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This book from the co-author of Nudge (Thaler and Sunstein, 2008) has important lessons for public policy and especially financial policy in an era when doubts about “elites” and their unaccountable power is rising. Sunstein’s book arrives as just the latest in an extensive line of his works considering how we might best combine the free markets that have made us wealthy, with the social justice that makes a materially comfortable life worthwhile (Sunstein, 1997). Those of us who favour free financial markets, as engines of financial wealth and risk management, may wish to heed the concerns Sunstein raises in this and related works.
At its broadest, Sunstein’s subject is the drivers of social change. He frequently illustrates this with reference to the struggle for equal rights by women and blacks. But as finance scholars, we might think of the swings in popularity of financial capital; from angels in the mid-1990s to devils in the late noughties. If the inherent relative merits of women, blacks and financial capitalists have remained broadly the same over time, why has our view, and even our laws, changed so much with respect to these groups? If Universal Banks were a good thing in 1995, why did they seem so bad by 2015? If big CEO bonuses were in vogue in the 1980s, why had the tide already turned by the start of the millennium?
I structure my discussion of the book, largely, around the three chapter themes he adopts:
the establishment and evolution of social norms, Chapters 1–3;
nudging, Chapters 4–11; and
how our chosen political philosophy might be informed by developments in behavioural science, Chapters 12–16.
1. Social norms
Social norms evolve, but we are not clear how or why. Laws work best when supported by social norms, against drunk-driving, or racist abuse. But laws also shape our tastes. So as Sunstein puts it “the unthinkable becomes the unthought”(Sunstein, 2019b, p. 9). But initial conditions are important. What if Rosa Parks just sat at the back of the bus? What if Rose McGowan had just thought “that’s just Harvey”; as so many had before?
Similarly Roe (2003) sees social crises and war determining a nation’s corporate governance settlement. So crises are functional in financial markets, but they are...