Book Review: Nudge

“So to put it simply, forcing people to choose is not always wise, and remaining neutral is not always possible.”

Nobel Laureate Richard Thaler and Cass Sunstein present a compelling argument for using choice architecture to nudge people into making the better choice from amongst the available options. More broadly the authors advocate for libertarian paternalism; the idea that people should be free to make decisions for themselves (libertarian) conditional on providing a nudge for the more ideal decision (paternalism).

The paternalism part of their philosophy originates from the observation that people are not perfectly rational. They are prone to biases, such as the self-serving bias, the money illusion, the tendency for collaborative filtering and much more. These biases prevent people from making the best available choice for themselves across all aspects of life, from retirement planning to preventing environmental damage. The authors caution that in the absence of paternalism practicing libertarianism could lead to bias-influenced ineffective decisions, thereby rooting the need for paternalism.

The authors provide a curated reading experience. Slowly building the tempo. They start with some less controversial fields such as 401 contributions and organ donation, wherein libertarian paternalism has yielded positive results. Having laid some credibility, they build up to more controversial fields such as privatizing marriage and modifying doctor-patient relationships under the tenet of libertarian paternalism. Finally, they defend their stance against some counter-arguments point by point. The book is a great example of literary swordsmanship.

Nudge is a book replete with knowledge and ideas. It provides an interesting insight into the current inefficiencies, a plausible explanation and solution for it. The concepts introduced in Nudge are applicable across many, if not all spheres of life. In addition, the book has some useful everyday tips, on topics ranging from buying warranty to investing in index funds. As such, everyone can gain something by experiencing the literary swordsmanship of Nudge.

Book Review: The Undoing Project

“The big choices we make are practically random. The small choices probably tell us more about who we are.”

Michael Lewis narrates the emotionally and intellectually engaging tale of how Daniel Kahneman and Amos Tversky presented the researched, highlighted and presented the oft ignored role of bias in human decision making in The Undoing Project. Lewis presents this academic pinnacle through a personal lens, describing the breakthrough as a product of a poetic friendship. The mix of poetry and scientific prose makes The Undoing Project a unique read.

Kahneman and Tversky famously formulated prospect theory which postulates the biases that lead to seemingly irrational decisions. Concepts such as the isolation effect, loss aversion, risk seeking in the domain of losses, framing effects, which are now well-known and applied across many fields, were born out of the experiments, experiences and discussions of Kahneman and Tversky. Lewis presents his retelling of how this came about. He spends considerable time describing the formative experiences themed around the anti-Semitic movement in Europe and then in Israel, which contributed differently to the lives of both.

Having set the stage, the builds up the scientific and emotional tempo as he narrates how the melding of these two minds led to the discovery of biases. Lewis emphasizes the importance of their work by highlighting how professions ranging from medicine to professional basketball were impacted for the better by it. The book culminates by describing how Kahneman heard the news of being a Nobel prize recipient for his work on prospect theory.

The undoing project forms a gripping read. However, those who are looking at the book for an academic understanding of how the prospect theory came to be, might be a bit disappointed. Overall, The Undoing Project is almost certain to leave you with a lot of food for thought. It could be about the beauty and unpredictability of human relationships or about the predictable errors in human perception and decisions.

Book Review - Scarcity: Why Having Too Little Means So Much

"The problem is not the person but the context of scarcity"

Mullainathan and Shafir introduce a new way of thinking about the impact of scarce resources in Scarcity. The book is explains how having less to accomplish a certain goal forces us to ignore other goals. The compounded effect of this ignorance leads to a lifestyle defined by lesser resources for all goals, at all times. If this resource is time, it describes the busy, if this resource is money, it describes the poor. Both conditions lead to ignoring other goals, ones that are not immediate. The authors emphasize how irrespective of whether the initial scarce resource is time, money or something else, it leads to a scarcity of bandwidth for other priorities, this in turn leads to inefficiencies and threatens to trap the individual in their busy or poor state.

Scarcity is about familiarizing the reader with some of the mechanics of a mind faced with shortage of a resource. The authors demonstrate how the cognitive performance of an individual changes with their financial state. This leads to individuals taking higher risks, borrowing and planning less for the future. They emphasize how this is a generic human behavior, not a phenomenon endemic to a subsection of the population. The poor are not necessarily bad at managing their finances, they just don’t have the mental bandwidth to take the longterm view of their finances. Similarly, the busy are not bad at prioritizing, they just don’t have the mental bandwidth to take stock of all their current and future priorities. Adopting this attitude can help provide more effective improvements to the situation of the poor and the overly busy.

Scarcity proposes to a new way to look at age-old issues. It suggests that maybe what we deigned as causes (lack of analytical and cognitive skills) are in fact the symptoms of these issues. Therefore, we should seek a solution for them instead of blaming them. The authors bring together the perspectives offered by economics and psychology, to present a more holistic picture of a mind living in scarcity.