Nudge: The Final Edition by Richard Thaler and Cass Sunstein

Humans decision making process was always fascinating me. Why do we choose what we choose? How much rationality and how much emotions are involved in this process? Behavioral economics is a science that tries to answer on these questions and Daniel Kahneman won a Nobel Prize in Economics Science for his research in this area.

The authors of “Nudge” have taken the next step and tried to apply the same scientific findings to build more efficient decision making mechanisms. They called it “choice architecture”.

Humans are extremely biased and are not following the most rational behavior as economic theories suggest. I.e. in many circumstances our immediate choices are not aligned with our own long term goals. Hence, people have to be “nudged” into a proper direction.

This create an ethical dilemma – how much of a “nudge” should be allowed and/or built into “choice architecture” not to be considered as exploitation? The authors introduce methodology they call “paternalistic libertarianism”. In short, it means to build decision making mechanism in a such way to protect freedom of choice. But help people to make the most efficient decision at the same time.

The book provides a number of examples from different areas of our modern society – pension system, organ donation, money savings and etc. The authors analyze biases that may impact humans behavior and propose recommendations for “choice architects” how to improve the system.

The most interesting example from my perspective is the analysis of Swedish pension system and how people behavior has changed over the last 20 years after original pension reform. The story proves one more time that “nudge” is required. Otherwise, people just fail to take an action on time.

Overall, the book provides good overview of how to incorporate nudges and shares interesting examples of actual implementations. But, many things in the book are outdated and too well known today. My recommendation is to read Thinking Fast and Slow instead.

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