Opinion.

This book is creating a notable stir early in the Obama Aministration. Sunstein is an old friend of President Obama from law school who will run the new White House Office of Information and Regulatory Affairs (OIRA). Thaler is an economist and behavioral scientist. The essential thrust of Nudge is that government regulatory policy should be designed according to the wisdom of certain late twentieth century behavioral science insights into our human cognitive shortfalls, especially those in judgment, and thereby “nudge” us consumers gently toward more self-enlightened decisions about investment, health, saving money, buying homes and cars and other goods, choosing pension plans and structuring them, and other important matters. A simple example of a “nudge” is a government website with easy-to-follow procedures and uncomplicated metrics which immediately help cognitively vulnerable consumers–that is, all of us, the authors included–to cut through hype and mind-numbing fine print to make accurate product comparisons. Purportedly, such nudging will create more successful consumers while neutralizing exploitative business practices. The prospective new Consumer Financial Protection Agency (CPFA) would almost certainly be a chief player here. The announced hope is that such self-conscious aid to consumers might contribute to reforming the financial industry and major American corporations in the aftermath of the Great Recession.

We consumers are seen by the behavioral scientists in question to be questing along the pathways of life burdened by a darkness of the intellect because, owing to our curiously deficient cognition, we must always expect to be prone to suffering “potentially devastating effects of bounded rationality, self-control problems, and social influences.” In sum: most, if not all, of us routinely make bad choices. (We’re never, however, explicitly accused of having been suckered.) So: to say it another way: prior to late 2008, and as per the first edition of Nudge, many of our troubles can be explained by decades-old research which has delineated some crucial, inherent, certain failures of all human judgment; and the good news is that these characteristic troubles ironically can be mitigated by behaviorally enlightened and paternal government policy strategists nudging us away from such mistakes. (We’re generally forgiven our poor choices by the authors because of our “human frailty” and because of our being “very busy” and hence “inattentive.”)

In the 2009 edition of Nudge, the hastily added three-page “Postscript: November 2008,” briefly, angrily, diminishes such confidence. (Note: this is becoming a pattern in first editions of books heralding Grand Solutions issued just prior to the shattering assault by that dismaying monster, the Great Recession.)

Here are the main ideas from both editions of Nudge:

First, government policy in economic regulation affecting consumers and businesses should be informed by insights obtained largely in the 1970s through a particular kind of behavioral research: “…the ‘heuristics and biases’ approach to the study of human judgment.” (See especially pioneering behavioral scientists Amos Tversky and Daniel Khaneman.) In sum: Our “rules of thumb” are not nearly as reliable as we think. Because largely unknowingly we’re stuck with certain imperfect “heuristics” (essentially our experience-based rules of thumb), we make self-defeating choices. You can think of three main difficulties. We tend to suffer from (1) “anchoring”: generalizing unreliably from local experience at the expense of seeking broader views; (2) “availability”: typically relying too much on our most vivid memories and impressions–these imprint us intensely and are most readily recalled–and not enough on statistical data and other bland but more salient information which might help us better prepare for and respond to emergencies, political choices, business matters and so on; and (3) “representativeness”: too much reliance in judgment on things familiar to us, a kind of sometimes comforting myopia which can cause us to exclude crucial possibilities and probabilities as well as cause us to misrepresent reality. The authors give convincing examples, many from research experiments and some from familiar observations of self-defeating consumer behavior. The authors prefer to lump all these shortfalls into presumably more up-to-date categories: (i) bounded rationality, (ii) self-control problems, and (iii) social influences.

Second, such government regulatory policy must be done strictly according to “libertarian paternalism.” The idea is gentle nudging. So: No Mind Control! No Big Lie! No Brainwashing! No propaganda! Not in the Land of the Free! We Live Free or Die! And more power to it! rightly insist the authors. Accordingly, consumers must be gently nudged but remain free to choose badly.

Nudging itself is justified because you can’t avoid it: any arrangement, even a thoughtless, “random” one, is willy nilly a nudge in some way: in a school cafeteria you can put healthy foods at eye-level and in prominent places; but if you don’t, you will still inadvertently nudge some students toward combinations of food, here perhaps an unfortunate mixture of fruits and fast food which sum to a bad choice of diet. So you might as well become savvy about nudging.

Third, the government policymakers doing the nudging shall be known as “choice architects.”  Sunstein’s White House Office of Information and Regulatory Affairs will, I presume, be a clearing house, a vetting site, for most, maybe all, regulations affecting business and consumers, and will seek to be staffed by choice architects intent on tweaking policy for clever nudging; and…and…I’m having trouble in moving here to business in using “nudge”…and…and…lets say Sunstein et al. will simultaneously “get” business to do less exploitation of consumers. I must trust that the disciplining of those particular lenders and other businesses which cannot be trusted (the momentary search here in the latest post Gilded Age for exceptions which you just flunked is dismaying, no?) will be not a mere nudge but will be a severe poke in the ribs: “nudge” just doesn’t seem to fit for regulating business. (However, I don’t recall this likely asymmetry between consumers versus businesses in OIRA/Consumer Financial Protection Agency policy-making shining forth brightly in Nudge. As I remember, it’s left in the shadows. In my defense, I now know that my recall is bounded. But I think I still have some reliable sense of political-speak.)

Here is what the authors say is a classic present nudge apart from future government regulatory policy. Lake Michigan Drive in Chicago is scenic but has a series of dangerous S curves. An aerial photo which shows that road at near nadir reveals that the spacing of lane stripes is made closer near the curves, giving drivers a false visual sense that they are accelerating, thereby gently nudging them to slow because the ensuing natural instinct to do so is “subliminally” reinforced. Further, various classic experiments in the pioneering behavioral sciences to demonstrate poor choice owing to one or more imperfect heuristics of human judgment are summarized. Examples of the problem of social influences (AKA “following the herd”) include these: Obesity is contagious; you may well have greater risk of becoming so if your friends become so. TV broadcasters mimic one another, e.g., American Idol and its growing imitators. And Federal judges on three-judge panels are influenced by the votes of their fellow judges. Obese people, TV broadcasters and members of three-judge panels conform. Other and interesting examples abound.

Nudge is a latter-day extension and considerable broadening of the old principle behind “truth in lending.” I think its current stir is owing to outrage about the forces that led to the Great Recession, the determination to Recover, and a certain definitely unspoken cynicism about human judgment in the generality (unspoken because politically unacceptable). In short, maybe in some senses you CAN fool all of the people all of the time. But, carefully imply the authors, we can’t let Mencken be right that no one ever went broke underestimating the intelligence of the American people. We might say that Barnum (and by implication, Mencken) was right about the birthrate of suckers, but now we’re sufficiently self-aware that we can mitigate the true problem these famous cynics are talking about.

On balance, nudging seems a reasonable, if irritating and faintly worrisome, idea. The Internet, among other developments, might well make some of the choice-architectural idea actionable and practical. We can only hope that such would make a contribution. As just one example, obviously our recent past shows that nudges toward choosing sensible mortgages often would be all to the good. At the same time, a stubborn notion that the Nudgers ought to mind their own damn business arises. And then, in the aftermath of the modern political horrors of the twentieth century, there is the natural suspicion of any program to influence public policy decisions which relies on the “subliminal.”  Even though it is treated in a cheerful, even cavalier, way, there is an uneasy, self-conscious protest in Nudge about assurances that the program need do no harm to personal freedom.

However–and it is a horrendous “however”–implementation by policymakers–by Oira and CFPA–will be a 900-pound gorilla. On the optimistic side, though, look what finally happened to King Kong!

But finally we should respect the largely unpleasant past of Ole Homo sapiens. This respect, sorely missing, I believe, in Nudge, is an admission that might lower our expectations for “nudging.” I mean, Why do we have “shortfalls” in judgment? Well, Nature doesn’t care and takes Her time. In Her impersonal, ruthless arbitration of what adapts and what doesn’t, she has a certain “wisdom.” Mammals got through the Age of Reptiles and later the Age of Other Predators because (to use a summarizing metaphor) they got good at seeing a flash of tawny fur behind bushes across from the watering hole and, charged with adrenaline, climbing the nearest tree. That’s where our presently in-date/out-of-date “heuristics” originate.  We aren’t designed to be optimum “choice architects” just yet, though sometimes pretty good ones, and perhaps this ambivalence is to good overall purpose. Our past lingers in the archaeological strata of our brains, an archaeology that is a living history of our so-far still-going odyssey. In some ways, none of our old “heuristics” is out-of-date, as can be sensed when we jaywalk a busy street or take a careening taxi ride in Manhattan.

Sunstein and Thaler don’t, I think, fully understand what we’re up against as erstwhile “choice architects.” Imagine (and to take but one admittedly incomplete and ad hoc example) a government website that helps consumers make smart mortgage choices. That is, imagine you are going to design the site so that someone with limited financial knowledge can act wisely. So…such consumers need to know at least the following sorts of things. They need to discover the whole diabolically clever scheme behind subprime mortgages: the varieties of predatory lending leading to the massive bundling at faraway financial behemoths of bad and good mortgages in exotic investment instruments, instruments whose soundness is fraudulently overrated by corrupted rating agencies, followed by the subsequent selling of those deceptive instruments to conned investors. And second, you will need to know about all the mortgage recruitment steps in between–steps on the surface promising you will be Master of Your Destiny, you will realize the American Dream; and meanwhile hiding the fact that you are being sold a bad mortgage (say, an adjustable rate mortgage) to increase the seller’s fees. The decisive moment will come with you finding yourself in a lending office at mortgage signing time with reams of forms to sign, forms you really can’t possibly fathom. Your family just wants to move; they want that new place. Mr. Jones, the mortgage official, seems a nice man. Washington, DC, is a long way off. Mr. Jones has several good arguments as to why all is safe. Besides, didn’t your cousin just get a big new home? How’s your daughter doing at the local high school? Isn’t she having social trouble? Wouldn’t a change do her good?

Well, I wish choice-architecting well.

But…wow.