Nudge
AtulRichard Thaler and Cass Sunstein argued in their influential book, “Nudge”, that if we redesign our daily environment in such a way that it makes it easier to do things that we want to do and more difficult to do things that we want, it is more likely that our behavior would change in the long run.
One of the forms of Nudge is to use checklists for decision making systems based on the appropriate criteria to aid the decision making of the person. In a research that focused on the decision making of the doctors, use of a tool improved decision making of the doctors by them focusing on the clinical factors identified by the tool.(1) This aid for the decision making was more effective than either the fast, expert decision making or the slow, deliberate decision making of the doctors. Atul Gawande argues about the effectiveness of simple checklists in his book, “The Checklist Manifesto”. He talks about the similarity in decision making by the doctors and the pilots at Boeing where he got this idea of using checklists.(2)
The purpose of the checklists or computer aids can be seen as a nudge towards the right behavior by making it easier for the doctors to do the right thing and more difficult for them to do the wrong thing. It also acknowledges the ignorance of the experts and their fallibility under unexpected situations. In Gawande’s words, "Partly I think we have a hard time admitting weakness. And one of the things we have to grapple with is that we have to assume we are fallible, even as experts." When we accept the possible holes in our expertise and shift to making a decision with that knowledge of our fallibility, our decision making improves substantially.
One of the strategies that most financial planners recommend to their clients is to take the savings money out first and then spend the rest than what is usually done by people. Warren Buffett is reported to have said, ““Do not save what is left after spending. Spend what is left after saving.” This is again a great example of Nudge. When you automatically transfer money to your investment accounts every month as soon as you receive your salary, you tend to learn to live on the rest of the money. When a practice is ingrained in your behavior, it becomes an automated habit that can sustain.
