Nudge theory

Nudge theory is a concept in behavioral economics that suggests that people can be encouraged to take certain specific actions by making that action the easiest possible choice. People still have the option to choose all other available options, but are nudged, or gently encouraged, to take the desired option because it requires the least effort. The practice has been demonstrated to work and has been adopted by governments, companies, and others with a desire to influence behavior.

Under the original concept, people are nudged to make choices that are thought to be in their best interests. However, some have strayed from the original concept and use nudges to encourage people to choose options in the best interest of a company or other entity. This possibility, along with ethical concerns over having anyone decide what is in someone else’s best interest, are the two main objections to nudge theory.

Background

The nudge theory has its origins in a 2008 book. Richard Thaler, a University of Chicago economics professor, and Cass R. Sunstein, a professor at Harvard Law School, cowrote the book Nudge: Improving Decisions about Health, Wealth, and Happiness, which investigated the ways people could be encouraged to make better choices about things such as diet and financial savings. The book incorporated the earlier work of psychologists Daniel Kahneman and Amos Tversky, who had a special interest in why people make decisions that are not necessarily rational.

Over the next several years, Thaler continued his studies and expanded on the concepts in Nudge. From this work, he developed the nudge theory. This theory was adopted by the governments of several countries and shown to have value in affecting human behavior. The nudge theory has also been used successfully by companies who want to encourage specific actions among their employees. For his work, Thaler received the Nobel Prize in Economics in 2017.

Overview

A nudge is a light poke or push intended to either draw someone’s attention or to encourage the person to move in a certain way. According to the nudge theory, similar simple, gentle suggestions can be used to encourage people to make certain decisions. Thaler and others had observed that people often make irrational or impulsive decisions when that decision is the easiest option, even if other options are better in the long run. For example, people choose to eat fast food even if they know it is not good for them simply because it is easier than cooking a meal or seeking out other healthier options.

The idea behind nudge theory is to make it as easy as possible for the person to take the suggested action even though other options remain available. For example, parents might leave fruit out on the kitchen counter to encourage children to have it as an afterschool snack. According to the nudge theory, the children are likely to grab a piece of fruit even if there are other foods available in the cupboards or refrigerator simply because the fruit is the easiest option.

Implementing the nudge theory requires a “choice architect,” or someone who makes the decisions about what behaviors will be encouraged. This choice architect arranges the design of the choices to achieve a specific purpose in much the same way as an architect designs a building for its intended purpose. In the example of the fruit on the counter, the parents would be the choice architects. They have decided that fruit is a better option for the children and have arranged the choices to encourage them to eat it. Experts have determined that people are more likely to willingly accept the desired behavior when it is introduced through nudges than when other options are used, such as forbidding other options or making the desired choice the only choice.

Governments have discovered that nudging people to make certain decisions works better than enforcing those decisions with rules, legislation, or mandates. For instance, when the British government noticed that people were not saving much money for future retirement, it considered making it mandatory for people to save. Instead, the government decided to have companies automatically enroll employees in retirement savings programs but allow them to opt out if they wished. The choices remained the same, but by making it easier to save, the government found that the majority of people remained in the savings program.

Thaler and others say this is because people inherently want to make the decisions that are best for them, such as saving more for retirement, but allow other things to get in the way of taking the actions necessary to do so. When the decision is made for them, a combination of the fact that they wanted to make that decision anyway and that it will take more work to choose another option results in more people choosing the desired option.

The theory is also sometimes referred to as libertarian paternalism. This refers to the idea that the concept is libertarian, or provides free choice, in that people are still free to make their own decisions because they can opt out. However, someone is helping them make better choices. Paternalism in this case implies that a benevolent father figure with their best interests at heart is guiding the choices.

Not everyone agrees that this is appropriate, however. Some say that it is not appropriate for one group to take a paternal role and decide that something is in the best interests of someone else. They also note that even if something is in the best interests of most people, it may not be in the best interest of all people. For instance, some employees might need extra money to care for a sick family member, or may prefer to buy a house than save for retirement.

Another objection to nudging behavior is what has come to be known as the dark nudge. Thaler’s theory called for nudges to be used to improve the person’s welfare. The nudges should also be transparent and not hidden from the person, and it should be easy for the person to opt out of accepting the nudge. Dark nudges violate one or more of these three principles. Examples of dark nudges would be a company that makes it easy to opt into subscriptions but makes it very difficult to opt back out, or businesses that make people buy one service in order to take advantage of a preferred option, such as purchasing items online.

Bibliography

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