FDL Book Salon Welcomes Richard Thaler – Nudge: Improving Decisions About Health, Wealth, and Happiness
Nudge, by Richard Thaler (today’s guest) and Cass Sunstein, is an exposition of the set of ideas its authors call “Libertarian Paternalism.” At first blush this might seem as oxymoronic a combination as “dry water,” and the goal of the book to show how the phrase might make sense.
Libertarianism holds that it is wrong to interfere with choices made by a competent adult unless those choices threaten to damage someone else (and not always then). This follows from two claims, one factual and the other moral. It is claimed as a fact that every competent person is the best judge of what is likely to conduce to his or her own well-being, or at least better than any actual agency wielding coercive power. And it is claimed as a principle that autonomy is, of right, absolute with respect to what John Stuart Mill called “self-regarding actions. To overrule someone’s choices with respect to self-regarding action is, on this account, both disrespectful and damaging.
Paternalism, by contrast, holds that it is possible, and sometimes justifiable, to interfere with someone’s choices for that person’s own benefit.
To reconcile these positions, Thaler and Sunstein offer evidence from behavioral economics to show that under many circumstances personal choices do not reflect a fixed set of considered judgments about what is desirable and what is advantageous. Instead, choices can be, and in fact often are, “nudged” by a variety of features relating to the choice situation rather than only the outcome set.
Since, the authors argue, the choices people make are demonstrably sensitive to the way the choices are posed, there is nothing autonomy-threatening about designing the choice situation – influencing what Thaler and Sunstein call the “choice architecture” – in ways that improve the results of choice as evaluated by the person choosing. Surely someone is not damaged by being protected from making a choice he would come to regret, as in Mill’s own example of tackling someone to keep him from walking across a bridge that he does not know will collapse under his weight.
What keeps the paternalism libertarian, in their view, is giving the subject the choice to override the “nudge” and act as he or she prefers to act.
The book provides a number of important and – to me at least – completely convincing examples, including the retirement-savings plan called “Save More Tomorrow,” which brings people’s actual choices about retirement savings closer to the choices which they report that they imagine to be optimal. Save More Tomorrow does so by encouraging people to decide now about contributions to be made later, after an increase in salary, so that their paychecks do not go down when the contribution goes up. The fact that very few Save More Tomorrow participants take advantage of the option to un-do their previous choices when the time arrives to actually contribute more suggests that the plan helps people enact their desires rather than frustrating those desires.
Other examples involve changing “default” settings on choice plans: for example, instead of leaving new employees unenrolled in any retirement savings plan until they affirmatively sign up (which often involves a dauntingly complicated set of choices) a company could automatically enroll each new hire at some pre-chosen contribution level and allocation across asset classes, while telling them that they can change the level or the allocation, or opt out of the plan entirely, simply by filling out the sort of form that otherwise would have been required to enroll.
Thaler and Sustein also give examples of allowing people the option of prospectively limiting their own choices, for example by denying themselves access to casinos if they want to control their own gambling habits. (They do not discuss offering a stronger nudge by requiring everyone entering a casino to choose a loss limit for the day.)
When it comes to simple nudges to help people decide in their own interest as they understand it, it seems to me that Thaler and Sunstein are on firm factual and logical ground. In some of the cases involving strategic interaction – for example, “allowing” patients to waive malpractice claims in return for lower medical fees – I’m more skeptical, perhaps because I’m less libertarian. Is the doctor-patient interaction sufficiently evenly balanced to ensure that the patient is choosing in his own interest rather than being strong-armed? The discussion of getting the state out of the business of defining "marriage" reaches the same conclusion I reach on that question, but the argument seems to assume away the importance of custom; there are surely gains from the transformation of marriage from a near-indissoluble bond to a contract terminable more or less at the whim of either party, but surely there are losses as well, including losses to the less economically secure spouse and to the children. Moreover, it is simply not the case as a matter of fact that if Mr. and Mrs. X get divorced that decision has no impact on the marriage of Mr. and Mrs. Y.
But those are questions around the edges. The central ideas of Nudge deserve to be more widely known, and the book is a highly useful effort in that direction: not least because it is well-written and readable. The authors manage to wear their very considerable learning lightly.
[As a reminder, please take off-topic discussions to the previous thread. -bevw]