Nudge: Improving Decisions About Health, Wealth, and Happiness

by Richard H. Thaler

Carolyn learned a big lesson: school children, like adults, can be greatly influenced by small changes in the context.

A choice architect has the responsibility for organizing the context in which people make decisions.

If you design the ballot voters use to choose candidates, you are a choice architect. If you are a doctor and must describe the alternative treatments available to a patient, you are a choice architect. If you design the form that new employees fill out to enroll in the company health care plan, you are a choice architect. If you are a parent, describing possible educational options to your son or daughter, you are a choice architect. If you are a salesperson, you are a choice architect (but you already knew that).

As we shall see, small and apparently insignificant details can have major impacts on people’s behavior. A good rule of thumb is to assume that “everything matters.”

Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened.

A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.

To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.

First, never underestimate the power of inertia. Second, that power can be harnessed.

By properly deploying both incentives and nudges, we can improve our ability to improve people’s lives, and help solve many of society’s major problems. And we can do so while still insisting on everyone’s freedom to choose.

The false assumption is that almost all people, almost all of the time, make choices that are in their best interest or at the very least are better than the choices that would be made by someone else.

The first misconception is that it is possible to avoid influencing people’s choices.

The second misconception is that paternalism always involves coercion.

Stereotypes are sometimes right!

We often see patterns because we construct our informal tests only after looking at the evidence.

Loss aversion helps produce inertia, meaning a strong desire to stick with your current holdings.

One of the causes of status quo bias is a lack of attention. Many people adopt what we will call the “yeah, whatever” heuristic.

The combination of loss aversion with mindless choosing implies that if an option is designated as the “default,” it will attract a large market share. Default options thus act as powerful nudges.

Energy conservation is now receiving a lot of attention, so consider the following information campaigns: (a) If you use energy conservation methods, you will save $350 per year; (b) If you do not use energy conservation methods, you will lose $350 per year. It turns out that information campaign (b), framed in terms of losses, is far more effective than information campaign (a). If the government wants to encourage energy conservation, option (b) is a stronger nudge.

The bottom line, from our point of view, is that people are, shall we say, nudge-able. Their choices, even in life’s most important decisions, are influenced in ways that would not be anticipated in a standard economic framework.

In economics (and in ordinary life), a basic principle is that you can never be made worse off by having more options, because you can always turn them down. Before Thaler removed the nuts the group had the choice of whether to eat the nuts or not—now they didn’t. In the land of Econs, it is against the law to be happy about this!

We will call something “tempting” if we consume more of it when hot than when cold. None of this means that decisions made in a cold state are always better. For example, sometimes we have to be in a hot state to overcome our fears about trying new things. Sometimes dessert really is delicious, and we do best to go for it. Sometimes it is best to fall in love. But it is clear that when we are in a hot state, we can often get into a lot of trouble.

For most of us, however, self-control issues arise because we underestimate the effect of arousal.

Self-control problems can be illuminated by thinking about an individual as containing two semiautonomous selves, a far-sighted “Planner” and a myopic “Doer.” You can think of the Planner as speaking for your Reflective System, or the Mr. Spock lurking within you, and the Doer as heavily influenced by the Automatic System, or everyone’s Homer Simpson. The Planner is trying to promote your long-term welfare but must cope with the feelings, mischief, and strong will of the Doer, who is exposed to the temptations that come with arousal.

Large plates and large packages mean more eating; they are a form of choice architecture, and they work as major nudges.

Conventional wisdom has it that if two people live together for a long time, they start to look like each other. This bit of folk wisdom turns out to be true. (For the curious: they grow to look alike partly because of nutrition—shared diets and eating habits—but much of the effect is simple imitation of facial expressions.) In fact couples who end up looking alike also tend to be happier!

many of our biggest misconceptions also come from others.

The second reason why this topic is important for our purposes is that one of the most effective ways to nudge (for good or evil) is via social influence.

The bottom line is that Humans are easily nudged by other Humans. Why? One reason is that we like to conform.

People become more likely to conform when they know that other people will see what they have to say. Sometimes people will go along with the group even when they think, or know, that everyone else has blundered.

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.

Consider the case of investment clubs, which perform especially poorly when members are conformists. In such clubs, too little information gets out; people follow those who speak first and, as a result, the club makes poor investment decisions and everyone loses a lot of money. Social influences can also have significant effects on the entire market. In fact, they played a key role in producing the recent speculative boom and resulting financial crisis of 2008.

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 likely to act in accordance with their answers.

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.

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 characteristic of business environments, such as briefcases and boardroom tables, make people more competitive, less cooperative, and less generous.25 Smells matter too: mere exposure to the scent of an all-purpose cleaner makes people keep their environment cleaner while they eat.26 In both cases, people were not consciously aware of the effect of the cue on their behavior.

people will need nudges for decisions that are difficult and rare, for which they do not get prompt feedback, and when they have trouble translating aspects of the situation into terms that they can easily understand.

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

Even hard problems become easier with 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.

Alas, many of life’s choices are like practicing putting without being able to see where the balls end up, and for one simple reason: the situation is not structured to provide good feedback.

Isn’t it obvious that the largest buttons on a television remote control should be the power, channel, and volume controls? Yet how many remotes do we see that have the volume control the same size as the “input” control button (which if pressed accidentally can cause the picture to disappear)?

It is possible, however, to incorporate human factors into design,

Norman’s basic lesson is that designers need to keep in mind that the users of their objects are Humans who are confronted every day with myriad choices and cues.

If you indirectly influence the choices other people make, you are a choice architect. And since the choices you are influencing are going to be made by Humans, you will want your architecture to reflect a good understanding of how humans behave.

Many organizations in both the public and the private sector have discovered the immense power of default options. Successful businesses certainly have.

In the software example, it is really helpful to know what the recommended settings are. Most users do not want to have to read an incomprehensible manual in order to determine which arcane setting to elect. When choice is complicated and difficult, people might greatly appreciate a sensible default. It is hardly clear that they should be forced to choose.

Second, required choosing is generally more appropriate for simple yes-or-no decisions than for more complex choices.

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. Most ATMs (but not all) no longer allow this error because you get your card back immediately. 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.

Once a day is much better than once every other day, because the Automatic System can be educated to think: “My pill(s) every morning, when I wake up.” Taking the pill becomes a habit, and habits are controlled by the Automatic System. By contrast, remembering to take your medicine every other day is beyond most of us. (Similarly, meetings that occur every week are easier to remember than those that occur every other week.) Some medicines are taken once a week, and most patients take this medicine on Sundays (because that day is different from other days for most people and thus easy to associate with taking one’s medicine).