Nudge

[Soriak]

I just have to be a shill for this book, as it's really informative and surprisingly entertaining.

Amazon.com: Nudge: Improving Decisions About Health, Wealth, and Happiness: Richard H. Thaler, Cass R. Sunstein: Books

Amazon Best of the Month, April 2008: Debit or credit? Paper or plastic? Lease or buy? Public or private school? Have you made the right choices? Probably not, according to the important new research on the science of choice. In clear and entertaining style, Nudge: Improving Decisions About Health, Wealth, and Happiness provides a crash course on how and why humans are prone to make bad choices, and what we can do about it. Through dozens of eye-opening examples, authors Richard Thaler and Cass Sunstein demonstrate how "choice architecture"--a fancy term for the particular scenario or context in which we are asked to make a decision--can actually nudge us toward making better decisions. More importantly, the authors show that by putting the right "nudges" in place, choice architects (who range from cafeteria managers to divorce lawyers) can substantially improve just about everything important to us, from our retirement savings to the health of our planet, without removing our range of options. Recommended for fans and foes of Freakonomics and Predictably Irrational. --Lauren Nemroff

I'm enjoying it much more than Freakonomics, probably because behavioral economics is more intriguing. As you read it, realize that people who try to sell you shit are well aware of how to exploit human behavior and how millions fall for it.

It's also not particularly technical, you don't need to be into economics or psychology to understand and enjoy it.

One of the examples is the free trial issues you can get from magazines. Theoretically, you should always take them. Even if you never read it, you got them free after all. The reason they're offered is that a lot of people push off canceling the trial and it'll automatically subscribe - and resubscribe if you don't cancel it before next year. One of the co-author writes he himself has had a subscription for years that he doesn't read, simply pushing off canceling it.

People suffer from what is known as the "status quo bias" - they want to leave things the way they are. Basically, when in doubt they leave things as they are. This is particularly troublesome for people who are in control of their 401(k)s in the US, as they need to adjust their risk as they get older and often fail to do so. (while 100% stocks makes sense at a young age, when you're nearing retirement the threat of losing 50% of your savings until the market rebounces is too great - you'll have to make withdrawals and can't tough it out)

Some more obvious ones are the "discounts" you get for paying cash. People would be far more reluctant to pay with a credit card if they had to pay an extra fee for doing so - but they pay with credit even if they could get a discount for paying cash. (the outcome is, of course, the same) No surprise then that credit card companies forbid retailers from charging for credit purchases.

Then there are relative savings. If you can get a $20 item for $10 in another store, you might take the time to go to the other store. If you can get a $3100 item for $3090, far fewer people will find it worthwhile, even though in both cases it's a saving of $10.


edit: Another example I should include is that of the cafeteria. Studies have shown that what consumers purchase is partially determined by the placement of the products. Hence why brand-name products are on the top of the shelve and discounts/family-sized packages are at the bottom.

So if you're in charge of a cafeteria at a public school, your product placement will determine what the students pick to eat. Your action then depends on your motives:

Is the cafeteria a for-profit business? You'll put the items with the biggest mark-ups where they're most likely to be bought. You might even decide to sell the top spots to whatever supplier is willing to pay most. This clearly benefits the business.

You could also decide that since it's a state-funded school, its interest should be the wellbeing of the students. In that case, the most healthy food choices would be featured prominently. Students could still grab a snickers bar, but it wouldn't be located where it's tempting to buy.

This is essentially the theme of the book: libertarian paternalism. People should be "nudged" towards the right/healthy/responsible choice, but remain free to choose whatever else they want.