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My book review of "#Nudge Theory in Action": 5 stars

1/1/2017

 
​Excellent book with chapters written by different experts who are wisely skeptical of the "nudges" offered by behavioral economists. They explain how the major assumption made by behavioral economists that individuals act irrationally is incorrect because those individuals are purposefully acting to satisfy their desires given scarce resources and the rule of law. 

To an outsider's perspective, a person's actions may seem irrational, but this determination is made ex-post by a third-party and not the individual making the decision. According to many behavioral economists, they would help nudge the individual, often through government intervention, to a more preferred choice that would help them act rationally. However, this can lead to many problems because the third-party, such as the government, doesn't have complete information or knowledge available. 

There's also a relevant point made that in a free society we are able to "live freely" but we are also able to "fail freely." 

If the government or some third-party is constantly nudging or directing someone towards a certain subjective outcome, there may be fewer times to fail freely so that they can learn by doing and thereby improve their livelihood over time without being forever dependent on the government or others. Self responsibility by sane individuals is essential for human flourishing. 

These sort of nudges and decisions are made by private companies as well to incentivize people to purchase their products. While this may also lead individuals to outcomes that aren't ultimately in their best interest, in a free enterprise system, individuals are able to choose other options and not be locked into a decision or a maze of decisions put in place by government. We must also remember that government officials are human and fallible, so they may act irrationally given this line of thinking. 

The key point is that irrationality is in the eyes of the beholder. Too often the decisions determined or incentivized for sane people by government, which is composed of people acting in their own best interest, reach a sub-optimal outcome that satisfies the desires of the third-party instead of the acting person. 

There's no doubt that behavioral economics is an important field of economics with an insightful theory of how humans act that needs to be researched further, but the policy solutions so far often lead to worse outcomes than the subjectively determined problem. 

I give this book 5 stars because it finally provides an excellent overview of behavioral economics with a sense of skepticism of nudges and the assumptions they are based on. Read it for yourself.
​

https://www.goodreads.com/review/show/1826641937

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    Vance Ginn, Ph.D.
    ​@LetPeopleProsper

    Vance Ginn, Ph.D., is President of Ginn Economic Consulting and collaborates with more than 20 free-market think tanks to let people prosper. Follow him on X: @vanceginn and subscribe to his newsletter: vanceginn.substack.com

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