self reflection based on class materials

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Nudge

BUS143: Judgment and Decision Making

Ye Li

Today’s Agenda

1. What is a Nudge? 2. A few examples of nudges 3. In class mini project: Design your own

nudge

Nudge Thaler & Sunstein (2008)

• Richard Thaler you should know… – President of the American Economic

Association (2016) – Father of behavioral finance (next topic) – One of founders of behavioral

economics  E.g., mental accounting, endowment effect,

house money effect

• Cass Sunstein – Robert Walmsley University Professor

of Law at Harvard  UChicago until 2008  colleagues with

Barack Obama – Former head of the White House Office

of Information and Regulatory Affairs – Most cited legal scholar of 21st century!! – 449th best squash player in the world (as

of 2017)

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Choice architecture

• Imagine you are setting up a cafeteria layout – How should you arrange

the order of the food? A. Random order B. Put the most expensive

things first and splurge items at the checkout line

C. Put the most healthy items at the start of the line

D. Put the most healthy items at the end by checkout counter

E. Order doesn’t matter

So finally, what is a “nudge”?

• Definition: Choice architecture that alters people’s behavior in a predictable way without removing any options or significantly changing their economic incentives. – To count as a nudge, the intervention must be easy and

cheap to avoid.

• One form of libertarian paternalism (not an oxymoron) – Paternalism  Organization or government controlling

people’s behavior for presumably for their own good (like a parent)

– Libertarian  Maximize individual freedom and liberty

How to nudge (i.e., guides)

• iNcentives – E.g., draw attention to costs (e.g., electric use monitors)

• Understand “mappings” – E.g., how many megapixels is enough? 8  8x10” print, applicances

that provide translation from kWH usage to dollars per year • Defaults

– E.g., software defaults (e.g., screensaver) rarely changed • Give Feedback

– E.g., white paint that goes on pink when wet • Expect Error

– E.g., credit card machines that take your card any way, road crossing signs in UK that say “Look Right”

• Structure Complex Choices – E.g., filtering by shoe type, size, and color; sort by popularity

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The government is nudging you

• UK Behavioural Insights Team (BIT) – Created 2010, led by David Halpern

• Social and Behavioral Science Team – Obama’s 2015 Executive Order -- Using Behavioral Science

Insights to Better Serve the American People

• And many more countries have started their own. – 50+ countries as of 2015 – Many local governments!

Why not just mandate the “right” behavior?

• People hate bans, taxes, and government mandates – Possibility of reactance  doing the opposite out of

spite – Good choices are not “one size fit all”

• More importantly, people often want to do the right thing but the right thing is HARD to do! (dynamic inconsistency and self-control) – Nudges great at guiding System 1 (your inner Homer) – People who make the right choices can create good

habits  rule of consistency

In-class Group Project

• In groups of 5-7 students  Pick a societal issue to address and design a new nudge to improve things!

• Pick a leader  Leader has to present for the group • Copy of Nudge awarded for best nudge idea, as voted by the

class  Group leader picks who gets the book – If it’s really good, we can make an effort to make it a reality at UCR at least

• Voting criteria (can’t vote for own group) – Is it a nudge?

 Options cannot be removed (i.e., no bans)  Economic incentives cannot be changed significantly

– Will it be effective and FEASIBLE? – Is the idea creative/original? – Addresses an important societal issue?

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Is nudging ethical/moral?

• Reactance is even worse if companies are nudging for profit – Uber nudges  Surge pricing vs. tell drivers to drive to high demand areas  Asks for income targets and reminds drivers they are

close  Send next pickup before end of current trip (like Netflix)

– Compare to Lyft’s reputation for being driver- friendly (although they still nudge)

– Any other examples?

Scales from this week’s web assignment

• Big Five Personality Inventory – Openness to experience, Conscientiousness,

Extraversion, Agreeableness, and Neuroticism

• Grit scale (see Angela Duckworth TED talk) – Perseverance and passion for long-term goals – Significant predictor of success (especially academic) – Uncorrelated with intelligence

• Tightwad-Spendthrift scale (Rick, Cryder, Loewenstein 2008)

Ye’s Keys

33.Nudges help humans do the “right” thing when the right thing is hard to do due to limited willpower or cognitive resources.

34.The best nudges work automatically using a variety of psychological mechanisms such as loss aversion, framing, social proof, and especially status quo bias/inertia.