Nudge: Improving Decisions About Health, Wealth, and Happiness - Richard Thaler (2017)

A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.

Humans and Econs: Why Nudges Can Help

Those who reject paternalism often claim that human beings do a terrific job of making choices, and if not terrific, certainly better than anyone else would do (especially if that someone else works for the government).

Whether or not they have ever studied economics, many people seem at least implicitly committed to the idea of homo economicus, or economic man— the notion that each of us thinks and chooses unfailingly well, and thus fits within the textbook picture of human beings offered by economists.

If you look at economics textbooks, you will learn that homo economicus can think like Albert Einstein, store as much memory as IBM’s Big Blue, and exercise the willpower of Mahatma Gandhi. Really.

But the folks that we know are not like that.

Real people have trouble with long division if they don’t have a calculator, sometimes forget their spouse’s birthday, and have a hangover on New Year’s Day. They are not homo economicus; they are homo sapiens.

To keep our Latin usage to a minimum we will hereafter refer to these imaginary and real species as Econs and Humans.

Consider the issue of obesity.

Rates of obesity in the United States are now approaching 20 percent, and more than 60 percent of Americans are considered either obese or overweight.

There is overwhelming evidence that obesity increases risks of heart disease and diabetes, frequently leading to premature death. It would be quite fantastic to suggest that everyone is choosing the right diet, or a diet that is preferable to what might be produced with a few nudges.

Of course, sensible people care about the taste of food, not simply about health, and eating is a source of pleasure in and of itself.

We do not claim that everyone who is overweight is necessarily failing to act rationally, but we do reject the claim that all or almost all Americans are choosing their diet optimally.

What is true for diets is true for other risk- related behavior, including smoking and drinking, which produce more than five hundred thousand premature deaths each year.

With respect to diet, smoking, and drinking, people’s current choices cannot reasonably be claimed to be the best means of promoting their well- being. Indeed, many smokers, drinkers, and overeaters are willing to pay third parties to help them make better decisions.

But our basic source of information here is the emerging science of choice, consisting of careful research by social scientists over the past four decades.

That research has raised serious questions about the rationality of many judgments and decisions that people make.

To qualify as Econs, people are not required to make perfect forecasts (that would require omniscience), but they are required to make unbiased forecasts.

That is, the forecasts can be wrong, but they can’t be systematically wrong in a predictable direction.

Unlike Econs, Humans predictably err.

Take, for example, the “planning fallacy”— the systematic tendency toward unrealistic optimism about the time it takes to complete projects.

It will come as no surprise to anyone who has ever hired a contractor to learn that everything takes longer than you think, even if you know about the planning fallacy. Hundreds of studies confirm that human forecasts are flawed and biased. Human decision making is not so great either.

Again, to take just one example, consider what is called the “status quo bias,” a fancy name for inertia. For a host of reasons, which we shall explore, people have a strong tendency to go along with the status quo or default option.

When you get a new cell phone, for example, you have a series of choices to make.

 The fancier the phone, the more of these choices you face, from the background to the ring sound to the number of times the phone rings before the caller is sent to voice mail.

The manufacturer has picked one option as the default for each of these choices. Research shows that whatever the default choices are, many people stick with them, even when the stakes are much higher than choosing the noise your phone makes when it rings. Two important lessons can be drawn from this research.

First, never underestimate the power of inertia.

Second, that power can be harnessed.

Libertarian Paternalism

If, all things considered, you think that Carolyn should take the opportunity to nudge the kids toward food that is better for them, Option 1, then we welcome you to our new movement: libertarian paternalism.

 We are keenly aware that this term is not one that readers will find immediately endearing.

Both words are somewhat off-putting, weighted down by stereotypes from popular culture and politics that make them unappealing to many. Even worse, the concepts seem to be contradictory.

Why combine two reviled and contradictory concepts?

We argue that if the terms are properly understood, both concepts reflect common sense—and they are far more attractive together than alone.

The problem with the terms is that they have been captured by dogmatists.

The libertarian aspect of our strategies lies in the straightforward insistence that, in general, people should be free to do what they like—and to opt out of undesirable arrangements if they want to do so.

To borrow a phrase from the late Milton Friedman, libertarian paternalists urge that people should be “free to choose.”

We strive to design policies that maintain or increase freedom of choice.

When we use the term libertarian to modify the word paternalism, we simply mean liberty-preserving. And when we say liberty-preserving, we really mean it.

Libertarian paternalists want to make it easy for people to go their own way; they do not want to burden those who want to exercise their freedom.

The paternalistic aspect lies in the claim that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better. In other words, we argue for self-conscious efforts, by institutions in the private sector and also by government, to steer people’s choices in directions that will improve their lives.

In our understanding, a policy is “paternalistic” if it tries to influence choices in a way that will make choosers better off, as judged by themselves.

Drawing on some well-established findings in social science, we show that in many cases, individuals make pretty bad decisions—decisions they would not have made if they had paid full attention and possessed complete information, unlimited cognitive abilities, and complete self- control.

Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened.

If people want to smoke cigarettes, to eat a lot of candy, to choose an unsuitable health care plan, or to fail to save for retirement, libertarian paternalists will not force them to do otherwise— or even make things hard for them.

Still, the approach we recommend does count as paternalistic, because private and public choice architects are not merely trying to track or to implement people’s anticipated choices. Rather, they are self- consciously attempting to move people in directions that will make their lives better.

Thinking, Fast and Slow - System One and Two - Daniel Kahneman (2012)

Two Systems

The distinction between fast and slow thinking has been explored by many psychologists over the last twenty-five years. For reasons that I explain more fully in the next chapter, I describe mental life by the metaphor of two agents, called System 1 and System 2, which respectively produce fast and slow thinking.

It emerges from recent research, the intuitive System 1 is more influential than your experience tells you, and it is the secret author of many of the choices and judgments you make.

System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control. 

System 2 allocates attention to the effortful mental activities that demand it, including complex computations. 

The operations of System 2 are often associated with the subjective experience of agency, choice, and concentration. 

The labels of System 1 and System 2 are widely used in psychology, but I go further than most in this book, which you can read as a psychodrama with two characters. When we think of ourselves, we identify with System 2, the conscious, reasoning self that has beliefs, makes choices, and decides what to think about and what to do. 

Although System 2 believes itself to be where the action is, the automatic System 1 is the hero of the book. I describe System 1 as effortlessly originating impressions and feelings that are the main sources of the explicit beliefs and deliberate choices of System 2.

 The highly diverse operations of System 2 have one feature in common: they require attention and are disrupted when attention is drawn away.

System 2 has some ability to change the way System 1 works, by programming the normally automatic functions of attention and memory.

Scarcity - Mullainathan, Sendhil; Shafir, Eldar (2012)

THE ORIGINAL SCIENCE OF SCARCITY

When we told an economist colleague that we were studying scarcity, he remarked, “There is already a science of scarcity. You might have heard of it. It’s called economics.”

Our approach to scarcity is different.

In economics, scarcity is ubiquitous. All of us have a limited amount of money; even the richest people cannot buy everything. But we suggest that while physical scarcity is ubiquitous, the feeling of scarcity is not. Imagine a day at work where your calendar is sprinkled with a few meetings and your to- do list is manageable. You spend the unscheduled time by lingering at lunch or at a meeting or calling a colleague to catch up.

Now, imagine another day at work where your calendar is chock- full of meetings. What little free time you have must be sunk into a project that is overdue. In both cases time was physically scarce. You had the same number of hours at work and you had more than enough activities to fill them. Yet in one case you were acutely aware of scarcity, of the finiteness of time; in the other it was a distant reality, if you felt it at all.

The feeling of scarcity is distinct from its physical reality. Scarcity is not just a physical constraint. It is also a mindset. When scarcity captures our attention, it changes how we think—whether it is at the level of milliseconds, hours, or days and weeks. By staying top of mind, it affects what we notice, how we weigh our choices, how we deliberate, and ultimately what we decide and how we behave.

When scarcity captures the mind, we become more attentive and efficient.

We can directly measure mental capacity or, as we call it, bandwidth.

We can measure fluid intelligence, a key resource that affects how we process information and make decisions.

We can measure executive control, a key resource that affects how impulsively we behave.

And we find that scarcity reduces all these components of bandwidth— it makes us less insightful, less forward- thinking, less controlled.

And the effects are large. Being poor, for example, reduces a person’s cognitive capacity more than going one full night without sleep.

It is not that the poor have less bandwidth as individuals. Rather, it is that the experience of poverty reduces anyone’s bandwidth.

When we think of the poor, we naturally think of a shortage of money. When we think of the busy, or the lonely, we think of a shortage of time, or of friends. But our results suggest that scarcity of all varieties also leads to a shortage of bandwidth. And because bandwidth affects all aspects of behavior, this shortage has consequences. We saw this with Sendhil and Shawn.

Systemic thinking for cities (Klaus Wittkhun, 2018)

Mapping and visualizing Ideas and Cities - "paint your Village" (Lynn Kearny)

Nanoeconomics (Bernardez & Perelrozen, 2019)

Most of what economists write about the economy of the poor is based in macroeconomic, high-level, aggregated data or in microeconomic analysis based on formal businesses’ structure. This article proposes a “nanoeconomics” approach to understand how low-income settlements economics work and why they seem so resilient to economic crises that devastate middle-income neighborhoods. The article discusses tools and models currently tested in Barrio 31, Buenos Aires, designed not only for monitoring but to help settlers manage their households’ economies and emerge from poverty.

Article: 

Bernardez, M., & Perelrozen, M. (2019). Nanoeconomics in Barrio 31, Buenos Aires. Social and Organizational Performance Review, 25-35.

Beyond HPT: Interdisciplinary scientific framework for Individual, Organizational and Societal Performance (Bernardez, 2012)

Article:

Bernardez, M, (2012) Should we have a “universal model” for HPT?: A practical alternative that works - Beyond HPT: A framework for interdisciplinary collaboration. Performance Improvement Journal, ISPI

Social + Organizational + Individual Performance: a Three-Level, integrated model (Bernardez, 2005)

Double Bottom Line Business Case (Bernardez, 2009)

City Doctors (Bernardez, 2012)