“Nudged” by Government? Maybe!

How governmental nudge units influence citizens’ decision-making through the design of policy choice architecture

Nudging is nothing new. Consumer product marketing and advertising organizations have been big “nudge units” for a long time: Think of the average supermarket with its special promotion stands or its sweets section next to the cash counters. In this supermarket, even the most rational decision-maker finds himself on a permanent stage for nudging, in other words, for being gently pushed on purpose into a certain direction of behavior by seemingly circumstantial arrangements, even if these are not overly obtrusive or forcing him into a final decision. This has become an accepted reality for most consumers, often overwhelmed by an excessive supply of choices anyway.

On top of what is done in the commercial domain, there has been an increasing focus on building these nudges into the public sector and into public policy making, much influenced by the American behavioral scientists Richard Thaler and Cass Sunstein (cf. R. Thaler, C. Sunstein (2008): “Nudge: Improving Decisions About Health, Wealth, and Happiness”, Yale University Press, New Haven & London). Based on the idea that people often take decisions which are contrary to what is in their best interest, a government can hence give its citizens a nudge in the right direction by presenting the available choices in a different manner.

Take organ donations: There are basically two policy options – either a citizen actively declares his willingness to be a donor or this citizen is automatically signed up as a donor unless he expressly objects to this. In both cases the choice is made by the individual in the end, but a simple modification of the decision architecture from “opting-in” to “opting-out” can already have a significant impact on the result, considering typical donation rates at around 15% for opt-in countries such as Germany or the Netherlands and rates often exceeding 90% for opt-out countries like Austria or Belgium (cf. S. Davidai, T. Gilovich, L. Ross (2012): “The meaning of default options for potential organ donors”, Proceedings of the National Academy of Sciences, vol. 109, no. 38, pp. 15201–15205).

This also challenges the assumption that citizens’ behavior can only be changed through legislation, regulations, or law enforcement. Instead, Thaler and Sunstein – using the term “libertarian paternalism” – consider both freedom of choice and a change in behavior simultaneously possible with nudging, and do not see it as an oxymoron.

The very practical potentials and consequences of nudging for policy makers have led to the creation of so-called governmental “nudge units” in recent years, and several leading behavioral economists, including legal scholar Sunstein, have been asked by their governments to support alternative choice architectures of policy projects in various domains. One of the most prominent examples for such a nudge unit is the “Behavioural Insights Team” in the UK. It was launched in 2010 under Cameron and has now become a social purpose vehicle less dependent on the UK government. Similar initiatives were put in place in the US under Obama, addressing a wide number of topics ranging from health care and financial reform to energy efficiency. More recently, since 2014, Germany has also established a unit operating under the header “Governing effectively”, and other countries or even international organizations such as the World Bank are looking at nudging.

As an example, nudges were used in the US to solve significant “Affordable Care Act” sign-up issues that people encountered in the healthcare marketplaces. Being overwhelmed by the available options on these marketplaces, most citizens would not be able to choose the best and most cost-effective policy for themselves without the help of an improved choice architecture. A 2013 study estimated that the implementation of re-designed principles such as “smart” defaults and online calculators not only helped eradicating citizens’ mental accounting or status quo biases, but would generate savings of about US$10bn per year for insurance purchasers and taxpayers (cf. EJ. Johnson, R. Hassin, T. Baker, AT. Bajger, G. Treuer (2013): “Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture.” PLoS, ONE 8(12): e81521. doi:10.1371/ journal.pone.00815).

However, such studies and their conclusions also raise questions and doubts on nudging, especially in politics: Isn’t the notion of paternalism the exact opposite of a mature, informed citizen who can decide what he wants to achieve? How can nudging guarantee freedom of choice? How transparent should nudges be, especially if they lose effectiveness once people have understood the mechanisms behind them? What is a good and what is a bad nudge? And is this concept of influencing behavior compatible with our democratic and ethical principles?

Whatever the answers, chances are that you might already have been nudged.