Overview

Humans are lazy. We usually choose the default option. Nudge Theory says: “If we change the default, we can change the world.” It is about influencing people’s decisions without forcing them.

Core Idea

The core idea is Libertarian Paternalism.

  • Libertarian: You are free to choose whatever you want.
  • Paternalism: We will design the choices to guide you toward what is good for you (health, wealth).

Formal Definition

A concept in behavioral economics that proposes positive reinforcement and indirect suggestions as ways to influence the behavior and decision making of groups or individuals. Choice Architecture: The design of the environment in which people make choices.

Intuition

  • The Cafeteria: If you put the apples at eye level and the cake on the bottom shelf, people buy more apples. You didn’t ban the cake; you just “nudged” them.
  • The Urinal: Painting a fly on the urinal. Men aim at the fly. Spillage is reduced by 80%. A perfect nudge.

Examples

  • Organ Donation:
    • Country A (Opt-In): “Check this box to be a donor.” Rate: 15%.
    • Country B (Opt-Out): “Check this box NOT to be a donor.” Rate: 99%.
    • The default option saves thousands of lives.
  • 401(k) Savings: Automatically enrolling employees in a retirement plan (with the option to opt-out) increases savings rates dramatically.

Common Misconceptions

  • It’s manipulation: It is. But every design is manipulation. There is no “neutral” design. You have to put the apples somewhere.
  • It solves everything: Nudges are weak. They can’t fix poverty or climate change. They are just a cheap way to improve efficiency.
  • Behavioral Economics: The science behind Nudge. (Kahneman and Tversky).
  • Sludge: The evil twin. Designing choices to make things harder (e.g., Making it impossible to cancel a subscription).

Applications

  • Public Policy: The UK and US governments have “Nudge Units” (Behavioral Insights Teams) to improve tax collection and public health.

Criticism / Limitations

  • Ethics: Who decides what is “good” for you? Is it right for the government to trick you into eating apples?

Further Reading

  • Thaler, Richard and Sunstein, Cass. Nudge.
  • Kahneman, Daniel. Thinking, Fast and Slow.