A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.
Humans and Econs: Why Nudges Can Help
Those who reject paternalism often claim that human beings do a terrific job of making choices, and if not terrific, certainly better than anyone else would do (especially if that someone else works for the government).
Whether or not they have ever studied economics, many people seem at least implicitly committed to the idea of homo economicus, or economic man— the notion that each of us thinks and chooses unfailingly well, and thus fits within the textbook picture of human beings offered by economists.
If you look at economics textbooks, you will learn that homo economicus can think like Albert Einstein, store as much memory as IBM’s Big Blue, and exercise the willpower of Mahatma Gandhi. Really.
But the folks that we know are not like that.
Real people have trouble with long division if they don’t have a calculator, sometimes forget their spouse’s birthday, and have a hangover on New Year’s Day. They are not homo economicus; they are homo sapiens.
To keep our Latin usage to a minimum we will hereafter refer to these imaginary and real species as Econs and Humans.
Consider the issue of obesity.
Rates of obesity in the United States are now approaching 20 percent, and more than 60 percent of Americans are considered either obese or overweight.
There is overwhelming evidence that obesity increases risks of heart disease and diabetes, frequently leading to premature death. It would be quite fantastic to suggest that everyone is choosing the right diet, or a diet that is preferable to what might be produced with a few nudges.
Of course, sensible people care about the taste of food, not simply about health, and eating is a source of pleasure in and of itself.
We do not claim that everyone who is overweight is necessarily failing to act rationally, but we do reject the claim that all or almost all Americans are choosing their diet optimally.
What is true for diets is true for other risk- related behavior, including smoking and drinking, which produce more than five hundred thousand premature deaths each year.
With respect to diet, smoking, and drinking, people’s current choices cannot reasonably be claimed to be the best means of promoting their well- being. Indeed, many smokers, drinkers, and overeaters are willing to pay third parties to help them make better decisions.
But our basic source of information here is the emerging science of choice, consisting of careful research by social scientists over the past four decades.
That research has raised serious questions about the rationality of many judgments and decisions that people make.
To qualify as Econs, people are not required to make perfect forecasts (that would require omniscience), but they are required to make unbiased forecasts.
That is, the forecasts can be wrong, but they can’t be systematically wrong in a predictable direction.
Unlike Econs, Humans predictably err.
Take, for example, the “planning fallacy”— the systematic tendency toward unrealistic optimism about the time it takes to complete projects.
It will come as no surprise to anyone who has ever hired a contractor to learn that everything takes longer than you think, even if you know about the planning fallacy. Hundreds of studies confirm that human forecasts are flawed and biased. Human decision making is not so great either.
Again, to take just one example, consider what is called the “status quo bias,” a fancy name for inertia. For a host of reasons, which we shall explore, people have a strong tendency to go along with the status quo or default option.
When you get a new cell phone, for example, you have a series of choices to make.
The fancier the phone, the more of these choices you face, from the background to the ring sound to the number of times the phone rings before the caller is sent to voice mail.
The manufacturer has picked one option as the default for each of these choices. Research shows that whatever the default choices are, many 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, all things considered, you think that Carolyn should take the opportunity to nudge the kids toward food that is better for them, Option 1, then we welcome you to our new movement: libertarian paternalism.
We are keenly aware that this term is not one that readers will find immediately endearing.
Both words are somewhat off-putting, weighted down by stereotypes from popular culture and politics that make them unappealing to many. Even worse, the concepts seem to be contradictory.
Why combine two reviled and contradictory concepts?
We argue that if the terms are properly understood, both concepts reflect common sense—and they are far more attractive together than alone.
The problem with the terms is that they have been captured by dogmatists.
The libertarian aspect of our strategies lies in the straightforward insistence that, in general, people should be free to do what they like—and to opt out of undesirable arrangements if they want to do so.
To borrow a phrase from the late Milton Friedman, libertarian paternalists urge that people should be “free to choose.”
We strive to design policies that maintain or increase freedom of choice.
When we use the term libertarian to modify the word paternalism, we simply mean liberty-preserving. And when we say liberty-preserving, we really mean it.
Libertarian paternalists want to make it easy for people to go their own way; they do not want to burden those who want to exercise their freedom.
The paternalistic aspect lies in the claim that it is legitimate for choice architects to try to influence people’s behavior in order to make their lives longer, healthier, and better. In other words, we argue for self-conscious efforts, by institutions in the private sector and also by government, to steer people’s choices in directions that will improve their lives.
In our understanding, a policy is “paternalistic” if it tries to influence choices in a way that will make choosers better off, as judged by themselves.
Drawing on some well-established findings in social science, we show that in many cases, individuals make pretty bad decisions—decisions they would not have made if they had paid full attention and possessed complete information, unlimited cognitive abilities, and complete self- control.
Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened.
If people want to smoke cigarettes, to eat a lot of candy, to choose an unsuitable health care plan, or to fail to save for retirement, libertarian paternalists will not force them to do otherwise— or even make things hard for them.
Still, the approach we recommend does count as paternalistic, because private and public choice architects are not merely trying to track or to implement people’s anticipated choices. Rather, they are self- consciously attempting to move people in directions that will make their lives better.