Tag: decisions

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.
Collective Conservatism

Collective Conservatism

Posted on by jabittan
Groupthink is one of the most dangerous phenomenon that our world faces today. Families, companies, and governments can all find themselves stuck in groupthink, unable to adapt to a world that no longer fits the model and expectations that drive traditional thinking. When everyone has the same thought processes and members of the group discount the same information while adopting a uniform perspective, the world of possibilities becomes limited.

 

In Nudge, authors Cass Sunstein and Richard Thaler write about a particular element that is common when groupthink takes hold, collective conservatism. While discussing groups that follow tradition the authors write,

 

“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.”

 

In a family household, collective conservatism might take the form of a specific way to fold towels. Perhaps towels had to be folded a certain way to fit a space in a previous house, and the tradition has continued even though towels no longer need to be folded just right for the space. Nothing is really lost by folding towels just so, but it might be time consuming to make sure they are folded in order to fit a constraint that no longer exists.

 

Within companies and governments, however, collective conservatism can be more consequential than the time and effort involved in folding towels. A company that cannot adjust supply chains, cannot adjust a business model in response to competition, and that cannot improve workspaces to meet new employee expectations is likely to be overtaken by a start-up that is more in tune with new social, technological, and cultural business trends. For a government, failures to adjust for technological change and employee motivations are also risks, as are changes in international relations, social needs, and more. Being stuck in a mindset that cannot see the changes and cannot be more responsive can be dangerous because peoples actual lives and needed services and supports could be in jeopardy. Collective conservatism feels safe to those who are in decision-making roles and who know what worked in the past. However, collective conservatism is a form of group think that can lead to inept operations and strategies that can be economically costly and have negative impacts in peoples’ real lives.
Framing and Nudges

Framing and Nudges

Posted on by jabittan
“Framing works because people tend to be somewhat mindless, passive decision makers,” write Cass Sunstein and Richard Thaler in their book Nudge. “Their Reflective System does not do the work that would be required to check and see whether reframing the question would produce a different answer.”

 

Framing is an important rhetorical tool. We can frame things as gains or losses, reference numbers as percentages or as whole numbers, and compare phenomena to small classes or to larger populations. Framing can include elements of good or evil, morality or sin, responsibility toward ones family or individual greed. Depending on what we want people to do or how we want them to behave, we can adjust the way we frame a situation or decision to influence people in certain ways. Framing is not a 100% effective way to make people do what we want, but it can be a helpful way to nudge people toward certain decisions.

 

Sunstein and Thaler present an example of using framing to nudge people to conserve energy. They write,

 

“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.”

 

It is not the case that everyone who sees a message touting the money saved by conserving energy will do nothing while everyone who sees a message about the money they lose will take action. Some people will be motivated to take action by the message to save $350 per year, and some people won’t be motivated by the $350 loss aversion. However, on average, more people with the loss averse message will decide to take action. People tend to feel losses to a greater extent then they seek gains, so framing energy conservation methods as preventing a loss will motivate more people than framing energy conservation methods as leading to a gain.

 

This small shift in framing alters the perspective of buying energy efficient light bulbs or resealing windows from costly investments to practical strategies for avoiding further losses. Framing in this example is a simple nudge that isn’t a form of mind control, but plays into existing human biases and encourages people to make decisions that are better for them individually and for society collectively. I would argue that framing is a necessary and unavoidable choice. Messages are necessarily context dependent, and trying not to include any particular framing can make a message useless – at that point you might as well not have a message at all. Given that framing is necessary and that there are preferable outcomes, choice architects should think about framing and employ frames in a way to encourage the best possible decisions for the most people possible.
Nudges for Unrealistic Optimism

Nudges for Unrealistic Optimism

Posted on by jabittan
Our society makes fun of the unrealistic optimist all the time, but the reality is that most of us are unreasonably optimistic in many aspects of our life. We might not all believe that we are going to receive a financial windfall this month, that our favorite sports team will go from losing almost all their games last year to the championship this year, or that everyone in our family will suddenly be happy, but we still manage to be more optimistic about most things than is reasonable.

 

Most people believe they are better than average drivers, even though by definition half the people in a population must be above and half the people below average. Most of us probably think we will get a promotion or raise sometime sooner rather than later, and most of us probably think we will live to be 100 and won’t get cancer, go bald, or be in a serious car crash (after all, we are all above average drivers right?).

 

Our overconfidence is often necessary for daily life. If you are in sales, you need to be unrealistically optimistic that you are going to get a big sale, or you won’t continue to pick up the phone for cold calls. We would all prefer the surgeon who is more on the overconfident side than the surgeon who doubts their ability and asks us if we finalized our will before going into the operating room. And even just for going to the store, doing a favor for a neighbor, or paying for sports tickets, overconfidence is a feature, not a bug, of our thinking. But still, there are times where overconfidence can be a problem.

 

2020 is an excellent example. If we all think I’m not going to catch COVID, then we are less likely to take precautions and are more likely to actually catch the disease. This is where helpful nudges can come into play.

 

In Nudge, Cass Sunstein and Richard Thaler write, “If people are running risks because of unrealistic optimism, they might be able to benefit from a nudge. In fact, we have already mentioned one possibility: if people are reminded of a bad event, they may not continue to be so optimistic.”

 

Reminding people of others who have caught COVID might help encourage people to take appropriate safety precautions. Reminding a person trying to trade stocks of previous poor decisions might encourage them to make better investment choices then trying their hand at day trading. A quick pop-up from a website blocker might encourage someone not to risk checking social media while they are supposed to be working, saving them from the one time their supervisor walks by while they are scrolling through someone’s profile. Overconfidence may be necessary for us, but it can lead to risky behavior and can have serious downfalls. If slight nudges can help push people away from catastrophic consequences from unrealistic optimism, then they should be employed.
Nudges Are Unavoidable - Joe Abittan

Nudges Are Unavoidable

Posted on by jabittan
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.
Do People Make the Best Choices?

Do People Make the Best Choices?

Posted on by jabittan
My wife works with families with children with disabilities and for several years I worked in the healthcare space. A common idea between our two worlds was that the people being assisted are the experts on their own lives, and they know what is best for them. Parents are the experts for their children and patients are the experts in their health. Even if parents to don’t know all the intervention strategies to help a child with disabilities, and even if patients don’t have an MD from Stanford, they are still the expert in their own lives and what they and their families need.

 

But is this really true? In recent years there has been a bit of a customer service pushback in the world of business, more of a recognition that the customer isn’t always right. Additionally, research from the field of cognitive psychology, like much of the research from Daniel Kahneman’s book Thinking Fast and Slow that I wrote about, demonstrates that people can have huge blind spots in their own lives. People cannot always think rationally, in part because their brains are limited in their capacity to handle lots of information and because their brains can be tempted to take easy shortcuts in decision-making that don’t always take into account the true nature of reality. Add to Kahneman’s research the ideas put forth by Robin Hanson and Kevin Simler in The Elephant in the Brain, where the authors argue that our minds intentionally hide information from ourselves for political and personal advantage, and we can see that individual’s can’t be trusted to always make the best decisions.

 

So while no one else may know a child as well as the child’s parents, and while no one knows your body and health as well as you do, your status as the expert of who you are doesn’t necessarily mean you are in the best position to always make choices and decisions that are in your own best interest. Biases, cognitive errors, and simple self-deception can lead you astray.

 

If you accept that you as an individual, and everyone else individually, cannot be trusted to always make the best choices, then it is reasonable to think that someone else can step in to help improve your decision-making in certain predictable instances where cognitive errors and biases can be anticipated. This is a key idea in the book Nudge by Cass Sunstein and Richard Thaler. In defending their ideas for libertarian paternalism, the authors write, “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. We claim that this assumption is false – indeed, obviously false.”

 

In many ways, our country prefers to operate with markets shaping the main decisions and factors of our lives. We like to believe that we make the best choices for our lives, and that aggregating our choices into markets will allow us to minimize the costs of individual errors. The idea is that we will collectively make the right choices, driving society in the right direction and revealing the best option and decision for each individual without deliberate tinkering in the process. However, we have seen that markets don’t encourage us to save as much as we should and markets can be susceptible to the same cognitive errors and biases that we as individuals all share.  Markets, in other words, can be wrong just like us as individuals.

 

Libertarian paternalism helps overcome the errors of markets by providing nudges to help people make better decisions. Setting up systems and structures that make saving for retirement easier helps correct a market failure. Outsourcing investment strategies, rather than each of us individually making stock trades, helps ensure that shared biases and panics don’t overwhelm the entire stock exchange. The reality is that we as individuals are not rational, but we can develop systems and structures that provide us with nudges to help us act more rationally, overcoming the reality that we don’t always make the choices that are in our best interest.
The Power of Inertia - Joe Abittan

The Power of Inertia

Posted on by jabittan
For Richard Thaler and Cass Sunstein, inertia plays a critical role in the idea of using nudges to influence people toward making good decisions. Particularly in regard to default choices, inertia matters a lot. People accept defaults, and making any change, whether it is trivial, important, time consuming, or very simple, is stubbornly resisted by many people. Think about how likely you are to change your desktop background, to change your phone’s ringtone, to order something new at your usual Tuesday night restaurant, to fix the broken windshield visor in your car, or to change your weekend morning routine.

 

Once people develop a status quo, once a default has been set, the power of inertia sets in. Sunstein and Thaler in Nudge write, “First, never underestimate the power of inertia. Second, that power can be harnessed.”

 

Harnessing the power of inertia can be sinister, but for Sunstein and Thaler, that is not the point. When a company offers you a free three month trial if you use a credit card to sign-up, they are counting on making money off your inertia. However, when a state organ donation program auto-enrolls every who applies for a drivers license, they are counting on inertia to help save lives. Inertia can be leveraged not just to make money off lazy and forgetful people, but to help make life simpler, easier, and even longer for people. In our individual lives we can harness inertia to build a workout routine, to stop buying cookies at the store, and to eat an apple during our 15 minute break every morning. For public officials, inertia can be harnessed when public programs make it easy for people to register to vote, to automatically receive social services, and to pay taxes.

 

Companies who count of people forgetting to cancel a subscription after a free trial and companies who expect that people won’t spend time shopping for alternatives once they sign up for monthly services give the power of inertia a bad reputation. They make it hard for public agencies and elected officials to credibly discuss programs designed to take advantage of or at least acknowledge people’s inability to escape inertia. But this should be a serious discussion in public policy. It is important to think about whether people will make changes in their lives to adopt measures that will help them be more safe, live healthier, and cooperate better. When we see a clear preference in how we want people to interact, we should discuss ways to help people behave as we wish they would, if we can recognize a particular decision is what people would chose for themselves if they were to make the effort of choosing anything at all. We don’t have to eliminate choices or bar people from behave otherwise, but we can use nudges, defaults, and the power of inertia to help people make and stick with better choices.
The Necessity of Paternalistic of Choice Architects

The Necessity of Paternalistic Choice Architects

Posted on by jabittan
One of my favorite experiments to think about is a fabled study about people and jam. In an experiment, people at a store were able to sample jam. In one situation, there were only a few jams to sample, and in the other situation there was a huge selection of jams. Shoppers could try them all before making a purchase. The natural expectation (at least for me) is to assume that those who get to try more jams will be more happy with their final selection. After all, they have more jams to try and are more likely to find a jam that best suited their taste preferences. The results, however, suggest that people who only had a few jams to sample more happy with their final jam choice than the people with a bunch of jams to try.

 

This experiment reveals something interesting about how our mind works. Unlimited freedom and choice means that we are never truly satisfied with the decisions we make. We will always have a lingering doubt, and we will live with the regret of possibly making the wrong choice. The more options we have, the more likely we will feel as though we may have made the wrong decision. We might feel compelled to go beyond the standard default choice, selecting against a strawberry to go with huckleberry, even though we know we would have been perfectly content getting our regular strawberry jam.

 

The results of the jam experiment have important implications for choice architects. A choice architect is anyone who is in a position to organize, design, shape, administer, or deliver a choice to another person. Parents are choice architects when they give their children different options for toys, sports, or how to generally spend their time and attention. Your human resources benefits manager is a choice architect when they determine which health care plan types will be offered to employees. Very few of our decisions are truly free from a choice architect of one sort.

 

These choice architects have important decisions to make. In the book Nudge, authors Cass Sunstein and Richard Thaler make an argument for libertarian paternalism, the idea that choice architects can nudge people into making the decisions that will be best for them. They write, “The paternalistic aspect lies in the claim that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better.” It can seem naïve and elitist to believe that  one person can make such decisions for another person, but in reality, it is imperative that people believe and act as if it is possible, and the jam experience helps show why this is necessary.

 

None of us know exactly how much each person needs to save for retirement, which health insurance plan will truly be the best possible plan for ourselves or someone else, or which jam is really going to be the one for someone else. But we can generally identify the right direction in each choice for most people. We know people typically don’t save as much for retirement as they should, so defaulting them into a retirement savings plan at 8% is better than defaulting them into no retirement savings plan or a plan that sets aside 3% of their paycheck. Young and healthy people may not believe they need health insurance, but we can auto enroll them into a standard high deductible plan if they don’t actively make a choice for themselves, ensuring they have some type of coverage in the case of a car crash or ski accident. We know most people eat jam with toast or maybe on pancakes, so most people probably aren’t that interested in purchasing a jalapeno jam during their typical weekend grocery store trip. The strawberry can stay at eye level while the jalapeno jam can stay on the top shelf and maybe get a temporary end-cap spot for the holidays.

 

The jam study also shows that people don’t want to be presented with too many options. They will have trouble making a choice and won’t be satisfied with their final decision. Narrowing the range of choices can help people better manage their decisions, and can help ensure they don’t select a plan that is wildly off course for their best interest. This is a basic first step for a choice architect, and reveals the value that choice architects can provide with only a minimal level of paternalistic interference. Choice architects can take things a step further, as Sunstein and Thaler encourage throughout Nudge, but taking a step backward, eliminating the paternalism in choice architecture, doesn’t encourage flourishing by maximizing freedom of choice, it creates paralysis, doubt, and too many options for a person to reasonably consider, especially when dealing with topics more complex than jam.
Paternalistic Choice Architects

Paternalistic Choice Architects

Posted on by jabittan
The idea of paternalism in the United States is full of contradictions, challenges, and conflicting opinions. Many people in the country don’t want to be told what to do by anyone, and don’t want to appear as though they are accepting paternalistic messages or nudges. Some people fully buy into the idea of paternalism, looking for prescribed rules and ways of living. And most of us have a mixture of people we view as leaders and role models, from whom we expect paternalistic messages.

 

In the book Nudge, Richard Thaler and Cass Sunstein write, “In our understanding, a policy is paternalistic if it tries to influence choices in a way that will make choosers better off, as judged by themselves” [emphasis in original]. This is the definition I am working with for paternalism. The idea is that someone else can know what is best for us, even if we don’t see it ourselves.

 

I believe that a lot of conflict in the United States today stems from the people and authority figures we are willing to accept paternalistic messages from. Some people in the United States, I include myself in this group, will accept paternalistic messages from university professors, while others will reject their messages. Leaders who we will accept messages from can be religious leaders, community elders, parents, successful business people, or even celebrities. For all of us, there is a set of people that we look to for guidance and advice. A set of people that we believe knows what might be best for us. The fact that our set of leaders can be very different and in some instances be completely discredited by others can lead to a lot of friction across our populace.

 

Nevertheless, what all these figures have in common is that they all can be in a position to be a choice architect. As Thaler and Sunstein write, “A choice architect has the responsibility for organizing the context in which people make decisions.” Business leaders shape the decision context for people’s healthcare, retirement savings, and many other daily choices. Religious leaders can shape the way people think about charitable giving and volunteering. Community leaders can influence the same choices and university professors can influence the way people think about certain situations. In all of these contexts, the way that choices are framed, the choices that are presented as viable options, and how people understand their agency can be influenced by a choice architect.

 

By nature then, choice architects are paternalistic. They are in charge of the form you use to sign up for healthcare, the range of volunteer and charitable activities that are available to you for consideration, and the responses that are considered appropriate for you when thinking about politics, society, and individual behaviors. Someone else presents you with options and decisions they believe are best for you.

 

Choice architects are very important because the way they frame a choice or decision can greatly influence the behaviors of many people. Presumably, choice architects want to maximize the good outcomes that arise from the choices they shape. This means that how they structure decisions, what they consider viable alternatives, and how they build decision frameworks can have huge consequences for what people actually do. A good health benefits sign-up form can influence whether people select a healthcare plan that actually fits their needs. A good sense of where volunteering can do the most good can drive a pastor or community leader to engage their followers in a meaningful way, and a university professor who can frame thoughts and decisions in a meaningful direction can help people think about problems in new and ways. Of course, in each setting, the choice architect could be wrong, and could mislead people, could make an error that hurts people financially, leads to wasted time, or frustrates people. It may be paternalistic to think that a choice architect knows what is best and can guide people toward what is best for them, but the alternative, having the choice architect pull back and not accept this paternalistic responsibility, can have even more serious consequences.