EXPERIMENTAL EVIDENCES

ABOUT THE LIMITS OF NUDGES

AS A TOOL FOR PUBLIC POLICY

Alexia Gaudeul
Friedrich Schiller Universität, Jena
Habilitation Lecture
July 3d, 2019
PRESENTED RESEARCH
 Based on a paper with Magdalena
Kaczmarek:
 Gaudeul, A. and M.C. Kaczmarek (2019): Going along
with the default does not mean going on with it:
Attrition in a charity giving experiment, Behavioural
Public Policy, forthcoming.

 Inspired by work of Robert Sugden:

 Sugden, R. (2018). The Community of Advantage: A
Behavioural Economist's Defence of the Market. Oxford
University Press.

 Leading to research into more

effective advice giving.
Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 2
 WHAT ARE NUDGES AND
WHY DO WE NEED THEM?

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 3

NUDGES
 Nudges are a new tool for the State to guide
individual behavior.
 Change the way choices are made by individuals
 Based on better understanding of human behavior.
 Cheap interventions with small but robust effects (?).
 Respectful of individual freedom (?).

 Another way in which government policy tries to

orient behavior.
 Work alongside taxes, subsidies, legislation, regulation
(Loewenstein & Chater, 2017).

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 4

 THE SUCCESS OF NUDGES
2003: Original papers
‘Regulation for Conservatives’ (Camerer, Issacharoff, Loewenstein,
O’Donoghue and Rabin, 2003)
‘Libertarian Paternalism’ (Thaler & Sunstein, 2003)

2008: Best seller

Thaler and Sunstein (2008), Nudge: Improving Decisions
About Health, Wealth, and Happiness, Yale University Press.

2009: Integration into public policy in the US, UK,

Netherland, Germany, Singapore, etc…

2017: Nobel prize for Richard Thaler.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 5
HOW DO NUDGES WORK?
 Nudges exploit behavioral biases to solve
behavioral issues.
 Alter people’s choice environment to influence their
choice.
 Without limiting their options.
 Example:
 Present bias means people do not join retirement saving plans.
 Enrolling them by default solves the issue by exploiting inertia.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 6

WHY NUDGE?
 Decisions made under System 1 may not represent our
best interest, as represented by System 2.
 Kahneman (2011). Thinking, Fast and Slow.

 Nudged choices are supposed to correspond to

“carefully considered choices”
 “Libertarian paternalism”, Sunstein and Thaler, 2003.

System 1 System 2 7
NUDGES: EXAMPLES
 Making an option the default (organ donations)
 Increasing the salience of an option (fruits)
 Reminders (dental appointments)
 Graphic warnings (cigarettes)
 Provide comparison with other people (e.g.
energy consumption)
 Etc…

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 8

NUDGES: EXAMPLES

Friday, July 5, 2019 9

NUDGES: EXAMPLES
 RESEARCH QUESTIONS

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 11

DO WE REALLY WANT TO BE NUDGED?

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 12

RESEARCH QUESTION
 If you go along with a nudge, is it because of the
nudge or because of your preferences?
 How can we know?
 In economics, we say that behavior reveals preferences.
 The nudge changes behavior.
 Does this mean that it changes preferences?
 Intention-action gap
 You can say or do something and think or prefer something
else.
 Webb & Sheeran “Does changing behavioral intentions engender
behavior change?” 2006.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 13

RESEARCH QUESTION
 Proponents of nudges say that nudged behavior
corresponds to “real”, system 2 preferences.
 So people really prefer the nudged behaviour.

 But do people really want to follow system 2?

 You can follow system 1 and maintain you are right.
 Sugden, R. (2017). Do people really want to be nudged towards
healthy lifestyles?

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 14

RESEARCH QUESTION
 Alternatively, the nudge is only a barrier in
people’s way.
 In that case, can we really say that the nudge is consistent with
people’s preferences?

 If not, isn’t there a risk that people react against

the nudge?
 Reactance (Brehm & Brehm, 1981, Dillard & Shen, 2005).
 Avoidance (charity donations, Adena & Huck, 2016, Andreoni
et al., 2017).

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 15

REACTANCE

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 16

WHY IS THIS IMPORTANT?
 In many cases, people can be nudged to adopt a
behavior, but the nudge does not elicit the
behavior directly.
 Pledging a donation vs. donating.
 Buying organic food vs. eating it.
 Joining a health club vs. doing sport.
 Joining a retirement saving plan vs. contributing to it.

 So it is important for the nudge to be consistent

with preferences.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 17

 THE EXPERIMENT

What happens after the nudge?

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 18

THE EXPERIMENT

 1st Phase
 People are offered 2€ to fill a survey.
Pledge 1
 Two treatments:
 Default to pledge the 2€.
 Default to keep the 2€.

 2nd Phase: Pledge 2

 Free choice to pledge or keep 2€ again.

 3rd Phase: Donation

 Collect money (4€) and contribute.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 19

 THE EXPERIMENT
Phase 1 Phase 2 Phase 3
Questionnaires and Questionnaires and
Filler Tasks Filler Tasks

Manipulation Manipulation
1. Default to keep 2
Emails Payout
(n=401) No default (n=676)
(n=3762)
2. Default to pledge weeks (n=460)
(n=385)

Attitude Measures Attitude Measures

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 20

 A MODEL OF PREFERENCES
AND DECISIONS

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 21

 PREFERENCES AND DECISION

Preferences
cdf preferences

Threshold

Keep money Donate People

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 22
 NUDGE  CHANGE IN PREFERENCES?

Preferences cdf preferences

Nudge

Threshold

Keep People
money Donate
Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 23
 NUDGE  PRESSURE TO ACT?

Preferences
cdf preferences

Threshold
Nudge

People
Keep money Donate
Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 24
 NUDGE  PLEDGE BUT NOT DONATE

Preferences
cdf preferences

Threshold
Nudge

Keep money
Pledge but
not donate DonatePeople
Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 25
NUDGE, CHOICE AND PREFERENCES
 We will use drop-out rates to reveal preferences.
 Two steps:
 Solicit pledges to charity  pledge 2€ or not.
 Ask to fulfill pledge  come to donate or not.
 two variables:
 expressed intention
 actual behavior.
 In this way, we obtain:
 The effect of the nudge in the first period
 A measure of real preference in second period.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 26

NUDGES AND ATTRITION

Default

Pledge Keep

High Low
Pledge
attrition attrition
Behavior
Low High
Keep
attrition attrition

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 27

HYPOTHESES
 H1: The default increases pledges.

 H2: Attrition will be higher among those who

pledges when that is the default.

 H3: Despite attrition, donations are higher if

pledging is the default.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 28

 FINDINGS

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 29

EFFECT OF NUDGE ON PLEDGES

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 30

EFFECT OF NUDGE ON PLEDGES
 Increase in pledges if that is the default.
 But neutral effect in second phase where there is
no default (no persistence, no reactance).

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 31

ATTRITION BY TREATMENT

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 32

ATTRITION BY PLEDGE

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 33

ATTRITION BY PLEDGE AND TREATMENT

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 34

SELECTION EFFECT OF NUDGES
 Those who pledge against the default are more
likely to go on to donate.
 Those who keep against the default are more
likely to go on to collect.
 This is not because of reactance, but simply a
selection effect.
 Indeed pledges in second phase and attitudes to charities do
not indicate an effect on preferences.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 35

ATTITUDES TO CHARITIES

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 36

ATTITUDE TO CHARITIES
 Those who pledges when that is the default have
less favorable attitudes to charities (selection
effect).
 But we do not observe either better or worse
attitude to the charities after being defaulted to
contribute.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 37

NULL EFFECT OF THE NUDGE

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 38

NULL EFFECT OF THE NUDGE.
 Higher % pledging in phase 1
 37% pledge vs 21%

 Higher attrition among pledgers

 25% go on to donate vs. 35%

 So the % donating is almost equal across

treatments
 9% of original participants donate vs. 7%

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 39

 CONCLUSION

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 40

CONCLUSION
 Nudges worked only at the margin, on people
close to indifference, and only in terms of “cheap
talk” (pledges)
 no effect of the nudge in terms of
donations

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 41

CONCLUSION
 Default nudges are effective for specific and
limited alterations of “cheap” behavior.
 Decisions can be guided towards the preferred
outcome for those people who do not hold strong
preferences against it.
 Default nudges are not enough for
transformational changes in values and attitudes
needed for long-term success.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 42

OTHER PRACTICAL ISSUES
 Strong preferences against nudges.
 Counter-nudges by those opposed to the nudge.
 Decay in the effect of nudges.
 Reactance, avoidance, compensating behavior and
spillover effects.
 Inaccurate understanding of the issue by policy
makers.
 Wrong level of intervention for structural issues,
e.g. obesity.
Cf. “Nudges that fail”, Sunstein, 2017
Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 43
PERSPECTIVE FOR FUTURE RESEARCH
 “Boosts” as an alternative to nudges
 Foster competences rather than immediate behavior (Hertwig &
Grüne-Yanoff, 2017)

 Issues with boosts:

 Cost of advising and educating.
 Information avoidance (Golman, Hagmann, & Loewenstein,
2017).
 Overconfidence and the Dunning-Kruger effect.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 44

PERSPECTIVE FOR FUTURE RESEARCH
 Projects
 Do people rationally choose to be nudged or to get advice?
 Are people ready to use robo-advisers for trading? (with
Crosetto & Giannetti)
 Are people who need advice ready to pay for it?

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 45

 APPENDIX

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 46

RESEARCH ON NUDGES
 Overview of nudges used in reality
 Overview of research on nudges

Friday, July 5, 2019 (adapted from Hummel & Maedche, 2019) 47

NUDGES IN CONTEXT
Type of intervention

Traditional eco
Hybrid policies
(e.g. taxes, Behavioral eco
(e.g. framed
subsidies, info (e.g. defaults)
traditional eco)
disclosure)

Traditional eco (e.g. tax on tobacco Shift social norms

Tax on tobacco
externalities, (=loss) or subsidy against smoking
because of
asymmetric for giving up because of
externalities
information) smoking (=gain) externalities

Ban on presenting
Make cigarettes
Hybrid (e.g. firms smoking as Normalize
Rationale for less accessible and
exploit behavioural glamourous package size for
intervention packaging more
bias) (against status cigarettes
bland.
seeking)

Shift social norms

Behavioural eco Tax tobacco
Graphic warnings against smoking
(e.g. “internalities”, because of present
(info + fear) because of present
bounded rationality) bias
bias

Friday, July 5, 2019 (adapted from Loewenstein & Chater, 2017) 48

WHY DO WE NEED NUDGES?

 Traditional tools work on the basis that

people are rational (System 2, deliberative,
logical, conscious, reasoning, reflective).
 Issues with individual behavior arise from cost of
information acquisition or from externalities…

 In reality, people are subject to

a range of behavioral biases
(System 1, instinctive, emotional,
unconscious, intuitive, habitual):
 Overconfidence
 Present-bias
 Heuristic decisions…
Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 49
 ACCEPTANCE
Support for nudges (in %)
(from Sunstein, Reisch, Rauber, 2018, Reisch & Sunstein, 2016, Sunstein, 2016)

US UK France Germany Brazil China Japan Russia

Information nudge: Government campaigns
Childhood obesity 82 88 89 90 95 94 83 97
Distracted driving 85 88 86 82 93 94 88 96
Smoking and overeating 53 68 66 63 84 92 58 82
Information nudge: Governmentally mandated
Calorie labels 87 85 85 84 91 92 85 88
High levels of salt 73 88 90 73 92 94 70 90
Traffic lights 64 86 74 79 84 92 55 87
Default rules
Encouragement: Green energy 72 65 61 69 86 90 68 84
Mandate: Green energy 67 65 57 67 88 91 59 84
Carbon emissions charge 36 46 34 43 50 77 43 31
Red cross 27 25 29 23 66 83 33 44
Healthy food placement 56 74 85 63 86 89 47 92
Organ donor choice 70 71 62 49 79 60 47 47
Manipulation
Subliminal advertisements 41 49 40 42 66 90 44 48

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 50

ACCEPTANCE
 Levels of acceptance of nudges are high
 More support by women and older persons.
 More support for less intrusive nudges (Information > Defaults
> Manipulations)
 Less support if the default involves a loss (e.g. organ donation,
monetary contribution, etc…)
 No clear dependence on political affiliation or country.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 51

DECAY
 Limited decay, e.g. in terms of exercise, saving,
nutrition, energy conservation…
 However nudges may have to be permanently
applied to be effective; they often do not change
habits or preferences (Frey & Rogers, 2014).
 E.g. social nudges for energy conservation:
 45 to 65% decay in effect after end of intervention (Brandon
et al., 2017).
 10 to 20% decay per year (Allcott & Rogers, 2014).

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 52

AVOIDANCE, REACTANCE, CROWDING OUT
 People may try to “avoid the ask” (charity
donations, Adena & Huck, 2016, Andreoni et al.,
2017).
 External incentives can “crowd out” intrinsic
motivation (Frey & Jegen, 2001).
 People value making independent decisions, so
covert nudges can induce reactance (Brehm &
Brehm, 1981, Dillard & Shen, 2005).

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 53

COMPENSATING AND SPILLOVER EFFECTS
 Compensation:
 Promoting self-control in one domain can reduce it in another,
e.g. ordering pizza and diet cola (Wisdom et al, 2010).

 Spillovers:
 People who are nudged to the “right” choice make worse
“unaided” decisions afterwards. (de Haan & Linde, 2011).

 Moral licensing:
 E.g. in terms of pro-environmental behavior (Truelove et al.,
2014).

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 54

WRONG LEVEL OF INTERVENTION
 Nudges are no solution for structural issues
 E.g. increases in rate of obesity are driven by lower costs of
calories rather by lower ability to self-control caloric intake.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 55

MODEL
 𝛼𝛼 is the willingness to give to charity.
 𝑚𝑚 is the utility of money
 𝑛𝑛 is the cost of saying no to a default.
 𝑐𝑐 is the cost of translating intention into action

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 56

MODEL
 Pledge if 𝛼𝛼 > 𝑚𝑚 − 𝑛𝑛 if the default is to pledge.
 The higher is 𝑛𝑛, the lower the necessary 𝛼𝛼 to
pledge.
 So 𝛼𝛼 on average lower when default is to pledge (1).

 Go on to donate only if 𝛼𝛼 > 𝑐𝑐.

 If not, then drop-out from step 1 to step 2.

 Because of (1), those who pledge when that is the

default are less likely to go on to donate.
 Unless the default also changes attitudes.

Friday, July 5, 2019 The limits of nudges - Gaudeul - 2019 57

MODEL

Threshold to keep Threshold to donate

No nudge
Pledge
Keep & do not Pledge &
and collect donate Donate
−𝑐𝑐 0 𝑐𝑐 Willingness to donate
𝛼𝛼 − 𝑚𝑚

Pledge &
Nudge
do not
donate
Keep Pledge &
and collect Donate
−𝑐𝑐−𝑛𝑛 𝑐𝑐 Willingness to donate
𝛼𝛼 − 𝑚𝑚