A book I've reviewed previously, "Fooled by Randomness", mentioned how humans often make irrational decisions. I decided to explore in more depth some of the reasons why we don't always make good decisions, and what can be done about it. 1. "Predictably Irrational: The Hidden Forces That Shape Our Decisions" by Dan Ariely <http://www.amazon.com/Predictably-Irrational/dp/006135323X> Dan Ariely is a professor of behavioural economics. In collaboration with other researchers, he's conducted many social experiments on students and the general public. This book summarises the findings of those and other studies concerning why humans make the decisions they do. Good summaries of the book are available at: <http://bookoutlines.pbwiki.com/Predictably-Irrational> <http://en.wikipedia.org/wiki/Predictably_Irrational> Each chapter investigates particular aspects of, and problems with, our decision making. Numerous published scientific studies are cited, so you know you're not just dealing with a collection of anecdotes or untested hypotheses. Some of the experiments are quite amusing. For example, patrons at a university bar were asked to try a couple of beers: brew "A" was a standard beer, and brew "B" was the same beer with a dash of balsamic vinegar added. How the tasters assessed the brews depended on what information they were given. When they weren't told about the vinegar, they overwhelmingly preferred the vinegar-laced brew! But when they were told about the vinegar, they overwhelmingly preferred the normal brew. This, say the authors, is a result of expectations. The related (and infamous) Coke versus Pepsi taste test is also discussed. The results of these and other studies suggest that our decisions are often not very rational. But it's not all bad news: our decision making may be irrational, but it is usually systematic and predictable. Hence the title of the book. Once we are aware of how our decisions are adversely affected by various conditions, we can learn to improve our decision making. For example, diners often allow the menu decisions of their companions to affect their own choices. This often leads to dissatisfaction with those choices, so the advice is to plan your menu decision in advance and stick to it, regardless of what other people may have already ordered. The conclusion that humans seem to not always make rational decisions challenges one of the fundamental assumptions of standard, free-market based, economic theory. A new field, behavioural economics, has emerged to establish an alternative basis for analysing "economic decisions by consumers, borrowers, investors, and how they affect market prices, returns and the allocation of resources" (quote from Wikipedia). Overall, this book succeeded in being both educational and entertaining. The language is not too technical, and it would appeal to anyone interested in understanding human behaviour. 2. "Nudge: Improving Decisions About Health, Wealth, and Happiness" by Richard H. Thaler and Cass R. Sunstein <http://www.amazon.com/Nudge/dp/014311526X> This book, by two professors from the University of Chicago, seeks to apply the lessons learned about irrational decisions to policy making. Richard Thaler, an economist, is credited with having helped define the field of behavioural economics. Cass Sunstein is a legal scholar, and is interested in government policy and regulation. He's been appointed to President Obama's Administration. The book briefly covers many of the reasons why individuals make poor decisions, as discussed in "Predictably Irrational". Given that we are not always good decision makers, the authors propose "libertarian paternalism" as a way of improving the general well-being of members of society. The "libertarian" part recognises that ultimately individuals should be free to choose what they want. The "paternalism" part recognises that we are fallible, and sometimes need a helping hand when making decisions. In other words, it's about helping people "make the choices [they] would make for [themselves] ‚Äî if only [they] had the strength of will and the sharpness of mind" (from Wikipedia). It's argued that the way choices are presented has a serious impact on the ultimate decisions made. Too much choice can lead people to maintain the status quo (no change) or just accept the default option (no choice). To help people make better decisions, the authors advocate "choice architecture": the presentation of choices in such a way as to overcome some of the causes of bad decisions. In particular: offer sensible defaults options; discourage bad choices; promote positive behaviour; don't overwhelm people with options; and provide feedback. Here is where the book's title, comes in. "Nudging" refers to helping guide people to make better decisions for themselves, rather than relying on governments to impose decisions on them. After presenting the case for the choice architecture, the majority of the book then looks at how this knowledge can guide policy makers to implement "libertarian paternalism" in specific areas, such as health care, social security and the environment. An example is the "Save More Tomorrow" plan, where employees are encouraged to provide more for their own retirement. This is achieved by getting them to voluntarily commit part or all of their future pay rises toward a retirement savings account. Opponents might have issues with the approach suggested in this book. For example, who decides what is good and what is bad? Advocates of a "hands-off" or laissez faire approach to government would not appreciate any attempts to restrict options available to people, even if that means allowing undesirable choices - people should be allowed to make mistakes. On the other hand, some opponents who would argue for more active government intervention in economics policy than just "nudges". The authors say they are trying to find a middle way, so that the greatest number of people can benefit without removing freedom of choice. Individual readers can decide if they agree with the idea of being "nudged" into making better decisions. Ultimately, I didn't find this book quite as satisfying as "Predictably Irrational". That may be in part to its more political focus, but it also may be because the policy examples were very US-centric.