Richard H. Thaler is a world-renowned behavioral economist and professor of finance and psychology. Recently, he was interviewed by The Economist. The discussion covers some of the fundamental studies in the field, like “save more tomorrow” which encourages people to save more by signing up to increase their savings rate every year and auto-enrollment for pensions that have drastically increased employee participation in pension funds.
Thaler also suggests, in the interview, that behavioral economics has the ability to influence human behavior for both good and bad. He argues that much of what behavioral economics does is remove barriers. The goal is not to change people but to make life easier, but that idea can be skewed by organizations or individuals looking to capitalize on the biases of people. Whenever he is asked to sign a copy of his book Nudge, he writes “nudge for good” which is a plea, he says, to improve the lives of people and avoid insidious behavior.
The list of ways companies nudge behavior is endless, and I would love to hear more examples from you all in the comments section. In the meantime here are a few- I’ll let you judge which ones “nudge for good”:
- Waterborne diseases such as cholera cause widespread illness, especially among children, in developing countries without nation-wide water and sanitation networks. In Kenya, chlorine tablets are distributed by NGOs and other organizations, and people generally understand that the tablets disinfect their water, protecting them from disease. Nevertheless, usage rates are often low. Cost is not the barrier here, convenience is because routinely purifying water requires energy and attention. Michael Kremer of Harvard University and his colleagues found, through a series of randomized controlled trials conducted in Kenya, that providing chlorine as a concentrated liquid at prominently displayed dispensers at local water sources dramatically increase the rate of disinfection. The dispensers provided a visual reminder when and water was collected and made it easy to add the right does. Along with promotion by community members, this approach increased chlorine use by 53%. Thus, making it easier to disinfect water increased the rates at which tablets are used.
- Research in the technology sector shows that most people never change the default options on their devices, demonstrating the degree to which people tend to go with the default. These default options include items such as auto-saving documents, the browser that will pop-up when accessing the internet, which app is enabled for GPS, and so-on. These default options are critical to a company’s bottom line because they determine which company’s software will be used by the vast majority of users who do not adjust the default options. According to the New York Times, “Google made a big bet early in its history: In 2002, it reached a deal with AOL, guaranteeing a payment of $50 million to come from advertising revenue if AOL made Google its automatic first-choice search engine — the one shown to users by default. Today, Google pays an estimated $100 million a year to Mozilla, coming from shared ad revenue, to be the default search engine on Mozilla’s popular Firefox Web browser in the United States and other countries. Google has many such arrangements with Web sites.”
- Every year, consumers in industrialized countries waste almost as much food as the entire net food production of sub-Saharan Africa (222 million vs. 230 million tons). According to a report by UNEP and the World Resources Institute, about one-third of all food produced worldwide, worth about US$1 trillion, is lost or wasted in through food production and consumption systems. This means that about 1 in 4 calories intended for consumption is never actually eaten. Vancouver, Canada is now collecting food scraps from all homes and duplexes on a weekly basis as part of a plan to double organic waste collection this year. Food waste accounts for 40% of household garbage, said Vancouver Mayor Gregor Robertson. The city will also spend $5.4 million — $16 per household — to build a new facility to compost an estimated 50 tons of organic waste a year. Around 26,000 tons of food scraps and yard waste — enough to fill 10 Olympic swimming pools — went through the current composting station in South Vancouver in 2011, and the city is expecting to collect twice that amount this year.
- Mumbai, and indeed the rest of the Indian state of Maharashtra is currently struggling water scarcity due to a prolonged drought. In response to the water shortage, restaurants in Mumbai have adopted half-filled water glasses during meals and paper napkins that replace water to wash hands after meals. The Hotel & Restaurant Association (Western India), a body for over 10,000 restaurants across Maharashtra, issued a circular on April 15 urging all eateries to serve half a glass of water to patrons, and replenish it only on request. Similar efforts have been undertaken in California, which is also experiencing a severe and prolonged drought. There, servers in bars, restaurants and cafeterias are not allowed to bring out water with menus and silverware unless customers ask. Some restaurants already have signs saying they don't automatically serve water because of the drought. The rule is meant to raise conservation awareness as well as save water.
- When we’re “given” something by default, it becomes more valued than it would have been otherwise—and we are more unwilling to part with it. McKinsey found that changing the script at an Italian telecom’s call center helped them to retain more customers after they had raised their rates. Originally, the script for canceled plans offered callers 100 free calls if they kept their plan. The company reworded it to say “We have already credited your account with 100 calls—how could you use those?” Customers did not want to give up free talk time they thought they already owned so they decided to stay and accept the rate increase.
- Restaurants that only give you a plastic straw if you ask for one in an effort to reduce waste- in particular plastic waste in the oceans.
- Airlines let you drink directly from the can, unless you ask for a plastic cup.
- Businesses have set their printers to print and copy double-sided as the default to cut paper consumption.
- Hotels don’t change your sheets and towels, unless you specifically request it.
- Electronic billing unless paper bills are requested.
- Energy/power-saving modes for electronics can dramatically reduce energy consumption when used properly.
Educating people is the key to moving towards more and better nudges. If restaurants are not going serve water or straws except on request, then they need to explain why. If employees are auto-enrolled in pension plans, they still need information on whether the default rate is sufficient for their retirement needs. Nudges need to be communicated to avoid the attack that they are “paternalistic” and to develop greater awareness among consumers about the impact of their choices.