Nudge - Richard Thaler and Cass Sunstein Flashcards
Small and often insignificant things can influence (or ‘nudge’) behaviour.
The book illustrates a number of key principles of behavioural economics, and then delves into a range of social issues that could benefit from nudges such as our finances, the environment, health and marriage.
KEY PRINCIPLES OF BEHAVIOURAL ECONOMICS
Choice architecture– The organizing of things can help influence decision-making (as it tends to focus attention). There is no such thing as a neutral design. Many people are happy to accept default settings/order provided by the Choice Architect, e.g. the settings on a phone/computer. Thus the original set-up nudges people into certain ways of operating with the technology.
The path of least resistance– Products/options that make life easier will be favoured. Conversely, if something is complex and difficult, then people are less likely to follow through e.g. insurance forms.
Heuristics–we often rely on shortcuts to help us make sense of things (and hence influence our decisions). Often these short cuts help, but occasionally they can mislead us. Tversky and Kahneman (1974) identified 3 heuristics that can lead to biases – anchoring, availability and representativeness.
Anchoring– The perceived value of something can be steered (or ‘anchored’) by an initial, sometimes irrelevant activity.
Availability– Events that more easily spring to mind (such as recent or traumatic events) will be more influential on our behaviour.
Representativeness– Our over-reliance on stereotypes (based on past experience) gets us into trouble. Furthermore, we try to create (false) meaning out of randomness.
Optimism and over-confidence– We often over-estimate our abilities to achieve things.
Loss aversion– ‘Losing something’ is valued at least twice as highly as ‘gaining something’.
Framing– The contextualizing of an issue can dramatically influence decision-making (e.g. when linked to either an anchor or loss aversion).
Example: Doctor says, “Of 100 patients who have this operation, 90 are alive five years later” vs. “of 100 patients who have this operation, 10 are dead five years later”. Even though the odds are exactly the same, the numbers agreeing to the operation are radically different.
Status quo bias– People tend to stick with their current situation that overcomes the inertia of change. So people rarely move their bank accounts or pensions or cancel initially enticing magazine subscriptions.
The emotion of decision-making– Our emotional state can influence our behaviour (e.g. shopping on an empty stomach). Thus people in an aroused state are more easily nudged.
Mindless choosing– We do many things on autopilot. For example, most people eat in a mind-less trance. Thus if we want to reduce our eating, techniques such as active attention and using small plate sizes help.
Herd behaviour– We like to conform so are easily influenced by what others say and do (especially by those within the circle we wish to be associated with). Social influence is one of the most effective ways to nudge behaviour e.g. obesity is contagious.
Priming– Often seemingly irrelevant information can ‘prime’ a situation. For example, the mere scent of an all-purpose cleaner encourages people to clean away their dishes after a meal.
The Morality of nudging
The morality of influence is carefully side-stepped throughout the book by focusing on the concept of libertarian paternalism – i.e. it’s okay to influence decision-making if it makes their lives longer, healthier and better (even the term ‘nudge’ down plays the idea of unconscious influence). They argue that anyone who unscrupulously manipulates others for unfair gain will eventually be ‘caught out’.
