A simple experiment to test a social change theory. Three hundred households in a California town were divided into two groups. Half were sent normal power bills and the other half had a smiley face on their bills if their consumption was below average, and a frowning face if their usage was higher than average.
The results could not have been more conclusive: within the group with faces on their bills, high users reduced their electricity consumption, and low users consumed even less than before.
Simple enough? The difference was a little yellow circle on a piece of paper, but was it a significant impact?
Nudge Theory rose to global prominence in 2008 with the release of the book Nudge: Improving Decisions About Health, Wealth, and Happiness, by Professor Richard Thaler and legal scholar Cass R. Sunstein. The volume brought the discourse on Nudge theory to the wider public of government, as well as the private sector involved with public health and related fields.
Professors Richard Thaler and Cass Sunstein cite the smiley experiment as a simple example of their theory that people can be gently encouraged to behave in socially desirable ways. Like shown here, even small incentives can improve people’s behavior. The two call it the nudge theory, quietly shepherding people in the right direction.
They cite many examples of research that raise “serious questions about the rationality of many judgments and decisions that people make”. (Wikipedia) They state that, unlike members of homo economicus, members of the species homo sapiens make predictable mistakes because of the way they are influenced by their social interactions.
Why should society need a nudge in the first place? The research team questions one of the major assumptions of economic theory, homo economicus, which is the idea that humans act in an enlightened and rational way to maximize their well-being.
This argument is the central thesis of behavioral economics, which asserts that emotion is an important factor in market behavior. It asserts that people make decisions on the basis of gut feelings rather than careful analysis of all the available options. Also, they’re lazy. People could save by switching to another power provider, but they can’t be bothered. Professor Sunstein freely admits that he’s no exception; for decades, he’s received newspapers he no longer wants, simply because he hasn’t gotten around to stopping the subscription.
Optimists? Yes, Thaler and Sunstein are optimists. Little things, like other people interfering ever so slightly in our lives, can help to push us along the right path. Nudge theory isn’t just about helping Californians to save energy, it has many applications. Nudge Theory has also found its way into business management and corporate culture. Health- Safety and Environment (HSE) and Human Resources are two areas that have found extensive potential to apply the theory to internal safety or management culture.
In another application, Thaler and Sunstein point out that many Americans are not saving enough for retirement. They state that “in 2005 the personal savings rate for Americans was negative for the first time since 1932 and 1933 – the Great Depression years”. (p115 of their book)
One change they offer is creating better default plans for employees. Employees would be able to adopt any plan they like, but, if no action is taken, they would automatically be enrolled in an expertly designed program (such as social security]. They also propose what they refer to as the “Save More Tomorrow” plan. This is to address the issue of people having the desire to save more, yet procrastinating on actually doing so. This program would invite participants to commit themselves, in advance, to a series of contribution increases timed to coincide with pay raises.
People are still given all the freedom to make their own decisions but they are “nudged” to make a particular decision.
So far, so good – but nudging can also be an intrusion into someone’s personal life. In Austria, people have to opt out of organ donation by specifically stating that they do not want their organs removed when they die. Other countries follow an opt-in system, in which you carry a card stating that you wish to donate your organs. The opt-out method is problematic from an individual moral perspective, but it significantly increases the number of donor organs.
Nudge theory follows the principles of libertarian paternalism. People must be free to make their own decisions – that’s the libertarian bit – but it’s also OK to influence their behavior in a paternalistic way. Freedom and paternalism are not contradictory terms. Displaying fruit at eye level in a cafeteria to encourage people to eat better is a nudge. Removing burgers from the menu, say the theorists, is unacceptable interference. Carrots are a good thing (to continue the healthy eating theme), but sticks are bad. It all sounds pretty simple, but is life really this black and white?
To critics, nudging often crosses into the realm of manipulation. The nudgers say they’re acting in the public interest and trying to make the world a better place, but do they really know what individuals want? Driving to work is not very good for the environment, but it’s considerably more comfortable than a sweaty, crowded subway. Cigarettes will kill you in the long run, but they’ll give you a buzz for five minutes. Shouldn’t people be able to achieve their own balance between short and long-term happiness? Could a well-intentioned nudge overstep the boundaries; could someone end up getting hurt?
In spite of the criticism, libertarian paternalism is the flavor of the month. Richard Thaler, who lectures at Chicago University, is an advisor to Barack Obama’s economics team. Cass Sunstein, one of the country’s most high-profile lawyers, is Head of the Office of Information and Regulatory Affairs at the White House. The Democrats have jumped enthusiastically onto the nudge-theory bandwagon because it provides a theoretical justification for state intervention. In a positive way that is, like a smiley on your electricity bill.
Our takeaway?
Our society needs to accelerate many changes. Any social change theories that can contribute must be employed. The Nudge Theory is no exception. The big change is always started with many small changes.