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Monday, March 26, 2012

Nudge by Richard Thaler and Cass Sunstein

Don't use too much energy.
Be happy!
Wanna hear something a little crazy?  That smiley face over there ==>
 is enough to convince you to keep your energy use lower than your neighbor's.  For real.

Want to figure out how to do the responsible thing with your next pay raise and put the money into a retirement plan or savings account?  Ask your employee to start a Save More Tomorrow program where the money is automatically deposited.  They work like a charm. Also, for real.

Both of these revelations are found in Nudge: Improving Decisions about Health, Wealth and Happiness by Richard Thaler and Cass Sunstein.  Thaler and Sunstein recommend that choice architects (anyone responsible for making choices available, whether it's human resources staff, the government, or the people who set up a cafeteria line) structure options according to paternal libertarianism.  The idea IS to provide choices instead of limiting choices or making decisions for other people, but to structure or arrange the choices so that the "good" choice, the best choice for the choosers, is easily accessible and painless.

Here's an example I've already referenced: Save More Tomorrow programs.  Most companies recognize that it is in their employees best interests to save money for retirement.  Yet, most of us are miserable at saving because we already spend all the money we make.  How could we squeeze out enough from our monthly budgets to allow for retirement savings?  What would we willingly give up? Saving today is hard, but saving more tomorrow is much easier.  If companies want to encourage employees to save money in 401ks or IRAs, they simply need to set up a program that allows employees to designate that part (or all) of future raises will automatically go into a retirement account.  That way no one needs to make any adjustments to their current budgets.  The temptation of spending the money is also removed because the savings are deposited separately at the same time as the rest of the the paycheck. Most employees will keep doing this for as long as they work for that employer.  By giving us choices, but making sure to include an easy and mostly painless option to do the right thing, employers can practice paternal libertarianism.

Another almost frightening example is the influence of the smiley face on energy consumption.   Utility companies know that transparent displays of consumption can convince high users of energy to lower their consumption, so if your power bill shows you that you use noticeably more power than your neighbors you'll try and reign in your energy use.  Unfortunately, transparent displays of consumption have the opposite effect on low users of energy.  If your power bill shows that you use less energy than your neighbors do, you'll ramp up your usage.  Apparently, that information works as a cue that you could be using more UNLESS the power company provides another cue, the smiley face, to encourage you to keep your consumption low.

Crazy, isn't it? That the littlest, most innocuous cue could have that much influence?  Nudge is full of examples of how little changes in the way choices are presented alters which option is chosen.  It's a fascinating read, and despite the academic backgrounds of the authors (both are University of Chicago faculty) it's an easy read, too.  I recommend it.  It can change the way you make your own decisions and they way you set up options for others.

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1 comment:

  1. It is also very much in line with Barack Obama's executive order on behavioral modification.

    Stop nudging me whether or not it is for the good of the collective, the option belongs to me not some Marxist regulatory czar.