Whether it’s a restaurant laying out food or a business offering its employees a list of mutual funds in its 401(k) plan or the government presenting different Medicare options, whoever presents choices must frame them in some way. And the framing will affect the decisions. Even “small and apparently insignificant details can have major impacts on people’s behavior,” the authors write. Some ways of presenting the choices may give a gentler “nudge” than others, and we may think some settings are neutral only because we’re so used to them.
As a result, Thaler and Sunstein argue, many of the familiar arguments for why people should simply be left to make choices on their own, and especially for why government should stay strictly out of the way, have little practical force. In many important areas of choice that matter both to the individual and to the rest of us (for example, when overuse of medical care drives up our insurance premiums and our taxes), the operative question is not whether to bias people’s decisions, but in which direction.
If all this sounds paternalistic, that’s because it is. Thaler and Sunstein adopt the deliberately oxymoronic label “libertarian paternalism” to describe their general approach. It’s libertarian in that people retain the right to make their own choices: they’re free to select the savings plan with the lowest projected return if that’s what they really want. But the govern ment — or an employer, or the person in charge of laying out the food in the cafeteria — is nonetheless nudging people in the direction that somebody thinks will make them better off.
Link Posted by Tim at August 24, 2008 02:39 PM | TrackBack