Monday, January 06, 2014


Nudge describes the concept of "libertarian paternalism". This is used to make the "default" choice the best choice and remove costs to change. The rational chooser would not see any changes in his behavior. They would still be able to analyze the situation and choose their appropriate choice. However, the "common man" would likely stick with the default action and inertia would keep that one in place. By making the default option the "best" option, the people would get the best they like.

The best example given was 401ks. They suggest a default option will be for people to enroll with a quality low-cost high-quality fund. Most people would stick with the default, while those that pay careful attention could get any other option they desire. (Too much choice can also be a negative, as illustrated by the 100s of funds available in the Swedish social security privatization.)

The book also took a break to discuss marriage. Their proposal would be for the state to get out of the marriage business altogether. The state would regulate contracts that would encompass the legal rights associated with couples. Private parties (such as churches) would handle actual "marriages". Thus churches and other institutions could still have marriage exactly as they desire, while other non-traditional relationships could still obtain legal rights they desire with the exact same legal recognition and terminology applicable to traditional couples. (It is a nice idea, but it doesn't really seem to fit with the Nudge concept.)

The biggest fault with "nudges" is the authors' focus on the altruistic use of nudges. The same concept is commonly used in a negative manner to "encourage" people to take a costly option. Out of habit, people assume the default options are the best when installing software. Some products use this to give users the option to install advertising toolbars or mail a notification to everybody in their address book. Sure, they had the trivial option of opting out. However, many would still stick with the default.

If you are going to encourage people to do something "for their own good", nudges seem like a nice way of doing it. The authors' make a compelling argument. However, the concept seems to have a rather limited number of practical applications.

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