I will not produce a PowerPoint for this session, but below I will provide a brief essay as fodder for the discussion. Part of this is to note that Thaler and Sunstein have some good nuggets to extract, but the picture is incomplete. The Gawande reading should help to fill that in. Also, in places Thaler and Sunstein say things I disagree with and I'd like to put that into some context.
I believe it is helpful to parse health care as follows.
Initiation - This can be either regular "maintenance" a la an oil change for your car or it can be patient initiated because of some problem. Our health care system can be critiqued that there is too little maintenance - the uninsured don't. But it is broader than that, since lifestyle matters. So even insured people who lead an unhealthy lifestyle are under investing in maintenance.
Post Initiation we can divide further into these categories: Diagnosis, Treatment, Repair.
Diagnosis - If this happens as part of maintenance we need to include in this category, "you are in good health." The alternative is "you have problem x." In thinking about malpractice, one issue is whether mis-diagnosis is a big deal or not. Diagnosis is typically done by physical exam, or by having tests (blood tests, x-ray, ekg, etc.) but is also done on occasion by having a procedure (an exploratory operation or a colonoscopy for example). The different modes of diagnosis have differing costs and a question is whether based on the urgency of the purported initial problem one goes for expensive modes first or if one tries the least cost ones initially and then move to more expensive modes only when the early ones produce inconclusive results.
Treatment - Usually this is by drugs or by therapy. So again considering malpractice, there is a question of mis-treatment. Drugs can produce harmful side effects. It is not unusual for a doctor to monitor progress under a given treatment and change the recommended treatment based on what is observed. This is also the issue of whether patients take the treatment or not. Some possible reasons for not taking the treatment are: (a) it is painful, (b) it is time consuming, (c) doing so denies personal freedoms, and (d) the patient forgets. There might be an additional economic reason - the out-of-pocket expense the patient experiences from taking the treatment.
Ignoring the economic reason for a moment because it is probably not in the doctor's sphere of control, there is a question of whether the doctor can influence the patient into taking the treatment by addressing (a) - (d) above and if doctors vary in their abilities to do this. Another piece by Gawande, The Bell Curve, offers a fascinating story about patients with Cystic Fibrosis and the wide variation in outcomes based on differing approaches to treatment. We will not discuss this piece because there isn't enough time to do so, but in relation to Thaler and Sunstein we can raise the relevant question of whether it is malpractice to rely on under-performing treatments. This speaks to question that they raise about whether medicine becomes too conservative. It turns out the high performing treatments are largely experimental and go beyond what is in the published literature.
Repair - Here we are thinking about surgery that is not diagnostic and procedures (like childbirth) that may not involve surgery strictly considered but that take place in a hospital. When one thinks about malpractice this is typically the category that people have in their minds, so to modify the definition in Nudge, malpractice is the negligence during surgery.
Let's next consider outcomes (and here keep in mind the Gould piece on the Streak of Streaks). People have expectations going in about the consequences of treatment and repair as well as about the correctness of diagnosis. When they are unpleasantly surprised - a worse outcome than anticipated - they demand an explanation and are often quite angry because of the outcome. The cause may simply be bad luck, not malpractice, but how is the patient and the patient's family to determine that? One wonders whether the media influence the thought process that happens then, for example via movies like The Verdict.
I believe that Thaler and Sunstein are thinking about Repair only when they make their recommendation to buy the insurance with the largest deductible and it is in that case too where the doctor's premiums for malpractice insurance are highest. But they also seem to have in mind the doctor as a solo practitioner.
The main lesson from the Gawande piece, in my view, is that team production is best practice in medicine and that as a general matter team production will push health care toward treatment and away from repair, but then lower doctor incomes because the big bucks are in repair. When you do have team production where presumably the doctors co-insure, the question then is whether you still want to follow Thaler and Suntein in having patients forego their right to sue up front so they can have lower health care insurance premiums. I'm not sure on that one. It seems to me that to show negligence in the team production case would require "the mistake(s)" to be more egregious and if that is correct perhaps that is sufficient without eliminating the right to sue altogether.