The one-sentence summary

Every human being, no matter how diverse, complies with economic logic.

WHAT THE BOOK SAYS

• If humans are so clever, why do we smoke and gamble, or take drugs and fall in love? Is this really rational behaviour? And how come your idiot boss is so overpaid?
• In fact, the behaviour of even the unlikeliest of individuals complies with economic logic, taking into account future costs and benefits, even we don’t quite realise it.
• Rational choice theory affects most things, and can sit happily even with the most passionate emotions.
• Most things can be explained: overpaid (apparently useless) bosses, proximity to neighbours, racism, and divorce decisions.
• Rational people respond to incentives: when it becomes more costly to do something, they will tend to do less. In weighing up their choices, they will bear in mind the constraints on them, and their total budget. And they will consider the future consequences of present choices. This applies just as much to prostitutes and criminals as it does to anyone else.

WHAT’S GOOD ABOUT IT

• The idea that everybody responds to incentives and consequences may have wider application than we think.
• Game theory (Von Neumann) uses rational decision making to analyse every decision in a way that should lead to calmer, more beneficial decisions, but it is hard for the layperson to implement. Most of us just follow the ‘wisdom of crowds’ principle, but don’t adjust our guesses.
• Human interactions are so shot through with ambiguity that they are better viewed as focal points (Schelling): where and when would two people who can’t talk meet each other in New York?
• Tournament theory means that workers sabotage one another to win the top job: the bigger the boss’s pay, and the less they have to do to earn it, the bigger the motivation for everyone else to aim for it.
• ‘Egonomics’ is mental civil war: should I smoke or not? All humans wrestle with such conflict.
• For every year that a woman delays having her first child, her lifetime earnings rise by 10%.
• The ‘death of distance’ doesn’t make the world flatter, it makes it spikier, with evermore activity taking place in cities – centres of innovation and idea exchange.
• The rate of technological progress is proportional to the world’s population – currently we should have a world-beating idea every two months (1 per billion people per year).

WHAT YOU HAVE TO WATCH

• Nothing, but don’t expect any charts or easy sections.

The one-sentence summary

People will make irrational decisions if left to their own devices.

WHAT THE BOOK SAYS

• We usually think we are rational beings but the science of decision-making would suggest otherwise. Logical thought can be subverted or ‘swayed’ in many ways
• Irrational behaviour can be perpetrated by the most experienced and well-trained people, including pilots and doctors
• Common reasons are: overreacting to a potential loss, taking dangerous risks when a lot is at stake, refusing to withdraw even with a small loss, misjudging something because it is in the wrong context, and being prejudiced by prior information
• Our brains have two particularly different parts that are constantly struggling with each other: the ‘pleasure centre’ wild side that gets a kick out of taking risks, shopping, winning money etc., and the ‘altruism centre’ that does the best for others and always seeks reasonable compromise
• Sometimes it just doesn’t seem worth the bother to dissent from the prevailing view, so many people stay quiet when the majority have got it wrong – particularly for an easier time at work

WHAT’S GOOD ABOUT IT

• There are scores of examples from anthropology, aviation, sports and politics to illustrate the points
• The narrative rolls along nicely – more story than text book
• The thesis is a useful complement to, and development of, many other social theory books of recent times: Freakonomics, Nudge, Herd, and The Tipping Point

WHAT YOU HAVE TO WATCH

• It is this very similarity to so many other books that makes it potentially derivative. Although in theory it is original material, sometimes it feels too similar. A shorthand for separating them is:
• Freakonomics: patterns of social behaviour can be rooted in linked causes
• Herd: huge numbers of people simply copy each other because they are social
• The Tipping Point: little things can make a big difference
• Nudge: providing different options or small incentives can change mass behaviour
• Sway: irrational behaviour can affect even the best-trained and the most experience people

Another combined podcast this week featuring Nudge by Richard Thaler and Cass Sunstein (book summary posted last year – see Thaler & Sunstein right) and Sway by Ori Brafman and Rom Brafman (summary to come).

Download 03 Nudge and Sway

The one-sentence summary

People will make irrational decisions if left to their own devices.

WHAT THE BOOK SAYS

• The book is a discussion of how we can apply the new science of choice architecture to nudge people towards decisions that will improve their lives by making them healthier, wealthier, and freer.
• It is much loved by politicians, because it adds modernity and legitimacy to what could otherwise be criticised as blanket social engineering. The book is keen to emphasise that it is, politically, neither left nor right.
• Every day we make decisions on topics such as personal investments to schools and what our children eat. Unfortunately, we often choose poorly.
• If we take our ‘humanness’ as a given, we can understand how people think and design choice environments that make it easier for people to choose what is best for themselves – a nudge in the right direction without restricting freedom of choice.

WHAT’S GOOD ABOUT IT

• There are scores of examples from everyday life that make the point. A director of food services in schools can increase or decrease the consumption of various foods by as much as 25% simply by rearranging where they are in the cafeteria.
• Behavioural economists borrow from psychology in recognising that the mind can fool itself. In a visual context, we are quite capable of looking at two identically sized tables and being convinced that one is bigger than the other.
• The ability to be so ‘smart and dumb’ at the same time can be attributed to our Automatic System (instinct rather than actively thinking) versus our Reflective System (more deliberate and self-conscious).
• There is an acronym to remember the main themes:

iNcentives: people have to feel they are getting something for their choice

Understand mappings: you have to understand how they see things

Defaults: make sure the ‘do nothing’ route is one of the best
Give feedback: investigate the rejected options, and experiment with them
Expect error: humans make mistakes, so well-designed systems allow for this
Structure complex choices: if it’s difficult, break it down into easier chunks

WHAT YOU HAVE TO WATCH

• It is a ‘medium’ read. Some would call it heavy economic theory, others a welcome relief from much denser academic material.