What is a nudge?

Like Glenn Beck, Richard Williams does not like nudges. Why?

How can a bureaucrat in Washington, D.C., determine what’s right for you when your needs are different from everyone else’s? Behavioral economics and “nudge” theories suggest that if you provide people with the right information through the right channels, they will be empowered to make choices that help them achieve their own goals. Sure, businesses already do this through marketing to consumers, but they do it in a competitive setting. The problem here is that government, in contrast, can act as a monopoly, making blanket decisions for a range of citizens. What’s worse, because government has coercive power, bureaucrats are equipped not just to influence people’s choices, but also to enact regulation to force choices. In the government’s hands, the nudge becomes a shove.

So, once again (as in the Glenn Beck link above), I’d like to clarify. It is true that a nudge is an effort to impact the context of a decision. It can provide information in a more organized manner (such as ensuring important aspects of a credit card contract are not left to the fine print) or in a manner which emphasizes particularly pertinent info (such as highlighting the environmental friendliness of appliances). It can encourage healthy eating by putting the salad at the entrance to the cafeteria.

One rebuttal to Williams is that nudges are generally freedom-preserving. When the government forces companies to include energy usage information on appliances, this is very different from the government forcing individuals to purchase energy efficient appliances. Individuals are still free to buy whatever appliances are on the market. Discouraging certain purchases is different from prohibiting certain purchases. And, a case can be made that in the presence of classic externalities, such as energy conservation or environmental protection, the government does have a responsibility to encourage certain choices.

Williams also seems to think that since “bureaucrats are equipped not just to influence people’s choices, but also to enact regulation to force choices,” that this is what nudges do. It isn’t. Even the controversial Bloomberg proposal to ban oversized soft drinks in NYC doesn’t actually restrict anyone’s ability to drink an obscene amount of Coca-Cola. Want to drink 64 oz of Coke? You don’t need a 64 oz cup – just buy 4 16 oz cups. The point, as Jon Stewart has made, isn’t that the law would have restricted people’s ability to drink Coke – it’s that it doesn’t! Not surprisingly, many individuals who only marginally enjoy Coke buy larger drinks just because they’re available, not because they really feel they need that much. And that’s the goal of the Bloomberg nudge in the first place: encourage healthier decision making while preserving enough freedom of choice for those who want to decide otherwise.

Part of Williams’ argument seems to be of the slippery slope variety:

[…] if we begin to recognize the correction of these [personal decision-making] errors as a legitimate function of government—with no constitutional constraints—there is absolutely no area of our personal lives that bureaucrats cannot try to shape.

Yet Williams has no concern about the modification of choice architecture done by companies – and not for public interest, but for profit. Marketing campaigns are a kind of choice architecture that can influence us to make less than ideal decisions. To pretend that there is a significant distinction between private companies using a nudge “in a competitive setting” (so it’s OK) versus the government using a nudge “as a monopoly, making blanket decisions for a range of citizens,” distracts from the simple fact that choice architecture is everywhere. Williams rails on the government trying to encourage individuals to make better-informed choices consistent with what the individual themselves actually prefers, but thinks it’s ok when businesses market or design choices in their preferred way?

Go back to the credit card contract and the Credit CARD Act of 2009. Why was there a need for the government to implement the nudge of requiring more pertinent information to be clearly expressed on a credit card statement? Featuring this type of information more prominently on the statement surely helps individuals make better-informed decisions regarding signing up for a new credit card. This is a nudge. But so is the original decision of the credit card company to relegate that same information to the fine print on page 27 of the contract. By making this information hard to find, the credit card company is modeling choice architecture which discourages people from considering that information. They should probably read every word through page 27, but the companies know many don’t, and it’s in their best interest (in many cases) that they don’t!

Choice architecture is everywhere, and the goal of any good nudge is to try to align this architecture with what individuals really want, in situations where making the right decision is challenging. If we, as a society, want to encourage people to make well-informed and well-intentioned decisions (i.e. the decisions those people wanted to make for themselves), nudges are a great way to achieve this. Behavioral economists like Cass Sunstein are using this tool for good – and folks like Williams shouldn’t be giving private companies a pass for using the same modification of choice architecture with different intentions.

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