The field mistakenly called “behavioral economics” (mistakenly because what it is is psychology applied to domains that are the normal province of economists) has taken the intellectual and political world by storm. The field was given shape by the seminal work of Daniel Kahneman and Amos Tversky—work that started about forty years ago. Kahneman was justly awarded a Nobel Prize in economics for this work, and his marvelous book, Thinking, Fast and Slow, published in 2011, does a terrific job of letting lay readers in on what all the excitement is about. As a companion to Kahneman’s book, one could not do much better than Nudge, written in 2008 by Richard Thaler (another seminal figure in behavioral economics) and Cass Sunstein.
Nudge takes many of the insights developed by Kahneman and Tversky about what is called “bounded rationality” and applies them to various matters of public policy. The point of the book is that people are often not the best judges of what will serve their interests, and that institutions, including government, can help people do better for themselves (and the rest of us) with small changes—nudges—in the structure of the choices people face. Nudge is an elaboration of a very important paper by Thaler and Sunstein in which they introduced the term “libertarian paternalism” and defended it as a not very coercive way to make people more effective at getting what they want.
What Kahneman and Tversky did for the basic psychology of decision making, Thaler and Sunstein did for policy. In domains as disparate as savings, health care, driving, energy conservation, eating, and even urinating (by men), Thaler and Sunstein provided evidence that left to their own devices, people often make mistakes, sometimes very consequential ones, and that these mistakes can be mitigated or even eliminated if institutions take an active role in doing so.
The oxymoronic term “libertarian paternalism” captures much of the thinking behind Nudge. Its recommendations are paternalistic in that they try to steer people in the right direction. But it is libertarian in that people are free to resist nudges if they choose to do so. This libertarian paternalist approach has come to be called “soft paternalism,” in that people are influenced, but not required, to move in certain directions.
Nudge has caught the policy world by storm. In England, a “behavioral insights unit” develops nudges to make citizens healthier, wealthier, and safer. Such teams are under development in other nations, including the U.S. And Sunstein, in four years as regulatory czar in the first Obama administration, introduced several nudges, most with little publicity, that have probably saved citizens millions and the government billions. So it looks as though most of us have nudges in our future.
At the same time, there has been an anti-paternalist backlash. The libertarian streak that runs through much of the U.S. and the west recoils at any efforts at manipulation, especially by government. It is disrespectful. The intentions of government can’t be trusted. Neither can its own assessment of what is in the best interests of citizens. To my mind, Thaler and Sunstein addressed these sorts of objections more than adequately in Nudge. But Sunstein apparently thought that more needed to be said. Why Nudgeis the result.
Why Nudge is a slender volume. To allow readers to understand what makes this an issue, Sunstein reviews, very briefly, some of the findings reported in Thinking Fast and Slow and some of the interventions discussed in Nudge. He also adds a few recent interventions that are too new to have been reported in Nudge. His capsule summary is quite serviceable in setting up his main point—why nudges are appropriate—but they are not a substitute for the real thing. Thus, I urge people to read the books by Kahneman and by Thaler and Sunstein.
It is no longer paternalistic to nudge people, because you are not (simply) protecting them from themselves; you are protecting others from them as well.
Sunstein’s principle objective is to defend nudges against a variety of libertarian critics. From my point of view, he does this quite convincingly (though I hasten to point out that I didn’t need convincing). He centers the concerns of critics on two principles—the “harm principle” (from J.S. Mill) and the “epistemic principle” (largely derived from neoclassical economics). The harm principle basically asserts that people should have the liberty to do things that harm themselves, no matter how stupid they may be. Restraining liberty to prevent harm to others is one thing; doing it to prevent harm to the self is quite another. The epistemic principle is that no one knows better than the individual decision maker what will serve his or her welfare, so that it is presumptuous to imagine that the state, or an employer, can do a better job of looking out for our interests than we can.
Sunstein does a fine job responding to these objections, though I think he gives them more credit than they deserve. As for the harm principle, I think there are very few decisions people make that don’t have effects on others. It is rare to find a decision of any consequence that does not have externalities. If you neglect your health, others bear a burden. If you fail to save for retirement, others bear a burden. If you apply to a medical school that you aren’t so interested in attending, it may prevent a less impressive classmate from being admitted. Our decisions usually cast a shadow, sometimes a long one. When they do, the harm principle becomes irrelevant. It is no longer paternalistic to nudge people, because you are not (simply) protecting them from themselves; you are protecting others from them as well. This kind of situation is standard issue for justified government intervention, and it puts the debate on more familiar turf. Not everything we do that has externalities should be regulated, so judgments must be made about the magnitude of potential harms to others and the magnitude of infringements on ones personal freedom. But this is the kind of conversation about the role of the state that we are accustomed to having.
As for the epistemic principle, it is simply false. Psychologists Dan Gilbert and Tim Wilson, in many papers with many collaborators, have made careers out of demonstrating how frequently people don’t know what they want. People mispredict the effects their decisions will have on them as a matter of routine; they are wrong more often than they are right. Indeed, in Gilbert’s book, Stumbling on Happiness, he makes the controversial but I think profound argument that people will do better asking others who have already made a decision how it turned out than they will by imagining the effects of decisions on themselves. In his words, “surrogation” will be much more reliable than “simulation.” We have elevated the myth of our uniqueness to high principle and as a result think we have little to learn from the experiences of others. This is just false.
There are other arguments against nudges. People learn from mistakes, so let them make some. I think this is undeniably true and it is a good lesson to parents who struggle mightily to shield their kids from every misfortune. Yes, let people make mistakes, but try to prevent them from making catastrophic, or even big ones.
Government may be malevolent or incompetent, so why trust them to nudge us. This is a fair concern, which Sunstein addresses by insisting that all nudges be transparent.
Society benefits from the diversity of human decisions and experiences and this would be lost if everyone were nudged into the same cattle chute. This, too, seems true, but it mischaracterizes the intent of nudges, which for the most part are focused on steering people to the right means for achieving their self-identified ends, and not to steering them to particular ends (though on this point, Sunstein is quick to acknowledge that nudges can change ends as well as means).
If you neglect your health, others bear a burden. If you fail to save for retirement, others bear a burden…Our decisions usually cast a shadow, sometimes a long one.
This leaves one further argument, to which Sunstein devotes a full chapter—the importance of autonomy. For some, autonomy is so important that giving any of it up is unjustifiable, even if it means allowing people to make serious mistakes. Better to give people unbiased information and force them to choose than to use that information to nudge them, often unbeknownst to them. This is, of course, a serious concern, but not close to decisive. Requiring people to choose is itself paternalistic, since it deprives people of the freedom not to choose. And there is no “unbiased” way to present anything. As Thaler and Sunstein said in Nudge, and as I have said every time I’ve taught or spoken about nudges, there is simply no neutral. We may take the familiar format of options as neutral, but that’s only because it’s familiar. So given that there is no neutral, does one violate neutrality randomly, based on accidents of history? Does one allow marketers to violate neutrality to serve their (and not consumers’) interests? Or does one violate neutrality to enable citizens to live better lives? The answer seems completely clear-cut to me.
One final point on the theme of autonomy is the slogan that we should “treat people as ends, never as means.” I wholeheartedly endorse this aspiration. But what, exactly, does it mean in connection with nudges? When we nudge our kids into doing things that are good for them, are we treating them as means? To the contrary, we are treating them as ends that we cherish above all else. The same is true when we nudge adults, about whom we can say, based on forty years of research, that they sometimes/often act like kids. It is because we value them as ends that we try to help them achieve welfare-enhancing results. Nudging people for their own good hardly entails treating them as means rather than ends.
To conclude, Why Nudge is a fine book. It treats critics of the “soft paternalism” of nudges with great respect, it is non-dogmatic, and it is nuanced and sophisticated in its arguments. I don’t recommend this book as a substitute for Thinking Fast and Slow or Nudge. But it is an excellent next book to read. And in a pinch, for those of us too busy making decisions that the world will not make for us to read so many books, it provides a faithful snapshot of the earlier books so that its main arguments are self-contained.
By Cass Sunstein
208 pp. Yale University Press. $25.