Book review: Nudge: Improving decisions about health, wealth and happiness by Richard H Thaler and Cass R Sunstein

Posted on: October 24, 2019
Book review: Nudge: Improving decisions about health, wealth and happiness by Richard H Thaler and Cass R Sunstein

Behavioural science is a popular topic at the moment and “Nudge: Improving decision about health, wealth and happiness” was published back in 2008. It has particular resonance in professional services as co-author Sunstein is a professor at an American law school.

The basic premise is that we do not decisions rationally like an “Econ” but that as Humans whose  decision-making is affected by a variety of unconscious forces such as emotion and cognitive biases. However, we are able to help people by designing choice architectures to nudge them to make better decisions for their health, wealth and happiness.

Small changes and apparently insignificant details in the context focus attention in a particular direction to influence decision-making and have a major impact on people’s behaviour. It’s about the emerging science of choice.

The book comprises a series of stories and experiment reports to demonstrate cognitive biases and show how the way you frame a choice can lead to better decisions – for example:

  • Availability – By placing healthy food choices at the front and at eye level encourages people to choose them over less healthy options towards the back by 25%. Students are less likely to drink or smoke if they are given information about the majority of people who drink and smoke little.
  • Boomerang effect – If you want to nudge people into socially desirable behaviour (such as energy efficiency) do not let them know that their current actions are better than the social norm.
  • Defaults and the path of least resistance – As many people choose to do nothing in situations, the default option becomes important. There is evidence to show that having a “required” or “mandated” choice is preferable many situations. When the choice is complicated and difficult, people might greatly appreciate a sensible default (like when installing new software), A “forcing function” is where you have to do something else before you get what you want. Frequency and regularity help people may better choices when taking medication.
  • Diversification bias – People avoid putting all their eggs in one basket and tend to spread their risks evenly – putting the same number of eggs in each basket.
  • Focus – The image of a fly on a urinal increases aim and reduce spillage by 80%
  • Framing – People react differently to “90 of 100 are alive” to “10 of 100 are dead”. Small area attribution is partially responsible.
  • Loss aversion – There is a strong desire to stick with your current holdings even if the potential gains of switching are significant. People hate loses about twice as much as they like gains.
  • Mere-Measurement effect – When you measure people’s intentions, they affect people’s conduct. When people are asked what they intend to do, they become more likely to act in accordance with their answers. The effect can be accentuated by asking them when and how they plan to do it. Kurt Lewin’s work on channel factors is mentioned – an example quoted regards inoculations where after a lecture only 35 got the injection whereas if given a map and asked what time and what route they would use the number increased to 28%.
  • Obesity – People eat more when they are faced with larger portions. If your best friends are fat, your risk of gaining weight goes up. Those who eat with one other person eat about 35% more than they do when they are alone. Members of a group of four eat about 75% more – those in groups of seven or more eat 96% more.
  • Optimism and over-confidence – People generally rate themselves higher than the average
  • Planning fallacy – the systematic tendency towards unrealistic optimism about the time it takes to complete projects
  • Priming – You can prime people into certain forms of behaviour r by offering simple and apparently irrelevant cues. For example, objects such as briefcases and boardroom tables make people more competitive and less generous and less co-operative.
  • Spotlight effect – People are paying less attention to you than you think
  • Status Quo bias – People have a strong tendency to go along with the status quote or default option so there is inertia. Collective conservatism is the tendency of groups to stick to established patterns even as new needs arise. Pluralistic ignorance (ignorance about what other people think) is illustrated by explaining that communism in the former Soviet bloc lasted in part because people were unaware how many people despised the regime.
  • Stimulus-response compatibility – Don’t use a handle (which people want to pull) when you want people to push. This Stroop effect can be demonstrated by asking people to indicate a colour when the text describing colours is in a different colour – the Automatic System reads the word faster than the colour naming system can decide the colour of the text.

How bias and nudges operate is explained by describing the “two brain system” and its impact on thinking is described (see also; Thinking, Fast and Slow By: Daniel Kahneman). Fast, intuitive and automatic thinking is in the Automatic System (System 1 – gut reaction) and the slower rational is in the Reflective System (System 2 – conscious thought).

Rules of thumb

Rules of thumb (heuristics) of anchoring (influence from the first number), availability (how readily examples and recent experience come to mind) and representativeness (similarity to stereotypes) are explored. Temptation and mindlessness are illustrated by people being dynamically inconsistent in first eating nuts before dinner and then preferring to have the nuts before dinner removed.

Complex decisions

People adopt different strategies for making choices depending on the size and complexity of the available options. A compensatory strategy assigns a high value for one attribute compensating for a low value for another.

People adopt simplifying strategies – and these can be seen in Netflix with collaborative filtering where you use judgements of other people who share your tastes to filter through the vast number of movies available.

Self-control

Self-control issues arise because we underestimate the effect of arousal (demonstrated by recalling the story of Ulysses having wax put in his ears before encountering the sirens). The authors refer to the far-sighted planner (Reflective) and the myopic doer (Automatic) in each of us. People use internal control systems – mental accounting – to aid self-control such as alarm clocks and designating financial accounts for different activities.

Self-control issues are most likely to arise where choice and their consequences are separated in time. Investment goods are where the costs are borne immediately but the benefits are delayed – such as exercise and dieting. Sinful goods – like smoking, drinking alcohol, over-eating and pollution – provide pleasure now but the consequences are suffered later.

The relationship between choice and welfare is mapping – a good choice system architecture helps people to improve their ability to map and hence to select the options that will make them better off.

Practice, feedback and learning

Some of life’s most important decisions do not come with many opportunities to practice. Learning is most likely if people get immediate, clear feedback after each attempt. And we usually only get feedback on the options we select, not those we reject.

So nudges are needed for choices that have delayed effect, those that are difficult and infrequent and those that provide poor feedback. The authors suggest we do not purchase extended warranties and that Government regulation adopts a RECAP model (Record, Evaluate and Compare Alternative Prices).

“The best way to help humans improve their performance is to provide feedback”.

Prices and incentives 

Prices and incentives are explored through a framework of: Who uses? Who chooses? Who pays? Who profits? Incentives need to be noticed and salient – and opportunity costs are often ignored.

The authors offer the six principles of good choice architecture:

  • iNcentives
  • Understand mappings
  • Defaults
  • Give feedback
  • Expect error
  • Structure choices

Moral issues

The authors address the obvious moral issues with the idea of influencing people unconsciously with their views on libertarian paternalism. This means that people should be free to make their own choices but that it is legitimate for choice architects to try to influence people’s behaviour in order to make their lives longer, healthier and better.

The authors suggest that you offer nudges that are most likely to help and least likely to inflict harm. This requires analysis of the situations in which people are least likely to make good choices. The authors also advocate for transparency in all options offered.

Overview

The book is structured in three parts: the first describes the role of bias on choice, the second looks at how this impacts money decisions (savings and investments) and the third considers society.

Most of the examples in the book are American – for example, there is a long section on choosing health insurance options to minimise the cost of drugs which does not resonate in the UK where we have the National Health Service. There’s also significant political and policy content. The section on increasing organ donation through presumed consent was interesting too.

The section on “Saving the planet” (and the positive impact of information-disclosure such as labelling and gadgets that make energy use visible) makes interesting reading in today’s environment where climate change protestors are so vocal and emissions control policy is hotly debated,

The argument for privatising marriage – separating the legal agreement to live together from the religious or cultural aspects of a union – was also thought-provoking and likely to be of great interest to family and divorce lawyers.

However there is guidance for employers trying to help their staff make good choices about savings, charity donations and pensions. The “Save More Tomorrow” concept encourages people to increase future savings when they receive a rise so they are less likely to miss cash that they didn’t receive in the first place.

It is challenging – but not impossible – to extract the lessons from the book to apply to a corporate environment to see how to help people make better choices running businesses or improving productivity at work.

Other books on persuasion and influence:

Small changes spark big influence http://kimtasso.com/book-review-small-big-small-changes-spark-big-influence-steve-j-martin-noah-j-goldstein-robert-b-cialdini-persuasion-science/

How to win friends and influence people http://kimtasso.com/book-review-how-to-win-friends-and-influence-people-by-dale-carnegie-still-a-valuable-guide/

Persuasive writing http://kimtasso.com/book-review-persuasive-writing-how-to-harness-the-power-of-words-by-peter-frederick/

Hypnotic writing http://kimtasso.com/book-review-hypnotic-writing-how-to-seduce-and-persuade-customers-with-only-your-words-by-joe-vitale/

How to get people to help you http://kimtasso.com/book-review-reinforcements-how-to-get-people-to-help-you-by-heidi-grant/

Leader’s guide to negotiation http://kimtasso.com/book-review-leaders-guide-negotiation-simon-horton/

Other books on change management:

How to change when change is hard http://kimtasso.com/change-management-book-review-switch-how-to-change-things-when-change-is-hard-by-chip-and-dan-heath/

The change catalyst http://kimtasso.com/book-review-the-change-catalyst-secrets-to-successful-and-sustainable-business-change-by-campbell-macpherson-change-management/

Making sense of change management http://kimtasso.com/book-review-making-sense-change-management-complete-guide-models-tools-techniques-organisational-change-esther-cameron-mike-green/

The productivity insights from the recent British Psychological Society (BPS) conference on “Psychology means business” may also be useful http://kimtasso.com/conference-report-british-psychological-societys-bps-psychology-means-business/

Cognitive bias is also addressed in “Better Business Relationships” http://kimtasso.com/publications/better-business-relationships/

 

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