Cass Sunstein + Richard Thaler’s “Nudge: Improving Decisions about Health, Wealth, and Happiness”: Book Review, Notes + Analysis

Poor Ash’s Almanack > Book Reviews > Effective Thinking

Overall Rating: ★★★★★★★ (7/7) (standout for its category)

Per-Hour Learning Potential / Utility: ★★★★★★★ (7/7)

Readability: ★★★★★★★ (7/7)

Challenge Level: 2/5 (Low) | ~270 pages ex-notes (312 official)

Blurb/Description: Cass Sunstein and Richard Thaler present a rare “free lunch”: the use of “ choice architecture” to help humans make better choices via “nudges” that exploit our predictable cognitive biases.

Summary: Although Thaler’s Misbehaving is the best book around (bar none) on cognitive biases, Nudge deserves some limelight too: the first ~100 pages are some of the hardest-hitting, learning-rich you’ll find anywhere, providing a very digestible, impactful overview of humans vs. econsstructural problem solvingsocial proofloss aversionstatus quo bias, and a ton of other important models.  The book then immediately transitions into a variety of practical situations in which companies and governments have applied cognitive bias research.

Highlights: It’s impossible to read the first part of Nudgeand not come away with a lot of learning.  If you’re crunched for time, the first part of Nudge (plus a few of the chapters from later parts) serve as the 30,000 foot view of Thaler’s Misbehaving and Norman’s The Design of Everyday Things.  Also, have I mentioned that Thaler is hilarious?  (Thaler pictured at right; Sunstein pictured below.) I can count on one hand the number of serious, learning-oriented nonfiction authors who are as funny as he is.

The fact that Richard Thaler exists makes me really happy; he’s at the top of my “would like to invite to a dinner party” list.  (As long as he doesn’t bring his !@#$ing cashews.  I hate cashews.)

The premise of Nudge is best explained via Thaler’s presentation upon being awarded the Nobel Prize.  At 29:17 – here’s a time-synced link – he discusses the “Save More Tomorrow” plan discussed in Nudge, and the thinking behind it, which, hint, is an example of  inversion and  structural problem solving combined with the cognitive biases of  loss aversion status quo bias, and  hyperbolic discounting:

“What we decided to do is think about this starting with the psychology and ask, well what is it that’s preventing people from saving enough?

One is self-control problems.  We can go out for a fancy dinner tonight… that’s tempting.  Whereas saving for retirement, that’s sometime off in the future.  And we know people have more self-control for the future than for now: many of us are planning diets… not this week, maybe after the New Year.

The second is loss aversion: people don’t like to see their income go down.  So we wanted to take that into consideration.

And then [third], inertia.  People are good at doing nothing.  [Thaler, earlier: “passivity is one of humans’ greatest skills.]

So these three things are preventing people from saving.  Let’s flip the problem around and use those to create a plan that will take those weaknesses if you want to call it that, and use them to help.

So the plan we created, we called Save More Tomorrow… to invite people now to save more later, because self-control is easier for later.  And particularly, to invite them to save more when they get their next raise, so they won’t see their income go down.  That will eliminate the loss aversion.  And then we’re gonna keep that up until they hit some goal, so we’ll get inertia working for us.

Nudge, in other words, is a clinic in real-world – not theoretical – problem-solving.

Lowlights: None in particular.  As discussed in “reading tips,” the format of the book does mean that pretty much all the theory is conveyed in the first part, and the remainder of the book addresses various potential applications, so at some point you’ll probably “get the point” and should close the book.  As Thaler quips in Misbehaving, to do otherwise would be misbehaving!

 

Mental Model / ART Thinking Points: humans vs. econsstructural problem solvingselective perceptionagencynonlinearitymemoryplanning fallacytrait adaptivitystatus quo bias,feedbacklocal vs. global optimizationincentivescontrast biassaliencehyperbolic discounting,storytellingluckoverconfidenceloss aversionactivation energyfairnessincentivessocial proof,salience, complexity, activation energytradeoffsmargin of safetybase ratesreciprocity bias,framingutility,

You should buy a copy of Nudge: Improving Decisions about Health, Wealth, and Happiness if: you are a human who occasionally makes bad decisions and would like some applicable strategies for making better ones.

Reading Tips: Nudge is structured a bit differently from many books – in my view, it’s particularly reader-friendly.  The Introduction and Part 1 (“Humans and Econs”) rapidly drive home all of the key concepts/theory behind “nudges,” then the rest of the book doesn’t really build on itself and is more like an anthology: it examines how nudges have been (or could be) applied in various areas of public policy, with some conclusions / recap at the end.

While all of these applications are interesting in their own right, you don’t need to read all of them to get the point of the book – if you’re strapped for time, I’d recommend reading the introduction and Section 1, then simply picking a handful of the chapters that are on topics of interest to see how the theory translates into reality.

By inversion, it’s easier to cite the chapters I personally think are less interesting – I would skip “Privatizing Social Security,” “Privatizing Marriage,” and “Improving School Choices” for various reasons (lack of personal interest in the first and third topic; the Supreme Court has rendered the second topic moot).

I think “Save More Tomorrow,” “Naive Investing,” “Credit Markets,” “Prescription Drugs,” “Saving the Planet,” “How To Increase Organ Donations,” and “Should Patients Be Forced To Buy Lottery Tickets” are all worth reading, but you certainly don’t have to read all of them.  SMT, Saving the Planet, Organ Donations, and Lottery Tickets are probably the best of the bunch.

Pairs Well With:

The Design of Everyday Things by Don Norman (review + notes).  In Misbehaving, Thaler calls DOET the “breakthrough organizing principle” for Nudge: Norman’s classic book takes a similar humans-vs-econs tack to analyze why many products and environments are poorly-designed, and discuss how we can do better in our personal and professional lives.

Superforecasting by Philip Tetlock (review + notes).  Like Nudge, Superforecasting offers a very practical paradigm for developing the right thinking approach to make better forecasts (which, naturally, lead to better decisions).  

Misbehaving by Richard Thaler (review + notes).  Misbehaving is my favorite book of all time, because it’s A) engaging and hilarious, B) the best book around on cognitive biases, bar none, and C) a “twofer” where you not only get to learn the theory of cognitive biases, but also get to see them play out via the development of the field of behavioral economics (wherein, amusingly, classical economists acted a lot more like “humans” subject to cognitive biases than perfectly rational “econs.”)

Reread Value: 4/5 (High)

More Detailed Notes + Analysis (SPOILERS BELOW):

IMPORTANT: the below commentary DOES NOT SUBSTITUTE for READING THE BOOK.  Full stop. This commentary is NOT a comprehensive summary of the lessons of the book, or intended to be comprehensive.  It was primarily created for my own personal reference.

Much of the below will be utterly incomprehensible if you have not read the book, or if you do not have the book on hand to reference.  Even if it was comprehensive, you would be depriving yourself of the vast majority of the learning opportunity by only reading the “Cliff Notes.”  Do so at your own peril.

I provide these notes and analysis for five use cases.  First, they may help you decide which books you should put on your shelf, based on a quick review of some of the ideas discussed.  

Second, as I discuss in the memory mental model, time-delayed re-encoding strengthens memory, and notes can also serve as a “cue” to enhance recall.  However, taking notes is a time consuming process that many busy students and professionals opt out of, so hopefully these notes can serve as a starting point to which you can append your own thoughts, marginalia, insights, etc.

Third, perhaps most importantly of all, I contextualize authors’ points with points from other books that either serve to strengthen, or weaken, the arguments made.  I also point out how specific examples tie in to specific mental models, which you are encouraged to read, thereby enriching your understanding and accelerating your learning.  Combining two and three, I recommend that you read these notes while the book’s still fresh in your mind – after a few days, perhaps.

Fourth, they will hopefully serve as a “discovery mechanism” for further related reading.

Fifth and finally, they will hopefully serve as an index for you to return to at a future point in time, to identify sections of the book worth rereading to help you better address current challenges and opportunities in your life – or to reinterpret and reimagine elements of the book in a light you didn’t see previously because you weren’t familiar with all the other models or books discussed in the third use case.

Page 3: One of the core premises and takeaways of Nudge, as Thaler makes explicit elsewhere both here and in Misbehaving, is that we’re all “designing” all the time, as Don Norman puts it in The Design of Everyday Things ( DOET review + notes).

Sunstein and Thaler here refer to people as “choice architects” – whether we realize it or not, we’re creating environments for ourselves and other people that will influence the decisions made anywhere from subtly to extensively.  

Thus, like architects pay attention to how the spaces they create will shape the activities of the people who use those spaces, we should pay attention to how the choice architectures we create will shape the choices of the people who use those.

Page 4T: It is mildly amusing that this is one of the things that gets the most attention.  It says something about the male mind in any case.

Page 5: Thaler and Sunstein describe themselves not as libertarians, but rather as the seemingly-paradoxical “libertarian paternalists” – they want people to be free to make choices, but they want to set up environments where individuals are influenced to make good choices (without being forced to, or penalized for not doing so).  

Why is this necessary?  Because a substantial body of research, as we’re about to see, finds that:

Individuals |often| make pretty bad decisions they wouldn't have made if they'd paid full attention and possessed complete information, unlimited cognitive abilities, and complete self-control. - Cass Sunstein + Richard Thaler Click To Tweet

See  selective perception agency x dose-dependency, and, of course,  humans vs. econs.

Page 6: What is a “nudge?”  It means modifying the choice architecture so that people are influenced to do the right thing.

Pages 6 – 7: Here, Sunstein and Thaler succinctly introduce the humans vs. econs paradigm that is explored throughout Nudge, and also in Thaler’s Misbehaving.  As they note, dryly:

Economics textbooks |teach| that homo economicus can think like Einstein, store as much memory as Big Blue, and exercise the willpower of Gandhi. Really. But the folks that we know aren’t like that. - Cass Sunstein + Richard Thaler Click To Tweet

S/T go on to state:

“Real people have trouble with long division if they don’t have a calculator, sometimes forget their spouse’s birthday, and have a hangover on New Year’s Day.  

They are not homo economicus; they are homo sathpiens.”

Why does this matter?  For similar reasons to those expressed in The Design of Everyday Things (DOET review + notes) by Norman: the fact that we’re humans, not econs, means that we’re forgetful and distractible and otherwise prone to errors.  Anything – whether public policy, consumer product, or corporate culture – that doesn’t acknowledge this simple reality is doomed to failure.

And yet, as Norman points out in DOET, all sorts of products from washing machines to nuclear power plants sometimes implicitly assume that we’re “econs” with perfect  memory and all that. As Sunstein and Thaler point out here, many corporate and public policies also assume that we’re “ econs,” with predictably bad results.

They also mention the planning fallacy, i.e. that work takes way longer to complete than people think it will.

Page 8: status quo bias is a big concept in this book: Sunstein and Thaler note that in a wide variety of situations, people tend to go with the default option, and stick with it once they’ve selected it.

As with many “traits” of humans, this is neither universally good nor bad: it just is, and it’s adaptive in certain circumstances and maladaptive in others.  Sunstein and Thaler point out that it means that badly-designed choice architectures can lead to persistently bad outcomes, but well-designedchoice architectures can therefore, often with little effort or cost, lead to substantially betteroutcomes.

Pages 9 – 10: Sunstein and Thaler contrast their view – i.e., that “humans” have trouble making choices in many important contexts, particularly when they don’t have experience, feedback is lacking, or there’s a local vs. global optimization  problem – with the classical view that we’re all “ econs” that make rational decisions all the time.

This line of reasoning, including rebuttals to responses from classical economics about high-stakes and the effect of learning on decision-making incentives), is explored in quite some depth in Thaler’s Misbehaving ( M review + notes).   Nudge is more in the camp of quickly establishing it as true, and moving on to the consequences.

Page 18: Thaler’s wit is the best; he could’ve (should’ve?) been a stand-up comic.  

There is nothing wrong with you - well, at least not that we can detect from this test. - Richard Thaler Click To Tweet

Page 20: Sunstein/Thaler (hereinafter “S/T”) here review Daniel Kahneman’s “System 1” (automatic, quick, intuitive) and “System 2” (deliberative, slow, reflective) approach to cognition.    Cognition vs.intuition.

The unusual/interesting/nonstandard part of the discussion is the bit at the bottom wherein S/T note that Americans use what looks like System 1 to deal with Fahrenheit, but System 2 to deal with Celsius; Europeans, obviously, do the opposite.  This suggests, obviously, that System 1 is trainable via  conditioning.

Why is this notable?  Well, one of the reasons I routinely recommend people avoid reading Daniel Kahneman’s Thinking Fast and Slow (see TFS review) is that he’s a pessimist-maybe-nihilist who doesn’t think we can get any better – and that tone kinda permeates TFS, which does not have the sort of “applied” focus that Nudge or Misbehaving do.

Philip Tetlock, on page 236 of Superforecasting (SF review + notes), comes to similar conclusions as Sunstein/Thaler above:

“My sense is that some superforecasters are so well practiced in System 2 corrections – such as stepping back to take the  outside view – that these techniques have become habitual.  In effect, they are now part of their System 1.”

Boom.  *mic drop*  The  habitconditioning model is a powerful one; see Charles Duhigg’s “ The Power of Habit ( PoH review + notes) or Laurence Gonzales’s “ Deep Survival ( DpSv review + notes) for more on how these interact with  cognition vs. intuition.

Page 21 :): Further proving that System 1 is trainable, one interesting thing to me is that I consistently ace mathematical “reflective” tests like this one, because I did MathCounts in middle school and I’m very comfortable with algebraic thinking.

On the other hand, I have a lot more trouble with the “sufficiency” type questions, such as Mauboussin’s one in The Success Equation about married people looking at unmarried people, or the A B 2 3 card question posed by Thaler in an “Anomalies” piece excerpted in Misbehaving.  It’s not that I can’t get them if I think about them, but I certainly don’t automatically intuit the correct approach like I do with mathematical questions.

So, reality 3, Kahneman’s pessimism 0.

Pages 23 – 27: Rapid-fire, Sunstein/Thaler hit some of the major/important cognitive biases that relate to structural problem solving / “nudging.”

First, “ anchoring” – if you give someone a number, their responses to completely unrelated question tend to be “anchored” to that number.  More broadly, this translates to “ framing” and contrast bias– if you ask people questions in a certain order, they answer them a different way.  If people are reminded of the lack of romance in their life, they rate themselves as less happy than if they’re asked about happiness first and romance second…

Second, the “ availability heuristic,” which is closely related to salience / vividness as well as recency bias.  These are likely a function of how our memory works, and possibly also related to hyperbolic discounting / present bias (which both Nudge and Misbehaving discuss in some depth).

Third and finally, “representativeness.”  Kahneman deserves some credit here: his version of the “Linda the feminist bank teller” story is far superior to Sunstein/Thaler’s presentation.

Page 28: S/T don’t really go that deep into storytelling and how it interacts with luck, but the conclusion here is similar to Jordan Ellenberg’s discussion in How Not to be Wrong (HNW review + notes) we see patterns even where there are none.  See also Rosenzweig’s “ The Halo Effect ( Halo review + notes) on “connecting the winning dots,” and Michael Mauboussin’s “ The Success Equation ( TSE review + notes) on the MusicLab experiment.

Page 30: is the hot hand a myth… or is the myth of the hot hand a myth?  See Ellenberg on page 128.

Page 32: S/T hit overconfidence and overoptimism here with a reference to Lake Wobegon: most people think they’re better than average.

Pages 33 – 34: loss aversion (that losses hurt 2x the pleasure of gains of equal magnitude) and the endowment effect are discussed here, as is status quo bias again.

Page 35: Why does status quo bias exist?  S/T don’t go into   willpower depletion here, but perhaps one of the most important (and understated) differences between Humans and Econs is that our heads are a bit fuzzier (and not in the cute, puppy-like way).  Whether it comes to TV ads or subscriptions, we’re likely to keep going with what we’ve got.

This happened to me with a credit card I didn’t use – I paid the annual fee several times because I was too lazy to get on the phone and deal with a customer service rep.  (I would’ve canceled much sooner if I could do it online…)

As S/T get to later here, and Thaler hits in Misbehaving as well, one of the easiest ways to encourage any given behavior is to lower its activation energy – and of course, by inversion, as Don Norman points out in The Design of Everyday Things ( DOET review + notes), making things harder to use (i.e. increasing the activation energy) can discourage behaviors.

Like Thaler’s cashews…

Page 36: Back to framing: thanks to loss aversion, humans interpret economically equivalent transactions in very different ways.  We think it’s more “fair” for a “discount” to a “regular price” to go away, and we think it’s less “fair” for a surcharge to be added to the “regular price,” even if they’re economically equivalent.  See  fairness.

Thaler discusses Uber / surge pricing in Misbehaving ( M review + notes), and Uber itself is explored more in Brad Stone’s “ The Upstarts ( TUS review + notes), but the point here is that in everyday situations, the way you present something can directly color people’s interpretation.  He discusses this in Misbehaving too with a series of equivalent questions, but in general, if you say “this has a 50% chance of a bad outcome,” loss aversion leads people to like it less than “this has a 50% chance of a good outcome.”  

Pages 40 – 41: THALER’S CASHEWS.  Okay, so first of all, the only thing not to like about Richard Thaler is that he has terrible taste in nuts: we all know that almonds, walnuts, pecans, macadamia nuts, pine nuts, Brazil nuts, hazelnuts, or pretty much any other nut would be infinitely superior to cashews. 

(Fun fact: cockatoos, as expressed by their behavior in the marshmallow test, vastlyrefer cashews to pecans, as discussed by Jennifer Ackerman in The Genius of Birds (Bird review + notes).  If I ever get a cockatoo, I am thus naming it Thaler and feeding it cashews as treats.) 

Notwithstanding that, many aspects of human behavior violate the “Just Maximize Choice” mantra that S/T view as unhelpful.  They get into hot vs. cold emotional states here, not quite getting very far into the “Planner-Doer” framework that Thaler discusses in more detail in Misbehaving, but basically pointing out that our behavior is “dynamically inconsistent” – i.e. that what we want locallymay not be what we want globally ( local vs. global optimization).

Page 42: What’s the solution?   Structural problem solving – like Odysseus, we can strap ourselves to the ship and put earbuds in the crew’s ears so we don’t hit the sirens.

Pages 44 – 46: Going deeper into structural problem solving, one of the ways to modify our own behavior is to combine multiple mental models, like incentives and social proof and salience.

Thaler relays the example of incentivizing a graduate student to get his thesis done by having him pre-write a series of $100 checks that Thaler would cash each month that progress didn’t go by.  Thaler, importantly, would use the money to throw a party to which the student would not be invited.  $100 was more or less inconsequential to the graduate student, but the pain of the loss was very salient!

If you combine this with social proof, by putting yourself on a public scoreboard, you get more results than if you rely on willpower alone.  This is (sort of) the business model behind Weight Watchers, for what it’s worth.

Page 48: Like trading stamps of Great A&P and Blue Chip Stamp fame, “Christmas Clubs” were a bit before my time, but serve to drive home the idea of dynamic inconsistency in preferences (i.e., the Planner-Doerhot-cold problem, which I classify as local vs. global optimization as well).  These were non-interest-bearing accounts that you contributed to every week and couldn’t withdraw from until Christmas.

I admit to doing the IRS version of this myself… if I ever have any rebate due, I roll it over to the next year because I’d rather make sure I have something paid toward capital gains taxes rather than having to remember to keep the liquidity around!

Pages 50 – 51: The concept of fungibility is discussed here with regard to mental accounting; Thaler hits this in more depth in Misbehaving.  

Summarily, although all money spends the same, we don’t treat it that way: both organizationally and personally, we often “budget” money into different “buckets,” and treat money differently for it.  A particularly useful example in an investing context is the “house money” effect, wherein profits are often treated/allocated a bit more lax-ly (“let it ride’) than new investments.

Pages 53 – 55: some more on social proof here: Thaler cites the Jonestown cult, as well as research on constituencies as varied as teenage girls, broadcasters, college students, and federal judges.

Page 56!: the key takeaway is social conformity is a strong pressure: people (alarmingly) often answer an easy/obvious question wrong if they see other people answering it wrong.  This is replicated across countries…

Page 57: … but the effect diminishes when anonymity exists.  This explains Internet trolls, and proverbial mechanics on the interstate, but also suggests a trait adaptivity angle here: as with many of our cognitive biases, we have the social proof tendency because it’s more valuable than not.

In the modern world, where communities are more fragmented and it’s less important whether or not people around us like us (though still important), the desire to conform is a big negative.  But in a historical context of tighter communities with less mobility, it obviously made a lot of sense to go along with the herd…

Pages 58 – 59: This is a fascinating (albeit too brief!) look at some empirical research on culture.  As Richard Feynman notes on pages 184 – 185 of The Pleasure of Finding Things Out (PFTO review + notes), humanity’s unique ability to pass on learnings from generation to generation has a:

“disease in it.  It was possible to pass on mistaken ideas.  

It was possible to pass on ideas which were not profitable for the race.  

The race has ideas, but they are not necessarily profitable.”

S/T cite some (admittedly very old, 1930s) research that found a few intriguing things.  Individuals made judgments on the distance of a point of light in a dark room; groups led to conformity.  A “plant” by the researchers could meaningfully move the group’s opinion in some arbitrary direction, if the plant was confident enough about it.

So far, not surprising – but S/T note something so insightful that it is worth quoting at length:

“Initial judgments were also found to have effects across “generations.”  Even when enough fresh subjects were introduced and others retired so that all participants were new to the situation, the original group judgment tended to stick…

[… other experiments have shown that] an arbitrary “tradition” […] can become entrenched over time, so that many people follow it notwithstanding its original arbitrariness.

[…] An important problem here is [… that] we may follow a practice or tradition not because we like it, or even think it defensible, but merely because we think that most other people like it.  

Many social practices persist for this reason, and a small shock, or nudge, can dislodge them.”

This is really fascinating – and it’s not the only place I’ve seen this.  Here’s a chilling bit from Christopher Browning’s chilling “ Ordinary Men” OrdM review + notes), discussing a similar persistence of group behavior during the Holocaust:

“Because of a the high rate of turnover and reassignment, only a portion of the policemen who had taken part in the first massacre at Jozefow were still with the battalion in November 1943, when its participation in the Final Solution culminated in […] the single largest German killing operation against Jews in the entire war[,] with a victim total of 42,000 Jews.”

Again, there’s an obvious trait adaptivity argument here: if you look around, what humanity’s cumulatively accomplished is pretty good and the flaws are pretty relative in nature.  It’d be a shame to start from scratch.

Similarly, older people generally have more experience and a more accurate viewpoint than the young (see some of the references elsewhere on PAA to crystallized intelligence – Mauboussin, or Stuart Ritchie’s “intelligence” (Intel review +notes), for example.)

But the same mechanism that transmits correct/ adaptive beliefs can also transmit random/arbitrary beliefs, as here, or even beliefs that have alwaysbeen wrong (see Tetlock’s discussion of medical history inSuperforecasting ( SF review + notes), and Oshinsky’s discussion of calomel, bloodletting, etc in Bellevue ( BV review + notes) for more depth on the topic).

Or, of course, beliefs that used to be correct but now are incorrect, as with chronotypes and societal preference for morningness – see Till Roenneberg’s Internal Time (IT review + notes).  As Roenneberg discusses on pages 17 – 22, “early to bed and early to rise” may have made sense at one time, but it makes no sense now:

“As long as all individuals have similar [chronotypes],  the earliest bird has an advantage over anyone getting up later.  This was probably true for most preindustrial societies; hence the persistence of the early-bird proverbs.  

[But under modern circumstances]… the temporal chicken-and-egg problem starts to apply […] [extremely] late chronotypes would still be awake [before early birds rise].

 There is no reason why these extreme late types couldn’t gather all the mushrooms before the early risers arrived […] This myth that early risers are good people and that late risers are lazy has its reasons and merits in rural societies but becomes questionable in a modern 24/7 society.”

My other favorite example comes from Dr. Jerome Groopman’s “ How Doctors Think ( HDT review + notes).

For the better part of a century, common medical practice was to insert a certain needle to drain fluid from around the heart in a specific spot – a spot which was picked because it was easy to penetrate (reminds me of the anecdote of the guy looking for his keys under the lamppost because “that’s where the light is,” notwithstanding that he dropped his keys in the bushes!)

This was passed down from doctor to doctor because that was the way it has always been done… and nobody ever bothered to question it or put any empirics behind it or whatever.  As Groopman explores. cardiologist Dr. James Lock eventually figured this out and his trainees (and hopefully the whole field) instead stick the needle where the fluid actually is, as determined by ultrasound.

Page 61: Don’t Mess with Texas.  Also, S/T here discuss the “spotlight effect” wherein – due to the sort of schema bottleneck that some poker players face, as relayed in Tetlock’s Superforecastingon pages 78 – 79 – people are often very concerned about how other people perceive them, whereas other people perceive them much less than they would estimate.  In one study where participants wore a t-shirt of an “embarrassing” musical artist (think Justin Bieber), they estimated ~46% of people would notice but only ~21% actually did.

Like the apocryphal quote says, “You wouldn’t worry so much about what other people think about you if you realized how seldom they do.”

Pages 62 – 64T: S/T here obliquely mention Music Lab; they don’t do remotely as good a job as Michael Mauboussin on pages 128 – 131 of The Success Equation: Untangling Luck from Skill (TSE review + notes).  Those pages of Mauboussin’s book are phe-no-menal.

The point here from S/T, via an in-depth story about the “Seattle Windshield Pitting Epidemic” as well as social-proof effects in eating with friends, is that altering the starting conditions via social proof can have pretty big long-term impacts (complexity).

Maybe you are the average of the five people you spend the most time with: which is why I’m really careful about the people I spend a lot of time interacting with, and have a hard time understanding why some people I’ve known prioritize relationships that are terrible influences over relationships that are positive ones…

Page 67: The best way to get someone to do something, whether it’s reusing their towels in a hotel or paying their taxes, is by telling them that a high percentage of other people did it.   Social proof again.

Page 68: Cialdini is referenced here (he’s referenced in Misbehaving too).  I haven’t read it in half a decade but it’s on the list…

Page 70: S/T here discuss “demand response” techniques for reducing energy use by giving people clear and salient feedback via smiley or frowny faces based on how much energy they use; Don Norman touches on these as well in “ The Design of Everyday Things ( DOET review + notes).  One company that did this kind of stuff was Opower (they got bought out). I’d spent some time working on it (never had a position; valuation, as you might imagine). It was kinda fascinating as a concept.

Page 72: S/T don’t explicitly name the phenomenon, but they note (as does Shawn Achor) that reducing activation energy is a great way to get people to do something.  Simply including a map and asking Yale students to put it on their calendar and plan out their route led to 9x as many getting a tetanus shot, even though they all knew where the health center was.

Achor, similarly, in “ The Happiness Advantage ( THA review + notes), explores how raising or lowering activation energy for desired behaviors by merely 20 seconds can have huge impacts on those behaviors.

This even shows up in the thinking of famous Japanese organizer Marie Kondo.  She posits on pages 141 – 142 of her interesting / occasionally kooky bestseller The Life-Changing Magic of Tidying Up” that clutter is a result of focusing on the wrong  activation energy:

A common mistake... is to store things... where it’s easiest to take them out... clutter is caused by a failure to return things to where they belong. Therefore, storage should reduce the effort needed to put things away. - Marie Kondo Click To Tweet

Yes, you’re allowed to make fun of me for having read that book…

… and yes, I’m still totally messy and happy that way.  😛  Sunstein/Thaler have a comment on this later, actually, involving some misplaced forms…

Page 75: S/T return to the “benefits now, costs later” local vs. global optimization problem; more humorously, they question whether anyone can pronounce the name of famous “flow” psychologist Mihaly Csikszentmihalyi.

It’s actually not that hard – directionally, it’s muh-hayley six-cent-muh-hayley.  It may be more of a short “i” than an “uh,” as in “miss,” I’m not exactly sure. but close enough.

Pages 76 – 77: again, Thaler goes into a lot more depth on these in Misbehaving, but things that can cause people to make poor decisions are lack of feedback and bad practice… although even with lots of feedback and lots of practice, people don’t always learn.

Page 81: a friendly reminder not to buy the extended warranty

Pages 83 – 85 :): NORMAN DOORS.  They suck.

Here is a wonderful Vox interview featuring Don Norman explaining why Norman Doors suck.

And, here is a tumblr featuring a collection of Norman Doors.

S/T call Don Norman’s The Design of Everyday Things” (DOET review + notes) a “wonderful book” and draw the analogy between “nudges” and “human-centered design”:

“Norman’s basic lesson is that designers need to keep in mind that the users of their objects are Humans […] the goal of this chapter is to develop the same idea for choice architects.”

Yup yup, it’s the structural problem solving mental model.

S/T’s praise of Norman here is light relative to his likely actual impact on the book.  Thaler emphasizes the DOET connection a bit more strongly on page 325 of Misbehaving:

“[Cass and I] had a breakthrough in finding our missing organizing principle [for the book Nudge] when I reread Don Norman’s classic book The Design of Everyday Things […]

I realized we could apply many of his principles to the problems we were studying […] what if we could design policies that facilitated the creation of choice environments that were just as user-centered?”

Norman, in case you missed it, is one of the review blurbs inside the cover of Nudge.  He’s a fan!  Structural problem solving rocks.

Page 89: As with Norman in DOET, S/T note that humans make mistakes, leading to frustrations with parking garage credit card readers that only work in one of four possible orientations…

Page 90B: “forcing functions” are referenced here.  See  memory, and the picture at right.  Putting stuff in front of my door has, no joke, changed my life.

Page 91: A classic “humans vs econs” deal: it’s much easier to remember to take medicine every day rather than every other day… so medicine that’s given every other day should be sold in pillboxes with placebos!  See also Megan McArdle on “hard problems” (such as patient compliance) in The Up Side of Down  UpD review + notes).

Page 93T: As with Norman in DOET, S/T point out that warnings that are too frequent can lead to circumvention… anyone remember the nightmare that was User Account Control in Vista?

Page 94 – 95B: first, a fun bit about incentives – reminiscent of Munger’s anecdote about the spleen surgeon, S/T note that few doctors specialize in watchful waiting, so maybe that option is underprescribed.

More on point, still using Normanesque terminology, they note that it can be hard to “map” the tradeoffs of decisions to their actual lives; making those relationships more visible makes it easier to make good decisions.  One of the central recommendations in Nudge is a program that S/T call “RECAP” – short for Record, Evaluate, and Compare Alternative Prices.

Basically, transparency/disclosure, and not in a fifty-page document that nobody ever reads (as South Park once parodied).  Rather, in a usable format that “humans” rather than “ econs” can actually understand.

There’s actually a nice read-across here to Dr. Atul Gawande’s “ The Checklist Manifesto” ( TCM review + notes).

Gawande, walking through the basement of the World Health Organization, notices:

“pallet after pallet of two-hundred-page guideline books [from third-party expert groups…] on malaria prevention, HIV/AIDS treatment, and influenza management, all shrink-wrapped against the gathering dust.  […] At the bedsides of patients in Bangkok and Brazzaville, Boston and Brisbane, little had changed.”

See the connection?

Pages 96 – 97: S/T present one model of “human” decisionmaking in the context of overwhelming choices that is different than the typical “satisficing” model you sometimes hear.

Basically, they cite Tversky, who found that one method was “elimination by aspects” – S/T cite the example of renting an apartment, but buying a car would work just as well.  

It’s sort of the “sandwich theorem” inversion approach: I don’t know what car I want, but I can triangulate by finding something that’s got at least X amount of torque, at least this much trunk space, at least this much MPG, less than this total price tag… and then you only really “choose” among the “finalists.”

Pages 99 – 101: S/T here directly address incentives and the point, as Thaler might put it inMisbehaving, is that you can’t just do an “invisible handwave” and assume that the free market always works out because of incentives.

They cite the (obvious) example of the healthcare system, where salience is very low and there are lots of different pieces of the pie that have different incentives; elsewhere, S/T note that if you’re not smart enough to make the right choice on your own, you may not be smart enough to hire the right expert either.

Also, opportunity costs interacting with salience as it results to buying a car vs. taking a taxi.  (We’ll update the example to “Uber!”)

Pages 106 – 108B: With regard to retirement savings, S/T note that first, most people aren’t capable of figuring out how much to save for retirement; second, this is one of those new context things because thanks to shorter lifespans and different social structures, we didn’t used to have to worry about it… and third, margin of safety applies here: clearly having too much in savings is a better problem to have than having too little.

Pages 110 – 111: S/T note the “econ” quandary of people not signing up for matching contributions, which is literally free money.

But status quo bias can solve the problem: if you make defined-contribution plans opt-in rather than opt-out, enrollment can increase dramatically: in one case, from 20% to 90% immediately, and 65% to 98% after three years.

Page 116: the “Save More Tomorrow” program takes advantage of hyperbolic discounting and loss aversion and  status quo bias by tying higher savings rates to future raises, and also taking advantage of the fact that people are more willing to save (… and diet!) tomorrow, rather than today.

Also, they discuss what they call “channel factors,” i.e. making it as easy as possible… again, the lower the activation energy, the better.

Ironically, on status quo bias!  Thaler noted in his Nobel Prize presentation that it took them a really long time to get a company to agree to trial Save More Tomorrow…

Page 123T: This concept is discussed in more detail in Misbehaving, where Thaler goes into the somewhat indefensible nature of the long-run equity risk premium from a logical standpoint… but here, S/T note that given how loss aversion works, the more frequently you check your portfolio (and thereby see losses), the less happy you are!

Page 125: Total money quote here.

“[When] Nobel laureate Harry Markowitz, one of the founders of modern portfolio theory, [was] asked about how he allocated his retirement account, he confessed:

‘I should have computed the historic covariances of the asset classes and drawn an efficient frontier.  Instead… I split my contributions fifty-fifty between bonds and equities.”

Humans vs. econs in a nutshell.

Page 128: sad discussion of ownership of company stock… sort of an inside vs. outside view / “base rates” thing.

Page 136: complex/non-transparent markets disadvantage unsophisticated buyers and also makes them more likely to receive bad/self-interested advice.

Pages 137 – 138: not explicitly cited, but there’s probably some reciprocity bias here: if consumers feel like the mortgage broker is doing them a favor…

… and of course, big piles of paper are no bueno, because we’re humans, not econs.

Page 143T: Here, Thaler (I’m assuming it’s Thaler) addresses a similar question that he goes into some more depth on in Misbehaving: aren’t people incentivized to get the hard issues right?

Among other challenges, one is that, again as on page 136, in complex and non-transparent markets, there is an opportunity for sleazy “advisers” to pretend they’re helping you but talk their own book…

Page 150: S/T, self-deprecatingly:

“we think that women were less likely to lose the enrollment forms […] we […] plead guilty to […] the availability bias- by the fact that our significant others are considerably more organized than we are.”  

Ahahahahaha.

Page 153: anddddddd once again we find ourselves asking “how Swedish is too Swedish” and the answer, as always, depends on whether or not you are from Denmark, or are unfortunate enough to have ever known anyone from Denmark.

Jokes aside, it is amusingly coincidental that this story, about how much Swedish stock exposure a rational Swedish investor should have, maps nicely to Jordan Ellenberg’s dose-dependencydiscussion re: Nordic welfare, particularly that of Sweden…

Page 159!: it’s sort of in passing, but worth calling attention to: S/T return to the idea of loss aversion in the context of framing health issues: patients are more likely to comply with self-examinations if told there’s a bigger risk if they don’t do it than if they’re told there’s a smaller risk if they do do it.

Page 167: More humans vs. econs stats: fully 25% of the seniors eligible for a Medicare subsidy (free money!) didn’t sign up for it.  No Econ would ever do that… but Humans found the paperwork pretty complicated, and may not have even known it existed.

Pages 171 – 172: The Medicare Part D web site, it will surprise nobody to know, would not have gotten the Don Norman stamp of Good Design.  The website did not have a spell-checker (your word is “ciprofloxacin”), required you to know the size of your pill and the frequency of its dosage, and then provided you with plan options and no explanation whatsoever of how they came to.  It also didn’t give you the same plans every time.

Oh, and more self-deprecation:

“Eventually (with help from Katie that bordered on psychotherapy), Thaler managed to get some answers, though not the same ones that Katie got.  

Still, because Thaler is nearing Medicare age himself, he thought perhaps someone younger would have an easier time of it.”  

ahahahahaha I love Richard Thaler.  Really, he’s the best. He makes me giggle more than anything not named GTA V…

Pages 180 – 181T: more examples of status quo bias: organ donor rates jump substantially when you shift from opt-out to opt-in.

Pages 182! – 184!: great visual example here of the Illinois website that utilizes lots of “nudges” ranging from social proof (turning being an organ donor into a “social norm” that most people do and view as important) and framing (highlighting the importance of the problem).

Pages 186 – 187: fun fact: one of my clients calls me five-year-plan because the first time I met her (my senior year of high school), I exhausted her by telling her my meticulous plan for the next five years of my life.

Of course, none of that plan materialized, and she swears it wasn’t a derogatory Soviet reference.  Uh huh.

S/T bring up externalities and tragedy of the commons here, which are again a special case of local vs. global optimization.  The dairy cow example is good.

What is also good is the point about the lack of immediate feedback from environmental consequences.  Even well-meaning people can be led astray – Mark Kurlansky’s Cod is a nice example of this.  S/T note that salience bias and (I’m extrapolating here) hyperbolic discounting are also relevant: even if we “know” that cranking up the A/C consumes more energy and generates more pollution, the exact tie between that and the eventual impact is murky.

Pages 189 – 190: more nice examples of framing: S/T note that a fuel efficiency standard is often preferred to a carbon tax because one sounds “free” (the expenses are hidden) while the other sounds “expensive” (the expenses are salient).  They bring this up in relation to gas prices as well (gas prices are very salient).

Page 191: Continuing on the feedback track, S/T note that risk labeling can serve as an effectivefeedback mechanism by making the negative consequences more salient in the moment of consumption.

Of course, stepping outside the book, this combined with framing is one of the reasons there was such a kerfuffle around GMO labeling: if manufacturers are required to label products that contain GMOs, then there’s implicit signal value in the fact that that is on the label: wait, is this bad?  (Unlikely. I have yet to see any credible science suggesting GMOs are any worse than the totally non-natural, selectively-bred-over-centuries non-GMO crops that we’ve seen otherwise.)

Pages 194 – 195: Discussing salience in the context of car purchases, S/T note, first, that translating “MPG” (an unhelpful, fairly abstract metric) into “dollars per year” (much more helpful!) can help consumers make better decisions.

Second and more importantly, they highlight a conspicuous-consumption element, hypothesizing that hybrid Priuses are more popular than hybrid Camrys because Priuses have signal value… they are salient.  If you drive a Camry, you don’t get to be all smug about it.

Page 196: More Thaler humor here.  I won’t spoil it!

Pages 209 – 214: really interesting intellectual discussion here that touches on utility and a number of other topics.

Pages 226 – 227: good examples of overoptimism and the hot-cold empathy gap here, as well as inside/ outside view and base rates as it relates to divorce, and why people don’t get prenups.

Also, no surprise, people are focused on their own interests.

Pages 233B – 234T: more examples of social proof and incentives and salience combining to help solve willpower problems.

Page 235: on the topic of gambling self-bans, see Charles Duhigg’s The Power of Habit ( PoH review + notes).

Pages 236 – 237: a lot of interesting suggestions here, all in the structural problem solving mold, but I laughed at the last one about the angry emails.  Reminds me of the Twain bit.

Pages 240B – 241: interesting discussion here (and elsewhere) of an obvious but overlooked fact: there is no real “null hypothesis” or “natural state.”  One of the themes of the book is the “false dichotomy,” either-or type thinking that many people often use (i.e. – we can influence people or not influence people), when the world is really more of a probabilistic spectrum.  

Page 247: Thaler on mirrors… man I don’t know what you’re talking about, I feel like mirrors get more flattering every year, in my case.  😛

 

First Read: 2015

Last Read: spring 2018

Number of Times Read: 3

Planning to Read Again?: maybe

 

Review Date: spring 2018

Notes Date: spring 2018