The book of the week was Nudge by Richard Thaler and Cass Sunstein. The book is about helping people make better decisions by shaping the way choices are presented. These nudges can do a lot of good things among them increased rates of organ donation, improved diet and provide for a better retirement.
The principles of "choice architecture" are based on the same foundation as behavioral economics in general. In this view, people act human rather than as the automatons with perfect information and foresight presumed by simple economic theory. These principles are well explained in the part one which describe the way people tend to interpret data and make decisions. If you don't know much about behavioural economics, this is as good a short introduction as you will find.
There are many interesting examples throughout the book where they bring the power of choice architecture to bear. For example, in cases where the true cost is difficult for consumers to understand (e.g. credit cards, mobile phones), Thaler and Sunstein propose a disclosure regulation called RECAP for Record, Evaluate and Compare Alternative Prices. Mobile phone companies would be free to charge as much as they want. However, they would have to provide customers and potential customers with a clear and unambiguous presentation of exactly how much they would pay for each service. In this way, consumers could compare the costs of complex products in a way that would be of the most use for them.
The authors justify nudging people into making the right choices by what they call "libertarian paternalism". This idea holds that as long as people truly have a choice, structuring the choices so they are optimal for the individual and society as a whole is a good thing. The potential for conflicts of interest when structuring choice architecture is examined as a potential liability. Thaler and Sunstein believe that it would be relatively simple to control through the use of the publicity principle, where a policy should not be made unless it can be publicly defended.
As an econogeek, I found Nudge to be an enjoyable read. Even the less geeky would find the intuitive ideas compelling. Many of the policy suggestions are difficult to argue against and we may very well see some more of them happen.
The principles of "choice architecture" are based on the same foundation as behavioral economics in general. In this view, people act human rather than as the automatons with perfect information and foresight presumed by simple economic theory. These principles are well explained in the part one which describe the way people tend to interpret data and make decisions. If you don't know much about behavioural economics, this is as good a short introduction as you will find.
There are many interesting examples throughout the book where they bring the power of choice architecture to bear. For example, in cases where the true cost is difficult for consumers to understand (e.g. credit cards, mobile phones), Thaler and Sunstein propose a disclosure regulation called RECAP for Record, Evaluate and Compare Alternative Prices. Mobile phone companies would be free to charge as much as they want. However, they would have to provide customers and potential customers with a clear and unambiguous presentation of exactly how much they would pay for each service. In this way, consumers could compare the costs of complex products in a way that would be of the most use for them.
The authors justify nudging people into making the right choices by what they call "libertarian paternalism". This idea holds that as long as people truly have a choice, structuring the choices so they are optimal for the individual and society as a whole is a good thing. The potential for conflicts of interest when structuring choice architecture is examined as a potential liability. Thaler and Sunstein believe that it would be relatively simple to control through the use of the publicity principle, where a policy should not be made unless it can be publicly defended.
As an econogeek, I found Nudge to be an enjoyable read. Even the less geeky would find the intuitive ideas compelling. Many of the policy suggestions are difficult to argue against and we may very well see some more of them happen.
No comments:
Post a Comment