Author

Richard H. Thaler, Cass R. Sunstein.

Year

2008

Review

What is it about? Was it worth reading?

While I appreciate the frameworks presented in this book, they could be a touch more practical. However, the book provides numerous inspiring examples of nudges that effectively demonstrate the power of choice architecture in behaviour change. The author's insightful and thought-provoking commentary encourages choice architects to critically analyse their decision-making processes. Choice architecture and the use of nudges are topics that deserve our attention as they have the potential to bring about meaningful and impactful change.

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Designing for Behaviour Change

I made product management my profession, I’ve long been a fan of Behavioural Economics and Atomic Habits is one of my favourite books, so I was always going to like this book. It builds on prior theory, but the authors contribution is to present a few easy to follow frameworks to apply behaviour change principles to product management. Given most product outcomes are reliant on changing people’s behaviour, this is a worthwhile read for anyone building products.

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Hooked

The book details how habit-forming products are created using the Hooked Model. It covers the four phases of the model - Trigger, Action, Variable Reward, and Investment - and provides insights on designing products that capture users' attention and become habitual. It emphasizes the importance of understanding internal and external triggers, making actions easy to take, providing variable rewards, and encouraging user investment.

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Don't Make Me Think

The web has evolved significantly since this book was published; but for the most part the principles outlined will remain timeless. The principles are mostly common sense, but the author states them concisely and clearly. The practical recommendations for usability testing are spot. Start early. Doing more rounds is going to be more impactful than iterviewing more participants.

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Key Takeaways

The 20% that gave me 80% of the value.

Choice architects organise the context in which people make decisions. You can be one without knowing it.
Small details can have a major impact on behaviour, so assume everything matters. There is no such thing as a neutral design.
Libertarian paternalism is an approach that aims to preserve choice while guiding people towards making choices that align with their interests.
A nudge is when a choice architect alters behaviour in a predictable way without restricting options, or changing economic incentives.
Economic theory often relies on people being rational ‘Econs’ but Nudges only work because we’re human.
Humans are fallible. We have to make thousands of decisions each day. We can't afford to think deeply about each one, so we take shortcuts. These rules of thumb help, but they can lead us astray, especially in challenging or unfamiliar situations. People are ‘nudgable’ even in life's most important decisions. We can be influenced in ways 'Econs' wouldn't be.
Biases and blunders are how and when people systematically go wrong. Here’s a few:

Anchoring: when we start with an initial anchor (that could be irrelevant) and make insufficient adjustments.
Availability: when we assess the likelihood of an event based on how readily examples of that event come to mind.
Representativeness: when asked to judge how likely it is that A belongs to category B, people answer by asking themselves how similar A is to their stereotype of B.
Overconfidence: 90% of drivers think they’re above average behind the wheel. Unrealistic optimism explains a lot of risk-taking and why lotteries are successful.
Loss aversion: The fear of losing something makes you twice as unhappy as the joy of gaining the same thing makes you. Loss aversion leads to inertia, as you are hesitant to let go of what you have.
Status quo bias: the tendency to stick with the default option due to a lack of attention or adopting a "yeah, whatever" mindset.
Framing: The way a problem is described can significantly influence our choices. People react differently to being told ‘90/100 will survive the operation’ than to ‘1/10 will die’.

We think in two systems, the automatic system (fast and intuitive) and the reflective System (slow and reflective). The automatic system acts rapidly and instinctively, it is associated with oldest parts of the brain. The reflective system is more deliberate and self-conscious. Designing policies that allow people to rely more on their Automatic Systems can improve their lives.

Temptation and mindlessness can contribute to our inconsistency in decision making. We don't forecast self-control problems well because we underestimate the influence of the arousal effect in the moment. The Planner promotes long-term welfare but is in conflict with the strong will of the 'doer' who is exposed to the temptations that come with arousal.
Self-Control Strategies:

Make a pre-commitment so you're rewarded for the right behaviour: E.g. you could give your professor your student loan, only to be released if you hit PHD essay checkpoints.
Requirements and bans (e.g. driving without a seatbelt fastened) aren't 'libertarian paternalism' but can be a good idea when third-party interests are at stake.
Christmas clubs helped adults save for Christmas, but they were usurped by credit cards.

Humans are influenced by other humans, even when they shouldn't be. Two powerful effects can influence us and cause us to ignore evidence:

We overweight information that is conveyed by other people's choices.
Peer pressure and the desire to fit in and avoid disapproval from the group.

The Confidence Heuristic: We think confident speakers must be correct. Consistent and unwavering people can sway groups to their way of thinking.
Collective Conservatism: Groups stick to established patterns even as new needs arise.
Informational cascade: As people reveal preferences in turn, they can nudge those who have not yet revealed theirs.
Pluralistic Ignorance: Ignorance about what other people think can result in us following social practices we don’t believe in. Things can quickly change when you become aware of what others actually think.
Informing people about what others are thinking and doing can make a powerful nudge. Tax reminder letters become more effective when you’re reminded 90% pay on time.
People respond to norms set by others in similar settings and circumstances (more so than celebrity influencers).

Given we can’t avoid choice architecture we should offer nudges that are most likely to help and least likely to inflict harm.
Nudges are most helpful in situations where choices are difficult, infrequent, require scarce attention, have delayed effects, offer poor feedback, or have an ambiguous relationship between choice and experience.
The most common mistake we make it to forget something. Our attention is limited. Sending well-timed prompts can help. Reminders are ubiquitous and make terrific nudges.

You can increase election turnout by 4% by eliciting implementation intentions. Call folks and ask them about their plans to vote: What time will you go? What will you be doing beforehand? How will you get there?

Checklists are powerful nudges and can empower junior employees to speak up.
Time gaps between choices and consequences cause self control problems. Nudges can help when consequences of choices aren’t immediate:

Investment goods: invest now, get rewards later (exercise, healthy eating)
Temptation goods: enjoy now, face consequences later (smoking, alcohol, Netflix)

Free markets don’t solve for these problems, because of the time, more money can made by catering to human frailties than by helping people to avoid them.

If you want to encourage some action or activity, make it easy.
Defaults: Many people will choose the option that requires the least effort or follows the path of least resistance (inertia, status quo bias, 'yeah, whatever' heuristic). If there is a default option, expect a large number of people to end up with that option. People are more likely to do nothing if there is a suggestion that it's the normal or recommended course of action.

Choice architects should choose defaults in ways that are self-serving or welfare enhancing. Nudge for good!

Required choice (or mandated choice) is when you remove the default and false a choice. Doing so overcomes inertia, inattention, and procrastination; you can find out what people prefer, without having to guess.
Expect Error. Humans make mistakes, systems should expect error and be as forgiving as possible.

Cars automatically switch on headlights when its dark and turn them off when you stop.
Diesel fuel nozzles won’t fit in petrol cars.
Post-completion error: is when you forget to do things after completing your main task. ATMs stop you forgetting your card by making you remove it before cash is dispensed. This is called a ‘forcing function’.
Gmail provides prompts to users who mention the word "attachment" but fail to include one.

Feedback: well-designed systems tell people when they are doing well and when they are making mistakes.

Laptops encourage us to plug in when battery is low.

Mappings are the relationship between choices and outcomes. Good choice architecture helps people to improve their ability to map choices to outcomes and select options that will make them better off.

Make information about options more comprehensible (e.g. transform numerical information into units that translate more readily into actual use).

When faced with a small number of well-understood alternatives, we’ll examine all the attributes of all the alternatives and then make trade-offs. When faced with many choices, we must use alternative strategies.

Elimination by aspects: is one strategy. People decide on what aspect is most important. establish a cutoff level, then eliminates all options that don’t comply. Then they repeat attribute by attribute until either a choice is made or the set is narrowed down enough to switch over to a compensatory evaluation of the finalists.

BUT options that don’t meet the minimum cutoff level may be eliminated even if they are fabulous on all other dimensions.

Winnow down the choice set to a manageable size if you can.
Help people to learn: so they can later make better choices on their own.

Incentives are important. Ask: Who chooses? Who uses? Who pays? Who profits? Salience is the most important incentive intervention strategy. Make sure choosers notice the incentives they face.

Smart Disclosure improves decision making and makes the market more transparent, competitive, and fair.
Governments play a role in creating standardised units to facilitate consumer comparisons.
Complex information should be disclosed in a format that is easy to understand and in machine-readable formats.
Choice engines with access to pricing features and consumer usage data can facilitate easier decision-making.

Sludge: is using nudging for bad. Any aspect of choice architecture consisting of friction that makes it harder for people to obtain an outcome that will make them better off. Coined by Lamberton and Castleman in a 2016 Huffington Post article.
Dark patterns: are an assortment of online practices designed to manipulate people. Often they make pricing less transparent.

The unsubscribe trap: creating deliberate asymmetry between the ease of joining and the pain of leaving.
Rebates: A seller offers to return a portion of the sales price to customers, but there’s sludge involved in redeeming the coupon and only 10%-40% will.
Shrouded Attributes: when the headline price of the good understates the true cost to the user because the shrouded attributes, and their costs, are hard to discover. E.g. sell the printer cheap and make the money on the ink.

Competition doesn’t eliminate sludge: ‘Free Bank Accounts’ is better marketing than ‘Bank Accounts, $100 per year, no hidden fees’
The costs governments impose on their citizens via sludge are often neglected in the design and evaluation of policies. Much of the real cost of airport security and toll roads is time spent waiting in line.
Reduce sludge one step at a time.

Choice architects occasionally need to drop the goal of neutrality and decides to nudge directionally.
In saving for retirement humans need help with enrolment, increasing contributions and improving their investment returns. Nudges have proven to be helpful on all three fronts:

Make it easy (opt-in should be the default) to enrol.
Increasing Savings Rates with the ‘Save More Tomorrow plan’ which invites participants to commit themselves, in advance, to a series of contribution increases timed to coincide with pay raises. Reducing the influence of loss aversion.
Make sure the default investment funds are the best.

What Sweden got wrong with their retirement saving system:

Advertising efforts influenced two-thirds of participants to make active choices BUT it didn’t focus on important characteristics, favouring celebrity endorsements instead.
Participants rarely revisited their initial choices. This was true even when fraud allegations were made against a fund, only a small percentage of investors sold their shares.
Sweden had an excessive number of funds which made choices hard.

Humans can have self-control problems, leading to present bias and excessive borrowing.
Highly competitive markets for mortgage lending do not necessarily protect consumers from making poor choices due to the presence of sludge.

Mortgage brokers may have conflicts of interest and may not act in the best interest of their clients.
Comparison shopping can save consumers money, but the complexity of mortgage loans makes it challenging.
Disclosure forms and standardisation can make mortgage terms more transparent and facilitate easier comparison shopping.
Smart Disclosure and mortgage choice engines can help consumers navigate complex mortgage terms and make informed decisions

People often misuse credit cards and can become addicted to them.

Disclosure requirements should be improved to protect consumers, especially those at the bottom of the economic ladder.
Paying the minimum on each card and then focusing on the card with the highest interest rate is a recommended strategy for paying off credit card debt. But people use worse techniques, like balance matching.
Setting up automatic payments can help avoid late fees.

Insurance should be purchased to protect against rare but significant mishaps that can lead to financial ruin.
People often fail to insure against big risks and sometimes insure against small, insignificant ones.
Choosing the right deductible is crucial. Deductible aversion is the tendency to choose a deductible that is too low, resulting in higher premiums.It is more beneficial to choose a higher deductible and self-insure as much risks as possible. Take the higher deductible rule of thumb can result in lower costs and potential savings.

For organ donation, there's a big difference between opt-in and opt-out approaches:

In presumed consent countries, very few will choose to opt-out (99% of Austrians don't opt out).
In explicit authorisation countries, few will choose to opt-in (12% of Germans).

But the authors advocate for prompted choice, because with presumed consent you don’t know how strongly to infer someone's preferences. In England and Wales, the law explicitly stipulates that the policy is one of soft presumed consent. Families are consulted before organs are used. If no one can be reached, no surgery is performed. Presumed consent might not save as many lives.
Prompted choice gives us a stronger signal of consent, but you have to make an effort to nudge willing donors in the right places to overcome procrastination, inertia, and limited attention. The US captured 170 million people through the driver's license process and has passed a "first-person consent law" that constitutes legal permission for donation after death.

Nations haven’t done more done more on climate change due to a confluence of factors that make collective action difficult.

Present bias. We are more concerned with now as opposed to later. The most serious risks are seen to be decades away.
Salience. Polluted water is more visible, and the public demand action. But greenhouse gases are invisible.
No specific villain. For some threats, there is an identifiable perpetrator—a wrongdoer whose terrible deeds capture public attention.
Probabilistic harms. Make it harder to reach consensus on who is responsible and how much they should contribute to the solution.
Loss aversion. We are more negative about anticipated losses than positive gains. Efforts to reduce greenhouse gas emissions require the imposition of immediate losses. If everyone has to pay some new “climate tax,” loss aversion kicks in.

Climate change suffers from two factors:

In modern economies people still don’t get clear feedback on the environmental consequences of their actions.
There’s a free riding problem (or ‘tragedy of the commons’)

Don’t expect low-cost nudges to solve climate change.
People are conditional cooperators, they are willing to contribute to the public good as long as others are doing so as well, but if others are free riding, contributions gradually dry up.
A climate club model might work, countries that don’t join and follow the rules would be subject to punishment by club members.
Policymakers can combat loss aversion by imposing relatively low costs today, while committing to increase those costs over time (’Green More Tomorrow’ might be the best path forward).
Disclosure by itself can have a positive effect on firms through a social nudge. If you mandate the disclosure of pollution, firms are motivated not to appear on the worst polluters on the list.

Governments should mandate a greenhouse gas inventory (GGI), requiring disclosure by all significant emitters.

People reduce their energy usage by 2% if shown how they compare to those in their neighbourhood. This is a great low-cost intervention.

Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

Introduction

Choice architects organise the context in which people make decisions. You can be one without knowing it. The way a school cafeteria manager displays food can affect the consumption of healthy foods.
Small details can have a major impact on behaviour, so assume everything matters. There is no such thing as a neutral design.
Libertarian paternalism is an approach that aims to preserve choice while guiding people towards making choices that align with their interests. It nudges them towards the choice they would have made with complete information, attention, and self-control.
A nudge is when a choice architect alters behaviour in a predictable way without restricting options, or changing economic incentives. Nudges therefore must be easy and cheap to avoid.

Banning junk food is not a nudge. Putting fruit at eye level is.

Economic theory often relies on people being rational ‘Econs’, but we’re not, we’re human, and we make make predictable mistakes. Nudges only work because we’re human, and we don’t make decisions like Econs.

The planning fallacy: being consistently unrealistically optimistic about how long projects take
The status quo bias: the strong tendency to go along with the status quo or default option.

Setting default options therefore can have huge effects on outcomes

You might think that we should give people as many choices as possible, and let them decide. That’s not optimal because:

People often don’t make choices that are in their best interest.
There is no neutral design. You can’t avoid influencing choices.
Paternalism doesn’t need to be coercion. Options shouldn’t be forced.

Principles of good choice architecture:

Remember choosers are human → make life as easy as possible
Send reminders (but not too many!)
Minimise costs on those who space out.

Part I: Humans and Econs

Chapter 1: Biases and Blunders

Humans are fallible. We have to make thousands of decisions each day. We can't afford to think deeply about each one, so we take shortcuts. Rules of thumb help, but they can lead us astray, especially in challenging or unfamiliar situations. People are nudgable, even in life's most important decisions. We can be influenced in ways 'econs' wouldn't be.
Biases and blunders are how and when people systematically go wrong.
Following rules of thumb can be helpful, but they also lead to systematic bias.
Daniel Kahneman and Amos Tversky identified three common heuristics or biases in their study of human judgment (Anchoring, Availability, Representativeness).
Anchoring: Anchoring and adjustment is an approach to decision-making where people start with an initial anchor (that could be irrelevant), and then make insufficient adjustments.

For example, let's say you're shopping for a laptop. The first one you see is $2000. This affects how you view other laptop prices. A $1500 laptop might look cheap now.
Pushing an anchor too far can result in a reaction that has the opposite effect.

Availability: The availability heuristic is where people assess the likelihood of an event based on how readily examples of that event come to mind. It can lead to biased assessments of risk and influence decision-making.

Reminding people of related incidents can nudge them to take precautions or increase their confidence.

Representativeness: Think of it as the similarity heuristic. When asked to judge how likely it is that A belongs to category B, people answer by asking themselves how similar A is to their image or stereotype of B. Stereotypes are sometimes right.

The Linda problem is the classic example:

Stimulus: Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice and also participated in anti-nuclear demonstrations.
Response: People mistakenly believe that Linda being 'a bank teller and a feminist' was more likely than being 'a bank teller' alone. Linda's description seems to match the stereotype.

Overconfidence: 90% of drivers think they’re above average behind the wheel. Unrealistic optimism explains a lot of risk-taking and why lotteries are successful.
Loss aversion: The fear of losing something makes you twice as unhappy as the joy of gaining the same thing makes you. Loss aversion leads to inertia, as you are hesitant to let go of what you have.
Status quo bias: the tendency to stick with the default option due to a lack of attention or adopting a "yeah, whatever" mindset.

Netflix capitalise on this by automatically playing the next episode.
Loss aversion and mindless decision-making contribute to default options being so powerful

Framing: The way a problem is described can significantly influence choices. People react differently to being told ‘90/100 will survive the operation’ than to ‘1/10 will die’. Frames can be powerful nudges, but must be chosen carefully.

We think in two systems: the automatic system (fast and intuitive) and the reflective System (slow and reflective). Automatic System acts rapidly and instinctively, associated with oldest parts of the brain. Reflective System is more deliberate and self-conscious.
People rely on Automatic System for quick judgments and reactions. Automatic System can be trained with repetition, but it takes time and effort
Designing policies that allow people to rely more on their Automatic Systems can improve their lives.

Chapter 2: Resisting Temptation

In economics, a basic principle is that you can't be made worse off by having more options because you can always turn them down.

However, as humans, we might be grateful when a friend removes a bowl of snacks out of our reach.

Temptation and mindlessness can contribute to our inconsistency in decision making. Temptations are highly personal.

We can take steps to overcome temptation: Ulysses tying himself to the mast is an example of a commitment strategy. Commitment strategies work when temptation can be anticipated, and it's possible to remove the option to act.
BUT we don't forecast self-control problems well because we underestimate the influence of the arousal effect in the moment.

You have two selves: your reflective planner and your automatic doer. The Planner promotes long-term welfare but is in conflict with the strong will of the 'doer' who is exposed to the temptations that come with arousal.
Self-Control Strategies:

Make a pre-commitment so you're rewarded for the right behavior:

E.g. you could give your professor your student loan, only to be released if you hit PHD essay checkpoints.
E.g. Make a pact to lose weight by a certain date with a friend. If either of you fail, you have to pay the other $10,000. You can extend the bet by allowing random spot checks.

Requirements and bans (e.g. driving without a seatbelt fastened) aren't 'libertarian paternalism' but can be a good idea when third-party interests are at stake.
Christmas clubs helped adults save for Christmas, but they were usurped by credit cards.

Mental Accounting is when people don't treat their money as fungible:

They can do it to budget and control spending (putting money away for bills).
They can do it to justify risk-taking (gambling winnings or investment gains).
The sanctity of this accounting can lead to seemingly bizarre behaviour, such as simultaneously borrowing and lending at very different rates.

Chapter 3: Following the Herd

Humans (unlike Econs) are often influenced by other humans, even when they shouldn't be.
Small social nudges (such as those from a public figure) can act as a signal that gives others the green light to do the same.
Two powerful effects can influence us and cause us to ignore evidence:

We overweight information that is conveyed by other people's choices.
Peer pressure and the desire not to face the disapproval of the group.

We like to conform and do what others do.
The confidence heuristic: We think confident speakers must be correct. Consistent and unwavering people can sway groups to their way of thinking.
Collective conservatism: The tendency of groups to stick to established patterns even as new needs arise.
What is popular is determined by a combination of random chance and social influence. Initial popularity greatly matters and can make the difference between success and failure.
The informational cascade: Occurs when people receive information from the choices of others. As people reveal preferences in turn, they can nudge those who have not yet revealed theirs.
Advertisers leverage these effects: "most people prefer," "more and more people are switching from the competitor brand."
Choice architects using social influences need to work with, rather than against, people's sense of who they are. Nudges that use social influences and social norms are most likely to be promising if people are asked to learn from and act like people who are like them and whom they trust.
Pluralistic Ignorance: Ignorance about what other people think. We may follow a social practice because we think that most other people like it. A small shock or nudge can dislodge them. Communism fell when people became aware of what others actually thought.
The nudge is emphatically social; it often turns out to be a kind of permission slip.
Informing people about what others are thinking and doing can make a powerful nudge.

When informed that others are complying, people are less likely to cheat.
Tax reminder letters in the UK became more effective when "9/10 people in the UK pay their tax on time" was added.

People respond to norms set by others in similar settings and circumstances (more than celebrity influencers).

Part 2: The Tools of the Choice Architect

Chapter 4: When Do We Need a Nudge?

Given we can’t avoid choice architecture we should offer nudges that are most likely to help and least likely to inflict harm.
Nudges are most helpful in situations where choices are difficult, infrequent, require scarce attention, have delayed effects, offer poor feedback, or have an ambiguous relationship between choice and experience.
The most common mistake we make it to forget something. Our attention is limited.

Sending well-timed prompts can help. Reminders are ubiquitous and make terrific nudges.

You can increase election turnout by 4% by eliciting implementation intentions. Call folks and ask them about their plans to vote: What time will you go? What will you be doing beforehand? How will you get there?
Checklists are powerful nudges and can empower junior employees to speak up.
Time gaps between choices and consequences cause self control problems. Nudges can help when consequences of choices aren’t immediate:

Investment goods: invest now, get rewards later (exercise, healthy eating)
Temptation goods: enjoy now, face consequences later (smoking, alcohol, Netflix)

Free markets don’t solve for these problems, because of the time, more money can made by catering to human frailties than by helping people to avoid them.

Chapter 5: Choice Architecture

Poor architecture violates the psychological principle of stimulus-response compatibility, leading to mistakes. Simple 'push plates' and 'pull handles' can solve the usability issues of 'Norman doors'.
If you want to encourage some action or activity, make it easy.
Defaults: Many people will choose the option that requires the least effort or follows the path of least resistance (inertia, status quo bias, 'yeah, whatever' heuristic). If there is a default option, expect a large number of people to end up with that option. People are more likely to do nothing if there is a suggestion that it's the normal or recommended course of action.

Choice architects should choose defaults in ways that are self-serving or welfare enhancing. Nudge for good!
People will override the default if they know their preferences, and it’s obviously bad.

Required choice (or mandated choice) is when you remove the default and false a choice. Government forms often have this characteristic.Doing so overcomes inertia, inattention, and procrastination; you can find out what people prefer, without having to guess.

They can protect people against their own inattention.
But people can consider required choice to be a nuisance, it’s more for simple yes-or-no decisions

Expect Error. Humans make mistakes, systems should expect error and be as forgiving as possible.

Cars automatically switch on headlights when its dark and turn them off when you stop.
Diesel fuel nozzles won’t fit in petrol cars.

Post-completion error: is when you forget to do things after completing your main task.

ATMs stop you forgetting your card by making you remove it before cash is dispensed. This is called a ‘forcing function’.

Nudges can help people adherence to prescribed medicine regimes:

Taking medicine once a day in the morning is much easier than ‘every other day’ routines.
Birth control pills are generally taken every day for three weeks and then skipped for one week. Some ship in special containers with 28 labelled pills, but 22-28 are placebos whose only role is to facilitate compliance for Human users.

Gmail provides prompts to users who mention the word "attachment" but fail to include one.
Feedback: well-designed systems tell people when they are doing well and when they are making mistakes.

Laptops encourage us to plug in when battery is low.
There’s a white ceiling paint that goes on pink to help you spot where you’ve been.

Understanding Mappings: The relationship between choices and outcomes. Good choice architecture helps people to improve their ability to map choices to outcomes and select options that will make them better off.

Make information about options more comprehensible (e.g. transform numerical information into units that translate more readily into actual use).

Structure Complex Choices: When faced with a small number of well-understood alternatives, we’ll examine all the attributes of all the alternatives and then make trade-offs. When faced with many choices, we must use alternative strategies.

Elimination by aspects: is one strategy. People decide on what aspect is most important. establish a cutoff level, then eliminates all options that don’t comply. Then they repeat attribute by attribute until either a choice is made or the set is narrowed down enough to switch over to a compensatory evaluation of the finalists.

BUT options that don’t meet the minimum cutoff level may be eliminated even if they are fabulous on all other dimensions.

Winnow down the choice set to a manageable size if you can.
Help people to learn: so they can later make better choices on their own.
As choices become more numerous, provide structure more structure. E.g. movie selection: by actor, director, genre, or collaborative filtering (recommendations).

Incentives are important. Ask: Who chooses? Who uses? Who pays? Who profits?

Salience is the most important incentive intervention strategy. Make sure choosers notice the incentives they face.

Chapter 6: But Wait, There’s More

Curation: Successful bookstores and small retail establishments excel at curation. Small shops use curation to compete, while online megastores rely on navigation tools. There is no one-size-fits-all approach to curation or running a successful business. Effective curation involves eliminating bad options and introducing new ones.
Fun: is a crucial aspect of good choice architecture. Making activities enjoyable can encourage people to make better choices.

Lotteries are a powerful tool of positive reinforcement due to the overvalued chance of winning the prize.
New Zealand's prime minister, Jacinda Ardern exempted the Easter Bunny from COVID restrictions, making people smile and laugh.

Chapter 7: Smart Disclosure

Smart Disclosure improves decision making and makes the market more transparent, competitive, and fair.
Standardised units of measurement and the adoption of money have facilitated economic efficiency.
Governments play a role in creating standardised units to facilitate consumer comparisons.
Smart Disclosure involves timely release of complex information in standardised and machine-readable formats.
Complex information should be disclosed in a format that is easy to understand.
Organisations should make data involving individual behaviour accessible to consumers.
Making disclosures machine-readable enhances consumer access to information.
Choice engines rely on timely and accurate data for effective functioning.
Food producers are required to list potential allergens separately and in bold.
Choice engines with access to pricing features and consumer usage data can facilitate easier decision-making.

8 #Sludge

Sludge: is using nudging for bad. Any aspect of choice architecture consisting of friction that makes it harder for people to obtain an outcome that will make them better off. Coined by Lamberton and Castleman in a 2016 Huffington Post article.
Some choice architects intentionally impose sludge → inserting friction into a process to achieve goals of their own.
Dark patterns: are an assortment of online practices designed to manipulate people. Often they make pricing less transparent.

The unsubscribe trap: when the procedures for subscribing and unsubscribing significantly differ. Creating deliberate asymmetry between the ease of joining and the pain of leaving.
Rebates: A seller offers to return a portion of the sales price to customers, but there’s sludge involved in redeeming the coupon.

Only 10%-40% of rebates are redeemed. ‘Everyone Believes in Redemption’ found people were unrealistically optimistic about the likelihood that they would jump through all the necessary hoops. 80% perceived vs 30% reality.

Shrouded Attributes as Sludge:The headline price of the good understates the true cost to the user because the shrouded attributes, and their costs, are hard to discover.

E.g. sell the printer cheap and make the money on the ink.

Competition doesn’t eliminate sludge: ‘Free Bank Accounts’ is better marketing than ‘Bank Accounts, $100 per year, no hidden fees’
You don’t need an expense policy. The costs from overspending are not nearly as high as the gains that freedom provides. Use this instead:

Spend company money as if it were your own
Managers should monitor expenses.
Individuals are told quickly if they abuse the system, they’re sacked if a repeat offender.

More generally, the costs governments impose on their citizens via sludge are often neglected in the design and evaluation of policies.

Much of the real cost of airport security and toll roads is time spent waiting in line.

The factors economists emphasise in tax collection:

incentives (how taxes alter behavior)
equity (how much each person should pay)
incidence (who actually pays for a particular tax)
compliance (to what extent people pay what they legally owe)
Sludge should be added to the list: how much time and effort is spent complying or evading the tax)

Governments should use what they know about your income to populate your tax returns.
Reduce sludge one step at a time.

Part 3: MONEY

Chapter 9: Save More Tomorrow

Choice architects occasionally need to drop the goal of neutrality and decides to nudge directionally, we should be confident we are likely to make people better off, as judged by them, if we do.

Humans haven’t had to worry much about saving for retirement for most of our time on earth.

The right amount of saving is unclear, but that doesn’t mean we can’t set a direction…

The costs of saving too little are usually greater than the costs of saving too much.
Some people are definitely saving too little.
Many employees themselves think that they should be saving more.

Humans need help with enrolment, increasing contributions and improving their investment returns. Nudges have proven to be helpful on all three fronts.

Make it easy (opt-in should be the default) to enrol.
Increasing Savings Rates with the ‘Save More Tomorrow plan’ which invites participants to commit themselves, in advance, to a series of contribution increases timed to coincide with pay raises. Reducing the influence of loss aversion.
Make sure the default investment funds are the best.

Chapter 10: Problems with Sweden’s system.

Advertising efforts influenced two-thirds of participants to make active choices. BUT fund advertising lacked informative content about fees and relevant characteristics, focusing on things like celebrity endorsements instead.
Participants often adopted a "set it and forget it" mindset, rarely revisiting their initial choices.

This was true even when fraud allegations were made against a fund, only a small percentage of investors sold their shares whilst the investigation was ongoing.

Sweden had an excessive number of funds compared to new participants becoming active choosers. Making choices hard.
Suggested changes to the Swedish plan: reduce the number of funds and eliminate leverage in the default fund.

Chapter 11: Borrow More Today: Mortgages and Credit Cards

Humans can have self-control problems, leading to present bias and excessive borrowing.
Homeowners in the US have over $15 trillion in mortgage debt, with many borrowers having low down payments.
Credit card choice is less important than responsible usage.
Mortgages
Highly competitive markets for mortgage lending do not necessarily protect consumers from making poor choices due to the presence of sludge.
Complexity in markets disadvantages unsophisticated and less-educated shoppers, who may receive bad advice.
Mortgage brokers may have conflicts of interest and may not act in the best interest of their clients.
Comparison shopping can save consumers money, but the complexity of mortgage loans makes it challenging.
Disclosure forms and standardization can make mortgage terms more transparent and facilitate easier comparison shopping.
Smart Disclosure and mortgage choice engines can help consumers navigate complex mortgage terms and make informed decisions..
Credit Cards

Credit cards serve as a convenient payment method and a source of liquidity. People often misuse credit cards and can become addicted to them.
Disclosure requirements should be improved to protect consumers, especially those at the bottom of the economic ladder.
Further measures should be taken to protect consumers from overdraft protection programs.
Paying the minimum on each card and then focusing on the card with the highest interest rate is a recommended strategy for paying off credit card debt. But people use worse techniques, like balance matching.
Setting up automatic payments can help avoid late fees.

Chapter 12: Insurance: Don’t Sweat the Small Stuff

Insurance should be purchased to protect against rare but significant mishaps that can lead to financial ruin.
People often fail to insure against big risks and sometimes insure against small, insignificant ones.
Choosing the right deductible is crucial. Deductible aversion is the tendency to choose a deductible that is too low, resulting in higher premiums.It is more beneficial to choose a higher deductible and self-insure as much risks as possible. Take the higher deductible rule of thumb can result in lower costs and potential savings.
The presence of a deductible can lead to patients spending less on medical care. Behavioural hazard, or lack of adherence to prescribed medications, is a significant concern in healthcare design.When patients have to pay for medications, they may cut back on essential drugs, leading to costly medical emergencies.

Part IV SOCIETY

Chapter 13: Organ Donations: The Default Solution Illusion

For organ donation, there's a big difference between opt-in and opt-out approaches:

In presumed consent countries, very few will choose to opt-out (99% of Austrians don't opt out).
In explicit authorisation countries, few will choose to opt-in (12% of Germans).

But the authors advocate for prompted choice, favouring more nudges and better choice architecture to increase the prompting. Why?

Saving lives isn't the only goal. If you consider all the actors, you might arrive at a different policy: patients (waiting for an organ), potential donors, families (of the donors), and doctors.
In a presumed consent country, what happens to the donors?

Routine removal is the most aggressive policy, where the state owns the rights to the body parts and can remove them without asking anyone's permission.
But because nearly everyone goes along with the default, did the donor in question do so because of inattention or inertia? Or did they actively decide the default was the right choice? How strongly do we want to infer someone's preferences from their failure to take some action?
Most presumed consent countries, therefore, assume 'soft consent' because the law requires that families always be consulted and their wishes honored.

This is a cruel and unusual punishment on families who are already in a difficult situation.
In England and Wales, the law explicitly stipulates that the policy is one of soft presumed consent. Families are consulted before organs are used. If no one can be reached, no surgery is performed. Presumed consent might not save as many lives.

Prompted choice gives us a stronger signal of consent, but you have to make an effort to nudge willing donors in the right places to overcome procrastination, inertia, and limited attention.

You need to make it easy to register.
Leverage other opportunities to prompt (when people renew their driver's license).

The US captured 170 million people through the driver's license process.
The US passed a "first-person consent law" that constitutes legal permission for donation after death and provides good faith immunity to the teams who act on that legal authority.

Use media campaigns to encourage people.

You could use mandated choice. Force everyone to choose, but there's often no obvious way to reach everyone (driving license, passport, and voting applications are the best).

Chapter 14: Saving the Planet

Nations haven’t done more done more on climate change due to a confluence of factors that make collective action difficult.

Present bias. We are more concerned with now as opposed to later. The most serious risks are seen to be decades away.
Salience. Polluted water is more visible, and the public demand action. But greenhouse gases are invisible.
No specific villain. For some threats, there is an identifiable perpetrator—a wrongdoer whose terrible deeds capture public attention.
Probabilistic harms. Make it harder to reach consensus on who is responsible and how much they should contribute to the solution.
Loss aversion. We are more negative about anticipated losses than positive gains. Efforts to reduce greenhouse gas emissions require the imposition of immediate losses. If everyone has to pay some new “climate tax,” loss aversion kicks in.

Climate change suffers from two factors:

In modern economies people still don’t get clear feedback on the environmental consequences of their actions.
There’s a free riding problem (or ‘tragedy of the commons’)

Don’t expect low-cost nudges to solve climate change.
Those who run companies can be nudged by their employees, investors and customers to act. Investors though, do care about profit and that creates a real challenge.
People are conditional cooperators, they are willing to contribute to the public good as long as others are doing so as well, but if others are free riding, contributions gradually dry up.
On climate change, countries argue about who’s going to contribute how much to the public good pot?

Developing countries argue wealthier nations have been emitting more for centuries and getting rich as a result.

A climate club model might work, countries that don’t join and follow the rules would be subject to punishment by club members.
Economists agree that decision makers should face costs that give them the correct incentives to cut back.

There are two approaches, taxes or a ‘cap-and-trade’ system.

With taxes you try and set a price that gives people the right incentives to reduce the amount of emissions they produce. E.g. Europe taxes fuel more than the US and people favour more efficient cars. In theory, the tax should be equal to the ‘social cost of carbon’, but that’s hard to define.
With cap-and-trade, those who pollute are given or sold a limited number of "rights to pollute", and these rights are then traded in a market. The government then slowly reduces the amount of pollution of the system.

If a tax is understood to be responding to a serious problem, people might respond even more than they would to the purely economic incentive (e.g. UK carrier bag tax).
Policymakers can combat loss aversion by imposing relatively low costs today, while committing to increase those costs over time (’Green More Tomorrow’ might be the best path forward).
Economic incentives will give firms every incentive to act when they see high prices for carbon emissions.
The energy paradox: is when you purchase a less-efficient vehicle or appliance because you don’t take account of potential savings/costs over the lifetime of the vehicle.

Consumers won’t pay more for a more energy-efficient home, so builders will skimp on insulation, despite it being cheaper to add when building than later on. Building codes help prevent this.

Disclosure: give consumers feedback on the implications of their actions through better information and disclosure.
Disclosure by itself can have a positive effect on firms through a social nudge. If you mandate the disclosure of pollution, firms are motivated not to appear on the worst polluters on the list.

Governments should mandate a greenhouse gas inventory (GGI), requiring disclosure by all significant emitters.

Make it easy, the green option the default one.
People reduce their energy usage by 2% if shown how they compare to those in their neighbourhood. This is a great low-cost intervention.

Part 5: The Complaints Department

You can nudge and educate at the same time. Do both. Nudges preserve freedom of choice, they become more valuable when people are informed.
The authors encourage for nudges to be revealed and talked about. You don’t have to nudge in secrecy.
Transparency is a guiding principle. Follow the publicity principle: no choice architect should adopt a policy that she would not be able or willing to defend publicly. It’s practical and grounded in respect.
Nudges can be combined with stronger measures which can be taken in parallel. You might tax alcohol, nudge people not to drink and drive, and give offenders stiff fines.
Mandatory cooling-off periods make sense when two conditions are met:

when the decision is made infrequently and people lack a great deal of experience
when emotions are running high, and folks are prone to make choices they regret.

Mandates can be used when people perpetually make stupid, myopic, or self-defeating decisions. E.g. laws that require drivers to wear seatbelts.
So long as people are making informed decisions about how to live their own lives, favour an attitude of humility and respect → and give people freedom of choice.