Nudge

Thaler and Sunstein

Authors remind us that choice is usually influenced by design, and that design can therefore influence choice. The first half of the book discusses the topic and introduces terms—the second half of the book, worth reading for personal reasons, applies the notion of paternalistic architecture to our decisions about money, health, and freedom. These notes introduce the first half of the book.

Choice Architecture—organizing the context in which people make decisions. There is no such thing as a “neutral” design. Focusing the attention of users in a particular direction. Our behavior reflects a certain naiveté about the effects context can have on choice.

Paternalistic policies try to influence choices in a way that will make choosers better off as judged by themselves.

Planning fallacy—unrealistic optimism about the time it takes to complete a project. Everything takes longer than we think.

Status quo bias—the power of inertia. Default settings can have huge effect on outcomes. The user will select their current status (or fail to change it) most of the time. We have plenty of examples of this in our personal lives—the magazine that automatically renews unless we cancel.

Back to zero options—makes the user start over at the end of the arrangement.

Automatic system—gut reaction; Reflective system—conscious thought.

Rules of thumb (heuristics)—

· Anchoring—you start with some anchor, the number you know, and adjust in the direction you think is appropriate. But bias occurs because the adjustments are typically insufficient. Anchors are nudges—we can influence your choice by subtly suggesting a starting point for your thought process.

· Availability—explains risk-related behavior. People buy natural disaster insurance when effected by recent experiences, or to be reminded of situations that went wrong.

· Representativeness—when asked to think how likely it is that A belongs to category B, people ask themselves how representative A is of B. Linda less likely to be a bank teller than a bank teller in the feminist movement—logical mistake—it is not likely for two events to occur than any one of them alone. Misperception of randomness—We see patterns we conduct our informal tests only when looking at the evidence. The “hot hand” is just a myth. People confuse random fluctuations with casual patterns.

Optimism and Overconfidence—the above average effect is pervasive.

Gains and Losses—loss aversion—losing something makes you twice as miserable as winning something. Loss aversion helps produce inertia.

Status quo bias—lack of attention, the “yeah whatever” heuristic. If an option is designated as the default option it will attract a large market share.

Choice Influencers

Framing—choices depend on the way in which problems are stated. Framing works because people tend to be mindless, passive decision makers.

Mental accounting—people are more likely to spend on a big luxury purchase when they receive a windfall then with savings they have accumulated over time, even if the savings are available to spend.

Following the herd—information and peer pressure influence choice. Academic effort in college is influenced by peers—roommate assignments in college can have a big effect on performance. People are more likely to conform when they know that other people will hear what they have to say. Consistent and unwavering people can have great influence over groups.

Spotlight effect—people conform to social norms and fashion because they think others are paying close attention to what they are doing. People pay less attention to you than you think!

Social nudges as choice architecture—if hotels want people to reuse their towels they should tell customers how much other customers are reusing their towels. If you want to nudge people in a direction, do NOT tell them their current actions are better than social norms. Boomerang effect. Mere measurement effect—even just asking people their intentions (do you intend to vote tomorrow) will affect their behavior.

People will need nudges for decisions that are difficult and rare, for which they do not get prompt feedback, and when they have trouble translating the situation into a language they can understand, where the relation between choice and experience is ambiguous.

Choice Architecture—bad design example—door handles on a door that pushes out. Many people will select the option that takes the least effort—we can expect a large number of people to select the default option, whether or not the choice is good for them. Choice architects can require people to make their own choices—required or mandated choice.