“Nudge” by Richard Thaler TLDR

“Truth is like poetry. And most people f*cking hate poetry.” — overheard at a Washington, D.C. bar

“Nudge: improving decisions about health, wealth, and happiness” by Economist at the University of Chicago, Richard Thaler and Harvard Law Professor, Cass Sunstein. This book zero’s in on libertarian paternalism, behavioral economics, and choice architecture in great detail. Below I have a few notes on human behavior, the two systems of thought, fallacies and biases, and policy recommendations from the book. Enjoy 🙂

Many years ago, Thaler was hosting dinner for some guests and put out a large bowl of cashew nuts to nibble on with the first bottle of wine. Within a few minutes, it was clear the bowl of nuts was going to be consumed in its entirety, and the guests might lack sufficient appetite to enjoy all the food being made. So Thaler grabbed the bowl of nuts and removed the bowl to the kitchen where it was out of sight. When he returned the guests thanked him, the conversation turned to the theoretical question of “how they could possibly be happy about the fact that there were no longer a bowl of nuts in front of them?” In economics and everyday life, a basic principle is that you can never be made worse off by having more options, because you can always turn them down. Before Thaler removed the nuts the group had the choice of whether to eat the nuts or to not — now they didn’t have a choice at all. At 7:15, just before Thaler removed the nuts the guests had three options: eat a few nuts, eat all the nuts, and eat no more nuts. Their first choice would to be just to eat just a few more nuts, followed by eating no more nuts.

Two factors must be introduced in order to understand the cashew phenomenon: temptation and mindlessness.

A classic example of temptation is that of Ulysses, who faced the peril of the sirens and their irresistible songs. While in a cold state, Ulysses instructed his crew to fill their ears with wax so that they wouldn’t be tempted by the music. He also asked the crew to tie him to the mast so that he could listen for himself, but he restrained from submitting to the temptation to steer the ship closer when the music put him into a hot state.

For many of us control issues arise bc we underestimate the effect of arousal. This is something behavioral economist George Loewenstein (1996) calls the “hot-cold empathy gap”. When in a cold state, we don’t appreciate how much our desires and behaviors will be altered when we’re not under the influence of arousal. As a result, our behavior reflects a certain naïveté about the effects that context can have on choice.

Self control problems problems can be illuminated by thinking about an individual as containing two semi-autonomous selves, a far-sighted “planner” and a myopic “doer”. You can think of the planner as speaking for your reflective system, or the Mr. Spock lurking within you and the doer as heavily influenced by the automatic system, or everyone’s Homer Simpson. The planner is trying to promote your long term welfare but must cope with the feelings, mischief, and strong will of the doer, who is exposed to the temptations that come with arousal.

The golden rule of libertarian paternalism: offer nudges that are most likely to help and least likely to inflict harm. (aka asymmetric paternalism) Which is defined as taking steps to help the least sophisticated people while imposing minimal harm on everyone else.

Fraught choices: suppose you’re told a group of people will have to make some choice in the near future. You’re the choice architect, you’re trying to decide how to design the choice environment, what kinds of nudges to offer and how subtle the nudges should be. What do you need to know to design the best possible choice environment.

Benefits now, costs later: we have seen that predictable problems arise when people must make decisions that test their capacity for self control. Self control issues are most likely to arise when choices and their consequences are separated in time. At one extreme are what might be called investment goods, such as exercise, flossing, and dieting. For these goods, the costs are borne immediately, but the benefits are delayed. For investment goods, most people err on the side of doing too little. Another extreme are what might be called sinful goods: smoking, alcohol, and chocolate doughnuts are in this category. We get the pleasure now and suffer the consequences later.

This poem is short & simple; the child narrator explains that his father gave him a dollar bill, which he wisely traded for two quarters because he (unlike his dumb trading partners) knows that two is more than one. He continues trading— the two quarters for three dimes, three dimes for four nickels and finally four nickels for 5 pennies. Finally, the son comes to his father to report on his series of brilliant trades. When he does so, he reports that his father was “too proud to speak”.