Month: January 2021

Acknowledging Nudges

Acknowledging Nudges

Posted on by jabittan
In the book Nudge, Cass Sunstein and Richard Thaler argue that it is impossible to avoid and eliminate nudges. Whenever people have a choice to be made, someone else has a hand in shaping how that choice is presented and structured. Even if a choice architect were to strive to maximize choice and decision-making autonomy in the chooser, subtle factors will influence the chooser and nudge them in particular directions. Striving to eliminate nudges is likely to lead to worse potential outcomes and choices than acknowledging nudges and trying to employ them in ways that help people make good choices.

 

But how does a choice architect judge when a nudge is appropriate versus when a nudge goes too far? Again, Sunstein and Thaler recommend that first a choice architect acknowledge their nudge, and then ask themselves whether they could discuss the way they use nudges in public. The authors reference an idea from John Rawls called the publicity principle. If a choice architect feels comfortable with publicly acknowledging nudges and their choice to employ a given nudge, then their nudge is probably going in an appropriate direction. If however, the discovery of their nudges would lead people to shame them or if they would be embarrassed about their actions, then they have overstepped the bounds of an acceptable nudge.

 

Sunstein and Thaler write, “The government should respect the people whom it governs, and if it adopts policies that it could not defend in public, it fails to manifest that respect. Instead, it treats its citizens as tools for its own manipulation.”

 

Nudges are effective tools because we can understand how human psychology works and we can predict situations in which people are likely to make biased judgements or judgements based on cognitive errors. Appropriate nudges seek to improve decision-making by helping people overcome these biases and errors. Manipulative nudges are those which seek to exploit such biases. Governments are expected to be transparent, and more laws exist for transparency in the public rather than the private sector, meaning that government officials must be more considerate about their explicit nudges. If oversight bodies, reporters, or the general public were to learn of a practice that made an agency or official look good while failing to actually benefit the public, then it would be clear that an abuse of power took place. Choice architects who wish to serve the public rather than manipulate it should always consider acknowledging nudges, and whether they can safely do so publicly.
Public vs Private Choice Architects - Joe Abittan

Who to Fear: Public vs Private Choice Architects

Posted on by jabittan
A question that Cass Sunstein and Richard Thaler raise in their book Nudge is whether we should worry more about public or private sector choice architects. A choice architect is anyone who influences the decision space of another individual or group. Your office’s HR person in charge of health benefits is a choice architect. The people at Twitter who decided to increase the character length of tweets are choice architects. The government bureaucrat who designs the form you use to register to vote is also a choice architect. The decisions that each individual or team makes around the choice structure for other people’s decisions will influence the decisions and behaviors of people in those choice settings.

 

In the United States, we often see a split between public and private that is feels more concrete than the divide truly is. Often, we fall dramatically on one side of the imagined divide, either believing everything needs to be handled by businesses, or thinking that businesses are corrupt and self-interested and that government needs to step in to monitor almost all business actions. The reality is that businesses and government agencies overlap and intersect in many complex ways, and that choice architects in both influence the public and each other in complex ways. Regardless of what you believe and what side you fall on, both choice architects need to be taken seriously.

 

“On the face of it, it is odd to say that the public architects are always more dangerous than the private ones. After all, managers in the public sector have to answer to voters, and managers in the private sector have as their mandate the job of maximizing profits and share prices, not consumer welfare.”

 

Sunstein and Thaler suggest that we should be concerned about private sector choice architects because they are ultimately responsible to company growth and shareholder value, rather than what is in the best interest of individuals. When conflicts arise between what is best for people and what is best for a company’s bottom line, there could be pressure on the choice architect to use nudges to help the bottom line rather than to help people make the best decisions possible.

 

However, the public sector is not free from perverse incentives simply by being elected, being accountable to the public, or being free from profit motives. Sunstein and Thaler continue, “we agree that government officials, elected or otherwise, are often captured by private-sector interests whose representatives are seeking to nudge people in directions that will specifically promote their selfish goals.” The complex interplay of government and private companies means that even the public sector is not a space purely dedicated to public welfare. The general public doesn’t have the time, attention, energy, or financial resources to influence public sector choice architects in the ways that the private sector does. And if private sector influences shape choice structures via public elected officials, they can create a sense of legitimacy for ultimately selfish decisions. Of course, public sector choice architects could be more interested in keeping their job or winning reelection, and may promote their own selfish goals for self-preservation reasons as well.

 

We can’t think of public sector or private sector actors as being more trustworthy or responsible than the other. Often times, they overlap and influence each other, shifting the incentives and opinions of the public and the actors within public and private sectors simultaneously. Sunstein and Thaler suggest that this is a reason for maintaining the maximal choice freedom possible. The more people have their own ability to make choices, even if they are nudged, the more we can limit the impact of self-serving choice architects, whether they are in the public or private sectors.
Selfish Choice Architects

Selfish Choice Architects

Posted on by jabittan
“So lets go on record,” write Cass Sunstein and Richard Thaler in their book Nudge, “as saying that choice architects in all walks of life have incentives to nudge people in directions that benefit the architects (or their employers) rather than the users.”

 

Choice architects are those who design, organize, or provide decision situations to individuals. Whether it is the person who determines the order for food on the buffet line, the human resources manager responsible for selecting health insurance plans for the company, or a bureaucrat who designs an enrollment form, anyone who influences a situation where a person makes a decision or a choice is architecting that choice. Their decisions will influence the way that people understand their choice and the choices that they actually make.

 

As the quote above notes, there can always be pressure for a choice architect to design the decision space in a way that advances their own desires or needs as opposed to advancing the best interest of the individual making a given choice. Grocery stores adjust their layouts with the hopes that displays, sales, or conveniently located candy will get customers to purchase things they otherwise wouldn’t purchase. A company could skimp on health benefits and present confusing plans to employees with hurdles preventing them from utilizing their benefits, saving the company money while still appearing to have generous benefits. A public agency could design a program that meets a political objective and makes the agency head look good, even if it gives up actual effectiveness in the process and doesn’t serve citizens well.

 

Nudges are useful, but they have the capacity to be nefarious. A buffet manager might want patrons to fill up on cheap salad, eating less steak, meaning that the buffet does better on the margins. Placing multiple cheap salads at the front of the line, and not allowing people to jump right to steak, is a way to nudge people to eating cheaper food. Sunstein and Thaler acknowledge the dark side of nudges in their book, and encourage anyone who is a choice architect to strive to avoid the dark side of nudges. Doing so, they warn, risks leading to cynicism and in the long run is likely to create problems when employee, customer, or citizen trust and buy in is needed.

Avoiding Complex Decisions & Maintaining Agency

Posted on by jabittan
Two central ideas to the book Nudge by Cass Sunstein and Richard Thaler are that people don’t like to make complex decisions and that people like to have agency. Unfortunately, these two ideas conflict with each other. If people don’t like to make complex decisions, then we should assume that they would like to have experts and better decision-makers make complex decisions on their behalf. But if people want to have agency in their lives, we should assume that they don’t want anyone to make decisions for them. The solution, according to Sunstein and Thaler, is libertarian paternalism, establishing systems and structures to support complex decision-making and designing choices to be more clear for individuals with gentle nudges toward the decisions that will lead to the outcomes the individual actually desires.

 

For Sunstein and Thaler, the important point is that libertarian paternalism, and nudges in general, maintain liberty. They write, “liberty is much greater when people are told, you can continue your behavior, so long as you pay for the social harm that it does, than when they are told, you must act exactly as the government says.”  People resent being told what to do and losing agency. When people resist direct orders, the objective of the orders may fail completely, or violence could erupt. Neither outcome is what government wanted with its direct order.

 

The solution is part reframing and part redirecting personal responsibility for negative externalities. The approach favored by Sunstein and Thaler allows individuals to continue making bad or harmful choices as long as they recognize and accept the costs of those choices. This isn’t appropriate in all situations (like drinking and driving), but it might be appropriate with regard to issues like carbon taxes on corporations, cigarette taxes, or national park entrance fees.  If we are able to pin the cost of externalities to specific individuals and behaviors, we can change the incentives that people have for harmful or over-consumptive behaviors. To reach the change we want, we will have to get people to change their behavior, make complex decisions, and maintain a sense of agency as they act in ways that will help us as a collective reach the goals we set.
Incentives for Environmentally Responsible Markets

Incentives for Environmentally Responsible Markets

Posted on by jabittan
When it comes to environmental issues, no single actor is completely to blame, and that means no single actor can make the necessary changes to prevent catastrophic climate change. This means we can’t put all the weight on governments to take actions to change the course of our climate future, and we can’t blame individual actors either. We have to think about economies, polities, and incentive structures.

 

In their book Nudge, economists Cass Sunstein and Richard Thaler look at what this means for markets and regulation as we try to find sustainable paths. They write, “markets are a big part of this system, and for all their virtues, they face two problems that contribute to environmental problems. First, incentives are not properly aligned. If you engage in environmentally costly behavior next year, through consumption choices, you will probably pay nothing for the environmental harms that you inflict. This is what is often called a tragedy of the commons.”

 

One reason markets bear some of the blame and responsibility for the climate change crisis is because market incentives can produce externalities that are hard to correct. Climate change mitigation strategies, such as research and development of more fuel efficient vehicles and technologies, are expensive, and the costs of climate change are far off. Market actors, both consumers and producers, don’t have proper incentives to make the costly changes today that would reduce the future costs of continued climate change.

 

A heavy handed approach to our climate change crisis would be for governments to step in with dramatic regulation – eliminating fossil fuel vehicles, setting almost unattainably high energy efficiency standards for furnaces and dishwashers, and limiting air travel. Such an approach, however, might anger the population and ruin any support for climate mitigation measures, making the crisis even more dire. I don’t think many credible people really support heavy handed government action, even if they do favor regulation which comes close to being as extreme as the examples I mentioned. Sunstein and Thaler’s suggestion of improved incentives to address failures in markets and change behaviors has advantages over heavy handed regulation. The authors write, “incentive-based approaches are more efficient and more effective, and they also increase freedom of choice.”

 

To some extent, regulation looks at a problem and asks what the most effective way to stop the problem is if everyone is acting rational. An incentives-based approach asks what behaviors need to be changed, and what existing forces encourage the negative behaviors and discourage changes toward better behaviors. Taxes, independent certifications, and public shaming can be useful incentives to get individuals, groups, and companies to make changes. I predict that in 10-15 years people who are not yet driving electric cars will start to be shamed for continuing to drive inefficient gas guzzlers (unfortunately this probably means people with low incomes will be shamed for not being able to afford a new car). In the US, we have tried to introduce taxes on carbon output, but have not been successful. Taxing energy consumption in terms of carbon output changes the incentives companies have with regard to negative environmental externalities form energy and resource consumption. And independent certification boards, like the one behind the EnergyStar label, can continue to play an important role in encouraging technological development of more efficient appliances. The incentives approach might seem less direct, slower, and less certain to work, but in many areas, not just climate change, we need broad public support to make changes, especially when the costs are high up front. This requires that we understand incentives and think about ways to change incentive structures. Nudges such as the ones I mentioned may work better than full government intervention if people are not acting fully rational, which is usually the case for most of us. Nudges can get us to change behaviors while believing that we are making choices for ourselves, rather than having choices forced on us by an outside authority.
Markets and Environmentalism - A Call for Better Incentives

Markets and Environmentalism – A Call for Better Incentives

Posted on by jabittan
Earlier I wrote that climate change and environmental concerns seemed to be too large of a problem to be left to nudges. Toward the end of Nudge, Cass Sunstein and Richard Thaler acknowledge the reality that nudges alone cannot tackle climate change, but they still encourage actions that follow the spirit of nudges, or at least learn from the psychology that makes nudges effective. Incentives play a huge role in behavior, and  need to be considered when governments approach businesses in an effort to redress the harms of climate change. Markets and environmentalism cannot be separated if we are to have a sustainable climate. Better incentives need to be implemented within markets to adjust for environmental needs.

 

The authors acknowledge market failures related to climate change by writing, “when the air or the water is too dirty, the standard analysis says that it is because polluters impose externalities (that is, harms) on those who breath or drink. Even libertarians tend to agree that when externalities are present, markets alone do not achieve the best outcome.” Pollutants are common externalities, as are traffic congestion and decimated wildlife populations. The cost of negative externalities is squarely on the shoulders of the individuals in the market, either the consumer or the producer. Governments are necessary to deal with these externalities and prevent them from harming innocent bystanders.

 

Additionally, regarding market failures and climate change, the authors continue, “When people are not in a position to make voluntary agreements, most libertarians tend to agree that government might have to intervene.” Most libertarians agree that labor contracts should be voluntary, with an employer reserving the right to hire anyone, and laborers reserving the right to walk away if their wages or working conditions are unfair. In reality, many people would starve if they walked away from a job, or at least face serious challenges, so voluntary agreements are not always possible. Within the climate change arena, many people cannot simply chose to travel to work by more fuel efficient methods, many people cannot afford the switch to solar power, and many other potential solutions are similarly unavailable, meaning people and businesses are often stuck, involuntarily, with polluting norms for travel, work, and heating or cooling their homes and offices. Markets alone don’t provide the impetus to change the status quo to reflect the reality of climate change.

 

The next post will dive deeper into the incentives and solutions to these problems, but it is clear that markets alone will not direct society toward a climate change solution. The danger of climate change is a long-term danger, where the costs are not experienced in the immediate moment but are instead experienced years and decades later. However, the costs of making adjustments to limit climate change are experienced up front. Upgrading infrastructure, investing in electric and solar technology, and living in more economically friendly ways present immediate costs that nudges cannot overcome. Nevertheless, we can consider the ways in which nudges work and build on those principles to begin to make changes. We can start to better align incentives to limit externalities, and we can preserve choice structures as we move forward with investments and innovation to help us meet the needs of the climate crisis. Government will play a big role and can learns a lot from the psychology of nudges to help address the challenges we face.
Can We Employ Simple Health Nudges?

Can We Employ Simple Health Nudges?

Posted on by jabittan
In their book Nudge, Cass Sunstein and Richard Thaler write, “Libertarian paternalists see countless opportunities for improving people’s health. Social influences could obviously be enlisted: if most people think that most people are starting to avoid unhealthy foods, or to exercise, more people will avoid unhealthy foods and will exercise.” The book was published in 2008, and while the authors imagined many ways in which nudges could make a big impact for the health of individuals and populations, few nudges seem to be making an impact in the US today. The lack of successful nudges, and the health challenges of the last few years raise the question, can we employ simple health nudges to solve our problems?

 

The COVID-19 pandemic has shown us how hard it is to adopt simple healthcare practices in the United States. Nudges, like signs, reminders, and commercials about preventing airborne transmission of the virus through the use of masks doesn’t seem to be as effective as we would like. It has often taken mask mandates and fines for business to compel people to actually wear masks. Nudges, in the case of encouraging mask wearing in the face of a deadly pandemic and highly transmissible disease seemed to be ineffective.

 

Before the COVID-19 pandemic, two public health ideas that were being tested were limiting the size of sodas that people could purchase at restaurants and convenience stores and taxing sugary drinks. I’m not sure if Sunstein and Thaler would consider bans on overly large soda cups or taxes on sugary beverages as nudges, but I think they count. No one was limiting the number of sodas an individual could buy, and the taxes on sugary drinks were very low. The idea behind each measure was to marginally reduce some sugary beverage consumption, hopefully helping people reduce their caloric intake and improve their dental health. But even these small measures were met with fierce backlash. Very few people would really be impacted by the limited sizes of large soda cups, and few people would meaningfully feel the price of the soda taxes, but both measures were attacked and only a few places were actually able to pass such measures. If such limited actions are met with such strong resistance, then it doesn’t seem like we can rely on nudges that will meaningfully move people toward more healthy lives.

 

Sunstein and Thaler also write about social influencers as being important in nudging people toward diets and exercise, but in the years since 2008, social influencers have been less successful at encouraging diets than they have been at getting people to take cool pictures wearing athleisure wear. Body positivity movements have possibly encouraged people to be more accepting of non-model/Avenger body shapes, rather than encouraging them to spend more time at the gym and eat more salads. I think it is a healthy movement, but the nudge of body positivity movements are not tied to the same health goals that are written about in the book. From my perspective, it seems that there are larger structural issues that shape and limit our exercising and influence our diets beyond what nudges can hope to influence.

 

While I wish we could employ simple health nudges to improve individual and population health, I don’t think it is possible. We have trouble communicating the effectiveness of masks and encouraging people to wear masks during a global pandemic, and people will fight against marginal measures to limit soda consumption. Encouraging more exercise and getting people to eat healthier requires action beyond what a nudge can do, and require real structural changes to the systems and incentives that create our current health problems. Beyond nudges, we need larger creative solutions that will truly change people’s behavior.
Too Many Options - Nudge by Cass Sunstein and Richard Thaler - Joe Abittan

Too Many Options

Posted on by jabittan
Writing specifically about new employee enrollment in retirement savings plans, Richard Thaler and Cass Sunstein in their book Nudge write, “One study finds that the more options in the plan, the lower the participation rates. This finding should not be surprising. With more options, the process becomes more confusing and difficult, and some people will refuse to chose at all.” The important lesson that Thaler and Sunstein present with this quote is that getting people to do things that they want to do and know is in their best interests is challenging, even when it shouldn’t be. Additionally, people have ideas of what they should be doing and have goals for where they want to be, but don’t often have a great sense of the best way to get there. When that is the case, such as saving enough for retirement, making the path simple is more important than ensuring that the path leads to the most optimal choice or maximizes the individual’s choices.

 

One size fits all approaches and solutions usually are not great. They typically get the job done, but usually don’t lead to the best outcomes for most people. This is true with health insurance plans, retirement savings accounts, and special event t-shirts. One size fits all health plans cover general health needs, but might not work well for someone who needs expensive asthma medicine. Generalized retirement savings accounts help people get started on the path to saving for retirement and ensure that people at least have something banked when they get to 65, but they often fall short and have minimal risk taking approaches that prevent losses, but limit growth. And unisex t-shirts fit everyone, but aren’t the most comfortable and certainly are not form fitting to match current fashion trends. However, despite their inadequacies, these examples are often good first steps in helping people make a decision and get started with a plan.

 

It would be great if every person could pick the perfect healthcare plan, could find the optimal investment strategy for retirement, and have perfectly tailored clothes for every special occasion, but it isn’t realistic everyone to make great choices in all of these situations. No one knows exactly what their healthcare demands will be for the upcoming year. Our risk tolerance and savings needs and abilities will change throughout our lifetime, and no one can mass produce special event t-shirts that are tailored to every participant. Information is lacking, preferences don’t stay the same, and resources are constrained.

 

Getting people (or products) started is the first step toward ensuring healthcare coverage, retirement savings, and having race-day t-shirts for a charity run. Given the constraints I mentioned above, the initial choices need to be simple. Presenting an individual with 20 healthcare plans is going to be confusing and frustrating. The same is true for retirement options, and people looking to coordinate clothing for a special event can’t spend the too much time arguing between thousands of combinatorial options for their shirts. Rather than making a selection, people risk dropping out if they face too many choices. When there are too many options, people become frustrated, and if they don’t walk away, might select the first option they see, making suboptimal choices.

 

A solution is to take a one size fits all approach that can be adjusted and customized at a later point. Getting people started with something simple and generalized can avoid the frustrating paralysis that presenting too many options can create. Helping people understand how to make changes and learn between selections will help people improve their decisions over time and better identify healthcare plans, retirement savings plans, and custom t-shirt options that match their needs, preferences, and constraints. It is possible to present people with a few options initially, and allow them to explore additional options later on if the initial options are not a good fit or if the individual wants to explore more nuanced and complex options.
Learning and Exploratory Nudges - Joe Abittan

Learning and Exploratory Nudges

Posted on by jabittan
So far, a lot of the nudges I have written about assume that there is a known best option for an individual and that a choice architect can help direct people toward that best option. In situations like retirements savings, healthcare benefits selection, and other complicated, structured, and somewhat formulaic choice scenarios, it is relatively easy to take a rational approach to use nudges to help people select an option that will be a good choice for them. But nudges don’t have to direct people toward an already known option. Nudges can be more exploratory in nature and directed toward learning.

 

In some situations, write Cass Sunstein and Richard Thaler in their book Nudge, “it’s good to nudge people in directions that they might not have specifically chosen in advance. Structuring choice sometimes means helping people to learn, so they can later make better choices on their own.”

 

Helping people learn can be better than always trying to give people the right answer. Libertarian paternalism accepts that choice architects don’t know everything about another person’s preferences or self-interest, but assumes someone can generally know the right direction to point other people in. Using nudges to provide more feedback, encourage people to consider appropriate information, and help people better sort through their options can help people understand how to think and approach similar choices. When the goal of a choice architect is to maintain a maximal choice level while providing people with valuable information and alternatives, nudges that encourage learning are incredibly useful.

 

Additionally, nudges that encourage more exploration are helpful for people when it comes to things like listening to music or dining out. Nudges can direct people back toward things they already like, but they can also direct people toward new things that similar people like. Many algorithms on Amazon, music streaming services, and clothing subscription services work in these ways. While they are ultimately designed to keep you engaged or convince you to buy something else, they do employ exploratory nudges to help people find new likes. A company could continue suggesting you buy the same pair of shoes, but they might be able to get you to buy another pair if they show you one that other people also like. Helping people explore new genres of music, new authors, and new styles of clothes can provide real value to the individual, beyond the value to the company in convincing someone to buy something new. The individual still learns if they get feedback from their exploratory choices and gain new insight into finding new alternatives.
Default Choices

More On Default Choices

Posted on by jabittan
In many decision situation there is a default choice. Many online forms already have a bubble selected as you scroll through, there are many opt-out clauses in hospital disclosures, and when you go to sign-up for a social media platform there are pre-set security and information sharing agreements and settings. These defaults can matter a lot, and sometimes they matter much more to someone other than the recipient of the default. As Richard Thaler and Cass Sunstein write in Nudge, “note that not all defaults are selected to make the chooser’s life easier or better.”

 

Default selections are nudges because they shape the easiest choice path, what Sunstein and Thaler refer to as the path of least resistance. When a default has already been selected, the chooser doesn’t have to make a decision. Their non-decision still results in a choice being selected. The default is often the most popular option, even if it isn’t the best choice for anyone, because there is some cost to switching away. The cost is usually only time and effort, and normally a minimal amount of time and effort, but still, it is a cost that people won’t pay.

 

“If, for a given choice,” write Sunstein and Thaler, “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.”

 

Most of us probably agree that it isn’t in our best interest to allow Facebook to gather massive amounts of information about us to be sold to advertisers and political campaigns. However, the default settings for Facebook require us to opt-out of having our data sold. The process for finding the settings and opting out of targeted advertisements and having our data sold is hard to find, and the exact spot in the settings menu changes periodically. We lose time trying to find the right spots to check to get out of the default, and we can become frustrated if we can’t find the settings we are looking for. As a result, many people never change away from the data sharing default.

 

The Facebook example is a fairly nefarious use of defaults, but using defaults as nudges can be positive for individuals and societies as well. In 2019 the state I live in, Nevada, approved a new law which allows people to register to vote when completing anything they need at the DMV. By default, individuals over 18 who are eligible to vote are asked if they would like to register or update their registration. People don’t have to ask to update their voter registration, they don’t have to track down a website to update voter information, and they don’t have to hope someone approaches them in a parking lot with voter registration forms, it is a default option while doing regular paperwork at the DMV. Many states have a similar process with becoming an organ donor, where registering as an organ donor is the default option when applying for a state issued identification, requiring people to opt out of organ donor programs rather than opt in. States and countries with such systems have far more organ donors than states that don’t include people by default.

 

The path of least resistance created by nudges is important to consider. It can be a helpful way to encourage people to make decisions that are good for them and for society. At the same time, defaults can take advantage of laziness or forgetfulness. When we are not directly informed of the defaults that are being applied to us, we can end up in situations like the Facebook data sharing example above. As a result, questions about the default choice are often contentious, especially when a company’s business model requires a default that is not in the best interest of most people, or when a selected default can have political or moral dimensions.