Nudge BookbyRichardH.Thaler& CassR.Sunstein SummarybyMelissaBelli Nov27th2009 Blurb: Nudgeisthebookthatchangesthewaywethinkaboutchoice,showinghowwecaninfluencepeople, improvingdecisionsabouthealth,wealthandhappiness. Usingeyeopeningreallifeexamples,RichardH.ThalerandCassR.Susteinshowthatnochoiceisever presentedinaneutralway.Thequestioniswhendowenudgeintherightdirection? Introduction Anudgeissimilartoahint.Humansarefacedwithmultiplechoiceseveryday,tomakethesechoices mostrunonautomaticand/orfollowbasicrulesofthumb.Anudgeissomethingthatwithoutbeing domineeringgivesyouahintofwhichchoicemaybebest.Whendesigninganenvironmentorsystem subtlecuescangreatlyinfluencethechoicespeoplemake.

ke.Choicearchitecturetriestoharnessthis powerforthegreatergoodwithoutinfringingonindividualfreedom. Anudgeisanyaspectofchoicearchitecturethatalterspeoplesbehaviorinapredictablewaywithout forbiddinganyoptionorsignificantlychangingeconomicincentives. Forexample:fooddisplayorderincafeteriaschangespatternofconsumptionby25%,simplyputting fruitateyelevelincreasesthelikelihoodpeoplewilleatit.EtchingaflyonAmsterdamSchiphols Airportmensroomurinalsgavethemensomethingtoaimatwhiletheyurinatedandthisdecreased spillageby80%. Veryoftendecisionswouldbemadedifferentlyiftheindividualpaidfullattention,possessedcomplete information,unlimitedcognitiveabilitiesandcompleteselfcontrol.Libertarianpaternalismmaximizes freedomtomakeaninformedchoiceoravoidharmifnochoiceismade. Inordertounderstandtheforcesatplayinchoicesomethingsneedtobedefined: Thepowerofinertia:Thingswilltendtoremainintheirrestingstateortrajectoryunlessanexternal forceisapplied.Mostpeopledontbotherchangingthesettingsoftheirelectronics,retirementplansor magazinesubscriptionseveniftheseentailsignificantmonetaryloss.Thereforethewayinwhichthe defaultoptionisdefinedisveryimportant.Thepowerofinertiacanbeharnessed. Biasesandblunderswhenmakingchoices: Thewayweperceivethingsoftendependsonwhetherweuseourautomaticsystemofthinkingorour reflectivesystemofthinking.Werelyontheautomaticsystemtomakedaytodaychoices:whichway welookwhencrossingastreet,estimatingtime,theurgencyofthings,satisfyinghunger,etc.

Tohelpinthesedecisionsweuserulesofthumbwhichunfortunatelyareverysubjective. TypicalRulesofthumb: 1. Anchoring:youwillestimatethemagnitudeofsomethingbyaddingorsubtractingalittle fromknownmagnitudes;soifyouareinatownwith3millionyouwillcalculatethe populationofthenexttownbyeitherabitbiggerorsmallertoyours.Theproblemiswe maybewayoffbutwebelieveinourestimates. 2. Availability:Howmuchyouworryaboutsomethingdependsonhowimminentathreatitis perceivedtobe.Weworrymoreaboutswinefluthansayobesitybecausethethreatof obesityisnotavailabletoourmindsatthistime,weareconstantlyremindedofthethreats ofswineflubutobesityismuchmoredangerous,itisresponsiblefor112,000deathsandfor morethan100,000casesofcancerannuallyintheUSA. 3. Representativeness:Wetendtofindmeaninginrandompatternsthatsuitourtheories. 4. Optimismandoverconfidence:wetendtooverestimateourchancesofsuccessin marriage,inbusiness,ininvestingonmortgagessecurities,etc. 5. Lossaversion:Wedontliketoloseandthisreinforcesinertia.Halfthepeopleinaroom getmugs,halfchocolateaboutequalinprice,peoplearetoldtoconsiderexchangingand onlyonein10willdoso.Mostprefertostaywithwhattheyhave.Lossaversionmakesus wanttostickwithwhatwehaveevenifchangeisverymuchinourinterest. 6. StatusQuoBias:Ifyouhavetocalltocancelasubscriptionyouaremorelikelytostay subscribedbecauseyoufollowtheyeahwhateverpattern,havenotimeorpayno attention.Professorsinauniversitychangedtheirassetallocationinretirementplansover theirlifetimeatotalnumberofzerotimes.Defaultoptionsattractalargemarketshare. Settingthebestpossibledefaultisveryimportantininducingchange. 7. Framing:Choicedependsonhowtheproblemisstated.IfaDoctorsaysthatninetyoutof ahundredpeopledowellwithaparticularprocedure,youareboundtobemorereassured andlikelytoundergotheprocedurethanifthedoctortellsyouthattenoutofahundred peoplediewiththisprocedure.Informationcampaignsframedintermsoflossesaremuch moreeffective;ifyoutellsomeoneyouwillsaveXamountifyoudoY,theyarelesslikely todoYthanifyousayyouwillloseXamountifyoudontdoY. Bottomline:thefactthatbusypeoplemakemanychoicesonautomaticandoftenbasedonpoor informationobtainedbyfollowingrulesofthumbmakesthemgreatcandidatesforalittlenudging whichtheywilloftenappreciate.

Ithinkthehighlevelofstresswedealwithtodaycomesfromunderstandingthatwearemaking determinantchoicesallthetimewithlittleinformation,trainingorpractice;wecanalmosthearlittle tickingtimebombsengagingafterpoordecisionsandexpectthatsoonerorlatertheywillgooffbut havenoideawhenitwillhappenorhowtodefusethem.Alittlenudgingcouldhelpalotwithstress. Nowbacktothebook.Apartfrombiastherearemanyotherfactorsdeterminingourchoicebehaviorat agiventime.Temptationisabigone. TEMPTATION Ifabowlofcashewsisplacedonatableduringdrinksbeforedinnerlikelyitwillbeconsumedinits entiretyevenifpeoplewouldratherjusteatafewandwaitfordinner,mostwillhaveahardtime stoppingandwouldactuallylikeitifsomeonetookthecashewsaway. Temptationcanbehotorcold.Itishotwhenyouarearousedandunderthespellofthedesired object;itiscoldwhenyouaresomewhatremovedandindifferent.Itiseasytounderestimatethe poweroftemptationwhilecoldbutveryhardtoresistwhenhot. SELFCONTROL Istheresultoftwoforces:theplannerwhothinksofthelongtermwelfareandthedoerwhoacts somewhatautomaticallysearchingtosatisfydesires(everyonesHomerSimpson). MINDLESSCHOOSING Wetendtodothingsinautomatic.Foodisaparticularproblem;wecouldmindlesslyeatwhateveris putinfrontofusuntilwefinishit.Biggerpackagesmeanmoreeatingbecausewearesimplynotpaying attention. SELFCONTROLSTRATEGIES Howtoreigninthedoersinus?HowcanwecontrolHomerSimpson?Itisnoteasyanddoerscanfoil theplannersbestefforts. Thereisanonlineservicewhereyoucanbetyouwilldosomethinginaperiodoftime,ifyoudo (verifiedbythirdpartyyouspecify)yougetyourmoneyback,ifyoudonotthemoneyisdonatedtoa charityofyourchoice,orbetterjetanorganizationyoudespise.OthersimilarattemptsareChristmas savingsclubsanddaylightsavingstime. Mentalaccounting:helpsbyallocatingmoneytodifferentaccountsthathavevaryingliquidity:rainy dayfund,entertainmentfund,vacationfundandsuch. FOLLOWINGTHEHERD Wetendtodefaultintothinkingthatifthemajorityisdoingitmaybebesttodothesame. Ifyoucareaboutwhatotherpeoplethinkofyouthenyoumightgoalongwiththecrowdtoavoidtheir wrathorcurrytheirfavor.Weliketoconform:broadcastersmimiceachother,obesityiscontagious, teenpregnancyiscontagious,ajudgesvotesdeviatetowardthemajoritysvote,studentsdobetterif aroundothergoodstudents.

 DOINGWHATOTHERSDO Byourselveswemaybeabletoidentifytherightcourse,butifthereisasignificantnumberofother peopleidentifyingthewrongcourseasright,2040%ofpeoplewillswitchtothewrongchoicejustto goalongorbecausetheystartquestioningtheirownconclusions.Thishasbeenproveninmultiple experiments.Peopleholdingadifferingviewwilloftenthinktheirinitialperceptionmayhavebeen wrongandsoonstartseeingthesituationjustlikeeveryoneelse. Peoplearemorelikelytoconformifotherswillwitnesstheiranswers;peoplearelesslikelytoconform inanonymity. IntheLandmarkstudybyMuzaferSherifin1930:Peoplewereplacedindividuallyinadarkroomwhere apointoflightwasreflectedonawall.Peoplewereaskedtocalculatetheoscillationofthepointeven thoughtthelightnevermoved.Individualswerealloverthemapwiththeirestimates.Groupstended quicklytoagreeandfollowedbehindassertivespeakers,theestimatebecomeengrainedinthe individualsofthegroup,thenumberwasrememberedastrueandrepeatedbyindividualsonretesting evenifmanyyearslater.Theconsensusofthedistancewasalsopassedfromgenerationtogeneration oftestsubjectsandacceptedastrue. PLURALISTICIGNORANCE: Wemayfollowapracticeortraditionnotbecausewelikeitbutmerelybecausewethinkotherpeople likeit.Texasusedthisapproachforhighwaylitteringreductionaftermanyotherexpensivebut ineffectiveattempts.Thetargetpopulationwasmen18to24(mostfrequentlittering).Theslogan DontmesswithTexaswasdevelopedthenTVadsinwhichcelebritiescollectedlitter,threwitinto binsandcrushedcanswhilesayingDontmesswithTexas.Peoplesoonstartedusingthephrase;it embodiedtheindependent,toughpopulationimageofthestate.Onceitcaughton,litteringbecame antiTexas.Therehassincebeena72%decreaseinroadsiderubbishandalotofcommercial merchandisesoldwiththeslogan. THESPOTLIGHTEFFECT Peopletendtothinkthateveryonehastheireyesfixedonthemandthereforetendtoactaccordingto whattheythinkotherpeopleexpect.Inmanyexperimentsonlyabout20%ofpeoplearecapableof identifyingandrememberingwhatothersarewearingevenifwhattheyarewearingiswayoutsidethe norm.80%haventgotaclue. SOCIALNUDGESASCHOICEARCHITECTURE Ifchoicearchitectswanttochangebehaviortheymightsimplyinformpeopleofwhatpeoplearedoing. Peoplearemorelikelytopaytaxes,recycleandreusetowelsiftoldothersdosoinlargenumbers. Simplesmileyfacesthatletyouknowifyouarespendingtoomuchenergyinyourhouseormorethat themeaninyourcommunity,especiallyifotherscanseeyourconsumptionlevel,canregulateenergy usemuchmoreeffectivelyandrapidlythanpriceincreases.Justaskingpeopleiftheyarelikelytodo

something;likeexercise,eatmorefruit,vote,buyacar,etc.increasesthelikelihoodthattheywilldoit by2535%.Thisincreasesfurtherifyouaskthemwhenandhowtheyplantodoit. WHENDOWENEEDTONUDGE? Thekeypointhereisthatforalltheirvirtues,marketsoftengivecompaniesabigincentivetocaterto (andprofitfrom)humanfrailties,ratherthantotrytoeradicatethemortominimizetheireffects. Whenthingsarecomplicatedandthechoicesimportantnudgesshouldbeincludedwhendeveloping thesystemtohelppeople. FRAUGHTCHOICES Whatdoweneedtodesignthebestchoiceenvironment? Weneedtoknowthatnudgesaremostneededforchoicesthathavedelayedeffects,aredifficult, infrequent,offerpoorfeedbackandshowanambiguousrelationbetweenchoiceandexperience. BENEFITSNOWCOSTSLATER Investmentgoodsarethosethatlikeflossingyourteethandexercisingneedtobedonefirstinorderto reapthebenefitsmuchlater.Sinfulgoodsarethosethatlikesmoking,drinking,overeatinggiveyou immediatesatisfactionbutwillmakeyousufferlater.Inbothcaseshumansneedtoexertselfcontrol nudgesareveryhelpfulinpromotinginvestmentsandrestrainingsinfulgoodconsumption. DEGREEOFDIFFICULTY Themoredifficultsomethingistheremorelikelysomenudgingwillbeneeded. FREQUENCY Practicemakesperfect.Thereforeinfrequentchoicesneedmorenudging,thanfrequentones. FEEDBACK Ifthefeedbackforthesuccessorfailureofouractionsinnotapparentforyears,itishardtoadjust behaviorwhileitmatters.Nudgesinfeedbackmakethelongtermconsequencesofsomethingpartof thepresent. KNOWINGWHATYOULIKE ChoosingyourfavoriteIcecreamvarietyiseasy,buthowdoyouknowwhatassetallocationyoulikein yourretirementportfolioifyoucannotcomprehendortranslatethosewordsintosomethingthatmakes sense?Awaytosimplifychoicesistodefinerealspendingpowerdifferencesbetweenoneplanand another.Thechoiceshouldbeframedsothatsomeoneisabletosay_Ilikethatornot_asopposedto beingperplexedandrandomlychoosing.

MARKETS:AMIXEDVERDICT Insuranceplanstendtobeplaguedwithfraughtchoices,asarecreditcardterms,mortgages,extended warranties,etc.Choicearchitectureisveryimportantinthesefields. CHOICEARCHITECTURE Theelementsofchoicearchitectureare: DEFAULTS:PADDINGTHEPATHOFLEASTRESISTANCE Createsmartdefaultsthatharnessthepowerofinertia. EXPECTERROR Studythecommonerrorsthatmayoccurthencreateasystemaroundthem.IntheParismetrotickets canbeinsertedinthemachineinorientationandstillwork;ATMsdesignedtonotgivecashuntilthe cardisremoved. GIVEFEEDBACK Tellingpeoplehowtheyaredoingisimportantforlearningandimprovement.Thefeedbackhastobe frequentandnonthreateninglikeasmileyface.Feedbackcanbeusedtomakepeoplesaveelectricity andotherresourcesbygivingthemareferenceandtheopportunitytoconform. UNDERSTANDINGMAPPINGS:FROMCHOICETOWELFARE Peopleneedtoknowwhatthesystemdoes,howandwhatbenefitstoexpect. Mandatesthatwouldrequirecompanieslikecellphoneproviders,creditcards,etc.withareportthat wouldRECAPthefees:Record,EvaluateandCompareAlternativePrices;wouldhelpconsumersclearly understandfeesandcomparethem,thereforehavingenoughinformationtodecidewhichplanor companyisbetterforthem. Maptheproductandthebenefitsitprovidessothataveragehumanscanunderstandit. STRUCTURECOMPLEXCHOICES Whentherearecomplexchoiceswithmanyoptionsadecisiontreeaidisnecessary.Thedecisiontree shouldhaveEliminationbyaspects:forexamplethemoviedatabaseNetflixhelpsyouchoosewhat movietorentbyallowingyoutousesearchcriteriathatnarrowdownyourchoicesaccordingtogenre, actor,dateofrelease,etc.OnceyoureachacertainmanageablenumberproceedtoEvaluationof finalists:inwhichthebestoptionisidentified.Alsoconsidercollaborativefilteringinwhich suggestionsaremadeonhowyoumaychoosebyinformingyouofchoicesotherpeoplelikeyouhave made.OnAmazon.comwhenyouchooseabookothersaresuggestedaccordingtothepurchase patternofpeoplewithsimilartastes. INCENTIVES Whereshouldyouimbedtheincentive? Consider: Whouses?

Whochooses? Whopays? Whoprofits? Makepeopleawareofincentivesinrealtimeandatthedifferentlevelsofthesystem. GOODCHOICEARCHITECTUREMNEMONIC:NUDGES iNsentives(designincentivesintothesystem) UnderstandingMappings(understandanddevelopamapofthesystemthatisaccessible) Defaults(Padthem) Givefeedback Expecterror(integratesystemstopreventthem) Structurecomplexchoices(decisiontreesthatnarrow,simplifyandsuggestchoices) PartsIIandIIIshouldbereadfromthebook,theybasicallydescribehowthefollowingsystemscanbe nudged: SavingMoney Investing CreditMarkets Socialsecurity PrescriptionDrugplansforseniors Organdonation Savingtheplanet Privatizingmarriage PARTIV EXTENSIONSANDOBJECTIONS Alsobettertoreadthebookdirectly.Aseriesofsmallnudgesaresuggestedandthemainobjectionsto nudgesdiscussed.Rulesofengagementarediscussed:usingnudgesinanethicalfashion,avoiding incompetentnudgingorselfservingnudging(whichalreadyhappenswithsubliminalseductionads),full disclosureofnudging,optoutclauses.