Nudge

Nudge: Improving Decisions About Health, Wealth, and Happiness Paperback – February 24, 2009

Author: Visit Amazon's Richard H. Thaler Page | Language: English | ISBN: 014311526X | Format: PDF, EPUB

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Nudge: Improving Decisions About Health, Wealth, and Happiness – February 24, 2009
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• Paperback: 320 pages
• Publisher: Penguin Books; Revised & Expanded edition (February 24, 2009)
• Language: English
• ISBN-10: 014311526X
• ISBN-13: 978-0143115267
• Product Dimensions: 8.5 x 5.5 x 0.8 inches
• Shipping Weight: 9.6 ounces (View shipping rates and policies)
• Amazon Best Sellers Rank: #2,729 in Books (See Top 100 in Books)
  • #21 in Books > Business & Money > Management & Leadership > Decision-Making & Problem Solving
  • #33 in Books > Business & Money > Popular Economics
  • #35 in Books > Science & Math > Behavioral Sciences

The good part of this book is that it contains a lot of practical and nonpartisan policy advice, such as requiring corporations to sign people up for the 401(k) by default and then letting them opt out. This is an example of what they mean by "nudge". You don't need to coerce people; since something has to be the default option you can at least give them intelligent defaults.

The bad side of the book is its poor understanding of human nature. Libertarian economists such as Gary Becker have been aggressively promoting free markets based on a mathematical vision of rational decision making. Needless to say, this vision could only apply to ultra-logical people like Mr. Spock - the notorious Homo economicus. The breakthroughs of behavioral economics teach us that real people do not act like Mr. Spock. This book does an excellent job explaining the major findings of behavioral economics. But rather than try to understand the richness of real human behavior, most behavioral economists tilt towards the opposite extreme. They pronounce humans as irrational and filled with hidden biases. Homo economicus has been replaced by Homo irrationalus.

That's unfortunate because the real story of human nature is far more interesting. Consider the case of loss aversion (pp 33-34). In a classic experiment which has been replicated hundreds of times, students were randomly given free coffee mugs. The mug-less students were asked how much they would pay to get a mug and the students with mugs were asked how much they would want in order to sell their mugs. It turns out that students with mugs wanted an average of about twice as much as the mug-less students were willing to pay! This goes by the name of loss aversion, the endowment effect, and the status quo bias.

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