Tuesday, September 14, 2010


My older son is a health economist. He came to it via a degree in history then a spell as a hospital administrator, a researcher at the Kings Fund, then a time as a health care purchaser before joining the regulator, CHI as an analyst. As that has changed manifestations to the Healthcare Commission and finally the Care Quality Commission he has risen in the organization so that he is now Head of Intelligence (which sounds like 'M' in 007 movies). Earlier in the year he gave me 4 books for my birthday - I have reviewed 3 of them and I have just finished the fourth, Nudge by Thaler and Sunstein. These guys are behavioral economists from the University of Chicago who call themselves Libertarian Paternalists.

They react against the idea that governments should control from the center, but also recognize that free markets can be harmful because in a complex world they allow experts to con humans who don't have the time and perseverance to research their choices. In principle they believe that people should choose for themselves how they live (they are libertarian) but they also believe that we need psychological protection from our worst impulses (they are paternalistic).

As humans we jump to conclusions. Here is an example that they give. Together a bat and ball cost $1 : 10c. The bat costs $1 more than the ball, how much does the ball cost? Most humans, me included, immediately say 10c, when of course, the answer is 5c. Our brains have an automatic and reflective mode. The reflective mode easily works out the answer, but the instant mode jumps to a conclusion.

Here's another one. It takes 5 machines 5 minutes to make 5 widgets. How long would it take 100 machines to make 100 widgets? If you are in reflective mode you see at once the answer is 5 minutes. As a human you might reply 100 minutes.

On the other hand try and play a golf shot in reflective mode and you will shank it or play an air ball.

Like it or not, we are always going to be vulnerable to people who try to get us to use our automatic mode rather than our reflective mode. A good example would be supermarket owners who place chocolates for kiddies near the checkouts. If we are going to be vulnerable, why not frame our architecture of choice that nudges us to a good outcome? The classic example is of the male toilets at Schiphol Airport in Amsterdam. They engraved a black fly at the base of the urinals. It reduced spillage by 80%.

Perspicacious readers will now see that there are thousands of application for such psychological nudges, but everyone should read this book - Obama did, David Cameron did. It does not only apply to Left or to Right; both can learn from it. It works for increasing saving for your pension pot, for organ donation, for giving to charity, for choosing medical insurers, for making tax returns easier, for avoiding perverse incentives, like rewarding unmarried mothers with free houses, for losing weight, for stopping smoking, it allows people the freedom to ride motor-cycles without helmets (after signing up to the undoubted risks).

The beauty of the system is that it always defaults to freedom of choice. There may be warnings along the way, (Are you sure you want to delete this message?), but it lets you make a fool of yourself in a way that actual bans do not.

Read the book.


Anonymous said...

Yes, people such as Obama want to save us from ourselves. They don't think that we should make mistakes; the government, obviously, is better at making decisions than the people are. Just look at the success of the Soviet Union and the Eastern Bloc when you think about how wonderful planned economies are.

Terry Hamblin said...

No. You have it wrong. The default position is free choice. Humans need saving from crooks and charlatans. However much you hate government, we all rely on it to protect private property and enforce contract law. We need government to be transparent, honest and small, but we still need government.