Richard Thaler and Cass Sunstein on Common Biases

In Nudge: The Final EditionRichard Thaler and Cass Sunstein argue that people have evolved to make snap decisions in a wide variety of areas in order to save time and mental energy—we’re more likely to survive if we rely on rules of thumb (largely accurate guides based on experiences in similar situations) when deciding, for example, whether an animal is a threat (if we spend time carefully analyzing it, we might be eaten before reaching our conclusion). They note that while such rules of thumb—also called heuristics or biases—can be helpful, they can also mislead us into making poor decisions.

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Note: Thaler and Sunstein focus on how mental shortcuts can lead us into poor judgment calls, but other writers note that these kinds of gut reactions can be enormously beneficial. In Blink, Malcolm Gladwell argues that judgments made by our unconscious mind, based on limited information and made in fractions of a second, can often prove more accurate than well-thought-out analysis. He says that this is due to the fact that evolution has trained our minds to home in on the most important aspects of a situation and ignore all irrelevant facts. In contrast, our more rational brain tries to give equal consideration to all facts, which can distract us from the most important aspects of a decision.)

Some of the biases that Thaler and Sunstein discuss, upon which many of their nudges rely, include:

o The anchoring bias—when we take a fact we know (or think we know) and adjust it to account for a fact we don’t (Shortform note: Impulsive decision-making favors anchoring bias, so using a simple checklist can help you overcome it.)

o The availability bias—when we answer questions and make judgments on the basis of whether comparable examples come readily to mind rather than statistical probability (Shortform note: In business, you can avoid availability bias by creating diverse teams and seeking broad input.)

o The representativeness bias—when we categorize a phenomenon based on how similar it is to the stereotype of some category (Shortform note: To avoid representativeness bias, ask others to point out when you’re relying on it.)

o The status quo bias—when we stick with our first choice or current situation for no good reason (Shortform note: Marketers often try to overcome consumers’ status quo bias by framing the current status as a losing proposition.)

o The loss aversion bias—when we psychologically feel losses more strongly than gains, and therefore try to avoid them, even if it means we pass up opportunities in doing so or make risky decisions to avoid losses (Shortform note: Studies show that people feel losses more than gains by approximately two to one.)

Note: The names of these biases were coined by various behavioral economists, including Thaler, Daniel Kahneman, Amos Tversky, William Samuelson, and Richard Zeckhauser. They’re widely used today in the field of behavioral economics and are accepted as a basis for many psychology theories in both academic circles and on more informal platforms, like blogs.)

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Nudge was published by Penguin Books (August 2021)

I also highly recommend Daniel Kahneman’s Thinking, Fast and Slow, published by Farrar, Straus & Giroux (April 2013)

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