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Emerson Murphy’s Economics Essay

NCH London | July 26, 2019

‘Nudges have been successfully used by governments around the world to influence people’s behaviours (Thaler 2008), but will we become immune to such ‘tricks’?’

Homo Economicus has been dead for quite some time now. His last breath signalled the end of a period of the simplistic and convenient idea of wholly rational economic actors, and ushered in the mandatory period of mourning deemed proper for reflection on the life of such an influential
individual. As this tedious epoch has drawn to a close, we have witnessed the emergence of the new field of behavioural economics, the rise of which has signalled its aspirations of further prominence and as a potential candidate for the long-vacant position once held by the late Homo Economicus. Its advocates have found felicitous application for the study of human irrationality and inadequate decision-making, exploring ways of manipulating such shortcomings to meet the needs of private and public interests. The term ‘nudge’, first hatched by the economists Richard Thaler and Cass Sunstein in their collaborative work on behavioural economics, of which it was the title, and for which Thaler was awarded the Nobel Prize in 2008, is defined as: ‘any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting junk food at eye level counts as a nudge. Banning junk food does not.’

In the midst of the economic encumbrance which ensued from 2008’s turbulence, governments, decided on the necessity of austerity, were avid listeners with regards to potential measures and innovative policies designed to curb the worst effects of their fiscal tightening. Such psychological techniques, or ‘nudges’, have become common tools, adopted by the powers of governance with remarkable effectiveness. However, the increasingly frequent application of ‘Nudge’ theory has raised the possibility of those targeted developing an ‘immunity’ to what many see as the ‘trickery’ of governments attempting to impose their will on consumers, abridging their liberty and independence. The prospect of the decline in the performance of ‘nudges’, regardless of the causes of such an occurrence – natural, subconscious immunity or a conscious, awareness-induced nonconformity – is a harrowing possibility. It must be addressed, and its likelihood evaluated, if we are to circumvent the damaging consequences it would inflict on our health, various market failures ‘nudges’ have so far been sufficient to address, and on services on which society depends.

Nudges come in many forms. The British Government, one of the first to officially integrate the theory into its toolbox, established the Behavioural Insights Team (BIT), known colloquially as the ‘Nudge Unit’. Its success has been highly influential, and has included projects such as using social norms by adding a notice, that most people pay their taxes on time, to the letters sent from HM Revenue and Customs. The most successful message led to a 5% increase in tax payments. Another example of such results was when letters sent to non-payers of car tax included a photograph of the offending vehicle and subsequently increased rates of payment from 40% to 49%. The BIT even successfully trialled a plan to increase voter turnout at a local election by offering the chance to win a cash prize. When the prize was £1000, turnout increased by 3.3%, and when it was £5000, participation rose by 4.2%. While these projects have all proved noticeable successes, the extent to which immunity could be developed to these methods varies.

As aforementioned, a fall in the effectiveness of ‘nudges’ would be the result of either a subconscious immunity to their influences, or a deliberate revolt against what could be seen as government coercion. Many fear the loss of nudges’ effectiveness as human minds adapt to their increasing commonality – anticipating widespread development of immunity. However, extensive use of nudges cannot alter our innate characteristics which have been so deeply ingrained in us through the process of evolution. It has rendered our species vulnerable to social pressures, lazy, impulsive, and anxious to avoid loss despite attractive gain (loss averse). Furthermore, the many forms which nudges can assume, penetrating our lives in innumerable ways with countless subtleties, mean that, while the effect of one type of nudge wears off, another may influence our decisions with undiminishing potency. For example, the effect of providing individuals with information as to the contents of different foods, with an aim of encouraging healthy eating, cannot wear off. Whilst people can make the choice of being blissfully ignorant of such information if it is not immediately obvious, if strategically placed on the packaging of certain goods, such data cannot be avoided. Therefore, the only potential reason for the ineffectiveness of such a measure could be that the consumer manages to dissuade themselves of its accuracy or validity. This cannot be done to any effect, just as one may not simply choose to believe that Australia does not exist in the face of overwhelming evidence to the contrary.

On the other hand, if people are made aware of their biases, there are many instances in which conscious measures may be taken in order to improve one’s objective decision-making. This is best illustrated by the routine exploitation of our indecisiveness and laziness through the use of the default option. This is a common technique often used to skew the responses to questions on forms for which the responder chooses whether or not to tick a box to communicate their preferences. The most-cited example of this is the organ donation ‘opt out system’ in which all citizens are placed on the donation list unless they explicitly specify that they do not want to donate. In these ‘opt out’ countries, such as Austria, donation rates are consistently higher than 90% while in ‘opt in’ countries, such as the USA (in which no donation is the default), rates are as low as 15%. Despite the cavernous discrepancy between the two categories, the way that this type of nudge is easily identifiable means that awareness of this strategy would suffice to induce responders to choose their answers with greater care, reflecting their genuine preferences rather than their inherent inertia. This could also potentially apply to the example of the use of social norms to improve the rates of payment of road tax: such efforts are easily identifiable and therefore their effects are more prone to a loss of effectiveness.

Some action taken on the increased awareness of the general populace to nudge theory is, doubtless, beneficial – insofar as it enhances humans’ rationality (as exhibited above). There is, however, the issue of potential ‘rebellion’ against the intended aims of governments as consumers grow in their disillusionment of its methods. The private sector is no stranger to such challenges. The mixed results yielded from its experimentation with nudges warn of such conscious rebellion against nudge theorists’ willingness to exploit human nature. Before mass public exposure to these methods, their application bore nothing but profits. However, following the publicity nudge theory has received, a negative response when tactics are too forceful was inevitable. They induce individuals to seek the satisfaction of purposely inhibiting the objectives of the private entity. When perceived as condescending, this is particularly noticeable – the marketer appearing to suggest to the consumer, ‘You are too weak-minded and you don’t have enough self-control. Unless I nudge you, you will not do the right thing’. However, there is a key difference between governmental and private use of nudges. In the case of the private sector, firms intend to profit from and manipulate consumers’ irrationality. People are much less likely to extract satisfaction from rebellion against governments’ nudging if it is aimed at improving societal well-being. A recent study across five countries (Belgium, Germany, Denmark, South Korea and the US) shows strong approval for a list of fifteen nudges on which the survey was based. When good intentions are the main motivation for the implementation of nudges (improving hospital appointment attendance through SMS messages or encouraging charitable giving, for example), public approval is overwhelming. When assessing the threats to the governmental nudges, the possibility of public revolt is, at least for now, negligible.

A potential challenge to this view is the ever vocal libertarian narrative of such government intervention as an unwarranted curtailment of individuals’ freedoms. While there is a risk that too forceful a nudge can be seen as manipulative, most – and those worthy of support – do not undermine the libertarian ideals of personal autonomy and freedom. In many cases, nudges actually contribute to the autonomy of an individual, partly because they allow them to devote limited time and resources to their most urgent concerns. Furthermore, individuals, reluctant to admit that they are personally affected, will not see such interventions as an infringement of their own freedoms. Furthermore, its contrast with the rarely-criticised method of taxation by which governments raise funds – a much more forceful means to an end than even the most blatant attempts at psychological trickery – means that disapproval is unlikely. Unlike taxation, the ultimate decision remains with the individual who faces no obligation to choose one option over its alternative. It is perhaps to be prefered by libertarians as an alternative to further reliance on taxes and enforcing their payment through coercive means.

The nudge is, for now, safe. Immunity is likely to have some impact as awareness of the main factors influencing our decision making become more widespread. However, the prospect of comprehensive hostility seems only a far-off possibility – so long as the motives remain socially noble. Even society’s factions which one would expect to stand in opposition to such measures have little cause for complaint. The Nudge looks set to only grow in significance and relevance. Nevertheless, it must not be forgotten that its promising life-expectancy is as accountable to change and chance as was that of Homo Economicus.

Emerson Murphy

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