Book Review: “Nudge: Improving Decisions About Health, Wealth, and Happiness”

Richard Thaler and Cass Sunstein’ “Nudge” is a well reviewed book by two highly acclaimed authors from the University of Chicago Booth School of Business and Harvard University School of Law respectively. The basis of the book is to bring about the notion of “Libertarian Paternalism” as an economic policy perspective. Libertarian Paternalism is often illustrated as an alternative to more authoritarian forms of regulation, where concepts in behavioral economics are used to the advantage of policy makers or choice architects to “Nudge” individuals towards better decision making.

Part I offers a fairly decent intro into behavioral economics. For those familiar its largely an overview of Khaneman’s Thinking Fast and Slow, not much of a surprise given Thaler and Khaneman’s  history together. Thaler and Sunstein however present the subject in less of an esoteric sense, largely making use of example as their primary tool of informing. From naive investing practices, to credit markets, social security, prescription drugs, and others, the author’s provide a smorgasbord of real life applications.

The book generally offers interesting insights into what one may consider the “low hanging fruit option” of how to balance personal freedom/choice while still implementing policies to statistically benefit society at large. For instance, the authors provide an example at a school cafeteria lunch line. Rather than simply eliminate unhealthy food options, a strategic choice architecture of where food is located in the food line can be chosen utilizing behavioral research concepts to improve the likelihood consumers will make better (i.e. healthier) decisions about food consumption.

While Thomas Leonard provides an interesting critical take that “The irony is that behavioral economics, having attacked Homo Economicus as an empirically false description of human choice, now proposes, in the name of paternalism, to enshrine the very same fellow as the image of what people should want to be. Or, more precisely, what paternalists want people to be. For the consequence of dividing the self has been to undermine the very idea of true preferences. If true preferences don’t exist, the libertarian paternalist cannot help people get what they truly want. He can only make like an old fashioned paternalist, and give people what they should want.”

My criticisms however take a somewhat different tone. Both Leonard and the authors make the assumption that any form of “paternalism” from a policy or choice architecture standpoint is designed to help people get what the truly want. As I discuss in my post “The True Purpose of Paternalism” the purpose of any public policy, choice architecture, or paternalism is really to serve the public good. In this case, one can argue that paternalism should be not be used primarily to preserve was people truly want, though that may be a side benefit, but to balance the prevention of externalities.

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