics to explain how decisions can be influenced so that a specific outcome is chosen. To lay the foundation for the decision making stage, Thaler and Sunstein establish the significance of a choice architect. A choice architect has the responsibility for organizing the context in which people make decisions (Thaler & Sunstein, 2).
According to Thaler and Sunstein being a choice architect requires planning and knowledge, as the architect ultimately chooses an arrangement or environment that will provide individuals with the autonomy to make their own choice but still influence their behavior to make their lives longer, healthier, and better. Therefore creating what this book is all about, a nudge. A nudge or the concept of nudge is a method that alters people’s behavior in a predicable way without forbidding any options or significantly changing their economic incentives (Thaler & Sunstein, 6).
To fully appreciate and understand a nudge, Thaler and Sunstein also introduce the concept of libertarian paternalism. The libertarian portion of their strategy lies in the straightforward insistence that, in general, people should be free to do what they like and to opt out of undesirable arrangements if they want to do so. They use the term libertarian to modify the word paternalism so that libertarian paternalism together means liberty-preserving.
The paternalistic portion of their strategy lies in the claim that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better (Thaler & Sunstein, 5). What they are trying to argue is for self-conscious efforts, by people in the private and government sectors, to maneuver people’s choices in directions that will improve their lives. As choice architects, we have the opportunity to nude people toward what is better for them, this is libertarian paternalism.
A choice architect can be anyone who chooses to take on the task of improving a situation for the good of society, but ultimately allowing others to make that improvement, of course with guidance and complete freedom. The choice architect will present choices and frame them in a way that will affect the decisions made. For example; Winn-Dixie offers a fuel perks reward program. For every $50 spent at the grocery store a customer will receive $0. 10 off a gallon of gas.
If the customer wishes to save on fuel costs and take advantage of the fuel perks program, they will be nudged into purchasing gas at specific gas stations as only a select few stations participate in the loyalty program. The authors also highlight key differences between homo economicus, or economic man (Econs) and homo sapiens (Humans). The distinction becomes important to choice architects when developing a nudge. Econs represent the notion that each of us thinks and chooses consistently well, while Humans tend to forget easily and make bad decisions.
A perfect example of this is smoking. Humans chose to smoke even though we know it is bad for us and that we could potentially suffer serious life consequences as a result of that choice. To qualify as an Econ people are not obligated to make perfect forecasts, however, they are obligated to make unbiased forecasts. Humans, on the other hand, have a systematic propensity toward unrealistic optimism. Thaler and Sunstein purport that a nudge is any factor that significantly alters the behavior of Humans, even though it would be ignored by Econs.
Instead the authors state that Econs respond principally to incentives. By properly deploying both incentives and nudges, we can improve our ability to improve people’s lives, and help solve many of society’s major problems. And we can do so while still insisting on everyone’s freedom to choose (Thaler & Sunstein, 8). What Thaler and Sunstein are trying to say is that with the use of proper rewards, people’s behavior can be changed by offering free choices that are framed to elicit decisions that are best for people and are more likely to produce helpful outcomes for those people and society.
Thaler and Sunstein also introduce a false assumption and two misconceptions about nudges. The false assumption the authors provide is that almost all people, almost all of the time, make choices that are in their best interest or at the very least are better than the choices that would be made by someone else (Thaler & Sunstein, 9). Although this assumption may appear at the surface to be true, it is in fact false. People typically make choices in their best interest when they are equipped with all of the facts and have experience in the field for which the decision is being made in.
For instance, people know what genre of music they prefer, thus deciding on a radio station is easy. However, when people make decisions about something they have no familiarity with or are inadequately informed, their decisions will tend to be faulty. The first misconception for nudges is that it is possible to avoid influencing people’s choices. I believe what the authors are trying to convey here is that despite the choices people have, the choice that is selected will always affect the behavior of another other person in some type of way.
One illustration of this is the location of let’s say a fast food restaurant. The choice to locate a fast food restaurant in an area that requires customers to make a u-turn in order to get into the restaurant will affect the customer’s decision to stop. If customers have to go out of their way to get into the restaurant they will most likely be nudged in the direction of going elsewhere in order to avoid the hassle of having to make a u-turn. The second misconception is that paternalism always involves coercion.
Remember that paternalism means that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better. As choice architects make choices that improve the well-being of others, they do so without any regards to profiling people. This means that when making a decision which will affect someone else, such as arranging the selection of candy in a movie theater, the decision to pick the candy at eye level will be a nudge, but the order of the candy will not change whether the person making the decision is a child or an adult.