Improving Decisions About Health, Wealth, and Happiness
Imagine an economic system in which you were oh so subtly suggested to make the smarter decision in a world of so many choices. Nudge, by Nobel Prize winner Richard H. Thaler and Cass R. Sunstein recommend exactly that. Pulling from behavioral science research, the authors walks the reader through the inherent biases that make us poor decision makers.
The solution to what seems to be a very innate human problem is simple. “Choice architecture” as it is dubbed, will try to nudge people toward the best decisions on micro to macro levels. The beauty of their proposed choice architecture is that it does not restrict freedom of choice to begin with.
Nudge Case Study: Credit Cards
Let’s take the infamous credit card as a prime example of how this decision can benefit from behavioral science research. Based on the authors’ findings, there were more than 1.4 billion credit cards for 164 million cardholders – an astounding average of 8.5 cards per person! The root problem here is not the quantity of cards itself, but the increasingly large balances held by families owed to credit card companies.
So, how would policymakers go about nudging the populace to be smarter with credit? The authors propose a multi-pronged approach that would make consumers more cognizant of the choices they have available, and how to better alter their behavior towards credit.
- Credit card companies should be required to send annual electronic and paper copies of statements with a list of all fees incurred over the year (they dub this type of action libertarian paternalism).
- Offer automatic payment of the full bill rather than just the minimum amount (which leads to maximized interest payments to the credit card company).
Recommendation: Must Read
Whether or not personal finances or social security interest you, I found this book to be quite refreshing as its lessons can be applied just about anywhere. The root of it all is based on behavioral science principles intended to alter human behavior. The authors cover a broad range of topics from healthcare to saving the planet. The latter chapters also dedicate pages to objections raised against the theory of nudges which provides a welcome balanced approach to the book.
