Humans and Econs: Why Nudges Can Help

When you get a new cell phone, for example, you have a series of choices to make. The fancier the phone, the more of this choices you face, from the background, to the ring sound, to the number of times it rings before the caller is sent to the voice mail.

The manufacturer has picked one option as the default option for each of this choices.

Research shows that whatever the default choices are, people stick with them, even when the stakes are much higher than choosing the noise your phone makes when it rings.

Two important lessons can be drawn from this research. First, never underestimate the power of inertia. Second, that power can be harnessed. If private companies or public officials think that one policy produces better outcome, they can greatly influence the outcome by choosing it as a default.

As we will show, setting default  options, and another similar seemingly trivial menu-changing strategy, can have huge effects on outcomes, from increasing savings to improving health care to providing organs to lifesaving transplant operations.

The effect of well-chosen default options provide just one illustration of the gentle power of nudges.

In accordance with our definition, a nudge is any factor that significantly alters the behaviors of Humans, even though  it would be ignored by Econs.

Econs respond primarily by incentives.

If the government taxes candy, they will buy less candy, but they are not influenced by such irrelevant factors as the order in wich options are displayed.

Humans respond to incentives too, but they are also influenced by nudges.

By properly deploying both incentives and nudges, we can improve our ability to improve people’s lives, and help solve many of society’s major problems. And we can do so while still insisting on everyone’s freedom to choose.

 

From the book Nudge: Improving decisions about health, wealth and happiness. Page 9.  Thaler & Sustein