“Libertarian paternalism” sounds like an oxymoron, but two professors at the University of Chicago have written a new book arguing that it is the best approach to governance. In “Nudge: Improving Decisions about Health, Wealth, and Happiness,” UofC Law School professor Cass Sunstein and Graduate School of Business professor Richard Thaler explain how it is possible to influence people to make good choices in areas as diverse as savings, nutrition, and the environment, without restricting their rights to choose. Their method consists of “nudging” people in the right direction, sometimes with economic incentives, but just as often by appealing to the lazy and the irrational in all of us: making the best paths also those of least resistance.
For example, one might nudge schoolchildren to eat healthier food by putting fruits and vegetables at the beginning of the lunch line. Workers can be nudged to save for retirement if they are automatically enrolled in a 401k savings plan with the ability to opt out, rather than being required to sign up if they want to participate. Social norms are also very effective nudges, as in the case of lowering energy use: listing the average neighborhood consumption on each household’s electric bill has been shown to get heavy users to cut back significantly.
There are as many possibilities for nudges as there are factors that influence our decisions. The acknowledgment of these factors is very important to Thaler and Sunstein, who make a distinction between “Homo Economicus,” the standard economics textbook character with “the brainpower of Albert Einstein, the storage power of IBM’s Big Blue, and the self-control of Mahatma Gandhi” and Homo Sapiens, or “you and me.” Personal experience is enough to tell that not all decisions are made on an entirely rational basis, but the authors of “Nudge” are able to shed more light on this fact using recent research in behavioral economics. According to Sunstein, “There have been countless studies of human behavior in the last 30 years or so, with fascinating results; the question is how we can enlist those results to make lives longer, healthier, happier, and even freer.”
The answer involves what Sunstein and Thaler call “choice architecture,” or the framework that shapes how people make decisions. Every time business or government offers people a choice, it is designing such a framework, acting as a “choice architect.” However, the design can never be entirely neutral; even the rules that govern the so-called free market influence people’s decision-making. This makes good choice architecture of great importance to free societies–it’s where the paternalism meets up with the liberty.
Of course, the question then arises, how does the architect decide the right choice, or pick which direction to nudge people? Sunstein acknowledges that this is a complicated question and offers, “A too-simple answer is, that direction that will make their lives go best by their own lights.” Studies can tell us that many Americans feel they should save more, and we know many of us ought to eat less or better, but the “happiness” of the book’s title may be a little harder to define than “health” and “wealth.”
In any case, “Nudge” provides some great suggestions for policymakers and, for all readers, some food for thought. “I use some of this material in my course on managerial decision-making,” says Thaler. “I think there are clearly business applications here.” Both he and Sunstein have also worked as informal advisors to Senator Barack Obama, who is “interested in automatic enrollment programs to help people save money” and in disclosure policies regarding credit cards and mortgages, according to Sunstein. Perhaps it won’t be long before nudges are the norm.