Nudge: Improving decisions about health, wealth, and happinessRichard H. Thaler & Cass R. SunsteinLondon, UK: Penguin 2009, ISBN: 978‐0‐141‐04001‐1

• Date: 01 August 2020
• Published date: 01 August 2020
• DOI: http://doi.org/10.1002/pa.2075

BOOK REVIEW

Nudge: Improving decisions about health, wealth,

and happiness

Richard H. Thaler & Cass R. Sunstein

London, UK: Penguin 2009, ISBN: 978-0-141-04001-1

This review analyses the book ‘Nudge: Improving Decisions about

Health, Wealth and Happiness’was written by Richard H. Thaler and

Cass R. Sunstein and published by Yale University Press (Thaler &

Sunstein, 2009). The initiation of the book is based on libertarian

paternalism, which implies that people should have the freedom to

choose but the government will steer people by designing choice

architecture in such a way that will improve their lives. Many a time,

human beings take the bad decision due to lack of full attention, lim-

ited cognitive ability and lack of self-control. Therefore, people need a

nudge to reach a good decision. According to Thaler and Sunstein,

‘Nudge is a choice architecture that alters people behaviour in a pre-

dictable way without forbidding any options or significantly changing

any economic incentives. To count as a nudge, the interventions must

be easy and cheap to avoid’. The whole book inculcates the idea of a

nudge and its application in different spheres of life like health, saving,

investment, marriage, organ donation and environment protection.

The entire discussion in the book is divided into four parts comprising

16 chapters apart from the introduction. Part one gives a description

of the nature of human beings. It discusses how human beings make a

decision. Part two describes how individuals should save money for

their future. It enumerates various ways of saving and investment.

The third part of the book deals with society and its welfare. It

explains the application of nudge in the sphere of prescription drugs,

organ donation, environmental pollution, privatising marriage and so

forth. The last part deals with the criticism of nudge and some logical

answers to this criticism and shows the way forward.

The book begins with the idea of Econos and Humans. Neo-

classical economics claims individuals as Econos. According to them,

all individuals are rational human beings with unlimited cognitive abil-

ity as well as good computational skills. Therefore, they make rational

decisions. On the contrary, the authors also say that individuals are

bounded rational and they have limited cognitive ability. In other

words, the decisions made by individuals are not always completely

rational. Hence, the authors claim individuals as Humans, and not

Econos (Simon, 1955). It is observed that humans have two systems,

namely, the automatic system and the reflective system. The auto-

matic system is rapid and takes decision instantly; on the contrary, the

reflective system is slow and takes decision by analysis. Many times,

humans use an automatic system that uses many rules of thumb or

heuristics for decision-making. Some of these heuristics are anchoring,

availability, representativeness, overconfidence, status quo biases and

so forth. By providing different simple examples, the authors try to

prove how these heuristics play a crucial role in decision-making. It is

observed that most of the times humans make decisions by adjusting

initial information or a number. This process is called anchoring and

adjustment. For instance, two questions were asked to college stu-

dents: How happy are you? How often are you dating? When the two

questions were asked in this order, the correlation was very low, and

when the questions are asked in the reverse order, the correlation

turned up very high. In this case, the initial information (question)

plays a vital role, which is called anchoring in decision-making. Some-

times, we make decisions by considering the immediate example that

comes to our mind. In the above case, people apply the availability

heuristics. For example, more people die of malaria than a road acci-

dent but people are afraid of a road accident because it is available

every day in the newspaper. In some other cases, we estimate the

likelihood of an event by comparing it to an existing prototype that

already exists in our minds, which is known as representative heuris-

tics. Let us take an example of the severe cyclone. If there was a

severe cyclone last year, people will be very conscious this year and

be precautious. It has been observed that people are very over-

confident about their decision. For example, sometimes students are

overconfident about the grades in exam and they think that they will

get top grades. However, in reality, they get less than expected. In

contrast to overconfidence, sometimes, people are sceptical about

loss and gain, so they behave differently to them. They are more risk-

averse in case of gain and more risk-seeking in case of loss. This is

called loss aversion, which happens often because people love to hold

their current endowment and do not want to lose it. This is otherwise

known as the endowment effect. It is visualised that many times a

person acts as a planner and doer. For instance, people plan to wake

up early in the morning and do some exercises but when the exact

time comes, we cannot do it. This happens due to a self-control issue

whose main causes are temptation and mindlessness. In order to over-

come the self-control issues, the authors suggested some self-control

strategies such as running alarm in order to wake up in the morning.

Received: 15 December 2019 Accepted: 29 December 2019

DOI: 10.1002/pa.2075

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https://doi.org/10.1002/pa.2075