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Evaluation of Nudge Improving Decisions About Health, Wealth, and Happiness Case Solution

Solution Id Length Case Author Case Publisher
683 1999 Words (9 Pages) R.H. Thaler, C.R. Sunstein Harvard Business School : 014311526X
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Thaler and Sunstein have given a framework/model to be connected and utilized over the range of health, riches, opportunity, and different parts of life. They go down their talk of decision structural engineering with demonstrated exploration, trials, and overviews. Authors furnish book readers with data and direction to help make an environment where customers, learners, and scholars will settle on choices to make a healthier, wealthier, and enjoyable way of living.  

Following questions are answered in this case study solution:

  1. Introduction

  2. Biases and Blunders

  3. Resisting Temptation

  4. Following the Herd

  5. Nudge: When is it needed

  6. Choice Architecture

  7. Money: Savings

  8. Money: Investing

  9. Application of Theory

  10. Conclusion

  11. Bibliography

Evaluation of Nudge Improving Decisions About Health Wealth and Happiness Case Analysis

Biases and Blunders

The chapter starts off with a picture which proves the phenomenon of fooling a human mind with illusions. Authors explain the way a human mind thinks by demonstrating it through examples. Thinking system has been divided into two parts; Automatic system and reflective system.  A common reaction through gut is automatic system’s response, whereas logical reasoning is done by the reflective system. Automatic system of thinking can help improve the quality of life by improving the increasing the decision making speed. Since, normal humans do not spend a great amount of time in the investigation of such techniques; they use a few rules of thumb and heuristics to enhance their decision making capability (Thaler & Sunstien, 2008).

i. Anchoring and Adjustment

Anchoring and adjustment refer to the process in which an idea is firmly fixed and is adjusted towards a pre determined direction. It is commonly done situations such as guessing the population of a place by knowing the population of a similarly populated place. The result might end up in biasness as comparisons come into place (Thaler & Sunstien, 2008).

ii. Availability Heuristic

People tend to expect a certain situation more than normal situations if they have experienced it before in their lifetime. An example of a plane crash can help understand the concept; the probability of an it is very low as compared to the common cold, but people will take more pre cautions for it instead of the latter (Thaler & Sunstien, 2008).

iii. Representativeness

In this process, independent options are correlated on the basis of their similar occurrence. However, there’s no particular cause and effect relation between the two occurrences. This results in a bias.

iv. Over Confidence and Optimism

The value of losing a product or a precious thing is more than gaining the same product by a person. This type of biasness can be framed by phrases of optimistic nature.

Hence, people tend to choose some particular rule of thumb techniques to respond quickly, becoming more nudge-able. A choice architect tends to play with these techniques and control people’s ideas through nudge (Thaler & Sunstien, 2008).

Resisting Temptation

There is a high probability that a person might change its planned routine on the exact moment of that planned event. He may choose D over E, but when the moment of choice arrives, he chooses E over D. This inconsistent behavior may be well explained through the following concepts.

i. Temptation

According to the authors, the factor of temptation disables a person to recognize the effect of a particular action. This can cause a change in their decision at the end moment. This concept is also known as the hot-cold empathy gap, where cold is a thought of any desirable thing, and hot is the condition when it becomes a reality (Thaler & Sunstien, 2008).

ii. Mindless Choosing

The other factor of inconsistent behavior is due to the random selection of options. In this state, the mind works as an airplane autopilot system, where it takes a decision on the basis of past experiences without using intellectual and logical reasoning.

Hence, self control strategies are used to resist temptation and act rationally, yet quickly (Thaler & Sunstien, 2008).

Following the Herd

Society plays an important part in the decision making capability of a person sue to the fact of social influence. This may cause a bias in the beliefs and false actions. There are two classes of social influence:

i. Information

Information is passed from a group of people doing a similar thing to a particular person, making him think that it is the best possible solution.

ii. Peer Pressure

Society builds up pressure on individuals so that they have to do what makes them be considered as a normal human being. The fear of crowd makes them change their decisions (Thaler & Sunstien, 2008).

iii. Conformation and its Effect

The book describes that conformation is an important reason of people being nudged on a daily basis. They like to stick to pre determined patterns and norms i.e. Collective conservatism. People may also follow or conform to the traditions on the basis of simple ignorance. The spotlight effect refers to a phenomenon of showing people what others are doing, in order to make them conform or follow the same direction. People can also be primed into the desired direction by placing some simple cues i.e. priming (Thaler & Sunstien, 2008).

Nudge: When is it needed

Nudge is needed when there is a conflict or difficulty in making a particular choice. In asymmetric paternalism, people with least sophistication are helped while causing minimum damage to the whole society.

i. Benefits/Costs

The separation of choices and effects of those choices with the regard of time causes issues relating to self control. In the case of investment goods, costs are faced much earlier than benefits, whereas in the case of negative (harmful) goods, it’s the opposite.

ii. Degree of Difficulty and Frequency

The nature of choices with regard to their difficulty level makes the concept of nudge an important one. Similarly, it is used when the issues are new, and their solutions are unknown. Frequency of problems causes difficulty in selection.

iii. Feedback

Problems in which there is no feedback for the selection of proper choice would require the assistance of a nudge (Thaler & Sunstien, 2008).

Choice Architecture

A perfect choice architect should carefully design the selection strategy and ensure there is no confusion in the automatic system. The six attributes of perfect choice architect are

i. Default Option

A default option assumes a particular choice and takes action when the decision making person is doing nothing. The example of auto renewal of magazine subscription explains this concept clearly.

ii. Expectance of Error and Provision of Feedback

A properly developed system expects its users to make mistakes and is prepared to include this possibility in the system, as well. It also provides proper feedback for performance improvement (Thaler & Sunstien, 2008).

iii. Welfare

A proper system of choice architect helps the decision makers to choose the best possible solution for the betterment of themselves as well as the society.

iv. Complicated Options and Incentives

A choice architect must convert complex options into simplistic ones, or make the simpler ones available for the decision maker to take action quickly. They should think of an incentive strategy while developing a perfect system (Thaler & Sunstien, 2008).

Money: Savings

The crux of chapter 6 of this book is that humans are bad savers. They require different strategies and plans in order to be good in the process of saving. Authors have explained two types of programs, which can help in the development of an effective system for money saving (Thaler & Sunstien, 2008).

i. Automatic Enrollment

It is a system of forcibly increasing the level of savings of people resulting in the formation of a conservative system. This system can also result in low saving rates due to its conservative nature. A better option against this strategy is that people are given time to select their own choice through individual research, and let the target be met by them. Employers can train their employees to assist them in the decision making process (Thaler & Sunstien, 2008).

ii. Save More Tomorrow

The program says it all by its name; save more tomorrow. It encourages employees to save for their retirement plans. Employers may enlist them into an automatic retirement plan to increase the level of savings. According to the book, decision makers must strive for a better option because they might get only one chance for selection in their lifetime.

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