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The Nuisance of Nudging

September 4, 2012, 12:00 AM
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When is a nudge a nuisance? Thanks in large part to the work of Richard Thaler, an economist at the University of Chicago, the science of "nudging" - getting people to make choices based on how their options are presented - has become all the rage in business and government.  Nudging is nothing new, though, and its effectiveness may run out as society gets wise. 

The idea that how you frame someone's options can affect their decisions - often called "context-dependent choice" by economists - goes back many decades.  Maurice Allais, a Nobel laureate in economics, formalized a paradox based on this notion back in the 1950s.  A simpler example taught by one of my old professors, the Nobel laureate Amartya Sen, goes like this:

Every day, you get home from work and greet your neighbor as you walk up the street to your house.  Some days, your neighbor invites you in for a cup of tea.  You have two choices: accept, or go home.  You like your neighbor, so you always accept.  One day, however, your neighbor invites you in for a cup of tea... or some cocaine.  You prefer tea to cocaine, so you can easily reject the new option and accept the tea as usual.  But the new option has given you some new information about your neighbor; you go home. 

Thaler and others have shown that nudging can be a powerful force in decision-making.  Since the 1990s, for instance, economists such as David Laibson have observed that an unusually large number of workers choose the default option for their 401(k) retirement accounts, regardless of what the default happens to be.  These days, nudging is being taken seriously at the highest levels of the public and private sector; Thaler advises a nudging unit called the Behavioral Insights Team at the heart of the British government

Somewhat surprisingly, the Behavioral Insights Team was created by the center-right Conservative Party.  In policy, nudging is an intrinsically paternalistic strategy of the kind more often associated with the left; you're pushing someone to do something that they might not ordinarily do, presumably because it will be in their long-term best interest, or in society's.  Perhaps more consistently with the mindset of the Conservative Party's leaders, nudging also assumes a certain level of ignorance or laziness; for whatever reason, people don't know enough or think hard enough to make the right choices for themselves. 

These characteristics of nudging may sound odious, but they're not automatically a problem.  Plenty of people are happy for their leaders and bosses to make choices for them, as long as they probably would have made similar choices themselves.  Yet when leaders and bosses don't truly represent the interests of their constituents and employees, nudging can be toxic. 

Because of this risk, it's time our society got wise to nudging.  Knowing how to spot a nudge when you see it will help you to figure out whether it's pushing you in the right direction. In other words, look at all the options for your 401(k) before you pick one default plan that puts all your savings into your company's stock. 

Of course, once you spot a nudge for what it is, it's no longer quite as capable of nudging you.  But it still has some benefit; it has given you some information about what someone - perhaps someone you trust, perhaps not - wants you to do.  With this information in hand, you can make a better choice... on your own.

 

 

The Nuisance of Nudging

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