I readNudgebyRichard H. Thaler and Cass R. SunsteinonSep 29th, 2018

The 2017 Nobel Prize laureate, Richard H. Thaler, and Cass R. Sunstein present the libertarian paternalism and choice architecture: the authority does not coerce the policy, instead it influences the choosers’ behaviors to make better choices, aka nudge.

Why nudge works

Daniel Kahneman, 2011 Nobel Prize laureate, proposed in his book, Thinking Fast and Slow, that we have two modes of thoughts: system 1 and system 2. System 1 is fast, instinctive and emotional, while System 2 is slower, more deliberative, and more logical. From the engineer point of view:

• System 1 is like deep learning. Million years training data and selective evolution train the system focusing on the responsiveness at the expenses of accuracy.
• System 2 is more like domain knowledge. The system evolves from the reflection, and it can rationalize its decision based on the logic and insights. It trades the accuracy over responsiveness.

The canonical Eco will analyze the current status, then apply logic rational to evaluate pros and cons, and conclude a decision at the end. Ideally, he or she MAY also review the decision for a retrospect in the future. ALL of these requires significant cognitive power, and our brains are lazy¹, we tend to solve more complicated problem with System 1, which incurs many cognitive biases, such as anchoring, herd mentality mentioned in the book.

On the other side, as the choice architecture designer, we can also exploit the biases for the choosers’ good.

How nudge works

In the book, the authors propose several libertarian paternalism to make chooses better off:

Remover bad options If some options result worse outcomes, the choice architecture designer can simply remove them to make a difference.

Make a better default option We can make a better default option, and leverage the status quo bias.

Rethink regulation in the public policy In the United States, a significant portion of health-care cost is spent on the malpractice insurance. The policy maker’s intent is to protect patients’ best interest, but in practice, the ambiguity of “neglect” makes the malpractice lawsuit more or less a lottery, and lawyers take lion shares. We MAY consider to allow the patients to waive the rights to sue for a more affordable health-care practice.