Nudge: Improving Decisions About Health, Wealth, and Happiness

by Richard H. Thaler

Why, exactly, do people sometimes ignore the evidence of their own senses? We have already sketched the two answers. The first involves the information conveyed by people’s answers; the second involves peer pressure and the desire not to face the disapproval of the group.

Remarkably, recent brain-imaging work has suggested that when people conform in Asch-like settings, they actually see the situation as everyone else does.

On the other hand, social scientists generally find less conformity, in the same basic circumstances as Asch’s experiments, when people are asked to give anonymous answers. People become more likely to conform when they know that other people will see what they have to say.

Anonymity protects people from peer pressure.

A little nudge, if it was expressed confidently, could have major consequences for the group’s conclusion. The clear lesson here is that consistent and unwavering people, in the private or public sector, can move groups and practices in their preferred direction.

We can see here why many groups fall prey to what is known as “collective conservatism”: the tendency of groups to stick to established patterns even as new needs arise. Once a practice (like wearing ties) has become established, it is likely to be perpetuated, even if there is no particular basis for it. Sometimes a tradition can last for a long time, and receive support or at least acquiescence from large numbers of people, even though it was originally the product of a small nudge from a few people or perhaps even one.

Some habbits remain even after it's no longer needed.

An important problem here is “pluralistic ignorance”—that is, ignorance, on the part of all or most, about what other people think. We may follow a practice or a tradition not because we like it, or even think it defensible, but merely because we think that most other people like it. Many social practices persist for this reason, and a small shock, or nudge, can dislodge them.

In a similar finding, people were asked to consider this statement: “Free speech being a privilege rather than a right, it is proper for a society to suspend free speech when it feels threatened.” Asked this question individually, only 19 percent of the control group agreed, but confronted with the shared opinion of only four others, 58 percent of people agreed. These results are closely connected with one of Asch’s underlying interests, which was to understand how Nazism had been possible.

People lose their autonomy of thought when facing group opinions.

A few influential people, offering strong signals about appropriate behavior, can have a similar effect.

The moral is that people are paying less attention to you than you believe. If you have a stain on your shirt, don’t worry, they probably won’t notice. But in part because people do think that everyone has their eyes fixed on them, they conform to what they think people expect.

In many domains people are tempted to think, after the fact, that an outcome was entirely predictable, and that the success of a musician, an actor, an author, or a politician was inevitable in light of his or her skills and characteristics. Beware of that temptation. Small interventions and even coincidences, at a key stage, can produce large variations in the outcome.

On average, those who eat with one other person eat about 35 percent more than they do when they are alone; members of a group of four eat about 75 percent more; those in groups of seven or more eat 96 percent more.

Do social influences matter to the economy? There is no question. As for eating and political choices, so too for money: People’s investment decisions are often influenced by the investment decisions of their friends and neighbors.

The general lesson is clear. If choice architects want to shift behavior and to do so with a nudge, they might simply inform people about what other people are doing. Sometimes the practices of others are surprising, and hence people are much affected by learning what they are.

It follows that either desirable or undesirable behavior can be increased, at least to some extent, by drawing public attention to what others are doing.

To influence people just tell what others are doing.

Cialdini’s theory predicted that the positive, injunctive norm would be more effective than the negative, informational one. This prediction was confirmed.

Alert to the possibility of changing behavior by emphasizing the statistical reality, many public officials have tried to nudge people in better directions. Montana, for example, has adopted a large-scale educational campaign, one that has stressed the fact that strong majorities of citizens of Montana do not drink.

Social nudges can also be used to decrease energy use.

The latter finding is called a boomerang effect, and it offers an important warning. If you want to nudge people into socially desirable behavior, do not, by any means, let them know that their current actions are better than the social norm.

Don't tell people they act better than others or they will behave badly.

Unsurprisingly, but significantly, the big energy users showed an even larger decrease when they received the unhappy emoticon. The more important finding was that when below-average energy users received the happy emoticon, the boomerang effect completely disappeared!

Those who engage in surveys want to catalogue behavior, not to influence it. But social scientists have discovered an odd fact: when they measure people’s intentions, they affect people’s conduct. The “mere-measurement effect” refers to the finding that when people are asked what they intend to do, they become more

Asking people nudges them.

In our parlance, the mere-measurement effect is a nudge, and it can be used by private or public nudgers.

The nudge provided by asking people what they intend to do can be accentuated by asking them when and how they plan to do it. This insight falls into the category of what the great psychologist Kurt Lewin called “channel factors,” a term he used for small influences that could either facilitate or inhibit certain behaviors. Think about the “channel” as similar to the path a river takes after the spring snow melt.

Slightly broadening these findings, social scientists have found that they can “prime” people into certain forms of behavior by offering simple and apparently irrelevant cues. It turns out that if certain objects are made visible and salient, people’s behavior can be affected.

Objects, smells and taste can nudge people.

The key point here is that for all their virtues, markets often give companies a strong incentive to cater to (and profit from) human frailties, rather than to try to eradicate them or to minimize their effects.

Self-control issues are most likely to arise when choices and their consequences are separated in time.

At the other extreme are what might be called sinful goods: smoking, alcohol, and jumbo chocolate doughnuts are in this category. We get the pleasure now and suffer the consequences later.

Generally, the higher the stakes, the less often we are able to practice.

Even practice does not make perfect if people lack good opportunities for learning. Learning is most likely if people get immediate, clear feedback after each try.

Long-term processes rarely provide good feedback. Someone can eat a high-fat diet for years

When people have a hard time predicting how their choices will end up affecting their lives, they have less to gain by numerous options and perhaps even by choosing for themselves. A nudge might be welcomed.

There is a general point here. If consumers have a less than fully rational belief, firms often have more incentive to cater to that belief than to eradicate it.

Companies will profit out of people's ignorance.

Government can, of course, outlaw some kinds of activities, but as libertarian paternalists we prefer to nudge—and we are keenly aware that governments are populated by Humans.

stimulus response compatibility. The idea is that you want the signal you receive (the stimulus) to be consistent with the desired action. When there are inconsistencies, performance suffers and people blunder.

Stimulus must be compatible with desired actions.

For these incompatible signals, response time slows and error rates increase. A key reason is that the Automatic System reads the word faster than the color naming system can decide the color of the text.

Recall the discussion of inertia, status quo bias, and the “yeah, whatever” heuristic. All these forces imply that if, for a given choice, there is a default option—an option that will obtain if the chooser does nothing—then we can expect a large number of people to end up with that option, whether or not it is good for them.

required choice would be implemented by leaving all the boxes unchecked, and by requiring that at every opportunity one of the boxes be checked in order for people to proceed.

When choices are highly complex, required choosing may not be a good idea; it might not even be feasible.

Leaving the gas cap behind is a special kind of predictable error psychologists call a “postcompletion” error.2 The idea is that when you have finished your main task, you tend to forget things relating to previous steps. Other examples include leaving your ATM card in the machine after getting your cash, or leaving the original in the copying machine after getting your copies.

Another strategy, suggested by Norman, is to use what he calls a “forcing function,” meaning that in order to get what you want, you have to do something else first. So if in order to get your cash, you have to remove the card, you will not forget to do so.

An important type of feedback is a warning that things are going wrong, or, even more helpful, are about to go wrong. Our laptops warn us to plug in or shut down when the battery is dangerously low. But warning systems have to avoid the problem of offering so many warnings that they are ignored.

For these and related domains, we propose a very mild form of government regulation, a species of libertarian paternalism that we call RECAP: Record, Evaluate, and Compare Alternative Prices.

People adopt different strategies for making choices depending on the size and complexity of the available options. When we face a small number of well-understood alternatives, we tend to examine all the attributes of all the alternatives and then make trade-offs when necessary. But when the choice set gets large, we must use alternative strategies, and these can get us into trouble.

This is described in the choice literature as a “compensatory” strategy, since a high value for one attribute (big office) can compensate for a low value for another (loud neighbor).

“collaborative filtering.” You use the judgments of other people who share your tastes to filter through the vast number of books or movies available in order to increase the likelihood of picking one you like. Collaborative filtering is an effort to solve a problem of choice architecture.

So choice architects must think about incentives when they design a system. Sensible architects will put the right incentives on the right people. One way to start to think about incentives is to ask four questions about a particular choice architecture: Who uses? Who chooses? Who pays? Who profits?

The most important modification that must be made to a standard analysis of incentives is salience. Do the choosers actually notice the incentives they face? In free markets, the answer is usually yes, but in important cases the answer is no.

One study investigated the behavior of participants in a plan that offered three lifestyle funds and six other funds (an index fund, a growth fund, a bond fund, and so on).

You might think that employees have especially good information about their firm’s future prospects, but a careful study by Shlomo Benartzi (2001) finds otherwise.

How risky is it to hold the shares of a single stock rather than a diversified portfolio? According to estimates by the economist Lisa Meulbroek (2002), a dollar in company stock is worth less than half the value of a dollar in a mutual fund! In other words, when firms foist company stock onto their employees, it is like paying them fifty cents on the dollar.

African-American borrowers pay an additional $425 for their loans. Latino borrowers pay an additional $400. (The average fee for all borrowers was $3,133 on loans that averaged about $105,000.) • Borrowers who live in neighborhoods where adults have only a high school education pay $1,160 more for their loans than borrowers who live in neighborhoods where adults have a college education. • Loans made by mortgage brokers are more expensive than those made by direct lenders by about $600. • Sources of loan complexity such as points and seller contributions to closing costs (which can make comparing loans more difficult) are expensive for borrowers, and the additional cost is greater on brokered loans than on direct loans.

Loans and mortgages.