Review – Nudge by Thaler and Sunstein
Is Libertarian Paternalism a Nudge in the Right Direction?
Oct 13, 2009
Professor of Behavioural Science and Economics, Richard Thaler, and Professor of Jurisprudence, Cass Sunstein, both from the University of Chicago, unveiled their behavioural economics theory of libertarian paternalism in the book, Nudge, Improving Decisions About Health, Wealth And Happiness and it has proved to be a controversial theory indeed.
A Nudge is in Order
Keeping in line with behavioural economics theory, Thaler and Sunstein believe humans are not intrinsically rational in their decision-making and so would benefit from some direction from time to time. They point to classical economic theory, which assumes rationality, as unrealistic in this regard. "If you look at economics textbooks, you will learn that homo economicus (ficticious rational character) can think like Albert Einstein, store as much memory as IBM's Big Blue, and exercise the willpower of Mahatma Gandhi," they say.
In short, people could do with a little help, a nudge in fact, when it comes to making decisions which can be life-changing such as health, wealth creation, marriage, education and mortgages. According to Thaler and Sunstein, practice makes perfect when it comes to complex decision-making and yet often with life's big decisions people only get one or maybe two shots at it and this is where very human biases can kick in.
For example, apparently humans have a fondness for the default option. If in doubt go with the default or if adverse to rational decision-making at the time, trust that those who have designed the form know what they are doing. In this case, Thaler and Sunstein believe that much can be done to nudge people in a direction more favourable to them.
Libertarian Paternalism Not an Oxymoron
Their idea of nudging informs their use of 'paternalism'and this is where the argument may get a bit uncomfortable for some. How does anyone know what is favourable to others and does anyone have a right to steer another in a particular direction? However, Thaler and Sunstein are quick in their attempts to soften the big-brother-like blow by informing the reader that, in their view, choice should not be subsumed by mandates in the form of rigid requirements.
This is where their use of the word 'libertarian' comes in. "Our proposals are emphatically designed to retain freedom of choice...So long as paternalistic intervention can be easily avoided by those who seek to adopt a course of their own, the risks decried by antipaternalists are modest," they explain.
Both writers assure the reader that their use of the term, libertarian paternalism is not contradictory. "Both words are somewhat off-putting, weighted down by stereotypes from popular culture and politics that make them unappealing to many...We argue that if the terms are properly understood, both concepts reflect common sense," they say. However, the meaning is not immediately self-evident. In fact, it is a bit of a mind-bender. It appears that the writers' intention is that both 'libertarian' and 'paternalism' serve to moderate each other and find a middle ground.
The Verdict
Richard Thaler and Cass Sunstein, in their book, Nudge, Improving Decisions About Health, Wealth and Happiness, do serve the field of behavioural economics by further explaining how people habitually mis-step when it comes to decision-making. Their discussion of bias, temptation and conformity, as well as how the presentation of choice impacts on the outcome are fascinating. While it may seem absurd that a reader could continue to prop at the term, libertarian paternalism (even with accompanying rational explanations), this should come as no surprise at all, considering its position in the field of behavioural economics, where human irrationality is a given.
The Details
Authors – Richard H. Thaler and Cass R. Sunstein
Title – Nudge, Improving Decisions About Health, Wealth and HappinessPublisher – Caravan Books
Date – 2008
ISBN - 978-0-300-12223-7
Libertarian Paternalism
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