Misbehaving: The Making of Behavioral Economics

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Misbehaving: The Making of Behavioral Economics Page 35

by Richard H. Thaler


  We knew that the phrase “libertarian paternalism” would raise some hackles. It is not just at the University of Chicago that people dislike the term “paternalism”; many object to the government, or anyone else for that matter, telling them what to do, and that is what the term normally means. The phrase “libertarian paternalism” is a mouthful, and it does sound like an oxymoron. But it is not; at least not the way we define the terms.

  By paternalism, we mean trying to help people achieve their own goals. If someone asks how to get to the nearest subway station and you give her accurate directions, you are acting as a paternalist in our usage. We use the word “libertarian” as an adjective to mean trying to help in this way but without restricting choices.*

  Although we like the term “libertarian paternalism” and can defend its logic, it is safe to say it would never have worked as a book title. That problem was solved when an editor who was considering our book proposal suggested that the word “nudge” seemed to capture what we were trying to do. That publisher ultimately declined the book, but we immediately seized on his idea for a title, a gift for which we are grateful.

  Overall, I think it would be fair to say that the level of enthusiasm in the publishing community for our book varied between tepid and ice-cold. We ended up with a prestigious but sleepy university press whose skill set, we later learned, did not include marketing. If the book was going to reach any kind of broad audience, it was going to have to come from word of mouth. (The paperback rights were later sold to trade publishers in the U.S. and the U.K., after which the book finally began to appear in bookstores.)

  It was never our intention to claim that nudging can solve every problem. Some bans and mandates are inevitable. No society can exist without any rules and regulations. We require children to go to school (true paternalism in every sense of the word) and forbid one person from assaulting another. There are rules stipulating on which side of the road one should drive. Countries differ on which side they designate as the correct one, but when a Brit visits America, he is not permitted to drive on the left side of the road. Even ardent libertarians agree that you should not be allowed to shoot your neighbor just because you don’t like him. So our goal here was limited. We wanted to see how far one could take the policy of helping without ordering anyone to do anything.

  Our premise was simple. Because people are Humans, not Econs (terms we coined for Nudge), they make predictable errors. If we can anticipate those errors, we can devise policies that will reduce the error rate. For example, the act of driving, especially for a long distance, can make the driver sleepy, increasing the risk of wandering across the center line and causing an accident. In response, some localities have made the center divider both a painted line and a bumpy strip that makes the car rattle when it is hit, nudging a dozing driver to wake up (and maybe take a break from driving over a cup of coffee). Better yet are bumps that reflect light, making it also easier to navigate in the dark.

  The bumpy lane markers example also illustrates a point that critics of our book seem incapable of getting: we have no interest in telling people what to do. We want to help them achieve their own goals. Readers who manage to reach the fifth page of Nudge find that we define our objective as trying to “influence choices in a way that will make choosers better off, as judged by themselves.” The italics are in the original but perhaps we should have also used bold and a large font, given the number of times we have been accused of thinking that we know what is best for everyone. Yes, it is true that we think that most people would like to have a comfortable retirement, but we want to leave that choice up to them. We just want to reduce what people would themselves call errors.

  Reducing errors is also a source of Nudge’s most famous example, from Schiphol International Airport in Amsterdam. Some obvious genius came up with an idea to get men to pay more attention to where they aim when using the airport urinals. An etched image of a housefly appears near the drain of the urinal. Airport management has reported that installing these flies reduced “spillage,” a wonderful euphemism, by some 80%. I don’t know of any careful empirical analysis of the effectiveness of these flies, but they (and variations on the theme) have been spotted in other airports around the world. A soccer goal equipped with a ball is particularly popular during the World Cup.

  For me, that fly in the urinal has become the perfect exemplar of a nudge. A nudge is some small feature in the environment that attracts our attention and influences behavior. Nudges are effective for Humans, but not for Econs, since Econs are already doing the right thing. Nudges are supposedly irrelevant factors that influence our choices in ways that make us better off. The fly further made clear to me that while Cass and I were capable of recognizing good nudges when we came across them, we were still missing an organizing principle for how to devise effective nudges.

  We had a breakthrough in finding our missing organizing principle when I reread Don Norman’s classic book The Design of Everyday Things. The book has one of the best covers I have ever seen. It is an image of a teapot that has both the handle and the spout on the same side. Think about it. After rereading Norman’s book, I realized we could apply many of his principles to the problems we were studying. I had recently bought my first iPhone, a device so easy to use that it didn’t need an instruction manual. What if we could design policies that were equally easy to create “user-centered” choice environments? At some point we adopted the term “choice architecture” to describe what we were trying to do. In curious ways, simply having that phrase to organize our thoughts helped us create a checklist of principles for good choice architecture, with many of the ideas borrowed from the human design literature. Designing good public policies has a lot in common with designing any consumer product.

  Now that we had our new set of tools, one big choice we had to make was which policy issues to try to address with them. Some topics that we had already written about were easy, but others required us to dig into the literature and see whether we could come up with anything useful or interesting. Some of these investigations led to dead ends. We drafted a chapter on Hurricane Katrina but cut it because we only found one remotely interesting idea, and it was not ours. John Tierney, a columnist for the New York Times, had a suggestion to encourage people to leave for higher ground before a storm strikes. Tierney’s idea was to offer those who opt to stay a permanent ink marker and suggest they use it to write their Social Security number on their body, to aid in the identification of victims after the storm. We had nothing nearly as good as that.

  In other cases, the research caused us to change our views on some subject. A good example of this is organ donations. When we made our list of topics, this was one of the first on the list because we knew of a paper that Eric Johnson had written with Daniel Goldstein on the powerful effect of default options in this domain. Most countries adopt some version of an opt-in policy, whereby donors have to take some positive step such as filling in a form in order to have their name added to the donor registry list. However, some countries in Europe, such as Spain, have adopted an opt-out strategy that is called “presumed consent.” You are presumed to give your permission to have your organs harvested unless you explicitly take the option to opt out and put your name on a list of “non-donors.”

  The findings of Johnson and Goldstein’s paper showed how powerful default options can be. In countries where the default is to be a donor, almost no one opts out, but in countries with an opt-in policy, often less than half of the population opts in! Here, we thought, was a simple policy prescription: switch to presumed consent. But then we dug deeper. It turns out that most countries with presumed consent do not implement the policy strictly. Instead, medical staff members continue to ask family members whether they have any objection to having the deceased relative’s organs donated. This question often comes at a time of severe emotional stress, since many organ donors die suddenly in some kind of accident. What is worse is that family members in countries with this regime
may have no idea what the donor’s wishes were, since most people simply do nothing. That someone failed to fill out a form opting out of being a donor is not a strong indication of his actual beliefs.

  We came to the conclusion that presumed consent was not, in fact, the best policy. Instead we liked a variant that had recently been adopted by the state of Illinois and is also used in other U.S. states. When people renew their driver’s license, they are asked whether they wish to be an organ donor. Simply asking people and immediately recording their choices makes it easy to sign up.† In Alaska and Montana, this approach has achieved donation rates exceeding 80%. In the organ donation literature this policy was dubbed “mandated choice” and we adopted that term in the book.

  This choice of terminology was unfortunate, as I learned later. Some time after the book was published, I wrote a column in the New York Times about organ donations and advocated the Illinois policy, which I continued to call “mandated choice.” A few weeks later, someone on the editorial board of USA Today called me to talk about the policy because their newspaper was going to endorse it. A couple days later, I got an urgent phone call from the editorial writer. It turns out she had called the state official in charge of this policy, who has the title secretary of state, and he firmly denied that any such policy existed. I was mystified. I had recently renewed my driver’s license and was duly asked whether I wanted to be an organ donor. (I said yes.) A few more phone calls solved the mystery. The secretary of state, Jesse White, objected to the word “mandated.” He said that no one was required to do anything, and technically he was right. When asked to be a donor, if someone refuses to answer or remains mute, the official at the Department of Motor Vehicles just takes that as a no.

  It turns out that Jesse White is a smart politician, and being a smart politician he realized that voters do not like mandates.‡ In the wake of this lesson on the importance of nomenclature, I have been calling my favored policy “prompted choice,” a term both more accurate and less politically charged. When dealing with Humans, words matter.

  ________________

  * While we thought the term was perfectly logical, not everyone agreed. One law professor wrote a comment on our paper titled “Libertarian Paternalism Is an Oxymoron” (Mitchell, 2005). I wanted to post a reply online that would have no text; it would only consist of the three-word title “No It’s Not.” Cass convinced me that this would not be helpful.

  † Most states wisely combine this policy with a “first person consent” law that stipulates that if the donor should die, his or her wishes should be followed, sparing family members any obligation to make difficult choices in traumatic times.

  ‡ He might have shared this bit of wisdom with President Obama, whose health care law has a very unpopular feature that is called a “mandate.” Because the law forbids insurance companies from discriminating against people with preexisting conditions, it needed to have some provision to prevent people from waiting until they get sick or have an accident to buy insurance, and mandating coverage was chosen as the solution to this problem. But there were other ways to achieve this goal. For example, I would favor a combination of automatic enrollment (with opt-out) plus a provision that anyone who opts out of insurance cannot buy a policy for a specified period of time, such as three years.

  33

  Nudging in the U.K.

  In July of 2008 I spent a few days in London while on my way to Ireland to attend Cass’s wedding to Samantha Power. Although Nudge had been out for several months in the U.S., only a few copies had made it to London. I was never able to determine the shipping method the publisher used, but I strongly suspected that a fleet of tall sailing ships had come in with the low bid, just beating out the university’s rowing team.

  One of the enterprising people who had managed to snag a copy of the book was Richard Reeves. Richard is a rare species: a professional intellectual without a permanent post as a professor or pundit. At that time, he was about to become the director of a think tank called Demos, where he invited me to give a talk about Nudge.* Before Richard and I actually met, I got a call from him on my cell phone. He wanted to know if I would be interested in meeting some of the people who were working in the leadership of the Conservative Party, otherwise known as the Tories. The inquiry had come from his friend Rohan Silva, who also had read Nudge and was taken by it.

  I was deeply skeptical that anything could come of such a meeting. As best I can recall, there has never been an occasion during my lifetime in which I have been described as conservative. Radical, troublemaker, rabble-rouser, nuisance, and other terms unsuitable for the printed page were all commonly used adjectives, but never conservative.

  Still, I was flattered. “Sure,” I said. “Give Rohan my number, I’d be happy to talk to him.” Rohan called almost immediately and asked whether I might be willing to stop by that afternoon and meet some of his colleagues at the Houses of Parliament. My skepticism about talking to a group of Conservatives was compounded by the fact that I was wandering around London on a rare warm, sunny day, and was dressed in my usual attire of jeans and a T-shirt. At that time, I knew almost nothing about British politics, and my mental image of a group of Conservative Members of Parliament was one of old men in suits, possibly wearing white wigs and robes. I told Rohan that I did not think I was appropriately dressed for a meeting at the Houses of Parliament, but he told me not to worry, they were a casual group. And by the sound of his voice on the phone, he seemed to be quite young. So, I said sure, why not?

  My fears about being underdressed were as ill-founded as my stereotypes of the people I was about to meet. Rohan Silva, then twenty-seven and of Sri Lankan descent, always seems to have last shaved three days ago. The only time I remember him actually clean-shaven was at his wedding, years later. His somewhat senior partner among the small team, Steve Hilton, was not yet forty and was dressed in what I later came to know as his favored attire of a T-shirt and Los Angeles Lakers basketball shorts. We met in the office of a senior Conservative Member of Parliament, Oliver Letwin, one of the small group of Tory MPs who surrounded the leadership team of David Cameron and George Osborne, both in their forties. I did not see anyone wearing a wig, and I think Minister Letwin was the only one wearing a suit.

  I gave a brief, off-the-cuff talk, and the team seemed to think that the approach to public policy we advocated in Nudge was one that the party could support as part of a rebranding that Cameron and Osborne were undertaking. Their stated goal was to make the party more progressive and pro-environment. After the meeting, Rohan and I continued the conversation and I learned that he had travelled to Iowa to support Obama in the 2008 Democratic Party presidential primary campaign. My image of the Conservative Party was rapidly changing.

  Rohan somehow managed to buy ten copies of Nudge, possibly cornering the UK market until the next ship arrived, and piled them up on his desk, nudging passers-by to take a look. One day David Cameron—the future prime minister—saw the pile and asked whether this was the book he had heard some people talking about. Rohan suggested that he take a look. Apparently Cameron liked what he read, because he later put the book on a list of books recommended for summer reading for Tory MPs, though I strongly suspect that Rohan wrote the first draft of that list. Among the many jobs Rohan held was that of “designated reader.”

  My next trip to London was in the spring of 2009, when I was doing some publicity events with our new U.K. publisher for the paperback edition of the book. Given our earlier experiences, I was shocked to see billboards in tube stations asking in large print, “HAVE YOU BEEN NUDGED TODAY?” At one event, I was told that I would be seated at dinner next to someone called Sir Gus O’Donnell. Again showing my ignorance, I asked who he was, and was told that he was the Cabinet Secretary, the top civil servant in the U.K. I later learned that people would often refer to him as GOD, a play on his initials but also a nod to his power. He basically ran the country. And amazingly, he was already a fan of behavioral economics.


  Lord O’Donnell, as he is now called, has a remarkable background. He earned a PhD in economics at Oxford, taught for a while, and then went to work for the government, where he held numerous jobs including, most remarkably, press secretary to the Prime Minister. I have never met an economist who would have lasted a single day as a press secretary to anyone, much less a head of state. After serving in several other capacities, he ended up as the chief civil servant in the country. There is no equivalent to the job of Cabinet Secretary in the United States, and I must say that after my experiences in dealing with Gus and his successor, Jeremy Heywood, I think we would do well to create such a position. When the general election took place in May 2010 and no party won a majority, the government went about its business as usual, with O’Donnell steering the ship while the politicians tried to sort out which parties would form a coalition government.

  It turned out that the Conservatives agreed to form a coalition with the Liberal Democrats, and David Cameron would become the next Prime Minister with Nick Clegg, the leader of the Lib Dems, named as Deputy Prime Minister. And whom did Clegg pick as his chief policy advisor? Richard Reeves. Meanwhile, Rohan and Steve Hilton became senior policy advisors to the Prime Minister, if the word “senior” is appropriate for someone who has not yet turned thirty. They had big plans, and the plans included a role for behavioral science, plans that Gus O’Donnell would play an important role in implementing. In only a few days as a visitor in London, I seemed to have stumbled onto the people who could actually take the ideas espoused in Nudge seriously, and see if they could be made to work.

 

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