Richard H. Thaler and Cass R. Sunstein, How to Make Lazy People Do the Right Thing

Richard H. Thaler and Cass R. Sunstein

How to Make Lazy People Do the Right Thing

The following problem-solving essay first appeared in the New Republic, a magazine that covers American politics and culture. In “How to Make Lazy People Do the Right Thing,” economist Richard H. Thaler and legal scholar Cass R. Sunstein suggest that business and government should use “choice architecture” to “nudge” people into making better decisions, while at the same time preserving individual freedom. Thaler teaches at the University of Chicago; Sunstein is a professor at Harvard School of Law and was picked by the Obama administration to lead the Federal Office of Information and Regulatory Affairs. They collaborated on the book Nudge: Improving Decisions about Wealth, Health, and Happiness (2008).

How to Make Lazy People

Do the Right Thing

by Richard H. Thaler and Cass R. Sunstein

As everyone knows, many guys are slobs. And, yes, we plead guilty to being guys. It is not that we set out to be sloppy. We have a lot of important stuff on our minds. Whom can we find for a tennis game tomorrow? How is our team going to defend against their three excellent wide receivers? You can see the problem. With these burdens distracting us, how can we be expected to keep a neat desk?

As all women who have ever shared a toilet with a man can attest, men can be especially spacey when it comes to their, er, aim. In the privacy of a home, that may be a mere annoyance. But, in a busy airport restroom used by throngs of travelers each day, the unpleasant effects of bad aim can add up rather quickly. Enter an ingenious economist who worked for Schiphol International Airport in Amsterdam. His idea was to etch an image of a black house fly onto the bowls of the airport’s urinals, just to the left of the drain. The result: Spillage declined 80 percent. It turns out that, if you give men a target, they can’t help but aim at it.

In the grand sweep of global affairs, dirty bathrooms may be a relatively minor problem. But, on its urinals, the Amsterdam airport was using a technique with broad applications in the world of business and even politics. We call that technique “choice architecture.” A choice architect is anyone who influences the context in which people choose — say, by deciding what order to put menu items in, or what path to encourage shoppers to take through a supermarket, or what information to give investors about their retirement savings options, or what to tell patients deciding how to deal with a medical problem. Because seemingly tiny changes in the environment can influence behavior, choice architects wield immense power. Theirs is a gentle power, since they merely nudge rather than coerce. But their nudges can have major effects.

To see why choice architects wield so much power, consider several aspects of human nature. For one thing, there are limits on the number of items to which we can pay attention at one time. We are surrounded by stimuli, and, to survive, we have to direct our attention to what seems most important (such as the road in front of us while we are driving). As a result, we may miss things that are also significant but not currently in focus. When men use an airport urinal, chances are they have things on their mind other than making sure their aim is precise. Placing a fly image in a urinal upends this state of affairs: It causes men to focus on something they would normally ignore — nudging them toward behavior that produces a socially desirable outcome.

Choice architecture derives additional power from two other human fallibilities: inertia and limited self-control. When in doubt, humans tend to do nothing, even when the costs of making a change are trivial and the benefits are significant. We can even be too lazy to pick up the remote and change the channel, which is why networks spend so much time thinking about which show should follow another. We also often have trouble managing ourselves. To take an obvious example, an alarming percentage of Americans are overweight. Most of them would like to be thinner but can’t get themselves to diet or exercise. Ever since Adam took a bite of that apple, human beings have tended to show a weakness of will.

In light of these human traits, one important tool at the choice architect’s disposal is the designation of a default option. The default option determines what happens if the decision-maker takes no action. Because of limited attention, inertia, and lack of will, the selection of the default can have pronounced effects. Defaults are ubiquitous and powerful. They are also unavoidable, because, for any system of choice architecture, there must be a rule that determines what happens if you do nothing. Of course, the usual answer is that, if you do nothing, nothing changes; whatever is happening continues to happen. But not always. Some dangerous machines, such as chain saws and lawn mowers, are designed with “dead man’s switches,” so that, once you are no longer gripping the machine, it stops. When you leave your computer alone to answer a phone call, nothing will happen — for a time. But, if you talk long enough, the screen saver will come on; and, if you neglect the computer for longer still, it may lock itself. Of course, you can choose how long it takes before your screen saver appears, but that, in and of itself, takes some action. Your computer probably came with a default time lag for the screen saver. Chances are, that is the one you still have.

Many businesses have discovered the power of default options. When people subscribe to a magazine or website these days, they are typically enrolled in an automatic renewal program. When their subscription runs out, it is automatically renewed unless the subscriber takes some action; and, in many cases, the action requires quite a bit of patience and persistence. One of us (not to mention names, but the lawyer) still has subscriptions to several magazines that he never reads and actually hates, because he has not gotten around to canceling them.

Businesses can manipulate default options toward good ends too, not just selfish ones. Take the issue of employee savings. Economists have long argued that Americans do not save enough for retirement. How might they be nudged to do so? Are tax incentives necessary? New government programs? Actually, there is a much easier way.

Traditionally, when employees first become eligible to join their company’s 401(k) plan, they receive a notification from the human resources department along with a bunch of forms. Essentially they are told, if you want to join the plan, fill in these forms, choose a savings rate, decide how you want your money invested, and send the forms back. When it comes to filling in forms, many of us have a tendency to procrastinate, especially if those forms seem to require making important decisions. The tendency is to think, “Oh, I better do some research on which funds to pick before I sign up.” The problem is that, once put off, signing up for the plan gets in line with everything else on the “to do” list, right after cleaning the garage.

To solve this problem, some companies have adopted what has come to be called automatic enrollment. Under this regime, when employees become eligible, they get the same package in the mail but are told that, unless they fill out some forms, they will be automatically enrolled with a prespecified savings rate and investment plan. Studies have shown that automatic enrollment greatly increases participation in 401(k) plans. (Workers are more likely to join, and they join sooner.) Since joining the plan is almost always an excellent idea, especially when the firm is making some matching contributions, automatic enrollment successfully nudges workers toward better choices.

Companies have also nudged employees to save more by giving them a chance to commit to gradually increasing their savings rates. One system, devised by one of us (Thaler) and collaborator Shlomo Benartzi, is called “Save More Tomorrow.” The idea is that workers are offered the opportunity to sign up for a plan under which their savings rates automatically increase every time they get a pay raise, until they reach some savings cap. In the first firm that adopted this plan, those who joined more than tripled their savings rates. Of course, workers can switch out of this plan at any time. The point is to have a default option going forward that calls for their savings rates to increase along with their wages. Research is now underway on an extension of this idea known as “Give More Tomorrow,” by which workers commit themselves to donating part of their future wage increases to charity. It seems possible that Give More Tomorrow, if offered widely, could produce dramatic increases in charitable contributions.

The government is inevitably involved in choice architecture and nudging as well. Some of these nudges involve default options, while others — much like placing fly images in urinals — simply create an incentive where none had previously existed. The 2006 Pension Protection Act, for instance, gently nudges firms to adopt automatic enrollment and a primitive form of Save More Tomorrow. If firms adopt those features and match employee contributions at a specified rate, then they are exempted from the somewhat onerous process of showing they were in compliance with certain federal regulations. No firm is required to adopt these policies — just given a small incentive to do so.

Of course, some government nudging makes people nervous, and rightly so. We would not want public officials to nudge people toward certain religious convictions. We would not want the government (meaning incumbents) manipulating the order in which candidates are displayed on ballots, since the candidate listed first gets a 2 to 5 percent bump in votes. In this domain, the proper thing for government to do is to insist that ballot order be settled randomly — or, better yet, varied across voting places, so the benefit of being listed first is shared by all candidates.

But, sometimes, government can do much better than pick things at random. An infuriating example of inept government choice architecture is the Medicare Part D prescription drug program. Although this program is heavily subsidized and mostly a good deal for seniors, it is much reviled, not only by seniors but by their grown children who get roped into helping them deal with the intricacies of the plan. Those who designed the plan thought that the most important thing to offer seniors was choices; so, in most states, seniors are asked to choose from about 50 different insurance plans. “The more choices you have, the more likely it is you’ll be able to find a program that suits your specific needs,” President Bush told a clubhouse of Florida seniors in 2006. “In other words, one-size-fits-all is not a consumer-friendly program. And I believe in consumers. I believe in trusting people.”

It is great to believe in trusting people, but, sometimes, it is also a good idea to offer them a helping hand. We wanted to see what exactly seniors face in making this decision, so we asked a friend of ours to give us a list of the drugs that her mother takes. Then we went to the Medicare Part D website and tried to figure out which insurance plan would work best for her. The first step is to type in a list of all the drugs you take. What a nightmare! The site does not have a spell checker; if you type “Zanax” instead of Xanax, you don’t get one of those helpful “Did you mean” Google suggestions. This is a problem because drug names often resemble strings of random letters, so typing errors are to be expected. Other difficulties related to using the site — such as needing to select the correct dosages for all your medications — probably couldn’t have been avoided. But the fact is, most senior citizens are bound to find the process arduous. After a couple of hours on the Part D website, we felt that we would soon need some Xanax ourselves.

Given how difficult this process is, you might think that the government would offer a default option for those who did not want to choose for themselves. The Bush administration decided not to do this — that trust thing again. But there was one group of participants for whom the government did have to create a default option: Medicare users who had previously been covered by Medicaid. Non-Medicaid users who didn’t sign up for Medicare Part D simply would not be enrolled. But Medicaid users were required to switch to Medicare for their prescription drug coverage. Of course, some did not get around to choosing a plan, so the government had to make a choice for them. What do you think that choice was? We will let you pause to consider how you would do it.

Amazingly, the method the government picked was to choose a plan at random! This makes no sense. For many people, and especially for the elderly, it is actually pretty easy to predict what drugs you will take next year — namely, the same drugs you are taking this year. A fact of life is that, the longer you live, the more drugs you take routinely. And, for many of these drugs, once you start, you take them as long as you live. Since the government knows what drugs a patient is taking (from last year’s claims) and knows what prices the insurance companies are charging, it is a straightforward matter to make a decent guess about which plan would be best. In fact, the state of Maine, alert to the importance of good choice architecture, has adopted such a plan. It is called “Intelligent Assignment.” But the Bush administration has not encouraged other states to adopt the idea. Perhaps, if Maine had called its plan “Intelligent Design,” it would have gone further.

Private and public institutions have unlimited opportunities to use good choice architecture to improve people’s lives — in domains as varied as protecting the environment, increasing organ donations, and promoting fair divorces. If we want to cut greenhouse gas emissions, for example, we can nudge people simply by giving them vivid information about their current energy uses. Southern California Edison has encouraged consumers to conserve energy by giving them an Ambient Orb, a little ball that glows red when they are using lots of energy but green when their use is modest. Users of the Orb reduced their energy consumption in peak periods by 40 percent. If we want to increase the supply of organs to people whose lives depend on them, we can presume that people want their organs, at the time of death, to be available for use by others. The general American practice is to treat non-donation as the default, but many European countries have adopted the opposite system, called “presumed consent.” A study by Eric Johnson and Dan Goldstein showed that changing the default could save thousands of lives annually. And, if we want to protect women, who are especially vulnerable during divorce, we can rely on suitable default rules, which would ensure, as many states do not, that women’s income does not fall dramatically in the period after divorce. In all kinds of situations, governments and employers can nudge people toward making better decisions simply by making the better choice easier to adopt.

During the second half of the twentieth century, there was a lot of talk about the possibility of developing some kind of Third Way between capitalism and socialism. Now that socialism is dead, many Americans have come to think that the real decision is between two visions of capitalism — laissez-faire capitalism, which relies on unrestricted free markets, and progressive capitalism, which relies on government mandates and bans to ensure good outcomes. But this is frequently a false dichotomy. In countless domains, good choice architecture can allow governments to preserve freedom while encouraging people to make wise decisions. Sometimes, of course, governments do need to rely on mandates and bans to advance legitimate goals. But often a freedom-preserving nudge is the simplest and most effective tool of all.

Starting a Conversation: Respond to “How to Make Lazy People Do the Right Thing”

In the text boxes below, reflect on the problems and solutions presented in Thaler and Sunstein’s essay by answering the following questions:

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