Nudge - by Richard H. Thaler and Cass R. Sunstein
If I had read this book earlier, I would have avoided getting stuck at the Chicago downtown parking deck in 2022 summer. The book also helps me decide not to buy a Tesla. It makes no sense to pay 70,000 dollars for a car that I use 15 minutes a day. But, I fell into the trap of overweighing the benefit and underweighting the cost before reading the book. I picked the largest deductible (5,000 dollars) for my car insurance when COVID hit. This is a good decision, not just for someone like me who does not drive much.
Here are some text that I highlighted in the book:
“It improves the aim,” says Aad Kieboom. “If a man sees a fly, he aims at it.” Kieboom, an economist, directs Schiphol’s building expansion. His staff conducted fly-in-urinal trials and found that etchings reduce spillage by 80 percent.
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.
the “planning fallacy”—the systematic tendency toward unrealistic optimism about the time it takes to complete projects.
“status quo bias,” a fancy name for inertia. For a host of reasons, which we shall explore, people have a strong tendency to go along with the status quo or default option.
Econs respond primarily to incentives…Humans respond to incentives too, but they are also influenced by nudges.
We will call the first the Automatic System and the second the Reflective System. (In the psychology literature, these two systems are sometimes referred to as System 1 and System 2, respectively.)
Lawyers who sue cigarette companies often win astronomical amounts, in part because they have successfully induced juries to anchor on multimillion-dollar figures. Clever negotiators often get amazing deals for their clients by producing an opening offer that makes their adversary thrilled to pay half that very high amount.
Homicides are more available than suicides, and so people tend to believe, wrongly, that more people die from homicide.
A good way to increase people’s fear of a bad outcome is to remind them of a related incident in which things went wrong; a good way to increase people’s confidence is to remind them of a similar situation in which everything worked out for the best.
We often see patterns because we construct our informal tests only after looking at the evidence.
It turns out that the “hot hand” is just a myth. Players who have made their last few shots are no more likely to make their next shot (actually a bit less likely). Really.
The “above average” effect is pervasive. Ninety percent of all drivers think they are above average behind the wheel… This applies to professors, too. About 94 percent of professors at a large university were found to believe that they are better than the average professor,
When they have to give something up, they are hurt more than they are pleased if they acquire the very same thing.
the pension plan of many college professors, the median number of changes in the asset allocation of the lifetime of a professor was, believe it or not, zero.
if a company charged different prices to cash and credit customers, the credit price should be considered the “normal” (default) price and the cash price a discount—rather than the alternative of making the cash price the usual price and charging a surcharge to credit card customers.
The stripes do not provide much if any tactile information (they are not speed bumps) but rather just send a visual signal to drivers. When the stripes first appear, they are evenly spaced, but as drivers reach the most dangerous portion of the curve, the stripes get closer together, giving the sensation that driving speed is increasing (see Figure 1.5). One’s natural instinct is to slow down. When we drive on this familiar stretch of road, we find that those lines are speaking to us, gently urging us to touch the brake before the apex of the curve. We have been nudged.
We will call something “tempting” if we consume more of it when hot than when cold.
The classic example is that of Ulysses, who faced the peril of the Sirens and their irresistible songs. While in a cold state, Ulysses instructed his crew to fill their ears with wax so that they would not be tempted by the music. He also asked the crew to tie him to the mast so that he could listen for himself but be restrained from submitting to the temptation to steer the ship closer when the music put him into a hot state.
For most of us, however, self-control issues arise because we underestimate the effect of arousal. This is something the behavioral economist George Loewenstein (1996) calls the “hot-cold empathy gap.” When in a cold state, we do not appreciate how much our desires and our behavior will be altered when we are “under the influence” 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.
if you would like to lose weight, get smaller plates, buy little packages of what you like, and don’t keep tempting food in the refrigerator
David’s inner Planner knew that he needed to stop procrastinating and get his thesis done, but his Doer was involved in many other more exciting projects and always put off the drudgery of writing up the thesis. (Thinking about new ideas is usually more fun than writing up old ones.)
Of course, many people do not suffer from an inability to save. Some people actually have trouble spending. If their problem is extreme, we call such people misers, but even regular folks can find that they don’t give themselves enough treats.
One of the most effective ways to nudge (for good or evil) is via social influence… Social influences come in two basic categories. The first involves information. The second involves peer pressure.
Maybe parents should worry less about which college their kids go to and more about which roommate they get.
when everyone else gave an incorrect answer, people erred more than one-third of the time.
“collective conservatism”: the tendency of groups to stick to established patterns even as new needs arise.
litter in the state had been reduced by a remarkable 29 percent. In its first six years, there was a 72 percent reduction in visible roadside litter. All this happened not through mandates, threats, or coercion but through a creative nudge.
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.
most songs could become popular or unpopular, with much depending on the choices of the first downloaders.
On average, those who eat with one other person eat about 35 percent more than they do when they are alone; members of a group of four eat about 75 percent more; those in groups of seven or more eat 96 percent more
So if you want to lose some weight, look for a thin colleague to go to lunch with (and don’t finish the food on her plate).
They try to nudge you by telling you what most people are now doing… Candidates for public office, or political parties, do the same thing; they emphasize that “most people are turning to” their preferred candidates, hoping that the very statement can make itself true.
Note to political parties: If you would like to increase turnout, please do not lament the large numbers of people who fail to vote.
Some signs, similar to those currently used in the park, stressed how bad the problem was: “Many past visitors have removed the petrified wood from the park, changing the natural state of the Petrified Forest.” Other signs emphasized an injunctive norm: “Please don’t remove the petrified wood from the park, in order to preserve the natural state of the Petrified Forest.” Cialdini’s theory predicted that the positive, injunctive norm would be more effective than the negative, informational one. This prediction was confirmed.
“Most (81 percent) of Montana college students have four or fewer alcoholic drinks each week.” Montana applies the same approach to cigarette smoking with an advertisement suggesting that “Most (70 percent) of Montana teens are tobacco free.” The strategy has produced big improvements in the accuracy of social perceptions and also statistically significant decreases in smoking.
If you want to nudge people into socially desirable behavior, do not, by any means, let them know that their current actions are better than the social norm.
When they were merely told that their energy use was below average, they felt that they had some “room” to increase consumption, but when the informational message was combined with an emotional nudge, they didn’t adjust their use upward.
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…if you ask people, the day before the election, whether they intend to vote, you can increase the probability of their voting by as much as 25 percent!
Do you intend to buy a new car in the next six months?23 The very question increased purchase rates by 35 percent.
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.
The three social influences that we have emphasized—information, peer pressure, and priming—can easily be enlisted by private and public nudgers.
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. At one extreme are what might be called investment goods, such as exercise, flossing, and dieting. For these goods the costs are borne immediately, but the benefits are delayed. For investment goods, most people err on the side of doing too little. Although there are some exercise nuts and flossing freaks, it seems safe to say that not many people are resolving on New Year’s Eve to floss less next year and to stop using the exercise bike so much. At the other extreme are what might be called sinful goods: smoking, alcohol, and jumbo chocolate doughnuts are in this category. We get the pleasure now and suffer the consequences later. Again we can use the New Year’s resolution test: how many people vow to smoke more cigarettes, drink more martinis, or have more chocolate donuts in the morning next year? Both investment goods and sinful goods are prime candidates for nudges. Most (nonanorexic) people do not need any special encouragement to eat another brownie, but they could use some help exercising more.
Learning is most likely if people get immediate, clear feedback after each try.
people may most need a good nudge for choices that have delayed effects; those that are difficult, infrequent, and offer poor feedback; and those for which the relation between choice and experience is ambiguous.
Consider the case of extended warranties on small appliances, typically a bad deal for consumers.
You might think that firms could educate people not to buy the warranty, and indeed they might. But why should firms do that? If you are buying something that you shouldn’t, how do I make any money persuading you not to buy it?
If consumers have a less than fully rational belief, firms often have more incentive to cater to that belief than to erradícate it. When many people were still afraid of flying, it was common to see airline flight insurance sold at airports at exorbitant prices. There were no booths in airports selling people advice not to buy such insurance.
Silverstein had personally given Thaler permission to use the poem in an academic paper published in 1985—he said he was tickled to see his work appear in the American Economic Review—but the poem is now controlled by his estate, which, after several nudges (otherwise known as desperate pleas), has denied us permission to reprint the poem here. Since we would have been happy to pay royalties, unlike the Web sites you will find via Google, we can only guess that the managers of the estate (to paraphrase the poem) don’t know that some is more than none.
sneak out of the room as surreptitiously as possible.
Automatic System reads the word faster than the color naming system can decide the color of the text.
there are four possible ways to put the card into the slot (face up or down, strip on the right or left). Exactly one of those ways is the right way.
Both of us have been stuck for several painful minutes behind some idiot who was having trouble with this machine, and have to admit to having occasionally been the idiot that is making all the people behind him start honking.
“postcompletion” error. The idea is that when you have finished your main task, you tend to forget things relating to previous steps. 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.
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.
pills are typically sold in a special container that contains twenty-eight pills, each in a numbered compartment. Patients are instructed to take a pill every day, in order. The pills for days twenty-two through twenty-eight are placebos whose only role is to facilitate compliance for Human users.
the treatment option they choose depends strongly on the type of doctor they see. (Some specialize in surgery, others in radiation. None specialize in watchful waiting. Guess which option we suspect might be underutilized?)
Instead of being given the options of three, five, or seven megapixels, consumers might be told that the camera can produce quality photos at 4 × 6 inches, 9 × 12, or “poster size.”
Social science research reveals that as the choices become more numerous and/or vary on more dimensions, people are more likely to adopt simplifying strategies.
Collaborative filtering is an effort to solve a problem of choice architecture. If you know what people like you tend to like, you might well be comfortable in selecting products you don’t know, because people like you tend to like them. For many of us, collaborative filtering is making difficult choices easier.
So a behavioral analysis of the incentives of car ownership will predict that people will underweight the opportunity costs of car ownership, and possibly other less salient aspects such as depreciation, and may overweight the very salient costs of using a taxi.
- Understand mappings
- Give feedback
- Expect error
- Structure complex choices
If you are an Econ, you can skip this section of the book, unless you want to understand the behavior of your spouse, kids, and other Humans.
people’s actions may tell us more than their words.
Automatic enrollment thus has two effects: participants join sooner, and more participants join eventually.
“channel factors” we mentioned in Chapter 3. People really do want to join the plan, and if you dig a channel for them to slide down that removes the seemingly tiny barriers that are getting in their way, the results can be quite dramatic.
Self-control restrictions are easier to adopt if they take place some time in the future. (Many of us are planning to start diets soon, but not today.)
Save More Tomorrow invites participants to commit themselves, in advance, to a series of contribution increases timed to coincide with pay raises.
That does not seem bad until you realize that just to keep up with inflation you had to earn 3.0 percent per year.
In economics jargon, in which stocks are referred to as equities, the difference in the returns between Treasury bills and equities is called the “equity premium.” This premium is considered to be compensation for the greater risk associated with investing in stocks.
Roughly speaking, they hate losses about twice as much as they like gains.
So Rip calls Vince, tells him to put all his money in stocks, and sleeps like a baby…The lesson from the story of Vince and Rip is that attitudes toward risk depend on the frequency with which investors monitor their portfolios.
“The Gambler”: “You never count your money when you’re sittin’ at the table, /There’ll be time enough for countin’ when the dealin’s done.”
They were heavily buying stocks when stock prices were high, and then selling stocks when their prices were low.
How risky is it to hold the shares of a single stock rather than a diversified portfolio? According to estimates by the economist Lisa Meulbroek (2002), a dollar in company stock is worth less than half the value of a dollar in a mutual fund!
few borrowers are capable of figuring out whether the points are worth paying. (Hint: usually they are not.)
it is hard to see “truth” when it is buried in a mountain of fine print.
rent-seeking activities. The idea is that if there are high profits to be made, suppliers will be willing to spend a lot of time and money to get that business.
an average of 8.5 cards per cardholder.
American households may have an average credit card debt of $12,000. At typical interest rates of 18 percent per year, that translates into more than $2,000 a year in interest payments alone.
people were willing to pay twice as much to bid on tickets to a Boston Celtics basketball game if they could pay with their credit card rather than cash.
We don’t mean to split hairs here.
This reflects the well-known tendency of investors to buy stocks from their home country, something that economists refer to as the home bias.
investors have traditionally had trouble distinguishing between past returns and forecasts of future returns.
The other dream is more of a nightmare, one that keeps psychologists and behavioral economists tossing and turning.
“We have designed a program that has a comprehensive set of funds for you to choose from. If you do not feel comfortable making this decision on your own, you could consult with an expert, or you could choose the default fund that has been designed by experts for people like you.”
The more choices you give people, the more help you need to provide.
Frequent price changes are one more hurdle for Humans to jump
each donor can be used for as many as three organs
However, people’s stated willingness to become donors did not translate into the necessary action. “Of those who expressed their support, only 43% had the box checked on their driver’s license. Of those who stated they personally wanted to donate their organs, only 64% had marked their driver’s license and only 36% had signed an organ donor card.”
When participants had to opt in to being an organ donor, only 42 percent did so. But when they had to opt out, 82 percent agreed to be donors. Surprisingly, almost as many people (79 percent) agreed to be donors in the neutral condition.
Spain is the world’s leader in developing that infrastructure, achieving a donation rate of nearly thirty-five donors per million people,
switching from explicit consent to presumed consent increases the donation rate in a country by roughly 16 percent.
We think that the Web page (see Figure 11.1) used to attract donors is an excellent example of good nudging. First, the state stresses the importance of the overall problem (ninety-seven thousand people on the waiting list) and then brings the problem home, literally (forty-seven hundred in Illinois). Second, social norms are directly brought into play, in a way that builds on the power of social influences: “87 percent of adults in Illinois feel that registering as an organ donor is the right thing to do” and “60 percent of adults in Illinois are registered.” Third, there are links to MySpace, where people can signal that they are concerned citizens. In the context of environmental protection, people often do what they believe is right in part because they know that other people will actually see them doing what they believe is right.
some of them have aggravated the very problems that they were meant to solve.
The researchers found that the grade cards caused the restaurant health inspection scores to improve, consumers’ sensitivity to hygiene in restaurants to increase, and hospitalizations for food-borne illnesses to decrease.
How do the winners win? They lie, a little. Economists call it strategic misrepresentation.
who have been dreaming of sending their child to Harvard since the diaper days
In a smart piece of mapping, the counselors didn’t try to sell the students on the high-mindedness of education. Instead, they hooked them with the universal symbol of teenage freedom: the automobile. They talked about how much more money college graduates earned compared with high school graduates, explaining it as the difference between a Mercedes and a KIA. Next, community college administrators took a standardized admissions exam to the high school and tested the students free of charge. The administrators also gave students financial aid information and had tax consultants offer weekend sessions for parents. In the end, the nudge produced big results. From 2004 to 2005 the percentage of San Marcos High students who went to Texas colleges rose 11 percentage points, to 45 percent.
In Maine a state legislator is proposing a law requiring high school seniors to submit at least one college application before they graduate.
(Hint: always take the largest deductible you can. It will save you a lot of money over the long run
For example, many doctors practice “defensive medicine,” ordering expensive but unnecessary treatments for patients, or refusing to provide risky but beneficial treatments, simply in order to avoid liability.
Indeed, people now have a constitutional right to have sexual relationships even if they are not married—and people become parents, including adoptive parents, without the benefit of marriage.
Let us take them up in sequence.
Believing that divorce is unlikely, and fearing that such agreements will spoil the mood, most people simply take their chances with existing divorce law, which is (not to put too fine a point on it) a mess, often unintelligible even to specialists in the field.
Essentially, the self-serving bias means that in difficult or important negotiations, we tend to think that both the objectively “fair” outcome and the most likely outcome is the one that is skewed in our own favor.
How many times have you thought that you ought to provide some help but failed to do so because the moment passed and you focused on other things?
Over the past decade, several states, including Illinois, Indiana, and Missouri, have enacted laws enabling gambling addicts to put themselves on a list that bans them from entering casinos or collecting gambling winnings.
- One study finds that a candidate whose name is listed first gains about 3.5 percentage points in the voting.