Improving Decisions About Health, Wealth, and Happiness
Richard H. Thaler, Cass R. Sunstein

Top 3 Quotes

  • "If you remember just one thing from this book, let it be this. If you want to encourage people to do something, make it easy."
  • "Figure out why people aren’t doing it already, and eliminate the barriers that are standing in their way."
  • "One of the best ways to make it easy is to make it automatic."

Notes & Summary

  • There's no such thing as a “neutral” design.
  • Choice architects are responsible for organizing the context in which people make decisions.
  • Small details can have major impacts on people’s behavior. Their power comes from focusing people’s attention in a particular direction. Assume everything matters.

Part 1: Biases & Nudges

  • Humans make predictable mistakes.
  • For a host of reasons, people have a strong tendency to go along with the status quo or default option. Defaults are often quite powerful.
  • If private companies or public officials favor one set of outcomes, they can greatly influence people by choosing it as the default.
  • You can often increase participation rates by 25 percent, and sometimes by a lot more than that, simply by shifting from an opt-in to an opt-out design.
  • People think more choice is better. It's not.... the false assumption is that people will make choices that are in their best interest (they often don't).

Biases and Blunders


  • Also called “anchoring and adjustment.” – you start with some anchor and adjust in the direction you think is appropriate.
  • People often choose the middle option.
  • A study found that tip screens with higher default tips significantly increased taxi drivers’ earnings (by increasing the average tip).


  • People assess the likelihood of risks by how readily examples come to mind.
  • Because homicides are much more heavily reported in the news media, they are more available than suicides, and so people tend to believe, wrongly, that guns cause more deaths from homicide than from suicide.


  • Think of it as the similarity heuristic. The idea is that when asked to judge how likely it is that A belongs to category B, people answer by asking themselves how similar A is to their image or stereotype of B (that is, how “representative” A is of B).

Optimism and Overconfidence

  • 90 percent of drivers say they are above average behind the wheel.
  • In one survey of people starting new businesses respondents were asked two questions: (a) What do you think is the chance of success for a typical business like yours? (b) What is your chance of success? The most common answers to these questions were 50 percent and 90 percent, respectively, and many said 100 percent in response to the second question.

Loss Aversion

  • People hate losses. Roughly speaking, the prospect of losing something makes you twice as miserable as the prospect of gaining the same thing makes you happy.

Status Quo Bias

  • People often stick with the status quo. Many married participants who were single when they joined a benefits plan still had their mothers listed as their beneficiaries.


  • People react very differently to the information that “ninety of one hundred are alive” than  “ten of one hundred are dead” (even doctors).

How We Think: Two Systems

  • It is useful to imagine the workings of the brain as consisting of two components or systems. One is fast and intuitive; the other is slow and reflective. Kahneman calls these System 1 and System 2.
  • Example 1: A bat and ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?
  • Example 2: You are one of three runners in a race. At the end, you overtake the runner who was in second place. In what place did you finish?

Resisting Temptation

  • Ulysses tying himself to the mast is an example of a commitment strategy.
  • The simple change of the labels on the hours of the day, calling “six o’clock” by the name “seven o’clock,” just nudges us into waking up an hour earlier. (Location 894)

Mental Accounting

  • Households adopt mental accounting schemes that violate fungibility to control spending.
  • Experimental evidence reveals that people are more willing to gamble with money that they consider house money.
  • Similarly, people are far more likely to splurge impulsively on a big luxury purchase when they receive an unexpected windfall than they are with savings that they have accumulated over time.

Social Proof & Conformity

Social influences come in two basic categories: information and peer pressure.

  • If many people do something or think something, their actions and their thoughts convey information
  • If you care about what other people think about you, then you might go along with the crowd to avoid their wrath or curry their favor
  • Big conformity effects happen when people act in small groups and make their estimates in public.
  • If the confederate spoke confidently and firmly, his judgment had a strong influence on the group’s assessment.
  • Individuals were far more likely to download songs that had been previously downloaded in significant numbers, and far less likely to download songs that had not been as popular. Initial popularity could make all the difference between success and failure.
  • What Salganik and his coauthors found was an “informational cascade,” which occurs when people receive information from the choices of others.
  • Nudges using social influence are most likely to work if coming from people similar to them.
  • If people wrongly think that most people are committed to a long-standing social norm, a small nudge correcting that misperception can inaugurate large-scale change.
  • The winning formulation was to say, “Nine out of ten people in the UK pay their tax on time. You are currently in the very small minority of people who have not paid us yet.”

Part 2: Tools of Choice Architecture

People were more likely to fulfill their goals if they had made explicit “implementation intentions.”

Checklists: Although commercial pilots have flown hundreds or possibly thousands of times, they always go through a formal ritual before every takeoff.

Nudge when the costs come later

At one extreme are what might be called investment goods, such as exercising, flossing, and healthy eating. Costs now, benefits later.

At the other extreme are what might be called temptation goods: smoking, drinking a lot of alcohol, binge-watching old episodes of Friends. Pleasure now, suffering later.

Nudge when feedback is ineffective

Someone can eat a high-fat diet for years without having any strong warning signs until they have a heart attack. When feedback is ineffective, we may benefit from a nudge.

Nudge when it's difficult to predict

When people have a hard time predicting how their choices will end up affecting their lives, they have less to gain from having numerous options and perhaps even from choosing for themselves.

Choice Architecture

For people, Lewin argued that similarly tiny factors can create surprisingly strong inhibitors to behavior. Often we can do more to facilitate good behavior by removing some small obstacle than by trying to shove people in a certain direction.

If you remember just one thing from this book, let it be this. If you want to encourage people to do something, Make It Easy.


We believe that required choice, favored by many who like freedom, is often the best way to go. But consider two objections:

  • Humans will often consider required choice to be a nuisance or worse, and would much prefer to have a good default.
  • Required choosing is often more appropriate for simple yes-or-no decisions than it is for more complex choices... in the extreme, required choosing would imply that the diner has to give the chef the recipe for every dish she orders!

Expect Error

Leaving the gas cap behind is a special kind of mistake psychologists call a “postcompletion” error. The idea is that when you have finished your main task, you tend to forget things relating to previous steps.

Don Norman suggests using a “forcing function,” meaning that in order to get what you want, you have to do something else first. So if you have to remove the card in order to get your cash, you will not forget to do so.

Once a day is much better than once every other day, because it can be incorporated into the morning routine. (Pill container boxes, one for each day, are useful nudges.)

Birth control – The pills for days twenty-two through twenty-eight are placebos whose only role is to facilitate compliance for Human users. (Location 1670)

Give Feedback

Ceilings are usually painted white, and it can be hard to see exactly where you have painted. Later, when the paint dries, the patches of old paint will be annoyingly visible. How to solve this problem? Some helpful person invented a type of ceiling paint that goes on pink when wet but appears white when dry.

Structure Complex Choices

One strategy to use is what Amos Tversky called “elimination by aspects.” Someone using this strategy first decides what aspect is most important (say, commuting distance), establishes a cutoff level (say, no more than a thirty-minute commute), then eliminates all the alternatives that do not come up to this standard. The process is repeated, attribute by attribute (no more than $2,500 per month; a functional kitchen; dogs permitted), until either a choice is made or the set is narrowed down enough to switch over to a compensatory evaluation of the finalists.

Collaborative filtering is an effort to solve a problem of choice architecture. If you know what people like you tend to like, you might well be comfortable in selecting products you don’t know, because people like you tend to share your tastes.


One way to start to think about incentives is to ask four questions about a particular choice architecture: Who chooses? Who uses? Who pays? Who profits?

If the group is large, some people might be inclined to order more expensive items than they would alone, since they are paying only a small share of the extra cost.

The most important modification that must be made to a standard analysis of incentives is salience. Once they acquire the car, the only salient costs of owning will be the stops at the gas station, occasional repair bills, and a yearly insurance bill. The opportunity cost of money spent on the car is likely to be neglected.

Reagan famously said “Taxes should hurt.

Segregate Gains (But Wait, There’s More)

These commercials inevitably utilize a simple mental accounting principle, which is to “segregate gains,” meaning that rather than immediately describing all the products being offered in the sale, some are held out and offered as a special bonus.


What do successful bookstores (and other small retail establishments) have in common? They are good curators.

Small shops compete via curation, while online megastores use navigation tools to make finding and choosing among so many options easy.

Make it Fun

As you know, the first mantra of nudging is to make it easy to take the desired action. A good complement to this advice is to make the desired activity fun.

Speeders would be issued fines, but some of the fine revenues would be distributed via lottery to drivers who were observed obeying the speed limit.

Lotteries are just one way to provide positive reinforcement. Their power comes from the fact that the chance of winning the prize is overvalued.


Perhaps the most basic principle of good choice architecture is our mantra: Make It Easy. If you want to encourage some behavior, figure out why people aren’t doing it already, and eliminate the barriers that are standing in their way. ... Of course, this principle has an obvious corollary: if you want to discourage some behavior, make it harder by creating barriers.

Sludge = any aspect of choice architecture consisting of friction that makes it harder for people to obtain an outcome that will make them better off (by their own lights).

The Unsubscribe Trap

Why can you subscribe just by entering your credit card but have to call long-distance to unsubscribe?


In an experimental study, the authors found that people were unrealistically optimistic about the likelihood that they would jump through all the necessary hoops. People thought there was about an 80 percent chance that they would do so within the thirty days they were given. The actual redemption rate was around 30 percent. (Location 2221)

Shrouded Attributes as Sludge

The ink cartridges are an example of what behavioral economists Xavier Gabaix and David Laibson call “shrouded attributes.”

Some credit cards that charge an annual fee will waive it to anyone who threatens to cancel the card. This is price discrimination via sludge.

Reed Hastings says that his primary message to employees is “Spend company money as if it were your own.” ...

Sludge at the Airport

One successful innovation to reduce the amount of waiting-time sludge has been the introduction of the government’s Global Entry and TSA PreCheck programs, which allow millions of regular airline passengers to go through the process more quickly. This is a genuine sludge buster.

Cookie Consent Sludge

The problem comes when you say no. You are not then painlessly switched over to the article you were hoping to read. Instead, you are asked what appears to be an endless list of questions about cookies in a very small font. Neither of us has actually gotten through this process. We either give up and say yes to cookies or leave the site. (Location 2384)

Enrollment Decisions: Nudging People to Join

The results were striking. In the opt-in system, only 49 percent of employees joined within a year of joining the firm, but once automatic enrollment was introduced, enrollment jumped to 86 percent. Only 14 percent opted out!

Default Investment Options

There is growing evidence that most people would be better off not paying attention to the ebbs and flows of the stock market. In 2019, the financial research firm Morningstar estimated that the average fund investor lost about half a percent per year from badly timed trades.

Do Active Choosers Make Good Choices?

Second, the Active Choosers elected to invest nearly half their money (48.2 percent) in the stocks of Swedish companies. This reflects the well-known tendency of investors to buy stocks from their home country, something that economists refer to as the home bias.

An investor in Germany or Japan looking for a globally diversified portfolio would invest about 1 percent of his assets in Swedish stocks. Can it make sense for Swedish investors to invest 48 times more? No.

Individual investors tend to be trend followers, rather than good forecasters, in their asset-allocation decisions.

In this dream, ads help each consumer discover his own ideal location on what economists call the “efficient frontier”—the place all rational investors want to find. In other words, the advertising helps consumers make better, smarter choices.

Citizens who were nudged by the government and advertisements to become their own portfolio managers steadfastly stuck with that approach, but then they became highly passive. Even a major scandal involving a fund manager did not set off alarm bells.

It seems a good bet that nudges will have the longest life when people are on autopilot, in which case default rules are likely to be sticky.

Part 3: Money

Consider first the purchase of a new television or computer monitor. This is a product for which the user experience depends almost entirely on whether the purchase was a good choice.

And give Rafael Nadal or Roger Federer an old wood racket with thirty-year-old strings and either could still beat Sunstein without breaking a sweat. When it comes to playing tennis, the way the racket is used is more important than the choice of the racket.

Although the contrast is not quite as stark, mortgages are more like monitors and credit cards are more like tennis rackets. ... Unfortunately, many credit card users carry over outstanding debts on several cards, amounting to thousands of dollars. In these circumstances, the way the consumer uses the card is more important than the choice of the card.


When markets get more complicated, unsophisticated and less-educated shoppers will be especially disadvantaged by the complexity... In this market, mortgage brokers who cater to rich clients probably have a greater incentive to establish a reputation for fair dealing in order to create future business. By contrast, mortgage brokers who cater to the poor are often more interested in making a quick buck. (Location 3114)

A study of automobile shopping found that women and African Americans pay about the same amount as white males when they buy a car online, but at the dealership they pay more, even after accounting for other factors, such as income.5 (Location 3155)

Credit Cards

Credit cards serve two functions. First, they provide a mode of payment in lieu of cash. The second purpose of a credit card is to provide a ready source of liquidity if you want to spend more than you currently have in cash. (Location 3159)

Forty-three percent of balances are not fully paid off each month (revolvers), while 31 percent are entirely paid off (the rest have no balance or are inactive).

One study by marketing professors Drazen Prelec and Duncan Simester found that people were willing to pay twice as much to bid on tickets to a basketball game if they could pay with their credit card rather than cash.

That is a simple enough rule: pay the minimum on each card, then pay down the card with the highest interest rate. Yet the researchers find that only about 10 percent of their sample follow something approximating this rule. What do they do instead? There are many possible heuristics people might follow, including pay the same amount on each card, but the strategy that is most common is one the researchers call “balance matching.”

It is not uncommon for households to have money in a checking or savings account earning essentially nothing and have large credit card debts. Whether or not this is a poor choice depends on complicated mental accounting and self-control questions. Having a rainy-day mental account can be sensible, and some households use the balance limits on their cards as a self-control device to limit spending.


Don’t insure the small stuff” is really good advice, but people do not seem to follow it. In fact, people sometimes fail to insure the big stuff! Those living on a floodplain often fail to purchase insurance against a flood and can be wiped out by one of those so-called hundred-year floods that seem to happen about once a decade now.

It is important to understand how deductibles work, because choosing the wrong deductible is the single most common mistake consumers make in purchasing any kind of insurance. When purchasing insurance, choose the largest deductible available. (Location 3297)

Extended Warranties

The general principle that underlies our advice about deductibles is that you want to “self-insure” as many risks as possible.

We recommend setting up a special mental account that we call an On My Own Account. Every time you do not buy the extended warranty, or trip insurance, or decline the collision damage waiver on a car rental (which is probably covered by your credit card anyway), or take a larger deductible on an insurance policy, deposit the money you saved into that account.

Deductible Aversion

On average, policyholders would save about $100 per year in premiums by increasing their deductible from $500 to $1,000. Of course, if they have a claim, they will have to pay up to an additional $500. So, they would have to have a claim about once every five years to break even. Got it? But claims occur much less often than that. In Sydnor’s sample, only about 5 percent of policyholders make claims each year, so increasing the deductible is a really good deal!

Part 4: Society

Only 12 percent of Germans agreed to be organ donors, while more than 99 percent of Austrians had failed to opt out. Amazing!

One useful fact: you are about three times more likely to be a patient in need of an organ than to be an organ donor.

Efforts to reduce greenhouse gas emissions require the imposition of immediate losses. If everyone has to pay some new “climate tax,” loss aversion kicks in.

This is what is often called a “tragedy of the commons.” Each dairy farmer has an incentive to add more cows to his herd, because he obtains the benefits of the additional cows while suffering only a fraction of the costs; but collectively too many cows will eventually ruin the pasture.

A somewhat different claim is that nudges work only if the recipients of the nudge are unaware that they are being nudged. Existing studies find that transparency about nudging does not reduce its impact. In fact, it can easily have the opposite effect.

Compare subliminal advertising to something just as cunning: If you want people to lose weight, one effective strategy is to put mirrors in the cafeteria. When people see themselves in the mirror, they might eat less if they are chubby.

In the right situation, nudges can also accomplish quite a lot at very low cost. But as we have repeatedly stressed, taxes, subsidies, mandates, and bans also have their place. Graphic warnings do not accomplish all that should be done to reduce cigarette smoking.

© 2023 Mike Fiorillo
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