Behavioural economics at its best

“Nudge: Improving Decisions About Health, Wealth, and Happiness” by Richard H. Thaler and Cass R. Sunstein

Years ago, in the attempt of reducing the rate of urine spill at their mens toilets, Amsterdam’s Schiphol Airport made a tiny change that successfully reduced the spill by 80%: they draw a tiny fly in the middle of the urinal, which subconsciously led men to aim at the fly whenever they take a piss.

Meanwhile, in an information campaign about energy conservation, a simple change in word framing made such a big difference: from (a) “If you use energy conservation methods, you will save $350 per year”, to (b) “If you do not use energy conservation methods, you will lose $350 per year.” While the 2 options are basically the same information, option (b), framed in terms of losses, turns out to be a far more effective incentive than option (a).

Moreover, as it turns out you’re likely to be overweight if you have a lot of overweight friends, so too a group of friends tend to have the same political views (which underline the power of social influences), while large plates and large packages can influence people to eat or consume more, and self-control issues often appear because we underestimate the effect of arousal.

This is a fun book about the small margins that can make such a big difference, or what the authors refer as nudges. It is those small, seemingly menial, changes in behaviour or environment or design that can make a long lasting impact. It is a book heavy with scientific findings, written by two behavioural economists, one of whom just happens to won the Nobel Prize in Economics.

As it is the norm in behavioural economics, the book is built around one underlying thesis: that in the end we are homo sapiens (humans) with emotions and irationalities, and not homo economicus (the super sensible and logical being illustrated in standard economic textbooks). As the authors remarked, “[t]he bottom line, from our point of view, is that people are, shall we say, nudge-able. Their choices, even in life’s most important decisions, are influenced in ways that would not be anticipated in a standard economic framework.”

And this is what the book is about, the triggers, the hacks, the incentives, a.k.a the nudges that influence people in making decisions. More specifically, the book guides us into the intriguing world of choice architecture, which uses these nudges as tools for behaviour altering or for directing decision making towards specific choices.

And there are a whole plethora of nudges, such as: Mental accounting, channel factors, priming, peer pressure, setting a default option, feedback loop, mappings, taxation (discouraging tools), government regulations, information disclosure (that creates a social pressure), and many more. Even the design of everyday items such as a remote control (volume and channel switch buttons are bigger than others) can become a nudge.

The only drawback of the books is the later chapters become focused on specific US government issues a little too much, while the goldmine of the subject (the many more types of nudges) are only listed briefly in chapter 16 and 19, akin like the season 8 of the Game of Thrones (it could’ve been epic if given the proper coverage, but instead the materials are being rushed – but maybe this is why the authors decided to expand the book in a new edition).

Nevertheless, I’ve always been fascinated by behavioural economics, and this book in the end of the day still brings out the very best findings on the field, presented in a fun approach. Very well done.