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Liberty can lead to prosperity

Published on Friday, 27 Nov 2009
Book: Nudge
Author: Richard H. Thaler & Cass R. Sunstein
Publisher: The Penguin Group

Some "how to" books assume we can be superhuman, making perfect decisions using our whip-smart brains. Others, such as Nudge, are written for real people who are not necessarily rational all the time and who make mistakes as they muddle through life as best as they can.

An Economist and Financial Times Best Book of the Year, as well as a New York Times best-seller, Nudge is all about smartly but subtly pushing ourselves and others in the direction of making sensible choices.

Authors Richard Thaler and Cass Sunstein believe that we shouldn't feel panic about getting things wrong. Instead, we should let ourselves be nudged towards making the best or, at least, the most appropriate decisions.

One of the chief tenets of the book is that we all have the chance to be "choice architects", or people who have the responsibility for shaping and organising the contexts in which others make decisions.

In fact, a lot of us are already choice architects without even realising it. "If you are a parent, describing possible educational options to your son or daughter, you are a choice architect," the authors say. "If you are a salesperson, you are a choice architect (but you already knew this)."

The authors also suggest that small and apparently insignificant details can have major impacts on our behaviour. For many of us, knowing that whatever we do has an impact on someone or something, somewhere and at some point, can be as paralysing as it is empowering.

But, rather than send us into tailspins of panic about having to make perfect choices that will create the ideal ripple effect, the authors advise us to simply nudge things in the right direction. In other words, we need to exert our influence with a gentle prod to get people to do what we want, when and how we want it.

Nudging is how the authors express what they term their new movement - libertarian paternalism. This boils down to the belief that people should be free to do what they like and to opt out of undesirable arrangements.

The second half of the notion refers to the acceptance that libertarian paternalists should try to influence other people's behaviour in order to help make their lives longer, healthier and better. Thaler and Sunstein argue that this belief can be applied to all areas of our lives and society. Institutions in both the public and private sectors, for example, need to make self-conscious efforts to steer people's choices in directions that will improve their lives.

"In areas involving health care and retirement plans, we think that employers can give employees some helpful nudges," the authors write.

Opportunities to nudge in these fields include adopting an administrative "no fault" system for compensation for medical injuries. Already established in New Zealand, Denmark, Sweden and Finland, it has successfully reduced administrative burdens within the medical industry and has had a knock-on effect in terms of lowering the cost of health insurance and making health care more affordable.

Meanwhile, nudges can be put in place to encourage companies to do good. They can take the form of financial incentives that reward organisations for helping reduce air pollution, for example.

Liberal paternalists refrain from bulldozing people into making specific choices. Rather, they seek to provide starting points that mildly invite choices and outcomes.

The whole point about libertarian paternalism is that it is relatively weak, soft and non-intrusive and does not block, fence off or burden people's choices, say Thaler and Sunstein. Nudges from libertarian paternalists must not be dictatorial or prescriptive.

"If people want to smoke cigarettes, to eat a lot of candy, to choose an unsuitable health care plan or to fail to save for retirement, libertarian paternalists will not force them to do otherwise - or even make things hard for them," they say.

Libertarian paternalism does more than simply track or implement people's anticipated choices; it self-consciously attempts to move people in directions that will make their lives better.

To encourage people to eat healthily, rather than banning junk food outright in work or school canteens, libertarian paternalists will think about designing user-friendly environments, such as canteens that offer fruit at eye level.


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