Nudge
By Shawn Healy
I'm often teased by my coworkers for my admiration of the intellect and scholarship of Cass Sunstein, a law professor at Harvard and head of the Obama White House's Office of Information and Regulatory Affairs. His work transcends ideology, applying intuitive solutions to perplexing problems, and representing the ever elusive "third way" in our polarized political environment. His latest work, Nudge (co-authored with University of Chicago Business Professor Richard Thaler), stands as an exemplar of his growing body of trailblazing work.
Sunstein and Thaler build a model premised on "libertarian paternalism," at oxymoron at first blush, but a middle path between an unencumbered free market championed by the right and the command and control ideals of the left. It is libertarian in the sense that it enables individual choice, but paternal in that it attempts to influence choices via financial incentives, explicit encouragement, or at minimum, a default setting. In many cases the government would be the body charged with providing a "nudge," but there is a role for the private sector, too.
The authors begin with an example of the way in which food is arranged in a school cafeteria and how it impacts student purchases. As a former high school teacher and lunchroom supervisor, I was appalled by the two most popular student lunch selections each and every day: 1) pizza and an order of fries, or 2) skip the pizza, but double the fry order. According to Sunstein and Thaler, the sequence and height of food placement matter, and if we are concerned about the intake of caloric content and healthy alternatives among our youth, subtle manipulations can result in reduced childhood obesity and related health problems upon entering adulthood. By simply placing the pizza and fries later in the cafeteria line and offering salads in their place, the school would notice significant dietary changes among the student body.
Sunstein and Thaler delve into choice architecture, the process by which humans make decisions. In a perfect world, we are all rational consumers with complete information and make reflective decisions along these lines. The reality is that rationality is "bounded," and we are forced to operate with incomplete facts and time constraints that impair optimal outcomes. Many of our decisions are automatic with outright disregard for logic.
This is where private or public entities can enter with a nudge, constructing a choice architecture that accounts for human limitations, yet yielding the ideal outcome predicted by economic maximizers (or something close to it). Some fervent opponents of government intervention stop the conversation here, but the authors argue that the public sector is already a major player in private decision making, and even imperfect government intervention will produce a superior final outcome when compared to the status quo.
The framework in place, Sunstein and Thaler apply it to several diverse policy areas, from Social Security privatization to prescription drug benefits, greenhouse gases to gay marriage. They are skepital of the Social Security plan championed by former President Bush, suggesting that we need a sounder choice architecture, perhaps like that employed in Switzerland. As for prescription drugs, they are critical of the new entitlement plan in the sense that it assigns participating individuals providers randomly, failing to take into account pricing and effectiveness. Their plan to tackle carbon dioxide pollution sounds a lot like the cap and trade program circling its way through Congress, and they seek a divorce between the religious institution of marriage and the government civil union alternative.
Their most timely offering addresses health care reform, and they focus on a proposal popular in Republican circles, tort reform. Their plan, however, diverges significantly from the caps on punitive damages most often reflected in legislative proposals. Instead, the authors would separate medical liability from health care entirely. Patients could opt out of their right to sue in exchange for more economical procedures. Those who refuse the waiver would pay higher costs to reflect the real impact that lawsuits and the threat of them have on the system as a whole. Sunstein and Thaler suggest that we are all currently forced to subsidize the small minority of affected patients who do pursue legal recourse, and it inflates costs across the board. Interesting enough, President Obama has opened the door to some form of mediation between doctors and lawyers on this front in an effort to secure bipartisan support for his larger health care overhaul.
Outside of these major proposals, their mini suggestions are many, from a "Give More Tomorrow Plan" for charities, to gambling self-bans, to a dollar a day to prevent recurring teenage pregnancies. In a bonus chapter for the paperback addition, the authors listed twenty more nudges that came from readers who posted to their blog. Sunstein and Thaler are clearly on to something here, and they urge us to join the discussion and form collective solutions.
At a minimum, Nudge presents everyday decisions in a new light, recognizing that the economic man is an ideal, yet we are all closer to Homer Simpson in reality. It forces us to revisit retirement planning, health care consumption, and where we send our kids to school. More than anything, it sheds additional sunlight on complex decisionmaking processes. Given that Sunstein is situated in a place where he can bend the president's ear, it is likely that even the Commander-in-Chief will be nudged toward a few of these policy solutions, a result this reader considers a net positive.
Sunstein and Thaler build a model premised on "libertarian paternalism," at oxymoron at first blush, but a middle path between an unencumbered free market championed by the right and the command and control ideals of the left. It is libertarian in the sense that it enables individual choice, but paternal in that it attempts to influence choices via financial incentives, explicit encouragement, or at minimum, a default setting. In many cases the government would be the body charged with providing a "nudge," but there is a role for the private sector, too.
The authors begin with an example of the way in which food is arranged in a school cafeteria and how it impacts student purchases. As a former high school teacher and lunchroom supervisor, I was appalled by the two most popular student lunch selections each and every day: 1) pizza and an order of fries, or 2) skip the pizza, but double the fry order. According to Sunstein and Thaler, the sequence and height of food placement matter, and if we are concerned about the intake of caloric content and healthy alternatives among our youth, subtle manipulations can result in reduced childhood obesity and related health problems upon entering adulthood. By simply placing the pizza and fries later in the cafeteria line and offering salads in their place, the school would notice significant dietary changes among the student body.
Sunstein and Thaler delve into choice architecture, the process by which humans make decisions. In a perfect world, we are all rational consumers with complete information and make reflective decisions along these lines. The reality is that rationality is "bounded," and we are forced to operate with incomplete facts and time constraints that impair optimal outcomes. Many of our decisions are automatic with outright disregard for logic.
This is where private or public entities can enter with a nudge, constructing a choice architecture that accounts for human limitations, yet yielding the ideal outcome predicted by economic maximizers (or something close to it). Some fervent opponents of government intervention stop the conversation here, but the authors argue that the public sector is already a major player in private decision making, and even imperfect government intervention will produce a superior final outcome when compared to the status quo.
The framework in place, Sunstein and Thaler apply it to several diverse policy areas, from Social Security privatization to prescription drug benefits, greenhouse gases to gay marriage. They are skepital of the Social Security plan championed by former President Bush, suggesting that we need a sounder choice architecture, perhaps like that employed in Switzerland. As for prescription drugs, they are critical of the new entitlement plan in the sense that it assigns participating individuals providers randomly, failing to take into account pricing and effectiveness. Their plan to tackle carbon dioxide pollution sounds a lot like the cap and trade program circling its way through Congress, and they seek a divorce between the religious institution of marriage and the government civil union alternative.
Their most timely offering addresses health care reform, and they focus on a proposal popular in Republican circles, tort reform. Their plan, however, diverges significantly from the caps on punitive damages most often reflected in legislative proposals. Instead, the authors would separate medical liability from health care entirely. Patients could opt out of their right to sue in exchange for more economical procedures. Those who refuse the waiver would pay higher costs to reflect the real impact that lawsuits and the threat of them have on the system as a whole. Sunstein and Thaler suggest that we are all currently forced to subsidize the small minority of affected patients who do pursue legal recourse, and it inflates costs across the board. Interesting enough, President Obama has opened the door to some form of mediation between doctors and lawyers on this front in an effort to secure bipartisan support for his larger health care overhaul.
Outside of these major proposals, their mini suggestions are many, from a "Give More Tomorrow Plan" for charities, to gambling self-bans, to a dollar a day to prevent recurring teenage pregnancies. In a bonus chapter for the paperback addition, the authors listed twenty more nudges that came from readers who posted to their blog. Sunstein and Thaler are clearly on to something here, and they urge us to join the discussion and form collective solutions.
At a minimum, Nudge presents everyday decisions in a new light, recognizing that the economic man is an ideal, yet we are all closer to Homer Simpson in reality. It forces us to revisit retirement planning, health care consumption, and where we send our kids to school. More than anything, it sheds additional sunlight on complex decisionmaking processes. Given that Sunstein is situated in a place where he can bend the president's ear, it is likely that even the Commander-in-Chief will be nudged toward a few of these policy solutions, a result this reader considers a net positive.
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