Nudge: Improving Decisions About Health, Wealth, and Happiness

In 2021 the behavioral economists Richard H. Thaler and the legal scholar Cass R. Sunstein released an updated, “final” version of their 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness. Drawing on research from psychology, economics, sociology, and elsewhere, Thaler and Sunstein make the case for the importance of “nudges.” Nudges, according to these authors, are “aspects of choice architecture” that predictably alter behavior without forbidding or commanding anything (8). Choice architecture refers to the rules and options that define the context in which choices are made. Since the original publication of the book, “nudge theory” has become widely integrated into large swaths of political and corporate decision-making, though it remains controversial, especially in academic contexts. Thaler went on to win a Nobel Prize for his work in behavioral economics, and Sunstein, one of the most cited thinkers of his generation, gained a position in the Obama White House. This study guide references the “final edition” of Nudge, published by Penguin Books in 2021 as a paperback. In several aspects, it is significantly different from the original book. Readers are advised to use the final edition.

Summary

Nudge: The Final Edition is divided into five parts. “Part 1: Humans and Econs,” follows an Introduction that outlines the basic concepts of nudging, choice architecture, and libertarian paternalism, the three most fundamental concepts of the theory. Part 1 discusses the difference between real people and the idealized reasoning agents of economic models. Through an overview of human judgment based upon behavioral data, Thaler and Sunstein make the case that nudges have an important role in shaping the world. Whereas the perfect reasoning agents of theoretical economics might be impervious to the influence of nudges (if not incentives) real humans are not. They discuss common flaws in human reasoning, the issues with heuristic devices used in decision-making, and the impact of social influences (traditions, norms, etc.) on behavior.

“Part 2: The Tools of the Choice Architect” is an account of the elements of choice architecture, their relevance to the architects of choice (in both the public and personal spheres), and the data on the effects of these tools in various domains of the economy. It includes assessments of practices that improve consumer welfare, like “smart disclosure,” and practices that make autonomous decision-making more difficult, like “sludge.” The goal is to make explicit to choice architects across all domains what their responsibilities are and how they can use the concepts of choice design to improve the context of consumer choice.

Thaler and Sunstein then turn to personal finance. The first two chapters of Part 3 are about retirement savings. They laud the rise of defined contribution plans and explain the mechanics of various retirement systems. They also discuss at length a particular case study in choice architecture: Swedish savings accounts. Then they turn to credit cards, mortgages, and an economy that is based on debt. They end this section with a discussion of insurance.

Part 4 discusses two major political and social issues, climate change and organ donation. They address some of the ways these issues have been handled internationally and the various approaches to nudging. In line with their professed libertarian paternalist standpoint, they argue for nudges that push people in the direction of their welfare, the welfare of others, and the welfare of the planet. At the same time, they refrain from advocating for mandates, especially insofar as they hope to retain individual liberties. In Part 5, they respond to critics and defend the value of their theory.