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Literature Summary - Nudge: influencing behavior (E_MFDM_NIB)
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Literature Summary - Nudge: influencing behavior (E_MFDM_NIB)
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Nudge - Thaler & SunsteinChapter 1 - Biases and Blunders
Our understanding of human behavior can be improved by appreciating how people
systematically go wrong.
We have two kinds of thinking:
- Automatic system: uncontrolled, effortless, associative, fast, unconscious and skilled
- Reflective system: controlled, effortful, deductive, slow, self-aware and rule-following
There are standard things done by either the automatic system or by the reflective system.
But, for example, voting in elections seems to be done much more by the automatic system
than by the reflective system. A candidate who makes a bad first impression, or who tries to
win votes by complex arguments and statistical demonstrations, may well run into trouble.
The automatic system is your gut reaction and the reflective system is your conscious
thought. The cognitive reflection test shows how intuitive thinking works.
Rules of thumb can be very helpful but their use can also lead to systematic biases.
Anchoring and adjustment: you start with some anchor, the number you know, and adjust
in the direction you think is appropriate. The bias occurs because the adjustments are
typically insufficient. Anchors can even influence how you think your life is going. When
college students were asked two questions: (a) how happy are you? (b) how often are you
dating? In this order, the correlation was quite low (0.11), but when the order was reversed
the correlation was 0.62.
These anchors can serve as nudges. We can influence the figure you will choose in a
particular situation by ever-so-subtly suggesting a starting point for your thought process.
Availability: people assess the likelihood of risks by asking how readily examples come to
mind. If people can easily think of relevant examples, they are far more likely to be
frightened and concerned than if they cannot. Biased assessments of risk can perversely
influence how we prepare for and respond to crises, business choices, and the political
process.
Easily remembered events may inflate people’s probability judgments, and that if no such
events come to mind, their judgments of likelihood might be distorted downward.
Representativeness: when asked to judge how likely it is that A belongs to category B,
people (and especially their Automatic Systems) answer by asking themselves how similar A
is to their image or stereotype of B (that is, how “representative” A is of B). It is not logically
possible for any two events to be more likely than one of them alone.
Use of the representativeness heuristic can cause serious misperceptions of patterns in
everyday life.
Optimistic and overconfidence: when students have to decide in which decile in the
distribution of grades in the class, more than half the class expects to perform in one of the
top two deciles.
Unrealistic optimism can explain a lot of individual risk taking, especially in the domain of
risks to life and health. When they overestimate their personal immunity from harm, people
may fail to take sensible preventive steps. If people are running risks because of unrealistic
optimism, they might be able to benefit from a nudge. In fact, we have already mentioned
one possibility: if people are reminded of a bad event, they may not continue to be so
optimistic.
,Gains and losses: people are loss averse. Loss aversion helps produce inertia, meaning a
strong desire to stick with your current holdings.loss aversion operates as a kind of cognitive
nudge, pressing us not to make changes, even when changes are very much in our
interests.
Status quo bias: people tend to stick with their current situation. For example a free trial for
magazines. The first 5 months are free, but if you do not cancel it yourself, you have to pay
the full amount for the magazines after the trial. A lot of people never get around to cancel
the subscriptions).
Default options thus act as powerful nudges. In many contexts defaults have some extra
nudging power because consumers may feel, rightly or wrongly, that default options come
with an implicit endorsement from the default setter, be it the employer, government, or TV
scheduler.
Framing: the way something is stated matters for the decision. 90/100 are still alive, will let
you choose for the operation. 10/100 are dead, will maybe let you make another decision.
Framing works because people tend to be somewhat mindless, passive decision makers.
Their Reflective System does not do the work that would be required to check and see
whether reframing the questions would produce a different answer. One reason they don’t do
this is that they wouldn’t know what to make of the contradiction. This implies that frames are
powerful nudges, and must be selected with caution.
Chapter 2 - Resisting temptation
In economics (and in ordinary life), a basic principle is that you can never be made worse off
by having more options, because you can always turn them down.
There is dynamic inconsistency in many places. This behavior can be understood by two
factors: temptation and mindlessness.
Temptation is easier to recognize than to define and they are highly personal. The crucial
fact about temptation is that people’s state of arousal varies over time. There are hot states
(someone is very hungry and appetizing aromas emanating from the kitchen) and cold states
(someone is thinking about how much food to eat at dinner on saturday). We call something
tempting if we consume more of it when we are in a hot state.
Most people realize that temptation exists, and they take steps to overcome it.
Commitment strategies are strategies to overcome temptation. They work well if the risk of
submitting to temptation can be anticipated, and removing the temptation is feasible. But in
many situations we do not correctly forecast a pending self-control problem because we
underestimate the effect of arousal. Even if people realize that they behave differently when
aroused, they underestimate the strength of the effect.
Self-control problems can be illuminated by thinking about an individual as containing
two semi autonomous selves: a farsighted “planner” and a myopic “doer”. The Planner is
trying to promote your long-term welfare but must cope with the feelings, mischief, and
strong will of the Doer, who is exposed to the temptations that come with arousal.
Self-control strategies: since we are at least partly aware of our weaknesses, we
sometimes take steps to engage outside help. In these cases, our planners are taking steps
to control the actions of our doers, often by trying to change the incentives that doers face.
Doers are often difficult to rein in, and they can foil the best efforts of planners. Planners
have a number of available strategies to control recalcitrant Doers, but they can sometimes
use some help from outsiders. Getting €100,- for every chapter for a thesis when it is handed
in before the deadline (and paying €100,- when it is handed in after the deadline) is a better
,motivation to finish your thesis than the missing euro’s from the university (probably much
more than the €100,-).
In some situations, people may want the government to help deal with their
self-control problems. For example the daylight saving time (summer time). The simple
change of the labels on the hours of the day, calling “six o’clock” by the name “seven
o’clock,” just nudges us into waking up an hour earlier. Along with having more time to enjoy
an evening stroll, we end up saving energy, too.
Even when we are on our way to making good choices, competitive markets find
ways to get us to overcome our last shred of resistance to bad ones.
Mental accounting: it is the system that households use to evaluate, regulate, and process
their home budget. According to economic theory, money is fungible, meaning that it doesn’t
come with labels. But households adopt mental accounting schemes that violate fungibility
for the same reasons that organizations do: to control spending. House money effect: after
a prior gain, people become more open to assuming risk. When investments pay off, people
are willing to take big chances with their “winnings”.
For each of us, using mental accounts can be extremely valuable. They make life
both more pleasurable and more secure. Understanding mental accounts would also
improve public policy. Governments can benefit from understanding the concept of mental
accounting. If we want to encourage savings, it will be important to direct the increased
savings into a mental account where spending it will not be too big a temptation.
Chapter 3 - Following the herd – SKIM
Chapter 4 - When do we need a nudge?
Offer nudges that are most likely to help and least likely to inflict harm. People are most
likely to need nudges when decisions require scarce attention, when decisions are difficult,
when people do not get prompt feedback, and when they have trouble translating aspects of
the situation into terms that they can easily understand.
Fraught choices:
Spacing out: the most common mistake is simply forgetting something. We have limited
attention and we can be absentminded. Most businesses have learned this lesson, we get
reminders of upcoming appointments and we are told that a bill is due. Reminders have
become ubiquitous and can work as terrific nudges, that does not mean there are not new
ways of helping people keep track of their appointments and obligations.
People are more likely to fulfill their goals if they have made explicit “implementation
intentions”. Prompting voters to make a plan increased the turnout. The effect was much
stronger for single-person households.
All organizations work better if everyone is empowered to speak up when the boss is
about to make a mistake or forget something important. Checklists can provide a kind of
choice architecture for choice architects: remind everyone of the concrete things they need
to do before something.
Benefits now, costs later: predictable problems arise when people must make decisions
that test their capacity for self-control. Self-control issues are most likely to arise when
choices and their consequences are separated in time. Investment goods are things such
as exercising, flossing and healthy eating. Costs are borne immediately, but the benefits are
delayed. Temptation goods are things such as smoking, drinkin, binge-watching and eating
jumbo chocolate doughnuts. We get the pleasure now and suffer the consequences later.
, Both kinds of goods are prime candidates for nudges, but most people do not need any
special encouragement to eat another brownie, but they could use some help exercising
more.
Degree of difficulty: many problems in life are quite difficult, and sometimes no technology
as easy as a spellchecker is available to help. We are more likely to need more help picking
the right mortgage than choosing the right loaf of bread.
Frequency: even hard problems become easier with practice; solving them can even
become automatic. Some of life’s most important decisions do not come with many
opportunities to practice. The higher the stakes, the less often we are able to practice.
Feedback: even practice does not make perfect if people lack good opportunities for
learning. Learning is most likely if people get immediate, clear feedback after each try. Many
of life’s choices are like practicing without getting good feedback because most situations
are not structured in such a way. We only get feedback on the options we select, not the
ones we reject. Unless people go out of their way to experiment, they may never learn about
alternatives to the familiar ones.
Knowing what you like: it is particularly hard for people to make good decisions when they
have trouble translating the choices they face into the experiences they will have. When
people have a hard time predicting how their choices will end up affecting their lives, they
have less to gain from having numerous options and perhaps even from choosing for
themselves. A nudge might be welcomed.
Markets: a mixed verdict:
People need a good nudge for choices that require memory or have delayed effects; those
that are difficult, are infrequent, and offer poor feedback, and those for which the relationship
between choice and experience is ambiguous.
Much of the time, more money can be made by catering to human frailties than by helping
people to avoid them. If humans have problems, they might benefit from a well-chosen
nudge.
Chapter 5 - Choice architecture
Big doors with large wood handles cause you to pull on the door to open it. Even if you are
aware that the door opens by pushing, your automatic system makes you pull first and then
push. This is a bad architecture because they violate a simple psychological principle:
stimulus response compatibility (you want the signal you receive (the stimulus) to be
consistent with the desired action). An example is the stroop test. The automatic system
reads the word faster than the color-naming branch of the reflective system can decide the
color of the text.
Good designs are often no more expensive than bad designs. If you want to encourage
people to do something, MAKE IT EASY. For example, when you want students to go the
health center for their tetanus shot, it is 9 times more effective to give them a lecture, a copy
of a campus map with the location of the health center and let make them a plan for when
they go and which route they take than only give the lecture about the importance of the
shot.
Defaults: padding the path of least resistance: people will take whatever option requires
the least effort. If there is a default option then we can usually expect a large number of
people to end up with that option, whether or not it is good for them. Choice architects have
many opportunities to choose defaults, and they can do so in ways that are self-serving or
welfare enhancing. We should reiterate that defaults are not always sticky. People will be
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