Interview with “Nudge” Author Richard H. Thaler

Google invited Richard H. Thaler, author of the book Nudge: Improving Decisions About Health, Wealth, and Happiness, to come to the Google campus and talk about behavioral economics. His hour-long presentation is a fascinating trip through irrational human behavior, especially when it comes to how we make financial decisions. Thaler is a professor of behavioral science and economics and the director of
the Center for Decision Research at the University of Chicago's
Graduate School of Business.

Thaler's book explores the seemingly contradictory concept of "libertarian paternalism." He says the two words are extremely unpopular in our culture (especially paternalism) but that they have positive aspects, especially when used together. The libertarian concept is that people should have the right to choose, and paternalism means you should "do what you can to improve the welfare of people." Thaler says that "libertarian paternalism" is achieved through something called "choice architecture," and that choice architects are people who design "the environment in which people make choices," such as menu designers, curriculum planners, and store layout designers.

For example, Thaler and his colleagues created an employee savings plan called "Save More Tomorrow" that allowed people to commit to saving more money at some point in the future, especially after they get a raise. Behavioral research has shown that people are good at making commitments in the future ("I'll go on a diet next month"). It has also shown that people hate seeing their paychecks go down. So the "Save More Tomorrow" plan starts taking out money when people get a raise, but it takes less than the amount of their raise, so they still see an increase in their paycheck. In the companies that have adopted this plan, employee savings has tripled.

You can watch the video above, or alternatively you can watch in it high definition. Additionally, Credit.com offers tools and services to help you establish a savings plan.

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

Mark Frauenfelder Credit.com contributor, editor-in-chief of MAKE magazine and the founder of the popular site Boing Boing, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online. He covers creative DIY projects and how-tos that will help you make the most of your money.