How Change Happens

by Cass R Sunstein

  For their part, those who choose, or who show a significant control premium, might be making quite similar errors (as, perhaps, in our experiment). Present bias, for example, might lead people to make a decision on their own when it would make far more sense to do the hard work of finding a reliable delegate. A decision to economize on bandwidth and to allow someone else to make choices might take a large measure of self-control.

  The Madisonian Exclamation matters, but in my view, the intrinsic value of control and the Lockean Exclamation are far more important to business, politics, and daily life. They help to explain behavior in multiple domains—consumption, education, employment, environmental protection, savings, sports, voting, politics, and more. They show that it is often smart, as well as kind, for those in positions of authority to announce, very clearly, “The ultimate decision is yours.”

  Notes

  1. See “Don’t Tell Me What I Can’t Do!” Lost Compilation, YouTube (May 4, 2009), https://www.youtube.com/watch?v=JAsp4rn9QnM.

  2. Sharon Brehm and Jack L. Brehm, Psychological Reactance: A Theory of Freedom and Control (1981).

  3. Alexis de Tocqueville, The Ancien Regime and the French Revolution 151 (Jon Elster ed., 2007).

  4. See The Federalist No. 10: The two great points of difference between a democracy and a republic are: first, the delegation of the government, in the latter, to a small number of citizens elected by the rest; secondly, the greater number of citizens, and greater sphere of country, over which the latter may be extended. The effect of the first difference is, on the one hand, to refine and enlarge the public views, by passing them through the medium of a chosen body of citizens, whose wisdom may best discern the true interest of their country, and whose patriotism and love of justice will be least likely to sacrifice it to temporary or partial considerations. Under such a regulation, it may well happen that the public voice, pronounced by the representatives of the people, will be more consonant to the public good than if pronounced by the people themselves, convened for the purpose.

  5. See Oren Bar-Gill and Cass R. Sunstein, Regulation as Delegation, 7 J. Legal Analysis 1 (2015).

  6. For illuminating discussion, see Edna Ullmann-Margalit & Sidney Morgenbesser, Picking and Choosing, 44 Soc. Res. 757 (1977); Edna Ullmann-Margalit, Normal Rationality (Avishai Margalit & Cass R. Sunstein eds. 2017).

  7. See, for example, Tali Sharot et al., How Choice Reveals and Shapes Expected Hedonic Outcome, 29 J. Neuroscience, 3760 (2009), http://doi.org/10.1523/JNEUROSCI.4972-08.2009.

  8. Nicola J. Bown et al., The Lure of Choice, 16 J. Behav. Decision Making 297 (2003).

  9. See David Owens et al., The Control Premium: A Preference for Payoff Autonomy, 6 Am. Econ. J.: Microeconomics 138 (2014), http://doi.org/10.1257/mic.6.4.138.

  10. Suzanne C. Thompson, Illusions of Control: How We Overestimate Our Personal Influence, 8 Current Directions Psychol. Sci. 187 (1999), http://doi.org/10.1111/1467-8721.00044.

  11. Sebastian Bobadilla-Suarez et al., The Intrinsic Value of Control: The Propensity to Under-Delegate in the Face of Potential Gains and Losses, 54 J. Risk & Uncertainty 187 (2017). I draw on our joint work for several of the following paragraphs here; many thanks to my coauthors, from whom I have learned a great deal.

  12. David Owens, Zachary Grossman, & Ryan Fackler, The Control Premium: A Preference for Payoff Autonomy, 6 Am. Econ. J.: Microeconomics 138 (2014), http://doi.org/10.1257/mic.6.4.138; Björn Bartling, Ernst Fehr, & Holger Herz, The Intrinsic Value of Decision Rights, 82 Econometrica 2005 (2013), http://doi.org/10.3982/ECTA11573.

  13. John Stuart Mill, On Liberty, in On Liberty 5, 76 (Stefan Collini ed. 1859/1989).

  10

  Coercion

  In light of behavioral findings demonstrating the occasional human propensity to blunder, some people have been asking whether mandates and bans have a fresh justification.1 The motivation for that question is clear: If we know that people’s choices lead them in the wrong direction, why should we insist on freedom of choice? In the face of human errors, isn’t it odd, or even perverse, to insist on that form of freedom? Isn’t especially odd to do so if we know that in many contexts, people choose not to choose?

  It should be agreed that if a mandate would clearly increase social welfare, there is a strong argument on its behalf. To be sure, we would have to specify what social welfare means,2 but if we could agree on a rough definition, we would find many cases in which mandates make sense. Where people are inflicting harms on others, a nudge is unlikely to be enough. No one believes that defaults are a sufficient approach to the problem of violent crime. No one thinks that people get to choose whether to steal or to assault. In the face of a standard market failure, a mandate has a familiar justification; consider the problem of air pollution. It is true that even in such contexts, defaults may have an important role; recall the possibility of default rules in favor of clean energy. But the effects of defaults, taken by themselves, might well prove too modest for the problem at hand, and they hardly exhaust the repertoire of appropriate responses.

  We have seen that there are behavioral market failures as well. If people are suffering from unrealistic optimism, limited attention, or a problem of self-control, and if the result is a serious welfare loss for those people, there is an argument for some kind of public response. When people are running high risks of mortality or otherwise ruining their lives, it might make sense to coerce them. After all, people have to get prescriptions for certain kinds of medicines, and even in freedom-loving societies, people are forbidden from buying certain foods or taking certain risks in the workplace because the dangers are too high. We could certainly identify cases in which the best approach is a mandate or a ban because that response is preferable, from the standpoint of social welfare, to any alternative, including defaults.

  Five Objections to Mandates

  Nonetheless, there are good reasons to think that if improving social welfare is the goal, nudges have significant advantages and are often the best approach.

  First, freedom-preserving approaches tend to be best in the face of heterogeneity. By allowing people to go their own way, defaults reduce the costs associated with one-size-fits-all solutions, which mandates usually impose. In the context of credit markets, some people benefit from overdraft protection programs even if the interest rates are high. Forbidding such enrollment, or sharply limiting people’s access to the programs, could turn out to be harmful. For credit cards and mortgages, people have different tastes and needs, and default rules have large advantages over prohibitions. Personalized defaults can reduce the problems posed by heterogeneity, but we have also seen that it can be challenging to devise them.

  Second, those who favor nudges are alert to the important fact that public officials have limited information and may themselves err (the knowledge problem). If nudges are based on mistakes, the damage is likely to be significantly less severe than in the case of mandates, because people are free to ignore them. True, some nudges can be sticky, but we have seen that many people opt out when they really do not like them. Return to the instructive example of default thermometer settings in winter: if they are set 1°C colder, people stick with them, but if the default is 2°C colder, it is a lot less sticky. We are taking this example as a metaphor, and a revealing one, for how people will reject the default if it makes them uncomfortable—an important safeguard against inadequately informed choice architects. Here again, the rise of large datasets and of personalized default rules can reduce the problem, but we would have to be optimistic to think that they can eliminate it.

  Third, nudges respond to the fact that public officials may be affected by the influence of well-organized private groups (the public choice problem). Even if such officials have a great deal of knowledge, they might not have the right incentives, even in well-functioning democracies. Powerful private groups might want particular nudges, and sometimes they can convince officials to endorse what they want. If so, the fact that peo
ple can go their own way provides real protection, at least when compared with mandates.

  Fourth, nudges have the advantage of avoiding the welfare loss that people experience when they are deprived of the ability to choose. In some cases, that loss is severe. As we have seen, people sometimes want to choose, and when they are forbidden to do so, they might be frustrated, angered, or worse. A nudge avoids that kind of loss.

  Fifth, nudges recognize that freedom of choice can be seen, and often is seen, as an intrinsic good, which government should respect if it is to treat people with dignity. Some people believe that autonomy has independent value and is not merely part of a large category of goods that people enjoy. If people are deprived of freedom, they are infantilized. Nudges allow people to go their own way if they like.

  People sometimes object that nudges are more covert and less transparent than mandates and therefore more insidious and difficult to monitor. But nudges need not be, and ought not be, covert. There is nothing covert about automatic enrollment in savings and health insurance plans. It is true that many people may not pay attention to default rules or understand their effects. But recall the evidence that people’s behavior, in the face of a default, would not be changed even if they were informed that a particular default, and not another imaginable one, has been chosen for them.

  Illustrations

  The five arguments on behalf of choice-preserving approaches will have different degrees of force in different contexts. They suggest reasons to favor nudges over mandates, but those reasons may not be decisive. In some settings, for example, the interest in freedom of choice has overwhelming importance. In others, people do not much care about it, and its intrinsic value is only modest. Consider some illustrative problems:

  1. Suppose that a large university has long had a single-sided default for its printers, and it is deciding whether to change to double-sided. On the basis of careful investigation, suppose that it has learned that at least 80 percent of its students, faculty, and other employees would prefer a double-sided default, on the ground that they would like to save paper. Armed with this information, and aware of the economic and environmental savings that a double-sided default could bring, the university switches to that default.

  Now suppose that some university administrators, enthusiastic about the idea of majority rule, ask whether double-sided printing should be mandatory. The answer to that question is plain. About one-fifth of users prefer a single-sided default, and there is little doubt that single-sided printing is often best—for example, for PowerPoint presentations and for lecture notes.

  The assessment might be different if the use of single-sided printing imposes significant costs on nonusers (e.g., paper costs on the university or environmental costs). If so, there is some weighing to be done. But if the welfare of those who use printers is the only or primary variable, a default is clearly preferable to a mandate. From the standpoint of users, a mandate would impose unnecessary costs in the face of heterogeneity across persons and projects. Here, then, is a clear case in which a default is preferable to a mandate.

  2. As we have seen, a great deal of work explores the effects of automatic enrollment in retirement plans. We have also seen that automatic enrollment increases participation rates, and thus people’s savings, while also preserving freedom of choice: so far, so good. The problem is that if the default contribution rate is lower than what employees would choose (say, 3 percent, as it has been under many automatic enrollment plans), then the result of automatic enrollment might be to decrease average savings because the default rate turns out to be sticky. This is an ironic result for those who want to use defaults to increase people’s welfare during retirement.

  The natural response, however, is not to abandon default rules in favor of mandates, but to choose a better default. One possibility is automatic escalation, which increases savings rates each year until the employee hits a predetermined maximum. And in fact, there has been a significant increase in the use of this approach; automatic escalation is increasingly popular. Another possibility is to select a higher default contribution. No one denies that defaults can go wrong. If they do, the challenge is to get them right.

  But there is a more fundamental objection, which questions freedom of choice altogether. Suppose that people opt out of pension plans for bad reasons, in the sense that the decision to opt out makes their lives worse (by their own lights). Perhaps the relevant people have a general (and unjustified) distrust of the financial system or of their employer, and so they elect to save little or not to save at all. Perhaps they suffer from an acute form of present bias. Perhaps those who opt out are most likely to suffer as a result of doing so.

  These are empirical questions, but if those who opt out would be hurt, the argument for a mandate gains force on welfare grounds. If public officials know, from practice, that a behavioral market failure or some kind of error is leading people to make self-destructive blunders, it is tempting to contend that government should mandate savings and eliminate the right to opt out. After all, most democratic nations have mandatory pension plans of one kind or another; perhaps they should expand those plans, rather than working to allow or encourage voluntary supplementation. Indeed, some critics might argue for some kind of comprehensive welfare assessment by public officials of optimal savings rates and ask those officials to build mandates on the basis of that assessment.

  This approach cannot be ruled out in principle, but there are good reasons for caution. In assessing the rationality of those who opt out, public officials might be wrong (recall the knowledge problem). As compared to a default, a mandate might get people into the system who would benefit from inclusion, but it might also get people into the system who would be seriously harmed. It is important, and it may be difficult, to know the size of the two groups. Those who opt out might do so not for bad reasons, or because they are ignoring their future selves, but because they need the money now and they are making a sensible trade-off between their current and future welfare.

  To say the least, a comprehensive welfare assessment of optimal savings rates is exceedingly difficult, especially in view of diversity of the population and changes over time. What is the right savings rate for those who are twenty-five or thirty or forty or sixty? How does it change when people have to pay school loans or mortgages, or pay for their children, young or old? How does it change for people who earn $30,000 per year or $60,000 or $100,000? What is the impact of changing macroeconomic conditions?

  Any such assessment would have to acknowledge that different approaches make sense for different people and over time. In a recession, for example, a lower contribution rate might make more sense, at least for relatively low-income people, than in a time of growth. So too, those who have to pay off their college loans might not want to save while they are struggling to make those payments, and people who are reasonably spending a great deal on current consumption (perhaps they have young children or children in college) might not want to save much in that period. These points suggest the need for personalized rather than one-size-fits-all mandates, which would not be easy to design and which would amount to a risky form of social engineering.

  Moreover, any form of coercion will impose a welfare loss on at least some choosers, who would want to exercise their autonomy and who would undoubtedly be frustrated to find that they cannot. And if freedom of choice has intrinsic value or can promote learning, then there are further reasons to avoid mandates.

  Although these various points raise cautionary notes, they might not be decisive. As I have noted, many nations compel savings through some kind of social security program, and for perfectly legitimate reasons. Perhaps existing programs should be expanded to increase the level of mandatory savings. If it could be demonstrated that those who opt out, under automatic enrollment, are making genuinely bad decisions, there would be a strong argument for mandates (or at least for altering rules that reduce the risk of harm). But even if so, private retirement plans play a
n important role for savers; the question is whether the current voluntary system should become more coercive. The fact of heterogeneity and the risk of government error argue strongly in the direction of defaults.

  3. Most motor vehicles emit pollution, and the use of gasoline increases national dependence on foreign oil. On standard economic grounds, there is a market failure here, and some kind of corrective tax seems the best response, designed to ensure that drivers internalize the social costs of their activity. Behaviorally informed regulators would be inclined to think that at the time of purchase, many consumers do not give sufficient attention to the costs of driving a car. Even if they try, they might not have a sufficient understanding of those costs because it is not simple to translate differences in miles per gallon (MPG) into economic and environmental consequences. An obvious approach that preserves freedom of choice would be disclosure, in the form of a fuel-economy label that would correct that kind of behavioral market failure.

  But it is possible to wonder whether such a label will be sufficiently effective; this is an empirical question. Perhaps many consumers will pay little attention to it and hence will not purchase cars that would save them a significant amount of money. True, a corrective tax might help solve that problem, but if consumers really do neglect fuel costs at the time of purchase, it might be best to combine the tax with some kind of subsidy for fuel-efficient cars to overcome consumer myopia. And if consumers are genuinely inattentive to the costs of operating a vehicle (at the time of purchase), then it is possible that fuel-economy standards, which are not favored on standard economic grounds, might themselves turn out to be justified.