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Book Review: Nudge

May 17, 2021

Cover: NudgeScientists consider homo sapiens to be the most intelligent species among all life on Earth. Primarily through our use of technology and tools, we have become the apex predator and dominate the planet. Thus, despite troublesome viral pandemics such as COVID-19, the shot-in-the-dark possibilities of collisions with an asteroid or space junk, global warming, or the inevitable death of our Sun, we humans should, as a species, expect to have a long and prosperous existence.

While the human species is very successful as a whole, we tend to perform very poorly individually. Perhaps rightly, people imagine themselves the most intelligent form of life on Earth. However, on an individual basis, people are prone to many follies. We eat too much, exercise too little, waste resources, and engage in unhealthy or risky behavior that we know to be harmful—such as smoking or excessive drinking. Decisions on how to administer society are similarly troubled. People overestimate their abilities and knowledge and underestimate how much they should invest for retirement.

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Human beings seem to lack an internal governor that would both curtail risky behaviors and encourage decisions that would support positive outcomes. Throughout history, societies have used some combination of incentives and regulations to mold people’s behavior—for example the taxation of tobacco to reduce its consumption and the subsidization of some industries to encourage their growth. However, incentives can be expensive—and, frequently, do not work—while regulations tend to breed resentment.

Richard Thaler and Cass Sunstein’s book Nudge looks at the choices people make and how we can apply concepts from psychology and behavioral economics to encourage outcomes that are ultimately desirable for both individuals and organizations.

Book Specifications

Title: Nudge: Improving Decisions About Health, Wealth, and Happiness

Author: Richard H. Thaler and Cass T. Sunstein

Formats: Paperback, Kindle, Audible

Publisher: Penguin Books

Published: February 24, 2009

Pages: 312

ISBN-10: 9780143115267

Choice Architecture and Libertarian Paternalism

Nudge introduces the concept of choice architecture, the arrangement of choices people need to make to achieve an outcome. Of course, when we provide choices to people, their presentation, order, and framing can nudge a person toward a certain outcome.

An early example from the book describes the arrangement of a school-cafeteria line to encourage healthier eating. In this example, a hypothetical cafeteria director realizes that she can increase the consumption of healthy foods and reduce the consumption of unhealthy foods with simple adjustments to the presentation of these foods. By making healthier foods more visible—for example, placing them at eye level, presenting them early in the line, and making desserts just a bit harder to reach—the cafeteria director realizes she can manipulate the consumption of various classes of food. This introduces ethical questions. Should she encourage healthy eating habits? Should she order the line to maximize profits for the school district? Should she arrange the cafeteria line according to how students would likely prefer to eat—thus, encouraging higher rates of satisfaction among students? Or should she simply arrange things randomly?

This example introduces another theme of the book, libertarian paternalism. These two seemingly opposing words represent the balance that can benefit from nudges. In the authors’ formulation, nudges embrace libertarianism, in that people have free will. If people want to eat cake for lunch, they are free to do so. The paternalistic component arises when the choice architect attempts to help people make good decisions. When you combine the two, nudges can help people make good decisions for themselves.

What Is a Nudge?

The field of economics has historically assumed that human beings are rational actors who seek to maximize their long-term wealth and happiness. But this is demonstrably false. People behave irrationally and make bad decisions that actually undermine their long-term happiness and wealth. If people were truly rational, they wouldn’t overeat, they would save more for retirement, and they would never carry a credit-card balance. Stick-and-carrot approaches to encouraging better outcomes can be both expensive and controversial, especially in a society that values personal freedom.

A nudge is really a way of reframing a problem or question that an individual actor ultimately needs to make. Here’s an example of this: changing the way an organization presents retirement savings to participants in a plan. For long time, 401ks were an opt-in benefit, participation rates were low, and savings rates were also low. However, by flipping them from opt in to opt out, participation rates increased. Employees had to affirm that they chose not to save for retirement. This has obvious positive outcomes for people who are saving for retirement.

Taking this example further, by preselecting an appropriate savings rate for employees, the choice architect forces participants to choose to save less. By reframing these questions, a choice architect can short circuit the bad habits that people rely on, which perpetuate bad outcomes.

Priming and anchoring are key concepts from psychology that help nudges to be so effective. By providing a recommended savings rate for a retirement plan, the choice architect can anchor an employee’s perception of what a good savings rate is.

Priming is a similar phenomenon. By simply asking a person about a future behavior, a choice architect can encourage behavioral change. Plus, if you ask people when they will do something, they are more likely to follow through. Everyone knows that exercise is healthy and that most Americans should get more exercise. However, Nudge cites studies that demonstrate exercise rates increase more when you prime people by asking them when they will begin exercising more regularly.

Automatic Versus Reflective Thinking Styles

The previous examples rely heavily on the work of Daniel Kahneman, who discusses the mental processes people use in making decisions extensively—and, perhaps more importantly, how to get people to follow through on them. Anyone who has read Thinking Fast and Slow is familiar with the phenomena of the two ways in which people process information and react to it. Nudge provides a shorthand for the processes that Kahneman has identified as System 1 and System 2—or in the words of Thaler and Sunstein, automatic and reflective.

The automatic system, or System 1, is how we live most of our lives—more doing and less thinking. We do not expend much mental effort for habitual behaviors such as opening doors, getting dressed, eating, or driving on our morning commute. However, when we need to create something or solve an obviously difficult problem such as engineering a bridge or solving a quadratic equation, we switch to reflective thinking, or System 2.

Automatic thinking is one of the reasons people make bad decisions. They rely on easily accessible information, memories, and personal biases to make decisions quickly. While this approach could be helpful in some situations such as opening a door, it might be less useful in complex situations that require our full attention.

The power of automatic thinking is such that it might, in fact, be the source of a lack of self-control. Nudge cites an experiment, describing how study participants were asked to eat a bowl of soup until they felt full. Unbeknownst to the participants, their soup bowl automatically refilled itself, keeping it consistently full. As a result of seeing a full bowl, participants ultimately consumed two to three times their normal serving size.

Self-nudging and Mental Accounting

Occasionally, people realize that habituation may be leading them toward undesirable outcomes, and they might take seemingly irrational measures to correct their behavior. Thaler and Sunstein cite the phenomenon of federal-tax refunds. In recent decades, the tax refund has become the modern equivalent the Christmas Clubs that banks have provided. A Christmas Club is a savings account that pays almost no interest, requires weekly deposits, and is untouchable until the holiday season. The original intent—before shopping on credit became popular—was to help consumers save enough money to buy Christmas gifts.

To an economist, the idea of putting money into an account that provides virtually no return on investment—and, in fact, when you consider the time value of money, is a net loss—is anathema. Even worse is giving the equivalent of an interest-free loan to the government through overpayment of tax withholdings, only to receive the less valuable overpayment as a refund upon filing a tax return.

However, this economically irrational behavior is very rational when one considers it as a device to encourage savings. It’s a nudge that prevents overspending.

Nudges’ Relationship to Dark Patterns

The intent of the libertarian paternalism that Nudge describes is to help people achieve the outcomes they ultimately desire by understanding the shortcomings inherent in human perceptions, attention, and biases. Dark patterns are related to nudges in that they also rely on people’s cognitive shortcomings. However, UX designers frequently apply dark patterns to the detriment of consumers rather than their benefit.

A nudge might be the presentation of data from a university that truthfully states a majority of underclassmen do not binge drink, creating social pressure against the overconsumption of alcohol. A comparable dark pattern might present this data in terms of what the popular kids do, relying on social pressure to achieve the opposite effect. Whether something is a nudge or a dark pattern could depend on the desired outcome. Both nudges and dark patterns rely on the same psychological concepts.

In Summary

Thaler and Sunstein’s book provides deep explanations of how human perceptions and weaknesses can influence decision making.

Nudge is an excellent resource for understanding how people make decisions and provides many examples of how to utilize these psychological concepts to modify human behaviors. Thaler and Sunstein provide several anecdotes and examples to support their ideas, and they do an excellent job of citing existing literature. However, if you are looking for more easily applicable guidance, I recommend reading Susan Weinschenk’s How to Get People to Do Stuff or Chris Nodder’s Evil by Design. Nevertheless, Nudge provides excellent background information on why the concepts in these books and dark patterns work. 

Vice President, User Experience at Metisentry

Owner of TheoremCX

Kent, Ohio, USA

D. Ben WoodsBen began his career in 1999, when businesses were just beginning to recognize the World Wide Web as a valuable tool. Prior to his appointment at Kent State, he held positions as a UX designer and UX manager. He has worked with global teams and a variety of consulting firms to deliver research and design that improved digital experiences for customers. He has also developed his organizations’ analytics discipline to track the performance of digital properties and identify opportunities for improvement. Ben’s company TheoremCX is an innovation firm that provides customer-focused solutions. He has developed solutions and corporate workshops for a variety of organizations around the world, including Eaton, General Electric, Knoch Corporation, and Orange S.A. Ben is the chairperson of UX Akron, a nonprofit professional network serving Summit and Portage Counties, as well as all of Northeast Ohio.  Read More

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