Nudge: Improving Decisions About Health, Wealth, and Happiness.

• Author: Brannon, Ike
• Position: Book review

Nudge: Improving Decisions about Health, Wealth, and Happiness

Richard H. Thaler and Cass R. Sunstein

New Haven: Yale University Press, 2008, 304 pp.

When it comes to social policy, inertia can be a bitch. While the sentiment may not seem all that profound, its gradual realization by economists and policymakers is beginning to have an impact on public policy. It has already wreaked havoc within the economics discipline.

The idea of individual rationality--that people respond to incentives, or, more generally, that they tend to make the right choices when it comes to maximizing their economic well-being--has been a crucial tenet of economics almost since its inception. It can be both a strength and a limitation. Ultimately, this idea makes economics a real discipline and not just a bunch of people telling stories to explain how the world works, unlike a few other disciplines I could name. However, some of the implications of rational behavior (namely, that laissez-faire policies often result in the best outcomes for society) often conflict with a politician's desire to fix something. We also observe all kinds of behavior that cannot be neatly slotted into the category of "rational" without some twisting--the cretins who paid $40 to stand next to me at a recent concert and shout to each other over the music about a lazy co-worker come to mind. As a result, the notion that people behave in a rational way is constantly under attack both from within and outside of the profession.

Some economists merely discard the yoke of rationality entirely, leaving themselves free to address crucial policy problems by merely positing that people are myopic (and hence save too little), stupid (thus getting themselves into mortgages that are too costly), or gluttonous (contributing to our ever-expanding waistline). While these judgments may very well aptly describe a portion of the people caught in a pricey mortgage or carrying a spare tire around their mid-section, these aren't exactly testable hypotheses. Nevertheless, the policy conclusions are at once obvious and preordained: the government needs to save the people from themselves.

Richard Thaler and his ilk approach apparently dubious behavior from another perspective, asking what is it about the process of deciding how much to save, eat, or spend on a house that have led to so many people ending up in a spot they would rather not be in. Do people make predictable mistakes when they make decisions, and if...