Nudge: The Final Edition

We have also added a new chapter on what we call sludge, which is nasty stuff that makes it more difficult to make wise choices. (Sludge is everywhere; you’ll see.) The use of Smart Disclosure is one way to reduce sludge. So is sending everyone a tax return that has already been completed and can be filed with one click. So is reducing the length of those forms you have to fill out to get licenses, permits, visas, health care, or financial aid, or to get reimbursed for a trip you take for your employer. Every organization should create a seek-and-destroy mission for unnecessary sludge.

The rest of the book also has numerous substantive changes and what we hope is fresh thinking. We introduce several choice architecture concepts, in addition to “sludge,” that are new to this edition. These include personalized defaults; make it fun; and curation. These concepts play a large role in the chapters about financial decision making. We have increased the space we devote to climate change and the environment. We highlight both the limits of choice architecture (preview: we can’t solve the problem just with nudges) and the many ways in which nudges can help us succeed on a project that demands the deployment of every possible tool. And, oh, we do have a few things to say about the COVID-19 pandemic.

Some topics that we originally covered get a fresh look. The passage of years has created the chance to evaluate how policies work over time. A good example is the Swedish launch (in 2000) of a national retirement savings program, which allowed investors to create their own portfolios. In the original edition, we discussed the initial design of that plan. Now, two decades after the launch, we can provide some insights about how long nudges last. (Preview: some of them can last almost forever.) We have also rewritten the chapter on organ donation, because everyone thought we supported a policy we actually oppose. We did state our policy in what we thought was plain language in the first version of the book, and we tried to make it a bit clearer in the paperback editions. But still our message wasn’t getting through, so we are trying once again. In case this is as far as you get in the book, please take note: we do not support the policy called “presumed consent.” Feel free to skip ahead to see why. We really do believe in freedom of choice.

Other topics with fresh looks are devoted to helping consumers make better choices with their money. People have amassed staggering amounts of credit card debt, and then fail to take some simple steps to reduce the costs of maintaining those large balances. Consumers also make demonstrably bad choices in picking mortgages, insurance, and health care plans. You may well be one of the people who could save a lot of money in these domains. But more importantly, we hope that our discussion of these issues will provoke others to make behaviorally informed policy changes in an assortment of domains that we have not explored. We emphasize that the concepts and approaches discussed here are fully applicable to the private sector. Firms should explicitly recognize that their employees and customers and competitors are human beings, and design policies and strategies accordingly. We will offer many specific ideas for how to do this.

It is important to stress what we have not done. We make no attempt to bring readers up to date on the remarkable nudge-related activity, reform, and research that have come about in recent years. Governments all over the world have been nudging, often for good, and the private sector has also been exceptionally inventive. Academic research has grown by leaps and bounds. To explore these developments would take an entirely new book, and in fact many such books have been written, some even by Sunstein. Indeed, Sunstein has coedited a four-volume collection of papers on this topic. (Sunstein thinks editing a four-volume collection of papers on the topic of nudging is fun; Thaler would rather be counting backward from ten million.)

We have some things to say about objections to nudges, and in fact we devote a whole chapter to that topic, but we do not respond systematically to critics. What we hope to offer is a book that will feel fresher, more fun, and less dusty to those reading it for the first time, or even to those returning for another look, as we have spent the past months doing ourselves.

Finally, a word about our decision to call this version of the book the Final Edition. One of the earliest topics to be studied by behavioral economists was self-control problems. Why do people continue to do things they think are dumb (both in foresight and in hindsight)? These include acts such as running up credit card bills, getting more than a bit chubby, and continuing to smoke. One strategy people use to deal with such problems is to adopt commitment strategies, in which some tempting (but ill-advised) options are made unavailable. For example, some people with a gambling problem volunteer to put their name on a list of people who will not be allowed into a casino. Using this title is our commitment strategy to prevent us from ever tinkering with this book again. We have loved working on it, and we might even have gotten addicted to it, but we pledge, right here and right now, that there will be no “post-final” edition of Nudge. And one of us actually believes that pledge.

Richard H. Thaler

Cass R. Sunstein

January 2021

Introduction

The Cafeteria

Imagine that a friend of yours, Carolyn, is the director of food services for a large city school system. She is in charge of hundreds of schools, and hundreds of thousands of kids eat in her cafeterias every day. Carolyn has formal training in nutrition (a master’s degree from the state university), and she is a creative type who likes to think about things in nontraditional ways.

One evening, over a good bottle of wine, she and her friend Adam, a statistically oriented management consultant who has worked with supermarket chains, hatched an interesting idea. Without changing any menus, they would run some experiments in her schools to determine whether the way the food is displayed and arranged might influence the choices kids make. Carolyn gave the directors of dozens of school cafeterias specific instructions on how to display the food choices. In some schools the desserts were placed first, in others last, and in still others in a separate line. The locations of various food items varied from one school to another. In some schools the french fries were at eye level, but in other schools it was the carrot sticks that were made more salient.

From his experience in designing supermarket floor plans, Adam suspected that the results would be significant. He was right. Simply by rearranging the cafeteria, Carolyn was able to noticeably increase or decrease the consumption of many food items. From this experience she learned a big lesson: small changes in context can greatly influence schoolchildren, just as they can greatly influence adults. The influence can be exercised for better or for worse. For example, Carolyn knows that she can increase consumption of healthy foods and decrease consumption of unhealthy ones.

With hundreds of schools to work with, and a team of graduate-student volunteers recruited to collect and analyze the data, Carolyn now understands that she has considerable power to influence what kids eat. She is pondering what to do with her newfound power. Here are some suggestions she has received from her usually sincere but occasionally mischievous friends and coworkers:

Arrange the food to make the students best off, all things considered.

Choose the food order at random.

Try to arrange the food to get the kids to pick the same foods they would choose on their own.

Maximize the sales of the items from the suppliers who are willing to offer the largest bribes.

Maximize profits, period.

Option 1 has obvious appeal, yet it does seem a bit intrusive, even paternalistic. But the alternatives are worse! Option 2, arranging the food at random, could be considered fair-minded and principled, and it is in one sense neutral. But a random order makes no sense in a cafeteria. On efficiency grounds, the salad dressing should be placed next to the salad, not with the desserts. Also, if the orders are randomized across schools, then the children at some schools will have less healthy diets than those at other schools. Is this desirable? Should Carolyn choose that kind of neutrality, if she can easily make most students better off, in part by improving their health?

Option 3 might seem to be an honorable attempt to avoid intrusion: try to mimic what the children would choose for themselves. Maybe that is really the neutral choice, and maybe Carolyn should neutrally follow people’s wishes (at least where she is dealing with older students). But a little thought reveals that this is a difficult option to implement. Carolyn’s experiment with Adam proves that what kids choose depends on the order in which the items are displayed. What, then, are the “true preferences” of the children? What does it mean to say that Carolyn should try to figure out what the students would choose “on their own”? In a cafeteria, it is impossible to avoid some way of organizing food. And many of the same considerations would apply if she were serving adults rather than children.

Option 4 might appeal to a corrupt person in Carolyn’s job, and manipulating the order of the food items would put yet another weapon in the arsenal of available methods to exploit power. But Carolyn is honorable and honest, so she does not give this option any thought. (Not everyone would be this principled, alas.) Like Options 2 and 3, Option 5 has some appeal, especially if Carolyn thinks the best cafeteria is the one that makes the most money. But should she really try to maximize profits if the result is to make children less healthy, especially when she works for the school district?

Carolyn is what we call a choice architect. A choice architect has the responsibility for organizing the context in which people make decisions. Although Carolyn is a figment of our imagination, many real people turn out to be choice architects, most without realizing it. Some of them even run cafeterias. If you are a doctor and describe the alternative treatments available to a patient, you are a choice architect. If you create the forms or the website that new employees use to choose among various employee benefits, you are a choice architect. If you design the ballot voters use to choose candidates, you are a choice architect. If you organize a drugstore or a grocery, you are a choice architect (and you confront many of the questions that Carolyn did). If you are a parent describing possible educational options to your son or daughter, you are a choice architect. If you are a salesperson, you are a choice architect (but you already knew that).

There are many parallels between choice architecture and more traditional forms of architecture. A crucial parallel is that there is no such thing as a “neutral” design. Consider the job of designing a new office building. The architect is given some requirements. There must be room for a lobby, 120 offices, thirteen conference rooms of various sizes, a room large enough to have everyone meet together, and so forth. The building must sit on a specified site. Hundreds of other constraints will be imposed—some legal, some aesthetic, some practical. In the end, the architect must come up with an actual building with doors, stairs, windows, and hallways. As good architects know, seemingly arbitrary decisions, such as where to locate the bathrooms, will have subtle influences on how the people who use the building interact. Every trip to the bathroom creates an opportunity to run into colleagues (for better or for worse). A good building is not merely attractive; it also “works.”

As we shall see, small and apparently insignificant details can have major impacts on people’s behavior. A good rule of thumb is to assume that everything matters. In many cases, the power of these small details comes from focusing people’s attention in a particular direction. A wonderful example of this principle comes from, of all places, the men’s toilets at Schiphol Airport in Amsterdam. At one point, the authorities etched the image of a black housefly into each urinal. It seems that men often do not pay much attention to where they aim, which can create a bit of a mess, but if they see a target, attention and therefore accuracy are much increased. According to the man who came up with the idea, it works wonders. “It improves the aim,” says Aad Kieboom. “If a man sees a fly, he aims at it.” Kieboom, an economist, directed Schiphol’s building expansion. He reports that etchings reduced “spillage” by 80 percent, a number we are unable to verify. However, we can report that after this example appeared in the first edition of this book, we began seeing those flies in other airports around the world. And yes, we are aware of the availability heuristic, to be discussed later.

The insight that everything matters can be both paralyzing and empowering. Good architects realize that although they can’t build the perfect building, they can make some design choices that will have beneficial effects. The location of the coffee machines, for example, may influence workplace interaction. Policymakers can often do the equivalent of painting a fly—for example, by telling people clearly and conspicuously, on their credit card bills, that they might be subject to late fees and overuse fees. If you paint lines on the sidewalk where people wait to enter a supermarket during a pandemic, you can promote social distancing. And just as a building architect must eventually produce the plans for an building, a choice architect like Carolyn must choose a particular arrangement of the food options at lunch, and by so doing she can influence what people eat. She can nudge.*

Libertarian Paternalism

If, all things considered, you think that Carolyn should take the opportunity to nudge the kids toward food that is better for them, Option 1, then we welcome you to our movement: libertarian paternalism. We are keenly aware that this term is not one that many readers will find immediately endearing. Both words are somewhat off-putting, weighed down by stereotypes from popular culture and politics that make them unappealing to many. Even worse, the concepts seem to be contradictory! Why combine two reviled and contradictory concepts? We argue that if the terms are properly understood, both concepts show a lot of good sense—and they are far more attractive together than alone. The problem with the terms is that they have been captured by dogmatists.

The libertarian aspect of our strategies lies in the straightforward insistence that much of the time, and so long as they are not harming others, people should be free to do what they like—and to opt out of arrangements they deem undesirable if that is what they want to do. To borrow a phrase from the late Milton Friedman, libertarian paternalists urge that people should be “free to choose.” We strive to design policies that maintain or increase freedom of choice. When we use the term libertarian to modify the word paternalism, we simply mean liberty-preserving. And when we say liberty-preserving, we really mean it. Libertarian paternalists want to make it easy for people to go their own way; they do not want to burden those who want to exercise their freedom. (We emphasize that when people are inflicting harm on others, freedom of choice is not the best idea—but even in such cases, nudges can play an important role. We’ll get to that. We also acknowledge that if people are making really terrible choices and harming their future selves, nudges might not be enough. We’ll get to that, too.)

The paternalistic aspect lies in the claim that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better. In other words, we argue for self-conscious efforts, by institutions in the private sector and by government, to steer people’s choices in directions that will improve their lives. We are aware that many people, including many philosophers, have devoted a lot of effort to defining the term paternalism, and to exploring what might be right or wrong with it. The paternalistic policies that we favor aim to influence choices in a way that will make choosers better off, as judged by the choosers themselves. This is a paternalism of means, not of ends; those policies help people reach their own preferred destination.

We know from decades of behavioral science research that people often make poor decisions in laboratory experiments. People also make plenty of mistakes in real life, which reinforces the view well stated by the Beatles: “we get by with a little help from our friends.” Our goal, in short, is to help people make the choices that they would have made if they had paid full attention and possessed complete information, unlimited cognitive ability, and complete self-control. (That doesn’t mean people shouldn’t sometimes stay out late, overeat, and have fun. As they say, “enjoy life now; this is not a rehearsal.”)

Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism, because choices are not blocked, fenced off, or significantly burdened. If people want to smoke cigarettes, eat a lot of candy, choose an unsuitable health care plan, or fail to save for retirement, libertarian paternalists will not force them to do otherwise—or even make things hard for them. Still, the approach we recommend does count as paternalistic, because in important contexts, private and public choice architects should not merely track or implement people’s anticipated choices. Rather, they should attempt to move people in directions that will make their lives better. They should nudge.

A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not taxes, fines, subsidies, bans, or mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.

Many of the policies we recommend can be and have been implemented by the private sector (with or without a nudge from the government). Employers, for example, are important choice architects in many of the examples we discuss in this book. In areas involving health care and retirement plans, we think that employers can give employees far more helpful nudges (for example, through sensible default rules, clear presentation of information, and helpful hints). Private companies that want to make money and to do good can benefit by creating environmentally friendly nudges, helping to reduce air pollution and the emission of greenhouse gases. But, of course, companies can also use the concepts we discuss to increase sales in unsavory ways. They might impose sludge. We strive to reduce the sludge produced in both the public and private sectors. See Chapter 8.

Econs and Humans: Why Nudges Can Help

Those who reject paternalism often claim that human beings do a terrific job of making choices, or if not terrific, certainly better than anyone else would do (especially if that someone else works for the government). Whether or not they have ever studied economics, many people seem at least implicitly committed to the idea of Homo economicus, or economic man—the notion that each of us thinks and chooses unfailingly well, and thus fits within the usual depiction of human beings that is offered by economists.

If you look at economics textbooks, you will learn that Homo economicus can think like Albert Einstein, store as much memory as Google does in the cloud, and exercise the willpower of Mahatma Gandhi. Really. But the folks we know are not like that. Real people have trouble with long division if they don’t have a calculator, sometimes forget their spouse’s birthday, and have a hangover on New Year’s Day. They are not Homo economicus; they are Homo sapiens. To keep our Latin usage to a minimum, we will hereafter refer to these imaginary and real species as Econs and Humans.

Consider the issue of obesity. Rates of adult obesity in the United States are over 40 percent,1 and more than 70 percent of American adults are considered either obese or overweight.2 Worldwide, there are some 1 billion overweight adults, 300 million of whom are obese. Rates of obesity range from below 6 percent in Japan, South Korea, and some African nations to more than 75 percent in American Samoa.3 According to the World Health Organization, obesity rates have risen threefold since 1980 in some areas of North America, the United Kingdom, Eastern Europe, the Middle East, the Pacific Islands, Australia, and China. There is overwhelming evidence that obesity increases the risk of heart disease and diabetes, frequently leading to premature death. It would be quite fantastic to suggest that everyone is choosing their best possible diet, or a diet that is preferable to what might be produced with a few nudges.

Of course, sensible people care about the taste of food, not simply about health, and eating is a source of pleasure in and of itself. We do not claim that everyone who is overweight is necessarily failing to act rationally, but we do reject the proposition that all or almost all people are choosing their diet optimally. What is true for diets is true for other risk-related behavior, including smoking and drinking, which produce hundreds of thousands of premature deaths each year in the United States alone. With respect to diet, smoking, and drinking, people’s current choices cannot always be said to be the best means of promoting their own well-being (to put it lightly). Indeed, many smokers, drinkers, and overeaters are willing to pay third parties to help them make better decisions.

These findings complement those of the emerging science of choice, consisting of an extensive body of research over the past half-century. Much of the initial research in this field was conducted with laboratory experiments, but a substantial and rapidly growing amount comes from studies of real-world behavior, including archival studies of choices made in natural settings and randomized controlled trials. This research has raised serious questions about the soundness and wisdom of many judgments and decisions that people make. To qualify as Econs, people are not required to make perfect forecasts (that would require omniscience), but they are required to make unbiased forecasts. That is, forecasts can be wrong, but they can’t repeatedly err in a predictable direction. Unlike Econs, Humans make predictable mistakes. Take, for example, the planning fallacy—the systematic tendency toward unrealistic optimism about the time it takes to complete projects. It will come as no surprise to anyone who has ever hired a contractor to learn that everything takes longer than you think, even if you know about the planning fallacy.*

Thousands of studies confirm that human forecasts are flawed and biased. Human decision making is not so great either. Again, to take just one example, consider what is called the status quo bias, a fancy name for inertia. For a host of reasons, which we shall explore, people have a strong tendency to go along with the status quo or default option. When you get a new smartphone, for example, you have a series of choices to make, from the background on the screen to the ringtone to the number of times the phone rings before the caller is sent to voice mail. The manufacturer has picked one option as the default for each of these choices. Research shows that whatever the default choices are, many people stick with them, even when the stakes are much higher than choosing the sound your phone makes when it rings.

We provide many examples of the use of default options, and we will see that defaults are often quite powerful. If private companies or public officials favor one set of outcomes, they can greatly influence people by choosing it as the default. You can often increase participation rates by 25 percent, and sometimes by a lot more than that, simply by shifting from an opt-in to an opt-out design. As we will show, setting default options, and adopting other similar, seemingly trivial menu-changing strategies, can have huge effects on outcomes, from increasing savings to combating climate change to improving health care to reducing poverty. At the same time, we show that there are important situations in which people exercise their freedom and reject defaults. When they feel strongly about something, for example, they might overcome the strength of inertia and the power of suggestion (defaults are often perceived to be hints that they are the recommended option). Changing the default can be an effective nudge, but it is decidedly not the answer to every problem.