To Nudge or not to Nudge
by Simon Bartke, Researcher at the Kiel Institute for the World Economy. Organizer of the Session: “Incorporating Behavioral Economics into Policy Making” at the GES 2015.
Every eight hours a person has to die in Germany because he did not receive a matching donor organ. While the waiting lists for organs are growing every year, only around 27% of Germans possess an organ donor card. Strangely enough, according to a survey conducted by the German Foundation for Organ Transplantation more than 70% of the respondents claim to be willing to become a donor. How can we explain this massive mismatch? In Germany, people have to give their explicit consent to become a donor, for example through filling in a donor card. Apparently, many people fail to take this step, as this implies a certain amount of work like informing oneself, processing the information and finally getting into action. This example shows that our actions and decisions are not always consistent with our wants.
In many situations our intuition is misleading and errors are difficult to prevent, as our decisions are being unconsciously influenced. Sometimes we might simply lack the willpower to implement our preferred alternative. Sometimes a decision is so complex that it is almost impossible for us to correctly anticipate its consequences, which is why we resort to simplifying, but alas often incorrect rules of thumb. We also experience quite intense conflicts between our short-term and long-term interests. Just think how many people fail to quit smoking or to keep a diet. Although we are often confident even when we are wrong, no one of us can safely claim that he always decides rationally and that he would not benefit from a little help from time to time.
So what can be done to help people to align their decisions with their wants? In the case of organ donations a very simple intervention could save thousands of lives. Why not change the default from presumed rejection of being a donor to presumed agreement? If we have reason to believe that many people would like to be a donor, but are just too lazy to sign in, the effect should be immense. Indeed, in countries which presume that people agree to be a donor – like for example Austria- we find much higher donation rates. People in Austria can indicate their refusal by simply completing a form, but according to a study by the Austrian Federal Institute for the Health Sector from 2013 only 0.37% did. The choice is still yours, but obviously significant changes can be achieved just by modifying the default. People can be “nudged”.
It is hardly surprising that the concept of nudging is currently gaining more and more interest, not only among economists but also among policymakers. It represents an enormous potential to encourage certain forms of behavior without a new law or ban and at presumably low costs. Crucial for a nudge is that while it is designed to influence people´s decisions towards certain outcomes, it does not restrict their freedom of choice like a ban or another regulation. If you do not support the planner´s preferred option you can still depart from it. The thoughtful choice of a default is only one example of how a nudge can work. The framing of a decision problem is also decisive. Irrationally, we are more likely to agree to a surgery, where the survival rate is 90% than to one with a mortality rate of 10%. A nudge could also take advantage of our tendency to conform to social norms and to follow the herd. Experiments show that if households are informed about the energy consumption of their neighbors, they do not only move their consumption closer to the average, but also reduce total consumption.
An important argument used to defend nudging against the accusation of being an unnecessary interference is that in many decision situations a neutral design is not even possible. Even if you would send all people a form to make them decide actively whether they want to become an organ donor or not – which obviously implies a huge amount of bureaucracy – you have to decide what happens with those who never hand in the form. You often need a default and this default will influence people´s decision.
So if people are going to be biased anyway, should we not try to nudge them towards a decision that benefits them? If we can save thousands of lives by only changing the default it would be even irresponsible to ignore this option. There is a broad range of applications for nudges in our everyday life from increasing our environmental consciousness over improving our diet to helping us to choose the best savings plan for our retirement. Obviously, there are also situations in which we would not want to be nudged and would like to decide freely and uninfluenced what we want – especially as others do not necessarily have to make better decisions than we would on our own. Defining the borders of nudging is not an issue, which can be solved easily, and, in some respects, it is rather a philosophic and ideological than an economic problem. Nevertheless, it would be wrong to reject nudges in general, since we can obviously benefit from them. If applied carefully nudges could become a powerful tool and represent an opportunity to help us to make more sophisticated decisions without imposing them on us.