If a supermarket were laid out sensibly, the milk and the eggs would be right at the front of the store so that you could grab them and go. But of course, they're at the back so that you'll have to walk past all sorts of stuff you weren't thinking about buying. Similarly, the sugary cereals aren't at your eye level, but at the eye level of your 8-year-old.
The supermarket is a shrine to choice architecture, the notion that the way in which choices are presented shapes the choices that are made. Choice architecture is at the heart of the social policy Thaler and Sunstein propose in Nudge.
They call their policy libertarian paternalism. It's libertarian in that everyone has just as many options as ever, and no choice is denied or made unavailable; it's paternalism in that certain choices are encouraged or made easier with the goal of improving people's health, financial stability, and happiness.
Take, for instance, the issue of organ donation. In the US, the choice to be an organ donor is generally made by checking a box on your driver's license; if you haven't checked the box, the assumption that you don't want to be a donor. That's called an opt-in system, and it leads to relatively low rates of donation.
Many European countries reverse the process; if you haven't checked the box on your license, the assumption is that you do wish to be a donor. That's an opt-out system, and donation rates are significantly higher where such a system is in place.
If (like me) you find opt-out a bit too heavy on the "paternalism" end of the scale, Thaler and Sunstein offer a third option: forced choice. We don't make an assumption one way or the other, but when you apply for or renew your license, you have to answer the yes/no question: Do you wish to be an organ donor. Simply requiring that people make the choice raises donation rates, not to the levels found under opt-out, but significantly higher than they are under opt-in.
Many of Thaler & Sunstein's proposals fall into this broad category -- change the choice by changing the default option. These are generally proposals that could be adopted very quickly and easily, at relatively little expense and significant social benefit.
The authors' second common type of proposal is a bit more complex. They call it the RECAP report (for Record, Evaluation, Compare Alternative Prices), and it would be used for businesses where consumers are faced with choices between complex alternatives that might be beyond the economic sophistication of many -- auto insurance, cell phone plans, Medicare prescription drug supplement plans.
Under RECAP, each provider would be required to provide its customers with an annual report, in both print and electronic format, showing what they'd purchased during the year and how much they'd paid for it. The report would be in a standard format for each industry, so that consumers could plug their data into other vendors' websites and find out how much the same services would have cost. (Designing those standard reports is clearly the biggest obstacle to implementation of RECAP; I'd hate to be the guy responsible for designing a report that covers all the various options of cell phone plans, for instance.)
Thaler and Sunstein have written a most interesting book, and in the final chapters, they offer thoughtful rebuttals to many of the most common objections to their proposals. As for the writing, while you never forget that Thaler and Sunstein are academics (professors of business and law, respectively, at the University of Chicago), their writing is relatively accessible and light. They even crack an occasional joke.
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