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Wednesday, November 18, 2015

The Power of Nudges, for Good and Bad

By Richard Thaler
The New York Times - The Upshot
Originally published October 31, 2015

Here are two excerpts:

Whenever I’m asked to autograph a copy of “Nudge,” the book I wrote with Cass Sunstein, the Harvard law professor, I sign it, “Nudge for good.” Unfortunately, that is meant as a plea, not an expectation.

Three principles should guide the use of nudges:

■ All nudging should be transparent and never misleading.

■ It should be as easy as possible to opt out of the nudge, preferably with as little as one mouse click.

■ There should be good reason to believe that the behavior being encouraged will improve the welfare of those being nudged.

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Some argue that phishing — or evil nudging — is more dangerous in government than in the private sector. The argument is that government is a monopoly with coercive power, while we have more choice in the private sector over which newspapers we read and which airlines we fly.

I think this distinction is overstated. In a democracy, if a government creates bad policies, it can be voted out of office. Competition in the private sector, however, can easily work to encourage phishing rather than stifle it.

One example is the mortgage industry in the early 2000s. Borrowers were encouraged to take out loans that they could not repay when real estate prices fell. Competition did not eliminate this practice, because it was hard for anyone to make money selling the advice “Don’t take that loan.”

The entire article is here.
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