American capitalism makes a mistake in assuming that people have all the information they need to make a rational choice. As anyone who has ever purchased a car knows, consumers do not always have all the valuable information they need to make a good decision in an exchange, and often, one party has far more information than another. We can become experts at selecting avocados pretty easily, but it is fairly unlikely that we will become experts at selecting the best used car. We become avocado experts because we can buy them weekly and get reliable and immediate feedback when we get home and cut into them. A used car, however, is not something we buy on a regular basis, and we might make it months or years before we have a catastrophic break down.
Because we are not experts in everything and because there are some decisions we have to make where we don’t get reliable and timely feedback and can’t practice enough to truly know what to look for, we are subject to forces large and small that influence our decision-making. Buying a used car because you like the sales person, because the price feels right, and because of brand loyalty are examples of cognitive errors or biases where subtle nudges by the dealership or brand can influence us. Whether a salesman intends it or not, there are many factors that nudge our behavior, and they can’t be eliminated.
In Nudge, Cass Sunstein and Richard Thaler write, “In many situations, some organization or agent must make a choice that will affect the behavior of some other people. There is, in those situations, no way of avoiding nudging in some direction, and whether intended or not, these nudges will affect what people chose.”
The car dealership example is a somewhat nefarious and depressing view of nudges. However, the reality of Sunstein and Thaler’s quote can also be a powerful force to help improve people’s lives and not just overcharge them for a lemon. Carfax is a company that helps nudge people in the right direction, by getting them to consider the vehicle’s collision history before making a decision based on how shiny the car looks. Other nudges can be helpful for people, and if we accept that nudges are unavoidable, then we can actively step in to help design decision situations in a way that will allow people to make good decisions. An example I can think of would be visual aids to help people understand how much they can afford for a monthly car payment, mortgage, or rent. Most housing agencies suggest that people shouldn’t spend more than 33% of their monthly income on rent/mortgage. A calculator tool with a green smiley face, and a red frown face could help nudge people away from mortgages or rents that they really can’t afford, helping people make difficult and more reasonable housing decisions. Small actions can help people better understand their decisions and can serve as guides that help people do what is actually in their best interest as they themselves would understand it.