Nudge

I am not a huge fan of what people call “behavioral economics,” which is a subfield of economics that expands the standard economic models to incorporate systematic biases in the way humans act.

I’ve written about some of my concerns elsewhere, so I won’t reiterate them here. I don’t deny that the insights that emerge from behavioral economics can be important, it just seems that most often they are not — especially when subjected to the discipline of the market.

Something I loath far more than behavioral economics is fancy words and labels. My eyes glaze over when people come up with grandiose labels for ideas — especially newly invented ones.

So about a year ago when I had lunch with Richard Thaler and he told me that he and Cass Sunstein were going to write a popular behavioral economics book about what they called “libertarian paternalism,” I have to confess I cringed.

“Libertarian paternalism” is just the sort of phrase that makes me stop paying attention.

Which is why I could not have been more surprised and delighted when I finally got to read a copy of their new book Nudge. Despite my initial misgivings, I’m halfway through it, and this is a book I love.

The main point of the book (paraphrased) is as follows:

Since people don’t think very hard about the choices they make, it is a lot easier to trick them into doing what you want than to try to educate them or incentivize them to change their behavior. There are many ways to trick people, but one of the easiest is simply by giving thought to the way choices are arrayed to them, or what they call “choice architecture.”

This is an important insight, because as an economist my first instinct is always to jump right to incentives. What they show, pretty convincingly, is that there is often an easier way to get what you want.

What makes the book is the never-ending assault of interesting examples:

Let’s say you want men to stop accidentally peeing on the floor instead of in urinals in an airport bathroom. (Dubner is fascinated with airport bathrooms, so I’m sure he could think of some incentive schemes.) Or maybe someone could invent a new urinal. The choice architects have an easier solution: paint a fly in the urinal. It turns out with something to aim at, “spillage” is reduced 80 percent.

A more substantive example involves 401k plans. It has proven very difficult to get people to make intelligent choices regarding their 401ks: people fail to diversify, hold assets that give them no tax benefit, etc.

Some economists have tried to educate and inform, with little impact. The choice architects take a different approach: almost everyone opts for the default allocation of assets if a default is given. Thus, the answer is simply to make the default choice intelligently given what the choice architect knows about the person. The impact of savings behavior from altering defaults swamps everything else.

Picking and choosing a few examples can’t convey what is most surprising about the book: it is really fun to read.

Academics aren’t supposed to be able to write this well.

To give you a sense of the topics the book covers, here are just a few of the entries in the index:

ABBA, Gold: Greatest Hits, 194
accountability in schools, 200
air conditioners, filters for, 234
angels, 235
arousal, power of, 42
asbestos, warnings about, 189
Attila the Hun, 23-24
autopsies, corneas removed in, 177

And that is just under the letter “A.”

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  1. Cris says:

    I’ll have what Steve is having please… ;-)

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  2. AaronS says:

    I love the oxymoron of “libertarian paternalism”–ha!

    I have been thinking along a similar course. Those who embrace pure market forces too tightly wind up saying, “Let them keep peeing on the floor until they finally grow disgusted of it, and then they will change their behavior.”

    Of course, on the other end of the spectrum, we have Singapore: “If you pee on the floor you will be arrested.” (I don’t know if that’s true, but I kind of like the idea!)

    One of the things I face in my own town is a too lassiez-faire way of doing things. New buildings are constructed, having no relation to any central architectural theme, making our fair town a hodge-podge quiltwork that is unattractive to future business. That’s where my notion of paternalism comes in–it’s not just incentives, or “tricks” to get them to do this or that, but it’s a RANGE OF OPTIONS (e.g., you can build in any of these Spanish archtectural styles).

    Speaking of men’s bathroom’s, one of my pet peeves is guys who don’t wash their hands afterwards (which is why I always take a paper towel to the door with me). To that end, here’s a little song I wrote (to the tune of “The Beverly Hillbillies”):

    “Now listen to the story ’bout folks who flush and walk.
    They’re contaminating us by not doing what they ought.
    We need to up and shoot ‘em while we still can take a shot.
    Or at least fumigate them with the best stuff we’ve got.”

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  3. Inflating Irishman says:

    Having recently taken an interest in behavioral economics I started reading a few books – notably ‘predictably irrational’ by Dan Ariely who featured in a discussion on this blog earlier in the week. Although I found his book fascinating in content it was much of the same as a lecture I heard him give this year at the London School of Economics where I am currently attending. Now given the author and the speaker are one and the same I decided my misgivings were perhaps shortsighted. So off go I to Amazon.co.uk and purchase four more books on behavioral economics. All the same! This book sounds…. all the same. I have heard/read about default boxes numerous times. I really enjoy this field of study but where is the depth. According to Ariely it is in the ability of suppliers to disrupt the general equilibrium of supply and demand and in doing so disrupt the foundations of what everyone in my post-graduate course would call ‘Economics’. With this laid down in chapter 2 I was rife for more reading but the depth never came. It did not come in this book nor any other I have read thus far. Where is the action? Is it in this book ‘Nudge’ if I buy it? I doubt it. With all respect,

    Pass

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  4. Rich Reynolds says:

    I was fine with your account of the book, until I got to the word “urinal.”

    For some reason movie/TV writers and now authors are obsessed with those bathroom fixtures. And I’m guessing Freud would know why.

    But for me, urinals are off-putting, in reality and the arts.

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  5. Rem says:

    interesting. Seems like this strikes at some of the basic assumptions in economics–that would be that tastes (and altering tastes) don’t change, and incentives are hte way to go in altering behavior. This kind of reminds of the problem of high drop out and poor attendance rates in High Schools, with some schools giving cash, cars, etc in raffles for students with perfect (or very high) attendance rates. I wonder if there is any better way to ‘trick’ students into attending school, or if incentives might be a better way to go.

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  6. Jenn S. says:

    Now, if some of the behavioral economists can incentivize some way to keep people from pissing on the stairs to my El Stop, I would be REALLY happy. This one seems to stump all of the Chicago CTA staff and my local alderman!

    Thanks for the reading tip – I’ll add this to my “to read” list!

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  7. Clint says:

    @ #2

    Not washing your hands after simply urinating does no harm. Swab tests of bacteria on hands versus genitalia overwhelmingly show that you hold the cleanest part of your body with the filthiest part. You will not be able to incentivize me to engage in an irrational behavior.

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  8. Mike says:

    I assume there’s a proper technique to avoid spillage, but I also assume it varies depending on the geometry of the urinal. Having a target would certainly eliminate the guesswork, although I’d hate to be on the R&D team.

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