Nudge

Putting many of the principles of Thinking, Fast and Slow into action, Nudge by Richard Thaler and Cass Sunstein provides some excellent food for thought. The utility of the book is how the authors make pragmatic use of the advances made by Kahneman and other psychologists. Thaler and Sunstein deem any person in a position to influence (however subtly) the manner in which humans choose as “choice architects.” To illustrate this subtlety, consider that how much ice cream you buy at the supermarket is at least partially dependent on how good (or bad) you feel about the fruits and vegetable you bought (or didn’t) when you first walked into the grocery store. The produce is invariably and intentionally at the front of the store to take advantage of the understanding that if you feel good about buying produce you are then much more likely to think it is okay to buy ice cream – after all, you’ve earned it with all that healthy produce you are going to eat!

Thaler and Sunstein provide suggestions for how choice architecture could nudge people into better decision in situations where humans do not develop good decision making skills. As discussed here, our decision making abilities do not improve in the absence of regular/predictable environments, an opportunity to practice, and clear, rapid feedback. The authors identify financial decisions, health decisions, and social programs such as education, health insurance, and marriage as areas where we could benefit from nudges and better choice architecture.

Nudge provides many ideas for how our lives are influenced on a daily basis. The main takeaway for me is the necessity of understanding your values, beliefs, and purposeful direction of your life. Then, in situations where choices are difficult or you might feel yourself being pulled to make a choice that is not necessarily consistent with your values, take a moment to consider how choice architecture might be influencing you.

How Defaults Affect Us

Departing from the default option causes more regret/blame if things go wrong. For example, the default after a bad loss is for a coach to make changes in personnel or strategy. Failure to do so will produce blame or regret if the team loses again. It is important to note that the change is not necessarily a good thing, just a way to avoid regret/blame.

How strong is the effect of defaults? How important are your vital organs to you? Evidence suggests that whether or not you elect to be an organ donor is largely determined by whether the default is set for you to donate or not. If the question is setup so you have to check a box to opt out of donating your organs, you are very likely to donate. If the questions is setup so you have to check a box to opt in to donate your organs, you are very likely to not donate. The decision itself is so difficult to consider that we will defer to the default option rather than go through the process of trying to figure out what we really want. This also affects us when we are deciding to sell a stock or not: it is easier to hold because it is the default – no action is necessary to hold the stock.

Again, there is not a reliable way to overcome this tendency. However, it is important to be aware of so we can make better decisions. Are you changing the lineup to avoid blame or because it is really best for the team? Are you holding the stock because you think its value will increase or because you don’t want to beat yourself up if you sell it and then it increases? We can’t predict the right answer to these questions, but we can do a better job of identifying which option is more consistent with our values and beliefs and basing our decisions on the value/belief rather than the default.

Thinking, Fast and Slow

If you are interested in finding out more about why and how humans make choices and our (ir)rationality then Thinking, Fast and Slow by Daniel Kahneman is definitely for you. This book has informed, influenced, and changed the way I think about many things, and provided the psychological understanding and evidence for many other important ideas.

An example of this is the parameters under which skill and expertise can be developed. With the recent attention given to Ericsson’s 10 year/10,000 hour rule of expertise, it has become apparent that the rule holds up better in some environments and settings than others. Kahneman identifies 3 conditions that must be present for skill/expertise to develop:

1) an environment that is regular enough to be predictable (for example, this is the purpose of the rules in sport)

2) an opportunity to learn these regularities through prolonged practice (Ericsson provides some specific parameters for deliberate practice)

3) rapid and clear feedback about the correctness of thoughts and actions (Ericsson and others also identify the critical role of a coach/teacher/mentor in skill development)

If these conditions are not present, then skill/expertise cannot reliably be developed. An example of this would be the stock market. This is why so many (and the existing evidence) argue against the utility of financial advisors. While some have experienced success, it is primarily due to luck as opposed to skill/expertise that is readily repeatable.