Book Summary and Review: Nudge by Richard H. Thaler and Cass R. Sunstein

Nudge is one of the most highly esteemed books on the topic of behavioral economics- written by two leading researchers in the field, Cass R. Sunstein and Richard H. Thaler. It's full title is Nudge: Improving Decisions about Health, Wealth, and Happiness, and it was originally published in 2008.

Economics is categorized as a social science most related with the field of finance. The difference, however, between these two fields is substantial in the area of depth that each reaches. Economics is defined as the study of decision making with limited resources. Money being a common example of a resource, with others being assets or even more abstract ideas such as time and specialization. When studied, economics is often broken into 2 categories: microeconomics- which is more concerned with individual decision making, and macroeconomics- which focuses on large-scale or general economic factors such as interest rates and national productivity.

Finance is a field less broad and theoretical in nature. It's defined as the study and discipline of money, currency, and capital assets, and is related to, but not synonymous with economics, which- in relation to finance- focuses more broadly on the production, distribution, and consumption of money, assets, goods, and services.

Nudge deals with a branch of economics called behavioral economics- which is a study that merges economics with insights from the behavioral science of psychology to better explain economic decision making. This book explains one of the major established principles in this field, known as nudging, in simple English and provides practical examples of how to use this concept to improve your own decision making.

So, what is a nudge? In a sentence, a nudge is a strategy used to design an environment that guides your decision making in the optimal direction without forcing you to do so. The shaping of this environment is known as choice architecture, and can present variables, such as in number and manner of choices offered. These variables can increase the likelihood of the audience its presented to choose the preferred outcome, without eliminating other options. 

One commonly cited example of this, which if also referenced in the book, is in the placement of items in grocery store aisles. Maybe you have already noticed while grocery shopping, that the most expensive or profitable brands available are often located in the most accessible area on the shelf. This is a strategy that's been proven to boost sales, and has continuously been proven effective, which is why its implemented today by most major retailers. Similarly, schools have utilized this strategy to promote healthier options for students, and was concluded to be effective in doing that as well. 

The most powerful form of nudging is known as the default method. This form aims to capitalize on the tendency for people to stick with the default option provided, if there is one, rather than opt in or opt out to select something different. The reasons for this method's effectiveness are less clear than it results, but could include: a natural trust towards those viewed as authority figures, laziness, or even pure ignorance.

A highly statistically significant example that was given in this book, was the implementation of this strategy in organ donation rates of a country. As you can see pictured in the diagram below, there is a drastic difference in countries that ask their citizens to opt in to becoming organ donors verses those that automatically enroll their citizens in organ donation, then allow them to opt out if they so choose to.

Another example of a way that governments use nudging is through taxation implementation. This is why you may notice that some things the government has an interest in limiting, like sugary foods and cigarettes, may have a higher tax rate than items they do not have reason to limit. This is referred to as a taxpayer nudge. 

Currently, choice architects in the government are focusing their efforts on coming up with ways to implement nudging in an attempt to combat climate change, so it is likely we will see implementation of methods such as taxpayer and the default nudge methods used in areas that will affect those efforts soon.

It's important that each of us understands nudging because, whether or not we do, these proven principles are being used on us each day by most institutions, corporations, and even governments. Without a sufficient understanding of them, we may be, unknowingly, allowing those entities to manipulate us that may not always have our best interest in mind. 

What are some easy ways to incorporate nudging in your own life? 

Step 1: Establish a goal.

Ex. Improve your health.

Step 2: Set up the nudges.

• Set an alarm early enough to get to the gym in the morning each night.
• Keep healthy food on the counter and in the front of the fridge and pantry.
• Pack a lunch for work to avoid eating out. Do it the night before to prevent rushing the decisions.

Step 3: Watch the nudging work.

You haven’t taken away the bad options, just made the better decisions easier to make!

Hopefully the information provided here proves beneficial. For more details, I highly recommend picking up a copy of this book and reading it cover to cover to get the most use out of this research. Best of luck, and happy nudging!