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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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.
- 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:
- What Sweden got wrong with their retirement saving system:
- 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.
- People often misuse credit cards and can become addicted to them.
- 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:
- 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.