Do nudges work?
Governments are increasingly adopting behavioral science techniques for changing individual behavior in pursuit of policy objectives. The types of “nudge” interventions that governments are now adopting alter people’s decisions without coercion or significant changes to economic incentives. We calculated ratios of impact to cost for nudge interventions and for traditional policy tools, such as tax incentives and other financial inducements, and we found that nudge interventions often compare favorably with traditional interventions. We conclude that nudging is a valuable approach that should be used more often in conjunction with traditional policies, but more calculations are needed to determine the relative effectiveness of nudging.Benartzi, S., Beshears, J., Milkman, K. L., Sunstein, C. R., Thaler, R. H., Shankar, M., Tucker-Ray, W., Congdon, W. J., & Galing, S. (2017). Should governments invest more in nudging?. Psychological Science, 28(8), 1041-1055.
Which kind of nudges work best?
Perhaps the most frequently mentioned nudge is the setting of defaults, which are pre-set courses of action that take effect if nothing is specified by the decision-maker. This type of nudge, which works with a human tendency for inaction, appears to be particularly successful, as people may stick with a choice for many years (Gill, 2018).https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/nudge/
Is that always and everywhere a good thing? Well…
The logical extreme is the endlessly renewable subscription. Alongside the familiar bills for utilities, internet, mobile phone and mortgage, our household subscriptions include services as varied as an online yoga resource, access to all the Star Wars and Marvel movies, a Patreon campaign, wine, Amazon Prime, Microsoft Office, Adobe Photoshop, apps for mindfulness, language learning and productivity, two cloud storage services, unfettered access to BoardgameArena and a music bot on Discord.https://timharford.com/2021/07/why-we-lose-track-of-spending-in-a-cashless-society/
Some of that will be incomprehensible, I’m sure; 15 years ago it would have been not just incomprehensible, but unimaginable. Yet not only are we paying for all this, we’re paying without a clear idea of when or how much the payments are, or even the method of payment we are using.
In a classic article from 2006, “Paying Not To Go To The Gym”, economists Stefano DellaVigna and Ulrike Malmendier compared consumers paying for health club membership in three different ways: with a 10-visit pass, on an annual membership and with an auto-renewing monthly subscription. The monthly consumers had more flexibility — and paid for the privilege — but they did not use it. Instead, they stayed subscribed for longer, paid nearly twice as much per gym visit and typically took more than two months to cancel after their final gym appearance. All these online subscriptions are plugging into something that health-club owners have known all along.
Most students I speak to are fascinated with behavioral economics, and rightly so. It’s a great way to learn at the intersection of economics and psychology, and ask how both fields of study might become better.
But it might make sense to ask if behavioral economics as a tool in less-than-perfectly-ethical hands might lead to less-than-perfect outcomes. And that is a worthy field of study too!
As an example:
Nobody is saying, least of all me, that behavioral economics is “wrong”, or “dangerous”. But I think it makes sense to realize that it is a tool, and can be misused, just like any other tool. If anything, given the very real biases and heuristics that all of us are susceptible to and use (respectively), it is perhaps more likely to be misused.
Always consider both sides of an argument, especially if you instinctively like one side more! 🙂