Nudge book review

English: Cigarette pack in Turkey
Nudging in action (Photo credit: Wikipedia)

The theory behind Nudge, like the best theories, is based on simple truths and common sense. The decisions people make are not always based on logic, but on bias, temptation, inertia and social influence. Essentially, human frailties mean we don’t always make the best decisions for ourselves, especially when the decisions are tough and complex, when some of the implications are far in the future, when we don’t make them often or when we don’t get clear feedback. Unfortunately these particular circumstances often arise when we have to make big decisions: how (and whether) to save for a pension, for example. In such cases, Richard Thaler and Cass Sunstein argue, we should be given a ‘nudge’: something which gently guides us towards the recommended course of action without forcing.

Overall, the book is a well-presented case, as the authors delve into politics, economics, business, finance and psychology with the clear-minded logic of economists and the warm humour of good writers. They use examples ranging from urinals to cafeterias to show why we need nudges, and how we can be nudged.

Ideologically, the book argues more broadly for liberal paternalism, essentially a middle way recognising that free choice is good where possible but when left completely unrestricted markets do not always serve people in the best ways. The pair effectively prove why complete economic liberalism is often harmful to the consumer, especially the most vulnerable. One important example relates to subprime mortgages (investments in which were “the origins of the [financial] crisis”) where the poor were baffled and duly exploited. Thaler and Sunstein seem very sensitive to claims that they are breaking the free market orthodoxy of the West, but fail to give a proper justification of the liberalism in their paternalism beyond the general maxim that liberty is good.

In some cases, readers may wonder why if policy makers are so sure a certain choice is the right or wrong one then instead of just nudging why not go the whole hog and legislate. The authors point out that in some decisions some people do know best, such as experienced investors investing in a government pension scheme, or they have the right to choose, like in organ donation. However in other situations, a bad choice can be so detrimental, like failing to invest in a pension scheme at all, that it should arguably be outlawed. I generally agree with the economists, but it would have been more convincing to see a proper defence of liberal values.

Once the book explains the basic premise of their theory, it proposes introductions of nudges in different areas of life. For mortgages, investing, social security and health care insurance (the book takes a global view with a clear American bias) they present policies which involve nudges (particularly to do with default rules – what happens to those who don’t make an active choice) and more transparency. Although I admit to not being an expert in these areas, their plans are well-argued and certainly seem to protect the most vulnerable at a low cost, financially and otherwise, for all parties.

Liberal paternalism is not just an economic ideology, and the authors go on to explain how it could benefit social policy as well. They advocate better organ donation policies to increase donation rate. Opt-out systems, or at least a system of required choice, would so patently increase donations whilst barely impeding liberty that you wonder why our government has never implemented one of them.

My biggest disagreement with the economists is on climate change. The premise of liberal paternalism in the rest of the book is about helping people make the best choices for them, perhaps involving realigning incentives and insulating against the worst aspects of human nature. The problem with climate change is that it is not in the interests of those who cause it to solve it (which would often result in a financial loss for them). Those who most stand to gain from less climate change (for now it is a question of damage limitation, not avoidance) are people the other side of the world and future generations, neither of which rich westerners can personally empathise with, and more importantly neither of which has much of an influence on Western policy.

Sunstein and Thaler do advocate carbon taxes, suggesting that perhaps fuel tax should be rebranded politically, and cap-and-trade systems instead of prohibitions and rigid limits. Both these measures are necessary, yet neither are really nudges using their own definition of “any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives”. They then propose measures which would make the environmental impact of people and corporations more transparent, thus giving them nudge based on social pressure. This is a nice idea, but its scope is not all-encompassing. I can’t see a bracelet with changing colours to show your footprint catching on as a fashion statement outside the liberal islands of metropolitan USA. Climate change requires more of a push than a nudge. It is telling that many of the ideas praised in this chapter come from the USA, a country which is far from a beacon of environmental responsibility.

Their last main idea is a bizarre one. Sunstein and Thaler propose privatising marriage. The government would offer couples an official civil union which would provide state benefits (or lack thereof). The word marriage and all sentimental and traditional aspects would be left to any number of private institutions.

The idea is an inventive one, and aims to address the controversy surrounding same-sex marriage as well as the lightness with which people view marriage and divorce today. Again, this has little to do with nudging. One of their aims is to placate both social conservatives and liberals, yet their plan would do neither. I imagine traditionalists would deplore the separation of state and marriage and the non-traditional permutations to marriage (like homosexual marriage) that would ensue. At the same time, religious institutions would be free to deny marriage services to homosexuals, surely discriminatory (although the opportunity to marry somewhere is an improvement on the status quo).

This book is less than five years old, yet by reading this chapter you can tell the debate has progressed since publication, with Obama supporting same-sex marriage (albeit in a rather vapid way) and a majority of Americans supporting legalisation. A system which still allows for discrimination is not as radical as Sunstein and Thaler make out and overall this seems a poor attempt at compromise with no discussion about what marriage should be or who should be able to marry, and whether and how the social changes which have reshaped how society views marriage and couples are good and/or bad.

My criticisms of the last two proposals are not intended to be criticisms of nudging or liberal paternalism. The truth is there is much scope for using nudges to make society better and the book examines just a few of them. Consider tobacco policy. Enforced selling behind the counter, plain packaging and warnings and images on packets nudge people not to smoke, but do not impose much of a cost on those who are determined to buy cigarettes. I think what those opposed to these measures sometimes forget is that nudges one way or another are unavoidable: without regulation, the attractiveness of cigarette packets or the prominent placing of packets in a shop would be nudges themselves.

However, in other areas policies which would helpfully nudge people in the right way are still overlooked, a few years after publication of this book, despite nudges being low in cost for the nudger as well the nudgee. This is perhaps because human fallibility is still underestimated in how we make decisions. Someone give David Cameron and co. a nudge.

Update: One of the authors, Richard Thaler, tweeted about this review after I included him in a tweet about it:

Now, it’s not so much that I thought they were too libertarian, I just think they put a lot of effort into defending their paternalism but didn’t defend their position from the other side. I generally support the healthy dose of libertarianism they advocate in the book (with a notable exception being on climate change) but it can be attacked.

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