Books: Do we really have a choice?

The authors believe we could make better decisions if we had a practical structure for choosing. Keith Jones admires the idealism of their 'liberal paternalism'.

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Last Updated: 31 Aug 2010

Nudge: Improving decisions about health, wealth and happiness
Richard H Thaler and Cass R Sunstein
Yale University Press £18.00

It's hard to read Richard H Thaler and Cass R Sunstein's Nudge: Improving decisions about health, wealth and happiness without reflecting on the Monty Python sketch, 'Nudge, nudge, wink, wink'. Eric Idle infuriates a stranger he meets in a pub, trying to nudge him towards a revelation by asking him questions loaded with innuendo about his wife.

In Thaler and Sunstein's world, Idle's 'choice architecture' - the suggestive framework he provides to persuade the stranger to reveal all - would be woefully inadequate.

It's the scourge of modern times, we're told: the choices we have to make every day, from what clothes to put on in the morning to who to hire and fire to which mobile phone to buy. For most, help in making a decision is welcome.

Choosing is an act of free will, the fulfilment of a desire. Receiving guidance from those with relevant experience is an accepted part of the process. But when does that turn into insidious manipulation? And when is it simply a gentle steer in a more favourable direction?

Nudge examines the many areas of our lives in which we have to make choices - investment, health, the environment, marriage - and invites us to accept that these choices can be off-beam. No subject is too big for the authors: from climate change to the health of the American nation, they roll their sleeves up and propose a series of 'nudges' to solve society's ills.

They posit the creation of 'choice architecture' - a framework that nudges us to make wiser choices to improve our lives. Critical to the success of this process is maintaining the chooser's sense of free will and self-control.

Branded 'liberal paternalism' - freedom and tolerance modified by the control and insistence of a father - 'nudging' is the guiding hand on the back rather than the leading of the chooser by the nose. We all carry behavioural biases and can benefit from judicious nudges towards a more advantageous decision or action. Businesses and governments can more effectively nudge stakeholders towards decisions, to the benefit of an organisation's bottom line or for the public's greater good.

But this is hardly a new concept. Supermarkets have long blasted the enticing aroma of fresh bread at incoming shoppers to induce hunger and encourage a fuller trolley. The government's anti-smoking campaign cranks up a gear at year-end, when the public is more likely to make health resolutions. And the National Pension Savings Scheme, due in 2012, will auto-enrol UK workers not in a company scheme (unless they opt out), to promote better financial practice.

Are Thaler and Sunstein saying anything groundbreaking? The premise isn't radically original. But the end result is a book full of sensible suggestions. Their theory lends itself to being deployed in practice, and the book is stuffed with similar examples where libertarian paternalism has made an impact.

The challenge for choice architects is to find both the framework that generates the most favourable response and the guiding principle by which the architecture should function. Is the aim to generate profit, promote a healthier way of living, make sensible financial decisions, or win support for a company decision?

The authors don't acknowledge the more sinister aspects of nudging, which can result in a herd mentality, leading to disastrous consequences for the individual. Nudging under the so-called conformity bias can veer into the manipulative - witness Nazism or the boom-and-bust tendencies of the financial markets.

They also bring nothing new to the table with their explanation of the 'loss aversion' characteristic - losing something makes you twice as miserable as gaining the same thing makes you happy: a well-known behavioural bias deployed in investment management strategies. And if we all demonstrate the behavioural tendencies they outline, risk management techniques underpinning modern financial markets are inadequate. Yet the authors do not develop this theme.

But there's practical guidance for business readers on how to create or revamp choice architecture. The book is perhaps most useful for SMBs looking for ways to drive sales and growth.

The all-American examples can feel a little irrelevant to UK readers. But this is a minor irritation. By and large, you can't argue with their formula, even if the weight of possibilities for social change presented by choice architecture can seem a touch overwhelming. In such dispiriting economic times, though, perhaps a dose of idealism doesn't go amiss.

- Keith Jones is the former CEO of Morley Fund Management and currently holds a range of chairman and non-executive director roles in the City.

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