Issue 35, Fall 2008

William A. McEachern, Editor

The Grapevine

Another book that underscores bad choices is Nudge (Yale University Press, 2008) by Richard H. Thaler of the University of Chicago and Cass R. Sunstein of Harvard Law School. Nudge hits some of the same notes as Predictably Irrational. "Drawing on some well-established findings in social science, we show that in many cases individuals make pretty bad decisions—decisions they would not have made if they had paid full attention and possessed complete information, unlimited cognitive abilities, and complete self-control"(p. 5). Thaler and Sunstein propose what they call libertarian paternalism—measures to "nudge" us towards choices that will make our lives better. The idea is not to block bad choices such as smoking or overeating, but to intervene in a way that is "relatively weak, soft, and nonintrusive." Keep in mind that many smokers, drinkers, overeaters, and couch potatoes are already willing to pay third parties to help them make better choices. One nudge to help people improve their performance is feedback. For example, a well-designed college course should offer lots of feedback, telling students when they are doing well and when they are not.

In keeping with an irrationality theme, I'll also mention Bryan Caplan's book, The Myth of the Rational Voter (Princeton University Press, 2007). Caplan, from George Mason University, argues that voters systematically favor irrational policies. He identifies four "biases" that cause voters to support measures that make them worse off. First, people don't realize that the pursuit of profit usually promotes the general good: they have an anti-market bias. Second, they underestimate the benefits of interacting with foreigners: they have an anti-foreign bias. Third, they believe that prosperity arises from employment rather than from production: they have a make-work bias. And fourth, they tend to think economic conditions are worse than they actually are: they have a pessimistic bias. Politicians often reinforce these biases. Caplan believes economists could be more enlightening: "When economists choose between communicating (a) nothing, or (b) simplified but roughly accurate conclusions, they strangely seem to prefer (a). When you have an entire semester with a group of students, they forget all but the main points. If you fail to hammer a few fundamental principles into your students, odds are they will take away nothing at all. Yet in the dozens of economics courses I have taken, the professors rarely took their constraint seriously. Many preferred to dwell on the details of national income accounting, or mathematical subtleties, or the latest academic fad" (pp. 199-200).

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