Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein was a book gifted to me by a higher higher superior as a book prize (so literally, in fact, that it is rare to see such a practice nowadays). And it changed the way I viewed policy making in light of human’s propensity for bad decision making. Here’s a few important things I’ve learnt:
- The two species of Homo sapiens: Econs vs Humans. The first type never errs and are logical creatures whereas the second type are emotional and susceptible to changes and social pressures. Humans make errors, and a well designed system expects that and is forgiving. For eg. To prevent people from using the wrong fuel for the car or attaching the wrong needle for anaesthesia, the size of nozzle and connectors are built differently so it physically prevents them from making mistakes. It goes against the principle of making things as uniform and interchangeable as possible, but that is a world of Econs where we aren’t prone to making stupid mistakes. Another eg. Because of the different drivers side in Europe and US, tourists are prompted by road signs in UK to look left for oncoming traffic.
- Fly in the urinal: apparently someone got so sick of guys splashing their pee in public toilets that they designed urinals with a fake fly in the centre. It’s small, but this design nudge made guys aim for the fly instead (idk, guys please explain why you’d use your pee to water gun an insect) and decreased the amount of splashing significantly. It’s the small things that changes people without them realising it. More often, we are influenced by people or things who are not even trying to influence us. A study found that if we eat with one other person we eat 35% more, and in a group of seven or more we eat 96% more. All these are small unconscious influences that I’m sure no one intends for it to happen, but just goes to show the malleability of our actions in the face of small changes.
- Just-maximise-choices style of governance is lazy. Many libertarian governments think increasing choices and removing default is empowering the individual but fail to account for the consequences of people being bad at making choices. What if their retirement or healthcare plan isn’t chosen properly? Funding is wasted and the ineffective social security will let people fall through gaps and create social problems. Knowing that individuals are weak and unwise when making decisions, and still giving them complex options, I think it’s the government pushing off responsibility to the people using a guise. Furthermore, simply having a choice is a safeguard against bad choice architecture, and there is no exponential impact with increasing the quantity of choices.
- Daylight saving hour: it’s only invented by Benjamin Franklin as a way to make us more efficient to save on candle wax people use to light up their work.
- Conformity in our decision making: experiments have shown that when in a group our brain literally changes our views and forces itself to observe something false even though it goes against our own observation. We conclude that we must be wrong because everyone sees it the same way and are peer pressured, or nudged, by the force of a unanimous groups. For eg. An experiment in 1937 asked people to estimate the distance to a light in a dark room. When in small groups, participants need to come up with a group average and achieve consensus, and the results between different groups varied very different. It goes to show that a group opinion (or majority opinion) isnt as objective as we think — divergence occurs not because it is an objective reality but because people’s opinions have arbitrarily different starting points. Sometimes the effects of conformity in a group lasts across generations. Although the person originally responsible for a tradition is long gone, the arbitrary practice has been entrenched over time and many still follow it regardless of its arbitrariness. Conformity produces a very persistent nudge that becomes a problem, but also can be used to our advantage if we create it ourselves.
- Peer pressured into paying taxes: Minnesota’s plan to encourage tax compliance experimented with giving different information, for eg. some were told their tax money went to good work, or were threatened, or were offered help to fill in tax forms. However the biggest compliance was effected for the group who were told that 90% of other people complied.
- Intuitiveness is just what is easy for our automatic system: flat plates on doors signifies push, and handles signifies pull. Mixing these up, even if there is a sign on the door to advice correctly, results in repeated mistakes because it is counter-intuitive. Apparently it is also more natural to read words rather than to identify the colour the word is in. This brings to mind my primary school, which has a wall with brain exercises painted onto them. Colour words were written with a different colour (“black”, but it is in red) and there were instructions for students to read the colour the word. I had spent quite a few of my recesses practicing in front of this wall. How strange to think that these exercises to stimulate our thinking and resist the intuitive answer of our automatic answer is present in primary schools, a decade before I even realised the science behind them.
- Subprime mortgage: I’ve encountered this word whenever people talked about the 2008 financial crisis, but these high risk loans are so prevalent because us normal humans are being deceived by the brokers into thinking that they are offering a service and have our best interest in mind. More concerning, there are practices of student loans and financial aid offices partnering with mortgage brokers to sell students financial plans in exchange for donations, and that is why student debt is becoming an issue as unsuspecting students are sent as customers, or lambs to the slaughter. Pro-tip I learnt from the book is that the best mortgage deals usually do not pay fee up front as it narrows down variables till interest rates are the only things for us to consider. Usually (since there is a market for anything, and especially for information), there are RECAP data made available by third parties who make a business from comparing these for us.
- Privatising social security: the Swedish has experience privatising their social security and we stand to learn a lot from the failings. They took a pro-choice route and rather than asking people to stick with the default, they encouraged people to determine their own financial profile from a huge inventory of choices and companies. The core ethos is that people have different needs and hence should not have a one-size-fits-all plan. However, people choose badly and consistently underperform compared to the default the government has selected. Pro choice really isn’t that good because individual investors tend to be trend followers rather than good forecasters.
- Privatising healthcare in George Bush’s prescription drug coverage Part D plan: Again, we see the government trying to take on the philosophy of maximising choices to customise drug plans to each individual rather than a one-size-fits-all. More choice lets consumer meet their own needs. But no, it again demonstrated that governance is not the same as running a market, where we cannot expect people to act in their best interest, or are even capable of making a decision. Nobody knows the drug names, dosages, price enough to make an informed plan.
- Tragedy of the commons: we don’t pay the price for our own action and act in our own selfish ways. The prime example of this is the environmental impacts of our individual actions. That is why there is a need for things like a toxic release inventory and the environmental blacklist, both for companies as well as the individual (the book suggested wearing a bracelet that changes colour based on your water bills). However, it makes me wonder how many of us actually go look for these lists. There is so much documentation for so little people to care about (mostly policy makers or activists are the only ones to access such statistics). It also makes me wonder, where do we find such information in Singapore? Do we even have such rigorous documenting?
- Last genius idea about how a little bit of external control can help with our poor self control: bank account for quitting smoking where you deposit every month a fixed sum you would spend on cigarettes and after 6 months, get a nicotine test and you can get back all your money if they find you have in fact quit smoking. Otherwise, all the money will be donated to charity. The same concept can be applied to our personal goals. Find a weight loss buddy who will throw in say $100, and set a timeline. If by that timeline either one does not reach their goal, all $200 goes to the one who succeeds. If both reaches their goal, they will donate the $200 to charity. All these imposition of external measures should not be viewed as controlling or paternalistic, but helpful for us Humans who are prone to mistakes and do not always act in our best self interest,
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