Authors: Richard Thaler & Cass Sunstein
Genre: Popular Economics
Pages (words): 320 (N/A)
Readability: N/A
Rating (out of 5 stars): ****
Reviewed by: Ben
Description: Thaler and Sunstein begin by laying out a few basic principles of behavioral economics: (1) the power of a default option, (2) the limited cognitive powers of humans, (3) and loss aversion (we hate losses more than we love gains). They then show how these three ideas can lead people to make bad decisions, sometimes very bad ones, and how government and businesses can apply simple "nudges" to push people in better directions. They call this idea "libertarian paternalism," with the idea being that we can preserve freedom of choice, but frame people's choices in a way that are more likely to lead them to better decisions. They then show how to apply this idea to a whole range of issues, including saving for retirement, health care, marriage, mortgages, and credit cards.
Thoughts: I've read several popular science books (Blink, Freakonomics, and The Tipping Point), but this is my favorite to date, hands down. I had a behavioral economics course last year, so I had actually already heard about all of the concepts in the book previously (they are very cool ideas, so I didn't mind reading them again), but the applications that they recommend are just incredibly useful. Here's an example: They found that just by switching the default option on retirement savings so that an employee has to opt out of the company plan rather than opt in results in hugely increased participation rates. I don't remember the exact numbers, but it was something like jumping from 45% to nearly 90%. They go through example after example of this type of situation, showing how simply changing the environment of the decision-maker slightly can helpfully nudge the person towards making much better decisions. I think everyone should read this book, especially Congress. Actually, Sunstein is in the White House now, and I believe that a few of these ideas are actually being pushed by Obama. We can only hope.
Disclaimer: None.
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