Nova workboard

a blog from young economists at Nova SBE

How to nudge people towards better choices

“If you want to get somebody to do something, make it easy. If you want to get people to eat healthier foods, then put healthier foods in the cafeteria, and make them easier to find, and make them taste better. So in every meeting I say, “Make it easy.” It’s kind of obvious, but it’s also easy to miss.” (Richard Thaler)

Although the economic theory assumes that individuals make their choices based on expected utility, the reality shows that we often tend to make choices that go against what our real intentions are. The lack of information and the complexity of events do not always allow us to be perfectly rational.

By maximizing utility, or making optimal choices, individuals can improve the overall welfare of the society. Therefore, the government is incentivized to induce individuals to follow certain behaviours. To do so, the government can intervene through taxation or subsidies, and in this way influence the final choice of the individual by making a good more or less desirable. However, by doing this, the government forces citizens to behave in a certain way, limiting to some extent their personal freedom.

Nudging is a possible alternative way for the government to influence people’s behaviour without being intrusive. A nudge is a policy that helps you to behave the way you probably would if you were better disciplined and better informed. But it does not force you to do so. A nudge is not a shove. It does not compel you to do anything.

Some experiments have explored how effective nudging can be when it comes to solve social issues. One example is the donation of organs. The rate of donors is known to be significantly low in many countries. It is largely demonstrated that countries with an opt-out system have higher percentages of donation compared to opt-in countries. Germany, which requires people to explicitly state their willingness to donate organs, has a rate of donors of 12 % of total population. This can be compared to Austria, which adopts an opt-out system of presumed consent, has a donor percentage of 99 %.

What we see is that, generally, a great share of the population is in favour of organs donation but only a very small percentage takes the decision to join the donors’ register. Be it for inertia, or for lack of information or interest in the issue, if individuals are not encouraged to face the choice they tend to avoid it. As the idea of a general mandated choice, might not be accepted by everyone, there are other possible ways to influence people’s behaviour. In 2006, a plan, able to gather 2.3 million donors, was implemented in Illinois. The idea was that whenever someone was renewing his or hers driving licence the person was given the opportunity to choose to become an organ donor. This increased the rate of donors from 38 % to 60 %. Today, the government of Illinois allows citizens to spontaneously become organ donors simply by registering online.

This example shows that governments can effectively influence the behaviour of people by nudging them to take decisions that are likely to save someone’s life and more importantly without coercing anyone. Nudges can be seen as a tool that complements public policies rather than substituting them and when used to direct individuals to take the most preferable decision then the overall society will benefit.

Reference:

Thaler, Richard H, and Cass R Sunstein. 2008. Nudge: Improving decisions about health, wealth, and happiness. Yale University Press.

Giulia Casagrande, 745

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Author: studentnovasbe

Master student in Nova Sbe

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