Review Article. Nudge as Fudge. Karen Yeung

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1 This is a pre-refereed version of the article that appears in (2012) 75(1) Modern Law Review that can be found via the publisher s website at Review Article Nudge as Fudge Richard Thaler and Cass Sunstein Nudge Improving Decisions About Health, Wealth and Happiness (Penguin Books, London 2008) Karen Yeung 1. Introduction Nudges are often used in my household. Directed primarily at my two year old daughter, these practices range from pointing to other children riding happily in their pushchairs in order to prompt her to climb aboard her own, reminding her of the fun she had the previous day playing with a particular toy to enhance her interest in it, to fashioning vegetables into animal shapes to encourage her to eat them. What unites these diverse practices is their common aim: to elicit my daughter s co-operation in complying with my (typically unarticulated) wishes without resort to more punitive, coercive techniques which generally end in tears and tantrums. My techniques are, I suspect, as familiar to parents everywhere as they are to policy-makers. The carrot shaped in the form of a duck and the speed hump installed in a residential street can both be understood as techniques that deliberately seek to elicit a particular behavioural response from another, whilst formally preserving the latter s freedom of choice. While there is arguably nothing particularly new or unusual about these techniques, what is novel is the claim by various scholars that their effectiveness (at least when directed at adult decisionmakers of ordinary mental competence) rests on scientific foundations. More specifically, recent research into the science of decision-making has spawned a new academic sub-discipline often referred to as behavioural economics and its off-spring, behavioural law and economics. Although Richard Thaler is merely one among many economists working from within this burgeoning field, it is his partnering with lawyer and legal academic, Cass Sunstein, to produce the best-selling and highly readable paperback, Nudge Improving Decisions About Health, Wealth and Happiness 1 that has the Professor of Law, Director of the Centre for Law, Ethics and Technology in Society ( TELOS ), King s College London. I am indebted to Roger Brownsword, John Coggon and an anonymous reviewer for comments on earlier drafts. All errors remain my own. 1 R. Thaler and C. Sunstein. Nudge (Penguin Books, London 2008) (hereafter Nudge ). 1

2 catapulted the ideas underpinning so-called nudge techniques into political prominence. Although the book first appeared in 2008, this review timely in light of its extraordinary success in recent years, capturing the imagination of politicians from both ends of the political middle-ground and spawning a plethora of nudge-based policy proposals across a varied range of social sectors. In the UK, David Cameron has energetically promoted the use of nudges as a technique for solving social ills, claiming that Nudge ideas can be adopted to implement the policies of his Big Society 2, marked by the establishment of the Nudge Unit (formally known as the Behavioural Insight Team) within the Cabinet Office. 3 On the other side of the Atlantic, the Democratic Obama administration s active endorsement of Nudge strategies are evident in his appointment of Cass Sunstein as his so-called Regulation Czar, head of the White House Office of Information and Regulatory Affairs 4, and in Obama s recent promulgation of Executive Order EO According to Thaler and Sunstein, a nudge is an aspect of choice architecture that alters people s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. 6 The idea of nudge is best grasped by reference to specific examples, rather than by formal definition. One of Nudges most frequently cited examples is the etching of the image of a housefly into the men s room urinals at Amsterdam s Schipol Airport, which is intended to improve the aim. 7 Apparently, the fly etchings have reduced spillage by 80%. 8 Other examples include arranging the food in a cafeteria so that the healthy items are displayed prominently at eye level, with the fattier, sugar-laden options 2 P. Omerod, 'A Network Is As Good as A Nudge for a Big Society' Financial Times (London, 15 September 2010). 3 Headed by behavioural economist David Halpern, it has been directed to focus on problems of obesity, diet and alcohol, to work alongside the Health Secretary's Responsibility Deal Behaviour Change group: F. Lawrence, 'First Goal of David Cameron's Nudge Unit is to Encourage Healthy Living' The Guardian (London, 12 November 2010). 4 J. Weisman and J. Bravin, 'Obama's Regulatory Czar Likely to Set a New Tone' Wall Street Journal (New York, 8 January 2009). 5 Section 4, titled Flexible Approaches provides that, Where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. These approaches include warnings, appropriate default rules, and disclosure requirements as well as provision of information to the public in a form that is clear and intelligible. See B. Obama, 'Towards a 21st Century Regulatory System' Wall Street Journal (New York, 18 Jan 2011) Nudge, 6. Nudge, 4 and 91. Nudge, at 261 citing 2

3 displayed further back in order to encourage customers to choose the healthy options ( Cafeteria ) 9, automatic enrolment of employees into a scheme which commits them to allocating future salary increases into a retirement savings plan ( Save More Tomorrow ) 10, and the painting of white stripes on road bends spaced more closely together at the most dangerous points to create the illusion that the vehicle s speed is increasing thereby prompting the driver to brake before the apex of the curve ( Painted Road Stripes ). 11 According to Thaler and Sunstein, the core feature of these (and a host of other policy interventions which they advocate) is their reliance upon choice architecture, referring to the conscious and deliberate attempt to shape the context in which people make decisions. 12 In advocating the use of choice architecture to improve individual decision-making, Thaler and Sunstein seek to establish our new movement which they dub libertarian paternalism. 13 While the paternalistic dimensions of Thaler and Sunstein s policy proposals have sparked lively debate about the virtues and vices of paternalism, which is currently enjoying something of a renaissance in legal scholarship, fuelled by the growing popularity of behavioural law and economics 14, it is clear that many of the proposals advocated in Nudge are concerned with shaping other-regarding decisions in order to promote collective welfare rather than with improving an individual s self-regarding actions. 15 So, for example, the benefits arising from spillage reduction in Schipol airport urinals accrue not to those whose aim is thereby improved, but to subsequent travellers who encounter clean facilities. Likewise, although the customer who chooses the fruit salad rather than the chocolate cake enjoys direct health benefits, the broader community also benefits indirectly through savings in the healthcare and other costs associated with obesity-related health conditions. In other words, nudge strategies can be directed at individuals other-regarding actions and decisions, to which objections to paternalism do not apply, and need not be (or not merely) directed towards the self-regarding decisions of individuals. Accordingly, my primary concern in this review essay is to interrogate the legitimacy of choice architecture as a means for implementing public policy, although in so doing, some of the uncertainties Nudge, 1-4. Nudge, Nudge, 41. Nudge, 3. Nudge, 6. M. A. Edwards, 'The FTC and the New Paternalism' (2008) 60 Administrative Law Review 323, at O. Amir and O. Lobel, 'Stumble, Predict, Nudge: How Behavioural Economics Informs Law and Policy' (2009) 108 Columbia Law Review 2098; R. Korobkin, 'Libertarian Welfarism' (2009) 97 California Law Review 1651; M. A. Smith and M. S. McPherson, 'Nudging for Equality: Values in Libertarian Paternalism' (2009) 61 Administrative Law Review

4 inherent in the concept of paternalism will be brought to light. I will argue that although Nudge contains some quite sensible, valuable ideas, Thaler and Sunstein make a number of ambitious and unsubstantiated claims that do not withstand critical scrutiny. Foremost among them is the claim that nudges are liberty-respecting. Yet despite the serious shortcomings of Nudge as a set of empirically grounded, theoretically rigorous policy prescriptions, it is unlikely to dampen its popularity with politicians or public administrators given the allure of simple, cheap and effective solutions to policy problems. 2. Nudge s Intellectual Heritage: Experiments in Cognitive Psychology The theoretical foundations of Nudge rest primarily on findings from laboratory experiments conducted by cognitive psychologists concerned with understanding human decision-making. These studies, which Thaler and Sunstein describe as the emerging science of choice 16, demonstrate considerable divergence between the rational actor model of decision-making that is assumed in microeconomic analysis, and how individuals actually make decisions. The resulting discrepancies are often somewhat pejoratively labelled as cognitive defects. A basic understanding of these defects is required in order to undertake a critical assessment of the nudge proposals which are claimed to spring from them. For the purposes of this review essay, these defects are classed into four groups, (a) decision-making heuristics and judgment biases; (b) akrasia; (c) endogenous preferences and framing effects and (d) information problems. 2.1 Decision Making Heuristics that Generate Judgement Bias Heuristics are tools for learning. Decision-making heuristics are mental devices or shortcuts that are used by individuals in making decisions. They are often unreflective, some even unconscious, yet they are pervasive in human decision-making. To economise on the mental costs of concentration, information acquisition, and evaluation, we employ judgment heuristics that enable us to make decisions efficiently. One only need compare the ease and skill with which an experienced driver negotiates traffic in all but the most exceptional of driving conditions with the level of mental and physical effort required of a novice driver to display quite basic driving competence, to understand the importance of heuristics in managing the complexities of daily decision-making. But these instinctive judgments are not always accurate. The seminal work is by Kahneman and Tversky, who devised a series of experiments which identified situations in which people s heuristics violated the rules of probability theory and the axioms of rational choice 17. The first three chapters of Nudge provide a highly readable 16 Nudge A. Tversky and D. Kahneman, 'Judgment Under Uncertainty: Heuristics and Biases' (1974) 185 Science

5 account of many of these decision-making flaws, employing an engaging blend of familiar examples and personal anecdote to explain some of the findings emerging over the last four decades. 18 Some of the more well-known heuristics relied upon by Thaler and Sunstein are summarised below. According to the availability heuristic, we tend predict the frequency of an event, or a proportion within a population, based on how quickly past instances can be brought to mind. For example, in the aftermath of a natural disaster, purchases of insurance covering that kind of disaster rise sharply, but then rapidly decline as vivid memories recede. 19 Similarly, the anchoring heuristic refers to the common human tendency to rely too heavily, or "anchor" on one trait or piece of information when making decisions, and this influences the way people intuitively assess probabilities. According to this heuristic, people start with an implicitly suggested reference point (the "anchor") and make adjustments based on additional information to it to reach their estimate. In one of Tversky and Kahneman s early studies, people were asked to guess the percentage of African nations that were members of the United Nations. Those who were first asked "Was it more or less than 10%?" guessed lower values (25% on average) than those who had been asked if it was more or less than 65% (45% on average). 20 The representative heuristic refers to the tendency of individuals to judge the probability or frequency of a hypothesis by considering how much the hypothesis resembles available data, as opposed to using rational probability-based calculations. This heuristic explains the hot hands fallacy, by which many basketball fans believe that players go on winning streaks, such that a player is more likely to shoot a goal if that player s previous shot (or, even better, last few shots) were successful: yet there is no evidence of this, each shot is independent of the previous shot. 21 Many lawyers and academics will, I suspect, be personally familiar with optimism bias. This refers to the systematic tendency for individuals to be unduly optimistic about the outcome of planned actions, thereby over-estimating the likelihood of positive events and under-estimating the likelihood of negative event. Hence we should not be surprised by our systematic tendency to under-estimate the length of time it will take to complete a project, whether it be writing a review article or packing for a holiday. 18 Thaler and Sunstein discuss only a small subset of these. For a more extended discussion, see F. H. Buckley, Fair Governance - Paternalism and Perfectionism (Oxford University Press, Oxford 2009) at Chapter Nudge 28. Ibid. Nudge

6 Equally familiar is status quo bias, referring to our tendency not to change an established behaviour unless the incentive to change is compelling. This phenomenon can be readily exploited by commercial service providers, particularly providers of energy, telecommunications or insurance services, who exploit the tendency of subscribers to remain with their existing provider after the conclusion of the service contract, even though considerably cheaper substitutes are available. According to some behavioural economists, status quo bias may create an endowment effect, which suggests that people value a good or service more once their property right to it has been established, placing a higher value on objects they own than objects that they do not. For example, in one experiment, people demanded a higher price for a coffee mug that had been given to them but put a lower price on one which they did not yet own. The decision-making flaw that is relied upon most frequently by Thaler and Sunstein is the so-called framing effect, which describes the way in which presenting the same option in different formats can alter people's decisions. Hence, if asked to choose between treatment options in which is Option A is presented as having a 70% chance of success, and Option B which is presented as having a 25% failure rate, a significant number of individual will select Option A, even though Option B has a higher probability of success (75%) Endogenous Preferences Laboratory experiments clearly demonstrate that in many situations, individuals preferences are endogenous, in that they are influenced by the choices of others. 23 Unlike decision-making heuristics, however, the resulting decisions may not necessarily result in choices that would depart from the rational actor model of decision-making. There are many sound reasons why it may be rational to do what others are doing: we may rationally believe that the behaviour of others signals valuable information. A rather commonplace example can be found in the phenomenon by which, in deciding which of two equally appealing adjacent restaurants to dine in, one of which is empty, and the other with a handful of customers. Other passers-by then choose the restaurant which is currently patronised, reasoning that other people consider it the better choice. Yet it may be the case that none of the diners have any additional information available to them in making their decision, in which case the popularity of one restaurant over another is explained wholly by reference to the social influence of other people s choices (known as information cascades ). 2.3 Akrasia or Weakness of the Will 22 A. Tversky and D. Kahneman, 'The Framing of Decisions and the Psychology of Choice' (1981) 211 Science See generally Buckley, supra n. 18, chapter 7. 6

7 Unlike decision-making heuristics, which involve some kind of mental or computational error, akrasia refers to the state of acting against one s better judgment. For example, I may clearly prefer to eat a healthy meal, yet when lunchtime arrives I succumb to temptation and choose the lasagne rather than the salad. Whether akrasia, or weakness of the will, should properly be regarded as irrational is highly debatable. There may be some decisions that can be partly explained by decision-making biases, such as the hot-cold empathy gap. 24 This refers to an individual s tendency to underestimate the influence of visceral drives rather than to other non-visceral factors, so that an individual may resolve not to drink too heavily at a social engagement, but is unable to refuse when the host offers a top up of wine. On the other hand, these decisions may well reflect an individual s rational assessment of the value of present and future costs and benefits. Hence I may rationally decide that the enjoyment of consuming the lasagne today outweighs the benefits of being marginally slimmer and healthier tomorrow. In other words, pleasure has a temporal dimension. 25 Yet, in contrast to their discussion of decision-making heuristics, Thaler and Sunstein s discussion of temptation is remarkably thin, particularly given the instability and heterogeneity of human preferences. 26 Their brief discussion simply refers to the tendency of individuals to choose mindlessly 27, and is primarily concerned with outlining a series of practical self-control strategies that can help an individual resist temptation, such as an alarm-clock that runs around the room if the snooze button is pressed after the alarm sounds to prompt the snoozer to get up and find the alarm clock, and making reciprocal commitments to transfer something of value to another if she fails to attain her specified goal Nudge, citing G. Loewenstein, 'Out of Control: Visceral Influences on Behaviour' (1996) 65 Organizational Behavior and Human Decision Processes Buckley, supra n 18, R. Hollander-Blumoff, 'Law and the Stable Self' (2010) Saint Louis University Law Journal 1173; C. A. Hill, 'The Rationality of Preference Construction (and the Irrationality of Rational Choice)' (2008) 9 Minnesota Journal of Law, Science & Technology This claim is backed up by a reference to B. Wansink. Mindless Eating: Why We Eat More Than We Think (Bantam, New York 2006). 28 Nudge, Thaler and Sunstein s discussion of self-control strategies has its intellectual roots in the work of an earlier generation of economists working within the rational choice tradition who were concerned with understanding the phenomenon whereby an individual may employ various precommitment (or self-binding ) strategies, restricting their own future freedom in order to protect themselves from succumbing to the temptation to engage in actions that they would prefer to avoid. So, for example, an individual committed to giving up smoking may resolve to avoid keeping cigarettes in the house, knowing that otherwise the urge to give in to his or her desire to smoke will be too difficult to resist. See T.C. Schelling, Self- Command in Practice, in Policy, and in a Theory of Rational Choice in T.C. Schelling, Strategies of Commitment and Other Essays, 2006 (Harvard University Press, Cambridge MA) 63-81; J Elster, Ulysses Unbound: Studies in Rationality, Precommitment and Constraints, 2000 (Cambridge University Press, Cambridge) and T Kuran, Private Truths, Public Lies: The Social Consequences of Preference Falsification, 1995 (Harvard University Press, Cambridge MA). 7

8 2.4 Information Problems and Bounded Rationality Somewhat surprisingly, Thaler and Sunstein s survey of decision-making flaws does not include an explicit discussion of the problem of information deficits and bounded rationality, even though some of the proposals they advocate can be readily understood as attempts to overcome these problems. 29 Individuals sometimes agree to unduly burdensome obligations that do not accurately reflect their preferences towards those obligations, due to the excessive search costs involved in finding the information necessary to make a properly informed judgment. This is often the case in relation to financial decision-making, where an enormous volume of information may need to be acquired and processed in order to make a fully informed decision. Hence an individual might rationally decide that the benefits of undertaking a comprehensive search are not justified by the likely benefits that would accrue relative to an attenuated evaluation based on more limited information. 2.5 Behavioural Law and Economics The findings of experimental cognitive psychologists identifying these and other systematic decisionmaking flaws have been seized upon by economists, generating a body of work which has become known as behavioural economics and its off-spring behavioural law and economics (or the new law and economics). Unlike orthodox law and economics methodology, new law and economics seeks to challenge the standard economic model by pointing to systematic divergences from the premise of the rational self-interested decision-maker that orthodox economic modelling takes as its starting point. Thaler and Sunstein represent these divergences by contrasting two kinds of actor: real people or humans and econs (a short form for economic man or homo economicus ). While the latter are actors who think and choose rationally and thus fit the picture of the decision-maker assumed by traditional economics, the former are fallible individuals who have inescapable difficulties in making decisions that conform to the rational actor model. 30 By taking account of the systematic flaws in human decisionmaking identified in laboratory experiments conducted by cognitive psychologists, proponents of behavioural law and economics hold out the prospect of a new and improved approach to legal and social policy. Their ambition is to develop an approach to legal and social policy questions that integrates the findings from cognitive psychology into an economic framework in order to yield an approach with greater descriptive accuracy and predictive reliability. 31 It offers the prospect of See Buckley,supra n 18, chapter 5. Nudge T. Rostain, 'Educating Homo Economicus: Cautionary Notes to the New Behavioral Law and Economics Movement' (1999) 34 Law & Society Review ,

9 accurately modelling how human beings will react to varying rules and policy interventions. Small wonder that it has proved so attractive to politicians of various stripes as a set of policy prescriptions for curing social ills. 3. Choice Architecture as a Tool of Government Nudge is an exemplar of the new law and economics, albeit presented in a popularly accessible form rather than written primarily for an academic audience. It draws on the findings of experimental cognitive psychology as the basis for policy prescriptions that are claimed to lead to predictable and replicable alterations in human behaviour and, hence, social outcomes. The core idea underpinning nudge policies are grounded in the notion of choice architecture, referring to the conscious and deliberate attempt to shape the context in which people make decisions, rather than altering or extending the available range of choices. 32 According to Thaler and Sunstein, choice architects are those responsible for organising the contexts in which decisions are made, including doctors who describe alternative treatments available to patients, the food services director of a cafeteria who is responsible for the layout of food items, and a parent describing possible educational options to his or her child. 33 Direct parallels are drawn between the way in which building architects make design choices they expect will yield beneficial effects: just as open stairwells are likely to produce more workable interactions and more walking, the food services director of a cafeteria can choose a particular food arrangement that is likely to influence what people will eat. 34 By drawing on the cognitive psychologists findings concerning systematic human decision-making behaviours, choice architecture appears to offer a potentially powerful instrument to influence social behaviour by seeking to prompt or nudge individuals to make decisions that the choice architect deems desirable. But not all forms of choice architecture are nudges. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not. 35 Hence the installation of a six foot perimeter wall around a new housing development with only one open-access entry point might constitute a form of choice architecture, but because alternative access 32 Nudge Ibid. Although Thaler and Sunstein s policy proposals are directed at the use of choice architecture by state actors as an instrument for implementing public policy, it is important to note that choice architects are not limited to state actors Nudge 4. Nudge 6. 9

10 strategies are not cheaply and easily available, it would not count as a nudge. In contrast, filling in and returning a form to opt out of a default savings scheme, or reaching over the fruit to obtain the chocolate cake, impose relatively trivial costs on those who wish to avoid the default options, and thus constitute nudges. Thaler and Sunstein provide their view of the policy implications of systematic cognitive defects for choice architecture in Chapters 4 and 5, culminating in the following set of basic principles for choice architecture which choices architects are enjoined to follow: Incentive effects of particular choice architecture should be considered (particularly who uses, who chooses, who pays and who profits); Understand that good choice architecture helps people to improve their ability to map alternative options; Default options are ubiquitous and powerful. Hence, careful attention to default options is important because a large number of people can be expected to end up with the default option; Give feedback to help improve individual decision-making; and Error is ubiquitous and expected, and thus should be taken account in designing the decisionmaking context. These policy prescriptions are then summed up in a simple mnemonic nudge. 36 Part II of the book proceeds to elaborates on these core ideas, comprised of a set of more detailed nudge proposals focused primarily around measures concerned with financial decision making (Chapters 6 to 9) and a range of disparate proposals which are grouped together under the broad heading society in Chapters 10 to 13, concerned with prescription drugs plans (Chapter 10), increasing organ donations (Chapter 11), reducing environmental degradation (Chapter 12) and default rules to apply in the event of marital breakdown (Chapter 13). A further series of small nudge suggests are strung together and presented in Chapter 14 under the heading A Dozen Nudges. 3.1 A Typology of Nudges In order to interrogate the legitimacy of choice architecture as an instrument of government, the nudges which Thaler and Sunstein describe can be roughly classified into three groups, according to the 36 Nudge

11 underlying architectural mechanism through which they are intended to work: setting defaults and anchors, physical architecture, and deliberation tools. Figure 1 summarises the nudges described in the book according to class while identifying the policy goal which each nudge is designed to promote. (a) Defaults and Anchors Defaults and anchors seek to exploit several decision-making heuristics, particularly status-quo bias (the tendency not to change an established behaviour unless the incentive to change is compelling), the human tendency to anchor on one trait or piece of information when making decisions and the endogeneity of preferences (the tendency of individual decision-making to be influenced by the decisions of others). For example, both Save More Tomorrow and Cafeteria are intended to encourage more conscientious saving and healthier diet choices respectively, by setting baseline defaults that reflect these preferences. 37 Similarly, tax-payers can be encouraged to file their tax returns by advising them of the fact that 90% of the public comply with tax laws, in the same way students may be discouraged from smoking if they are advised of the fact that most college students do not smoke. 38 Defaults and anchors are premised on the basis, confirmed by studies in experimental psychology, that many decisions which individuals confront are taken in a passive and unreflective manner, rather than making an active, conscious decision following a process of careful reflection and evaluation. It is this behavioural tendency to do nothing that makes the default option ubiquitous and powerful, 39 and effect which can not only be harnessed by policy-makers, but also magnified if combined with some implicit or explicit suggestion that it represents the normal or even the recommended course of action. 40 (b) Physical Design The image of the fly etched into the Schipol airport urinals clearly demonstrates how the design of the physical environment, and the household products and artefacts that are employed by humans in their regular activities, can be designed in ways that will promote particular kinds of social outcomes. Thus, stripes can painted on roads to create the illusion that the vehicle is speeding up when approaching dangerous bends, 41 petrol caps can be attached to motor vehicles to avoid drivers leaving them at petrol Nudge 1, Nudge 74. Nudge 93. Nudge 93. Nudge

12 stations when refuelling, 42 and anaesthetic connectors can be designed to preclude drugs being inadvertently delivered via the wrong route. 43 (c) Deliberation Tools In a rather different vein, choice architecture can facilitate more informed, thoughtful decision-making aimed at helping individuals to comprehend the range of options available. These include government information campaigns, intended to provide individuals with information that will help inform their decisions, as well as mandatory disclosure laws, such as truth in lending laws requiring the uniform publication of annual percentage return (APR) borrowing rates to make the cost of borrowing more comprehensible to individuals. The law can also mandate that a specific cooling off period should be available following certain kinds of transactions that are deemed by policy makers to be associated with a significant risk that the transaction will be unduly burdensome, or fail to reflect individual s more considered choices. 44 Figure 1 Nudges and Their Policy Goals Nudge A. Defaults and Anchors Automatic enrolment of new employees into employer pension savings plan (Ch 7, Ch 9 ) Intelligent assignment of prescription drug plans (p 180) Default healthcare plans that reflect the needs of the majority Default pension plans that consist of diversified securities portfolios (Ch 7, Ch 9 ) Mandated choice for organ donation Laws requiring credit card companies to allow for automatic payment of full monthly amount due, not merely minimum payment (p 150) Default legal rules for couples making a commitment to each other in the event of separation Automatic tax returns, already filled in with default information (p 229) Set default charity donation options (pp 26-27;p 227) Policy goal To encourage individuals to save more for retirement To encourage the choice of drug prescription plans more suited to each individual s health needs To encourage the adoption of health plans more suited to each individual s healthcare needs To encourage higher and more secure pension plan returns for employees To encourage higher organ donation rates To protect individuals from highly unfavourable loan contracts To protect the interests of the financially weaker party to intimate relationships (Ch 13) To encourage timely lodgement of tax returns To encourage more generous charity donations Nudge 97. Ibid. 44 Thaler and Sunstein s support for mandatory disclosure laws sits somewhat uncomfortably with their expressed dislike of coercive policy instruments from which individuals and firms cannot opt-out: see Nudge 5. Yet they do not elaborate on their vision of the proper role of legal coercion in public policy. 12

13 Charity Debit Card to encourage tax effective giving (p 228) Information campaigns to encourage energy conservation (p 40; pp 204-5) Social advertising (Don t Mess with Texas) pp 64-5 Advise people that 90% of public comply with tax laws (p 72); Advise students that most college students don t smoke (p 74) Non-verbal clues (smells, smiley faces to indicate approval (p 75); photos of various quality housing to indicate savings targets on pension plans (p 138) Prime people before they make decision (pp 76-8) To encourage more tax effective charitable giving To encourage energy conservation To discourage littering on public highways To encourage timely lodgement of tax returns To discourage college students from smoking To encourage the action for which non-verbal approval is designated (eg higher retirement savings, energy conservation) To encourage people to act in the manner primed B. Physical Design Automatic safety mechanisms No-bite nail polish (p 233) Disulfiram (for alcoholics) which causes a person to throw up and experience a hangover on consuming any alcohol (p 233) Painted road lines to create the illusion of speed (p 41) Glow ball energy meters Car gas cap attached to car (p 97) Diesel fuel nozzles do not fit standard fuel tanks (p 97) Non-luer compatible connectors for drug delivery (p 97) Paint look right on roads in UK (p 99) Shutter click on digital cameras to indicate that image has been captured (p 99) Arrangement of rings and knobs on 4-burner stove top (p 92) The eco-pedal for car accelerators, that indicates to the driver how much fuel efficiency could be saved by easing the pressure (p 208) Motor cycle helmets not mandatory with those with a special driving qualification (p 231) Automatic warning if foul language detected in the contents of an which has not yet been sent (the civility check pp 233-4) To reduce the risk and severity of accidents To discourage nail biting To discourage alcohol consumption To encourage drivers to slow their speed around dangerous road bends To encourage energy conservation To prevent drivers leaving petrol caps at petrol stations after re-fuelling To prevent drivers from pouring diesel fuel into petrol fuel tanks To prevent wrong route drug administration To reduce the risk of pedestrians from countries which drive on the right from walking in front of vehicles approaching from the right To alert the photographer that an image has been digitally captured To reduce accidents from errors in the use of stovetop rings To encourage energy-conserving driving practices To protect motorcycle drivers To encourage civility in communication by forcing reflection before sending an C. Deliberation Tools Mandate information disclosure in specified formats deemed comprehensible (provides information that could be useful to informed To enhance individual s understanding of complex information before engaging in potentially burdensome transactions 13

14 decision-making). eg mandatory simplified reporting of borrowing costs (pp 146-7) Cooling off periods following certain kinds of transactions Naming and shaming of those found in violation of specified norms To encourage more reflective decision-making To discourage norm violation Source: R Thaler and C Sunstein, Nudge (2008) 3.2 Are Nudges Libertarian? Taken together, the simplicity and appeal of nudge strategies becomes readily apparent. This appeal is enhanced by their libertarian credentials, albeit of a paternalistic hue, with Thaler and Sunstein claiming that, The libertarian aspect of our strategy 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...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. 45 Yet the idea of libertarian paternalism which underpins Thaler and Sunstein s policy proposals appears to be a contradiction in terms, which the authors themselves acknowledge. 46 Although the concept of paternalism and its boundaries are contested issues, Gerald Dworkin provides a helpful analytical framework by suggesting that paternalism involves at least three elements: first, some kind of limitation on the freedom or autonomy of some agent; second, that limitation is imposed without the consent of the agent; and thirdly, that this limitation is imposed for a particular class of reasons, that is, with the aim of improving the welfare of the agent (where this includes preventing the agent s welfare from diminishing) or in some way promotes the interests, values or good of the agent. 47 Since paternalism involves some intervention with the freedom or autonomy of the agent without the latter s consent, it appears to be, by definition, anti-libertarian in character (see below). Thaler and Sunstein side-step this apparent contradiction in three ways, firstly, in the emphasis which they place on the purpose of nudge policies in seeking to promote outcomes which are in accordance the Nudge 5. Nudge G Dworkin, Paternalism, in Stanford Encyclopaedia of Philosophy, available at accessed on 23 August

15 agent s own understanding of his or her self interest, secondly, in the nature of the intervention which choice architecture entails, and thirdly, in the freedom of the agent to opt out of the nudge simply and cheaply. The first two of these strategies is reflected in their definition of paternalism: 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 (emphasis in original). 48 By emphasising policies that seek to influence choices that would accord with agents understanding of their own welfare, Thaler and Sunstein s conception of paternalism constitutes what is often referred to in the philosophical literature as soft paternalism. Soft paternalism involves intervention to prevent an agent from doing X, where the paternalist judges that, relative to the agent s own views of his or her selfinterest, the doing of X is not in the agent s interests. In contrast, hard paternalism involves intervention to prevent the agent from doing X where the paternalist judges that, relative to the paternalist s view of what is in the agent s best interest, the doing of X is not in the agent s interest. Since soft paternalism can be interpreted as consistent with displaying respect for the agent s view of her own welfare, it is less objectionable from a liberal perspective than hard paternalism because it does not entail overriding the agent s preferences. Hence, laying out food in a cafeteria to encourage me to choose the fruit rather than the chocolate cake may be understood as consistent with my own preferences in at least two ways: either by reflecting my deeper preference for a healthy diet rather than my shallow desire to satisfy my immediate craving for chocolate, or, if I am unaware of the adverse health effects of consuming the chocolate cake relative to the fruit salad, then a cafeteria layout that encourages me to select the salad can be understood as consistent with my true preferences: had I been properly informed of the consequences of the available options at the time of choosing. Yet difficulties arise in attempting to classify any intervention (including but not limited to nudges) as a form of hard or soft paternalism due to the heterogeneity of preferences. Consider the Save More Tomorrow scheme, which automatically commits employees to contributing a portion of their salary to a retirement savings plan unless they return an opt-out form to their employer. For individual X, who would like to save more for retirement but suffers from weakness of the will, the default scheme can be understood as helping to secure her true or deep preferences. But for individual Y, who has a strong preference for current consumption over future consumption (ie she is what economists refer to as a hyperbolic discounter ), then the scheme will tend to override her preferences. 49 And for individual Z, who holds unstable preferences, sometimes wanting to save more for retirement but at other times willing to sacrifice future savings in favour of current consumption, the scheme will sometimes be 48 Nudge, D. N. Husak, 'Legal Paternalism' in H. La Follette (ed) The Oxford Handbook of Practical Ethics (Oxford University Press, Oxford 2005). 15

16 consistent with her preferences, whilst at other times overriding them, depending upon her preferences at the relevant point in time. The pervasive and inescapable heterogeneity of preferences implies that, at least for some individuals, on at least some occasions, the policy preferences reflected in any given nudge will be contrary to that individual s preferences and thus constitute a form of hard rather than soft paternalism. To avoid this problem, and thereby maintain the libertarian label, Thaler and Sunstein insist that to qualify as a nudge, the formal range of choices available to any individual must not be restricted or otherwise altered. Rather, each person remains free to opt out of the default arrangement without appreciable costs in terms of time, trouble, social sanctions or so forth Liberty, Autonomy and Rational Self-deliberation By restricting interventions to those involving the deliberate shaping of choice architecture without altering the formal range of choices available, combined with insistence on preserving the agent s freedom to opt out of the choice architect s preferred outcomes, Thaler and Sunstein s policy proposals lay claim to their libertarian label. Hence the diner is free to reach over the fruit to reach the chocolate cake, the traveller can choose to direct his aim away from the housefly etched onto the urinal, and the employee can opt out of the default savings scheme established by her employee. If liberty is understood simply as the preservation of formal freedom of choice, then these policy measures can properly be described as libertarian. But this is a very thin understanding of liberty, failing to identify the value of individual freedom. Liberty can also be understood in a thicker, richer sense, incorporating an understanding of the value which liberty occupies within our moral and political framework. On this view, liberty is understood as respect for individual autonomy rather than simply freedom of choice. 51 Individual autonomy is an idea that is generally understood to refer to the capacity to be one s own person, to live one s own life according to reasons and motives that one takes to be one s own and not the product of manipulative or distorting external forces. 52 My actions are autonomous when they are guided by reasons that I can underwrite. As Isaiah Berlin put it 50 Similarly, Ogus claims that because the cost of opt out is trivial, such forms of intervention can be regarded as consistent with traditional notions of individual autonomy : A. Ogus, 'The paradoxes of legal paternalism and how to resolve them' (2010) 30 Legal Studies See generally J. Raz. The Morality of Freedom (Oxford University Press, Oxford 1986). Ibid

17 When I say that I am rational, at least part of what I mean is that it is my reason that distinguishes me as a human being from the rest of the world. I wish, above all, to be conscious of myself as a thinking, willing, active being, bearing responsibility for my choices and able to explain them by reference to my own ideas and principles. 53 The centrality of reason as a basis for individual action is critical, revealing the fundamental weakness of nudge s claimed libertarian character, at least in relation to nudges that can be understood as irrationality-exploiting. The paradigm autonomous decision is that made by a mentally competent, fully informed agent, arrived at through a process of rational self-deliberation, so that the agent s chosen outcome can be justified and explained by reference to reasons which the agent has identified and endorsed. Yet for many nudges, the causal mechanism through which choice architecture is intended to work deliberately seeks to by-pass the individual s rational decision-making processes in order to channel behaviour in the direction preferred by the choice architect. The entire basis upon which such policies are is constructed rests on the premise that, due to various cognitive defects, individuals frequently fail to exercise their powers of reasoned self-deliberation, and this failure can be exploited to nudge choices in a particular direction. Hence default schemes from which individuals may positively opt out of easily and cheaply seek to harness status quo bias and the inertia effect in order to nudge individuals into adopting the default preferences. As Bovens explains: there is something less than fully autonomous about the patterns of decision-making that nudge exploits. Such actions entail not letting my actions be guided by principles that I can underwrite, so these actions are not autonomous. They can be said to be irrational in so far as what is driving my action does not constitute a reason for my action (ie. not a feature of the action that I endorse as a feature that makes the action desirable). 54 Seen in this light, nudges of this kind entail a subtle form of manipulation by taking advantage of the human tendency to act unreflectively and, to that extent, are inconsistent with demonstrating respect for individual autonomy. Consider, for example, two contrasting ways in which a garment shop owner might seek to increase sales. He might, through sensitive and appropriate use of flattery and charm, persuade me that a suit that I have tried on in his shop makes me look tall and slender. I know full well that he is flattering me, given my short stature and rather dumpy figure. Nonetheless, his technique is one of rational persuasion, playing on my emotion and ego no doubt, but I am nonetheless fully aware of his purposes and the means by which he seeks to effect them. So if, partly as a result of the shop owner s transparent attempts to influence my purchasing decisions, I decide to purchase the suit, I do so based on a process of rational self-deliberation. On the other hand, he might fit the shop with false mirrors, creating the illusion to those gazing into them that their appearance is taller and more elongated than it is in fact. This latter technique clearly amounts to invidious manipulation, creating false beliefs that form the foundation of an individual s decision-making deliberations. While both techniques seek 53 I. Berlin, 'Two Concepts of Liberty' in H. Hardy and R. Hausheer (eds), The Proper Study of Mankind (Pimlico, London 1998) at L. Bovens, 'The Ethics of Nudge' in T. Grune-Yanooff and S. Hansson (eds), Preference Change: Approaches from Philosophy, Economics and Psychology (Springer, Berlin and New York 2008). 17

18 to prey upon my personal vanity with the aim of eliciting the same behavioural response, the former is a legitimate sales technique, while the latter is not. The use of false mirrors is objectionable because it involves a form of deception of which I had no knowledge and hence to which I could not consent. The mere fact that I can choose not to buy the suit does not alter the invidiousness of the manipulation. Granted, if I would have bought the suit in any event, then the consequences of the shop owner s techniques of covert manipulation are less serious for me, but this fact alone does not alter the invidiousness of the technique itself. If I am deceived into accepting a date with a stranger, the mere fact that I can get up and leave at any time does not alter the legitimacy of his or her action. The analogy between irrationality-exploiting nudges and that of false mirrors is, however, an imperfect one. 55 False mirrors involve the active distortion of information that forms the basis for individual decision-making, but displaying the fruit more prominently than the chocolate cake does not. Hence the manipulation entailed by the nudge is more subtle and less objectionable in moral terms than that of false mirrors. On the other hand, some architectural nudges, such as Painted Road Stripes, deliberately seek to create an optical illusion, creating the impression that the vehicle s speed is increasing in order to prompt the driver to slow down. Thus both false mirrors and Painted Road Stripes seek to create false beliefs in the mind of the decision-maker that are deliberately intended to influence her actions in the choice architect s preferred direction. Each strategy can therefore be understood as involving a similar form of manipulation. While the purpose of these two interventions is of considerable importance in our assessment of their legitimacy, nonetheless one of the reasons why manipulation of any kind is objectionable lies in the way in which the person thereby manipulated becomes a willing participant in action that she may not have genuinely wished to participate in. By utilising a form of manipulation, irrationality-exploiting nudges express contempt and disrespect for individuals as rational beings capable of reasoned decision-making concerning their own affairs, an objection which Thaler and Sunstein fail to acknowledge. 56 On the other hand, some nudges seek to correct or eliminate some kind of cognitive defect or bias to promote more informed individual decision-making, or are intended rationally to influence individual decisions. 57 Unlike defaults and anchors, which purposefully seek to exploit the tendency of individuals to choose passively and unreflectively, deliberation tools such as mandatory cooling off 55 I am indebted to an anonymous reviewer for helping to clarifying my thoughts on this issue. 56 D. M. Hausman and B. Welch, 'Debate: To Nudge or Not to Nudge' (2010) 18 Journal of Political Philosophy , 134; Raz, supra n.51, 418; M. D. White, 'Behavioural Law and Economics: The Assault on the Consent, Will and Dignity' in G. Gaus, C. Favour and J. Lamont (eds), New Essays on Philosophy, Politics & Economics: Integration and Common Research Projects (Stanford University Press, 2010). 57 Amir and Lobel, supra n