Nudge (A commentary)

 

Nudge 

By Richard Thaler

(A commentary)

It should have been titled libertarian paternalism! 

When we talk of freedom of thought, are we truly free thinking? The nascent thought that emanates in the core of our neural network finds expression in action not unlike a seed nurtured into a sapling. This nurturing of the thought that takes place is a culmination of all the cumulative influences borne by the psyche. The thought is individual as far as it originates in an individual. But after that it is subject to the influences experienced from the birth onwards. What we really mean by freedom of thought is the freedom to express it! Liberty of action has its basis in freedom of thought.

People consider libertarian behavior as their birthright. They would like to live life on their terms unfettered by the written and unwritten rules of social niceties and norms. However people do not live in cocoons. They are a part of society where each one's action has a bearing on another person. The basic instinct of any willful activity has to be reined in, to sub serve peace and harmony. Civilization has come up with its own ways and means to achieve this objective. The various processes too have undergone evolution along with the human race from prehistoric to medieval to historic up to today’s times. Regulations imposed by higher authorities have been the mainstay of the tools to maintain peace and order in society. Imposing regulations has its own limitations. Too rigid and oppressive regulations can incite rebellion and defeat the purpose. Regulated behavior also lends itself to corrosion by corruption. Regulation to prevent anarchy in the public domain as long as it is not too restrictive is acceptable.

The behavior of people in the public domain is one thing. What about behavior which concerns their own wellbeing- intellectual, financial, physical and otherwise? There exists a subset of the populace which is enlightened enough to look after itself. They are given into reflexive thinking and do not give in to their instincts easily. Their behavior is governed by rational principles, and they always seem to be in control of any situation and are rarely swayed by external influences. The remaining junta and lesser emancipated section of society need to be handheld through the maze of everyday living. How do they make choices about buying insurance, saving for retirement, healthy dietary habits, and so many other things which lie beyond their circle of competence? Being a doctor doesn’t make one knowledgeable enough to make the correct choice of investments for the future. Being a lawyer doesn’t enable you to be competent enough to make healthy lifestyle choices. So on and so forth.

Understanding the limitations of regulations in these matters, choice architecture becomes the tool to help making decisions. Choices can be so designed that they take the form of nudges which can trigger the favorable action i.e. favorable for the individual. Choices could be incentivized, penalized, made into default options, etc. which could work equally well in the public and the private organizations. The term “nudge’ connotes a sense of a mere suggestion to induce an action. If the nudge were not there the action may not have been taken. The nudge is an attempt to influence the thought, which then decides the action. People can be nudged into saving more for retirement by giving them tax benefits, discounted premiums for health insurance for following a healthy lifestyle, penalizing for not wearing a helmet while riding a bike, volunteering for organ donation as a default option while applying for a driving license, etc. This paternalistic approach to influence the behavior respects the individual’s liberty of action. He is allowed to go his own way but is also shown the option which is likely to give a better outcome. The choice lies entirely with him. It is important that the construction of the choice architecture is fair, not too over influential or overbearing. Allowance is made so that the choice of not making a choice is also allowed. The self-interest of the individual is always the central concern. Choice architecture can also be exploited by organizations to serve ulterior motives by non-disclosure of complete information and giving incorrect options. Exercise of due diligence is required by the individuals.

We thus come to the realization that someone is either regulating you or trying to influence you through designing the options for you to make choices, nudging you into making seemingly favorable decisions. You may select the option on your own but you don’t get to design the options yourself.

Where then can we find this utopian world of free thought and action?

There is no free will….

Dr. Milind Shah