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Book Review: Nudge

September 29, 2010 2 comments

As promised, the following is my review of Nudge: Improving Decisions About Health, Wealth, and Happiness, by Richard H. Thaler and Cass R. Sunstein. This isn’t an especially timely post (the book originally was published in 2008, and I read the “Revised and Expanded Edition” from 2009), but, for its popularity and apparent influence, I do not think many of the readers of this site also have read this book.

The book is concerned with the way people deal with choices in their lives. The authors refer to an arrangement of options– for example, the layout of a food buffet– as choice architecture. Choice architecture is manipulable, and choice architects have the ability to control decision making in a meaningful way through the presentation and arrangement of options. “Humans predictably err,” and, by understanding these cognitive biases, choice architects can shape outcomes. Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness 7 (Penguin Books 2009) (2008). There is an entire set of studies and literature on cognitive biases that is emerging, particularly in the behavioral economics literature. Examples include confirmation bias, self-serving bias, and anchoring bias. A detailed exploration of these and other cognitive biases is beyond the scope of the book and this post. What is important for Thaler and Sunstein is that everyone has these systematic biases. Also important to Nudge is pointing out the “misconception…that it is possible to avoid influencing people’s choices”; in other words, there is no such thing as neutral choice architecture. Id. at 10; see also id. at 249-51 (discussing different types of neutrality and situations in which neutrality may be possible). Intended or not, every arrangement of options has an effect on those faced with the options.

The core of Nudge‘s contribution is an approach to choice architecture (which also could be thought of as system organization) the authors call “libertarian paternalism.” As the authors explain:

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….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.

Id. at 5 (quotation marks omitted). Thaler and Sunstein call this influencing “nudging”:

A nudge…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. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.

Id. at 6. The authors acknowledge that “some of our nudges do, in a sense, impose cognitive (rather than material) costs, and in that sense alter incentives,” but argue that “nudges count as such, and qualify as libertarian paternalism, only if any costs are low.” Id. at 8.

Much of the book covers case studies showing nudging in action or how the greater use of effective choice architecture could improve outcomes for people. These examples include saving money, financial investment, the privatization of social security, prescription drug plans, organ donation policies, environmental conservation, school choice, health care, and marriage policy. While I’m not sure that Thaler and Sustein’s proposal for a “privatization” of marriage in which states only issue civil unions fits neatly within this book’s framework, I do think it could make a good topic for a future post here. If you are especially interested in these and the many other examples of nudges, the revised edition of the book or the authors’ regularly updated blog are good places to look.

Near the end of the book, the authors respond to certain objections to their approach. The first objection is that of the classic slippery slope: if we permit this limited paternalistic intervention, it won’t be long before government overreaches, and “highly intrusive interventions will surely follow.” Id. at 239. Thaler and Sunstein have substantive and structural responses to this objection: first, they would prefer this sort of critic to engage with them as to the merits of the chosen policy preferences rather than the structure itself, and second, this sort of structure is inevitable: “It is pointless to ask government simply to stand aside. Choice architects, whether private or public, must do something.” Id. at 240. They continue:

Those who make this argument sometimes speak as if government can be absent– as if the default terms that set the background come from nature or from the sky. This is a big mistake. To be sure, the default terms that now apply in any particular context might be best…. But that view must be defended, not assumed. And it would be odd for those who generally hold government in extremely low esteem to think that in all domains, past governments have somehow stumbled onto a set of ideal arrangements.

Id. at 241. Thaler and Sustein also do not think that a traditionalist, Burkean response based on the wisdom of longstanding social practices has much value here because “inertia, procrastination, and imitation often drive our behavior.” Id.

A second objection is that choice architects may have their own agendas, the implication being that these agendas could be “evil” or otherwise not in people’s best interest. Recognizing “that choice architects in all walks of life have incentives to nudge people in directions that benefit the architects…rather than the users,” the authors nevertheless believe that “lin[ing] up incentives when we can, and employ[ing] monitoring and transparency when we can’t” will be sufficient to overcome this issue. Id. at 242. Freedom of choice and transparency are important in this area. Related is John Rawls’ publicity principle: “In its simplest form, the publicity principle bans government from selecting a policy that it would not be able or willing to defend publicly to its own citizens.” Id. at 247. This would prohibit secrecy on the part of the government when it alters legal default rules, for example.

Thaler and Sunstein present and respond to other objections, but, at this point, I would like to both encourage readers to include their questions and critiques in the comment section below and offer my own thoughts.

First, despite the widespread, sweeping accolades for Nudge, I am not convinced that this is an especially groundbreaking book. Advertisers have been doing this sort of thing for years, grocery stores and casinos are consciously designed to make us spend more time and money in them, and there are entire fields of public relations, marketing, and advertising focused on driving individuals’ decision making towards particular ends by playing on the individuals’ desires, habits, interests, and incentives. Nudge does bring the idea of cognitive biases to the public in a way probably not present before, but it barely explains these biases, and there’s almost no discussion of the fascinating research in that area. The book also missed a chance to do a bit more (perhaps empirical) work to explore just how people respond to various nudges as a general matter that might allow readers to apply the conclusions that followed therefrom in leadership settings in their own lives. I appreciate that the book is geared toward a general audience (of which I may or may not be a member),  but I found it a bit too light.

Second, I think the second objection I mentioned above– a concern over the goodness of the intentions of choice architects– is a serious one that the authors fail to rebut sufficiently. Anyone who spends time studying cognitive biases and systematic human behavior should be able to take that knowledge and design a system that preferences any particular outcome, even ones that are not “beneficial” to users. Thaler and Sunstein recognize, through the myriad examples they cite throughout their book, that this happens all the time; they simply chalk it up to bad choice architecture and poor nudging. This might very well be the case in the examples they chose. The “bad” outcomes there could be a result of a lack of organization, planning, awareness, knowledge, or forethought. But what if similarly “bad” outcomes resulted from a knowledgeable, organized, aware choice architect and choice architecture? Freedom of choice and transparency might help here, but there seems to be no special reason why they should. An early example in the book is a school cafeteria in which a choice architect may organize food in a way that makes students more likely to choose fruits and vegetables and less likely to choose junk food. The reason this works has nothing to do with the nature of the fruits and vegetables (or that nature vis-a-vis the students) and everything to do with the systematic biases of the students themselves. So long as the libertarian constraint is in place, the students can choose whatever they want, but the paternalistic element permits the choice architect to select any option as the preferred option. Fruit, vegetables, and junk food are mere variables in this arrangement. (In political theory terms, the structure here is largely deontological, the right to define “the good” resting solely with the choice architect.) Additionally, Thaler and Sunstein place no duties on the choice architect in his or her selection of the “good” alternative. An obvious one might be a duty to be informed. The cafeteria administrator might have some idea that fruits and vegetables are healthier than junk food, but we also are told that dark chocolate and red wine (though not for children) have health benefits too. How should one evaluate this particular tradeoff, and how should one evaluate it against all of the dietary decisions that go into putting together a balanced meal? Does a “balanced meal” mean the same thing for every student? For a majority of students?

An architect

I think concerns about the qualifications and motivations of choice architects are greater than Thaler and Sunstein admit, and, if nothing else, deserved a more adequate defense. Overall, though, I am glad I read the book, and I think it does a good job of spurring discourse. Irrespective of whether you’ve read Nudge, I welcome your thoughts below.

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The Value of Citation, Vol. II: Recognition and Transparency

September 15, 2010 3 comments

I wrote about the value of citation before and suggested that it has a few different purposes (e.g., allowing readers to locate the materials upon which an author relied; strengthening an author’s credibility; and showing respect or signaling quality). The substance of that post was tied to the release of the ABA Journal’s top one hundred law blogs of 2009. Continuing the tradition, the publication now is seeking nominations for its 2010 list. While I (somewhat famously) supported the nomination of The Volokh Conspiracy for the 2009 list, I think there are some newer sites that also deserve attention in 2010.

Because of the title, the first is recent Georgetown Law graduate Mike Sacks’ First One @ One First, a Supreme Court blog. Frequent readers of this site will recall that I’ve linked to F1@1F many times, and Sacks’ on-the-ground reporting style is a needed compliment to more traditional outlets like SCOTUSblog (which itself has a redesigned site). He also provides specific and general analysis of cases and Court trends in a way that is both informative and easily understood. From Sacks’ first post:

My name is Mike Sacks. I am a third-year law student at Georgetown interested in legal journalism and the intersection of law and politics. This semester, I have no morning classes. As such, I will be taking advantage of living only minutes from the Supreme Court to pursue a rather unorthodox extracurricular activity: reporting from the Court as the first one in line at One First Street.

For every politically salient case from January through April, I will attempt to be at the head of the general admission line….

Camping out at the Court in winter’s nadir will not be easy. Tents are forbidden. The concrete sidewalk makes for an unforgiving bed. Sprinklers spring up in the still of the night. Challenging climate be damned, however; when the next person arrives, excited to be first, he or she will find me, with my cracked lips and frozen fingers, sardonically asking how it feels to be second and seriously inquiring why he or she is crazy enough to get in line so early.

And that question–”why are you here?”–is what I set out to explore. Every Supreme Court reporter tells us what goes on inside the Court at argument and in its opinions. Every Supreme Court reporter gets insight and analysis from expert academics and practitioners. Sometimes Supreme Court reporters even interview a party in the case to expose the human element often lost in the rarefied air of high court’s legal abstraction. But no Supreme Court reporters ever ask the Courtroom’s spectators why they have congregated inside the Temple of our Civil Religion.

Our citizenry who have come to witness the Court first-hand surely have something to say, whether when waiting in line before the Court opens or spilling out onto the steps after the Chief Justice’s gavel bangs closed the day’s session….

While Sacks has been coy about plans for year two of his blog, he recently promised to share more about “big things” yet to come, so stay tuned.

The second is the News blog at Law School Transparency‘s site.* LST is a nonprofit organization working to improve the quality and transparency of law school employment data. As with F1@1F, I have linked to LST information here before. See, e.g., here. From the recent post entitled, “Support Our Mission? Nominate LST as a Top Law Blog“:

The ABA Journal is soliciting nominations for its annual list of the one hundred best legal blogs. If you think Law School Transparency belongs on that list, please nominate us by clicking here.

Visibility is an important component of our drive to further our transparency mission. In addition to the growing amount of information available in our Data Clearinghouse, this blog allows us to communicate openly and directly with all of our stakeholders, including law schools, current, past, and future law students, and the general public. We have and will continue to use this space to create an open conversation about transparency in law school employment data reporting.

Your support will make LST an even more visible part of the legal community online.

I have written about substantive aspects of law school and the legal profession. See here and here. LST’s work, which is in line with my emphasis on the importance of access to information, provides a complimentary, quantitative perspective based around statistical data. See also here.

The legal profession isn’t the only important thing in the world, nor has it been the sole focus of this site. With the recent appointment of two new Supreme Court justices, the impending start of a new Court Term, and the ongoing media attention to LST’s efforts, however, this is a fitting time to highlight these two sites and recognize their continuing contributions.

Topsy Washington – “Recognition,” The Waterline EP (2004)

* Full disclosure: I recently became a member of LST’s Advisory Board, and I have begun to assist with blog posts, including the one quoted above.

Birthright Taxation: Is it Really Your Money?

September 2, 2010 2 comments

We aren’t anywhere near that cruel date in that cruel month, April 15, but taxes, like death, always are on my mind. In jest, I sometimes tell friends, excited upon receipt of their tax refund, that the money was theirs all along and they shouldn’t be so worked up about this supposedly bonus money. But is all that money the government extracts from us in the form of taxes really ours? At least one person vastly more informed on the topic than I am says it isn’t. To paraphrase,

…The above numbers were chosen to illustrate a point about a human’s “responsibility” for his ultimate earnings. Herbert Simon, a Nobel Prize winning economist, estimated that at least ninety percent of a typical individual’s earnings in a wealthy country like the United States is solely attributable to the accident of being born in the wealthy country. In other words, less than ten percent of a typical individual’s earnings is attributable to all other causes combined, including his innate abilities, his education, his social network, the advantages he receives from being a member of a loving household, or luck.

The foregoing observations make a lie of the view that taxation essentially is legalized theft because what you earn is really in the first instance your money. It is not. Over ninety percent of it would never come into existence in the first place but for the fact that you live in a country shaped and protected by the federal government. This is the most basic justification for taxation. The taxes you pay, whether you like to pay them or not, do in fact buy you something immensely valuable: they buy your way out of the alternative, which at the far extreme is the state of nature. So long as you get more in value than what you pay– and you do– you really have no grounds for complaint….

I have a lot more work to do in this area before I can offer informed thoughts of my own. Until then, my favorite quotation on the subject will remain the 1913 statement of Senator Elihu Root during discussion about the Sixteenth Amendment:

I guess you will have to go to jail. If that is the result of not understanding the Income Tax Law I shall meet you there. We shall have a merry, merry time, for all of our friends will be there. It will be an intellectual center, for no one understands the Income Tax Law except persons who have not sufficient intelligence to understand the questions that arise under it.

Harold Dubroff, The United States Tax Court: An Historical Analysis 12 (Commerce Clearing House, 1979).

Yes (ABWH) – “Birthright,” An Evening of Yes Music Plus (1993)

Categories: Privatize, Tax