More and More Little Wins

Since I read Nudge by Richard Thaler a few years back, I’ve been happily surprised how quickly the idea of “nudges” is spreading around the world. In a recent New York Times piece, David Brooks catalogues many successful nudges, notably in places like Kenya and Zambia. David Cameron is a noted supporter of using the gleanings of behavior economics to get citizens in the UK to “do good by default.”

The way nudges work is that governments and organizations set up “decision architecture” such that the default option–or an easy option–has a socially beneficial outcome. A well known nudge is making the default option in organ donation “yes.” (In the past the default option was nearly always “no organ donation.”) A more whimsical one is to put some kind of target–say a picture of a fly or seashell–inside men’s urinals to induce them to aim better.

The most important findings of behavioral economics are that humans often do not make rational decisions…but they’re predictably irrational (in the words of scholar Daniel Ariely).  Scientists like Amos Tversky and Daniel Kahnemann pioneered studies that showed subtle biases and decision-making “errors” that humans make in some situations. That said, just as we are sometimes led astray, we can use behavioral economics to unconsciously guide people to make prosocial decisions while allowing individuals freedom and control to make decisions.

Brooks’ examples from Africa were most intriguing to me:

“Too many people die in auto accidents. When governments try to reduce highway deaths, they generally increase safety regulations. But, also in Kenya, stickers were placed inside buses and vans urging passengers to scream at automobile drivers they saw driving dangerously.”

“In Zambia, hairdressers were asked to sell female condoms to their clients. Some were offered financial incentives to do so, but these produced no results. In other salons, top condom sellers had a gold star placed next to their names on a poster that all could see. More than twice as many condoms were sold. This simple change was based on an understanding of the human desire for status and admiration.”

Now these behavioral economics inspired nudges are not going to end malaria or cure cancer, but this kind of clever policy making can have an impact. Nudges like these can get well-meaning programs–like the female condom scheme in Zambia–to perform better. And while I don’t think that a sticker encouraging Americans to yell at drivers would work in our culture, I do like how the Kenya government encouraged its citizens not to stand for dangerous behavior. At their best, nudges get people to make small, prosocial decisions at the grassroots level. Like the improvements in life that this blog chronicles, nudges bubble up from the bottom and make the world a better place.

Taking Nudges

We all hate it when someone tells us what to do, even if “it’s for our own good.” But what if it is for our own good? We’ve all experienced or seen “penny wise, pound foolish” thinking and behavior. It’s easy and satisfying to save 50 cents on a can of green beans at Safeway, but it takes more effort to make sure your will is up to date and that you have enough life insurance. Humans have a stubborn habit of focusing on easy, salient, and low-stakes decisions, while overlooking the more effortful but important high-stakes decisions (like end-of-life planning and shopping for insurance). I’m definitely guilty of this. When my retirement funds needed tweaking, I told myself “You’ll make money either way.” This is clearly pound foolish thinking.

In the book Nudge, written by Richard Thaler and Cass Sunstein (2008), the authors want people to do things for their own good by setting up “nudges” so that default decisions are the optimal ones. They argue that every decision is nestled in “choice architecture”–essentially, how the choice is framed. The choice architecture of each decision nudges the decider into a more likely  decision outcome. One example they give is organ donation. In many countries, the default option for organ donation is to donate. In the US, the most common default is “no donation.” What if we were to change the choice architecture so that the default is “donation” and those who don’t want to donate have to opt out?  Organ donations would skyrocket and many lives would be saved.  This still gives us Americans our “precious” freedom but improves the outcome.

Nudges go to the heart of the “homo economicus” vs. behavioral economics models of economic decision making. Man as “homo economicus” rationally makes a choice in an effort to maximize utility. The more realistic behavioral economics model says humans often don’t maximize utility because their “rational” behavior is colored by cognitive biases and sub-optimal heuristics. In short, we humans often make bad decisions even when the facts are all available.

The British government has gotten into the nudging act. Here is a list of things they have done to nudge people into “better” decisions (from New York Times):

Retirement Savings

Since the government switched pension plans from opt-in to opt-out at large companies, the proportion of employees with a workplace pension has risen to 83 percent from 63 percent.

Organ Donation

The most effective question to nudge people to join the organ-donor register is: “If you needed an organ transplant, would you take one?” Scaled up to the whole population of Britain, this could add 96,000 extra organ-donor registrations a year.

Court Fines

Sending a letter to people who haven’t paid court fines gets a compliance rate of only about 5 percent. A personalized text message raises the amount they pay by more than 40 percent.

Charitable Giving

Simply asking people whether they want to leave money to charity when they are drafting their wills doubles legacy giving. First telling them that many people do leave money to charity, and asking what causes they care about, triples it.

http://www.nytimes.com/2013/12/08/business/a-few-findings-of-britains-nudge-unit.html?ref=international

Most of us set up nudges to help us do want we need to do but may not want to. I set up my tax appointment with my accountant as early as I can to nudge me to do my taxes ASAP. At night I put out my workout clothes to nudge me to go to the gym when I wake up. I keep the healthy food out on the counter and stow away the candy and chocolate. These nudges don’t determine my behavior, but they do make it more likely I’ll make a better decision.

Nudges have the capacity to bring about positive changes at the personal, national and international levels.