Saturday 2013-11-16

Nudge by Thaler and Sunstein

In essence, this is the Univ of Chicago's revised edition of CapitalismAndFreedom, updated to account for our psychological foibles.

It raises the importance of default choices in life, i.e. we're far lazier than we expect, so we should set smart defaults for ourselves (choice architecture), and beware of defaults set for us by others.

E.g. paychecks goes into an account at a bank, where they earn a pittance. We have to move manually move cash around because banks don't have APIs whereby we can automate cash mgmt. Since we're lazy, we don't earn optimal cash rates on our bank deposits.

Two important lessons can be drawn from this research. First, never underestimate the power of inertia. Second, that power can be harnessed
Choosers are human, so designers should make life as easy as possible. Send reminders, and then try to minimize the costs imposed on those who, despite your (and their) best efforts, space out.
That is when Thaler intervened by offering David the following deal. David would write Thaler a series of checks for $100, payable on the first day of each of the next few months. Thaler would cash each check if David did not put a copy of a new chapter of the thesis under his door by midnight of the corresponding month.Furthermore, Thaler promised to use the money to have a party to which David would not be invited.
David completed his thesis on schedule four months later.
The academic effort of college students is influenced by their peers, so much so that the random assignments of first-year students to dormitories or roommates can have big consequences for their grades and hence on their future prospects. (Maybe parents should worry less about which college their kids go to and more about which roommate they get. )
Tony Snow, the former White House press secretary, who resigned at age fifty-two in 2007 to return to the private sector. He said his motivation for leaving was financial.“I ran out of money,” he told reporters.“We took out a loan when I came to the White House, and that loan is now gone. So I’m going to have to pay the bills. ” Before serving as press secretary, Snow worked a much more lucrative gig as a Fox News Channel anchor. But he arrived at the White House not having learned Retirement 101 lessons.