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Hardcover
293 pages
ISBN 9780300122237 Published April 2008
Yale University Press
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Posted Jan. 8, 2009 10:54 a.m. by 800-ceo-read
Free Market Madness: Why Human Nature Is at Odds with Economics and Why It Matters by Peter A. Ubel, Harvard Business School Press, 272 pages, $26.95, Hardcover, January 2009, ISBN 9781422126097
Peter A. Ubel is a physician, so how is it that he ended up writing a book about the intersection of psychology and the free market for one of the most prestigious business publishers in the country? The quick answer is that he knows what he's talking about. The long answer is that he has "spent the better part of fifteen years researching the forces that influence the way people make decisions" and directs the Center for Behavioral and Decision Sciences in Medicine at the University of Michigan.
There has been a rash of behavioral economics books published recently that challenge the traditional view that human economic behavior is essentially rational. While most of the other books in the genre are subtler in their critique of that view, with titles like Nudge, Sway and Predictably Irrational, Ubel openly challenges the ways he believes traditional economics have failed us. Despite the book's title, though, Ubel is in no way anti-free market. He recognizes the tremendous wealth "of both opportunity and of consumer goods," that free markets have created, but also recognizes their fallibility.
With the meltdown of the economic system, there has been a lot a clamoring for more regulation of markets recently, but Ubel's critique is not a response to that crisis. His book is in response to "free market evangelists" who believe the market is the solution to every human ailment, even if it's an ailment the market itself seems to have created--such as the alarming increase in obesity in this country. As a physician on the front lines of the obesity battle, Ubel concentrates much of his focus on that problem, which he sees as a clear market failure. The problem, as Ubel sees it, is that those marketing products have spent so much time and money studying our behavior that they know more about how we make decisions than we do.
As you would expect from any book published by HBSP, Free Market Madness is well researched and intellectually engaging. Ubel weans us into the heavier issues with a brief history of both traditional and behavioral economics, while introducing us to the major players in each fields' development. Ubel definitely has a point of view and an agenda in this book, and as a self-described "flaming moderate" uses his platform to clamor for a middle way between free market evangelism and what critics of market regulation call a "nanny state." Regardless of whether or not you agree with the author, you will find the history and examples he provides a good addition to this ongoing conversation.
Jack Covert Selects - Nudge
Posted April 11, 2008 7:13 a.m. by 800-ceo-read
Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard. H. Thaler and Cass R. Sunstein, Yale University Press, 304 pages, $26.00, Hardcover, April 2008, ISBN 9780300122237
Every layout and piece of input we interact with influences the decisions we make each day. At the grocery store, product placement plays to our impressionable nature with candy stocked near the cash register. Our magazine subscriptions renew automatically because the magazine companies know busy subscribers rarely take the time to unsubscribe, even when magazines begin to pile up on our kitchen table. Our cars remind us with an annoying beep to buckle up. When it comes to what influences our decision-making, authors Richard Thaler and Cass Sunstein explain that, "A good rule of thumb is to assume that 'everything matters.'"
That's where Nudge comes into play. Thaler and Sunstein are believers in libertarian paternalism, a belief combining two seemingly disparate ideas. The libertarian aspect reflects the belief that, "in general, people should be free to do what they like--and to opt out of undesirable arrangements if they want to." The paternalistic side seeks to influence "choices in a way that will make choosers better off, as judged by themselves." That is, the choices stay the same; it is the presentation of the choices that may change.
Take retirement plans, for example. One application of libertarian paternalism would be a human resource manager electing for an automatic annual renewal of employees' 401K benefits. Employees would be free to leave the plan at any point. The automatic renewal would simply remedy our tendency to be forgetful and push things off until the last minute. This nudge, Thaler and Sunstein would argue, would be in the best interest of the employees. Most of us would agree we would be better off in the long run.
There are numerous applications for nudges that can, and do, exist. As the authors point out, one of the first misconceptions is that "it is possible to avoid influencing people's choices. In many situations, some organization or agent must make a choice that will affect the behavior of some other people." They go on to imbue readers with six factors that influence our choices, hoping that with this knowledge, companies, governments and choice architects will guide people responsibly with small nudges. With Nudge, Thaler and Sunstein show that liberty and guidance can be the right combination to help people make smarter decisions.
