Nudge: Influencing Behaviour
Lecture 1 31-10-2022
Introduction to nudging
Traditional economics
Assumes humans are “optimal” decision making machines.
- They know what’s in their best interest
- They act on that knowledge
- Reasoning capacity is infinite
- Incentives can solve all problems
- Markets are perfectly efficient
- Every act is entirely selfish
Normally, the human mind works remarkably well. People sometimes get confused and even
when we do understand what’s best, we often don’t follow through.
Behavioral economics
More realistic assumptions about humans
- Motivated by cognitive biases
- Systematically & consistently irrational
- Largely unaware
Assumes humans predictably deviate from “optimality”. For example…
- Heuristics: shortcuts that sometimes backfire (e.g. anchoring, availability,
representativeness)
- Overreaction to losses: people detest losing
- Status quo: stick to what we have (inertia)
- Social norms: other-regarding preferences, fairness concerns, herd mentality
- Impulsivity: we want rewards right now
- Optimism and overconfidence: help us maintain positive self concept
Predictable problems
Separation of benefits and costs (should-want conflicts)
- Exercise, flossing, dieting (costs now, benefits later)
- Smoking, alcohol, chocolate (pleasure now, suffer later)
Difficulty of problem
Frequency
Feedback – only on the options we accept, not on the ones we reject
Outcome of choice difficult to predict, then nudging becomes effective
,Two systems of thinking
The two systems generally work well together, allowing us to act quickly and instinctively
when required, or allowing deep, powerful thought.
If people only decided based on their reflective, rational System 2, we wouldn’t need
nudging because people would simply consider what is best (utility, preferences) in a
given moment.
However, humans often decide with their intuitive fast System 1, especially when they
are tired, rushed, not paying attention.
The automatic system is especially prone to bias, in fact it uses bias to speed up decision
making. While the reflective system can often back up or reinforce decisions made. So,
nudging is especially helpful in these situations.
Nudge = it is a gentle push, especially in order to gain attention or give a signal. (Thaler &
Sunstein, 2008)
Libertarianism
The state should have respect for all citizens as free and equal human beings.
The state should enable all citizens to develop and pursue their own conception of the good
life.
Harm to others is only basis for legitimate government intervention.
Paternalism
The state should interfere with people’s liberties if this generates desirable outcomes.
The state should promote the interests of all citizens in living secure, healthy, wealthy and
happy lives.
Paternalism goes further than the minimalist ‘no harm’ principle of libertarianism and argues
that people should also be protected against harming themselves.
Libertarian paternalism
Libertarian paternalism or ‘nudging’ aims to improve people’s choices by being both:
- Libertarian: it does not block people’s choices and thus respects people’s liberty
- Paternalistic: it makes people better off and thus improves their well-being (health,
wealth and happiness).
,Choice architecture
A choice architect designs the choice environment so as to encourage the chooser to select
a preferred choice.
Maintains the chooser’s freedom to select other choices
Makes desirable choice available, and EASIER
Makes undesirable choice available, and HARDER
A big part of being a great choice architect is to understand nudging better. So, what are the
principles of nudges that can be observed?
Great architects design experiences that understand and build on stimulus-response
compatibility.
Great architects know or are able to predict what people want, need and how they react and
behave!
Nudging principles
Principles of nudges
- Cheap and easy way of guiding and changing behaviors.
- They are often small solutions to big problems.
- Any aspect of the “choice architecture” that alters people’s behavior in a predictable
way without forbidding options or dramatically changing economic incentives.
- They preserve freedom of choice: No force or prohibition!
- They are not mandates.
- They are transparent and must of easy to avoid.
There is no such thing as neutral design. Everything matters.
, Nudge: Influencing Behaviour
Lecture 2 01-11-2022
Intuition, overconfidence and defaults
Intuition
- Go with / trust you gut
- Play your hunch
- I have a gut feeling / my gut tells me today’s going to be a good day
- Intuition is seeing with the soul
- Intuition is the whisper of the soul
- Intuition is a superpower
Intuition = a quick judgment or a hypothesized initial proposal with little modification. It helps
with processing multiple pieces of information.
System 1 quickly proposes intuitive answers to judgment problems as they arise.
System 2 monitors the quality of these proposals, which it may endorse, correct, or override.
Predicting partner’s preferences:
Monty hall problem
Why would you want to keep the box/door? Regret, you don’t want to get tricked, endowment
effect, status quo
It makes more sense to switch to the other box/door, because of the probability of winning.
Cognitive biases:
- Incorrect reasoning (equal chances for switch vs don’t switch
- Acting as if Monty Hall’s choice is random
Emotional biases:
- Endowment effect
- Illusion of control
- Switching/change aversion
- Anticipated regret, switching and losing < sticking and losing
Lecture 1 31-10-2022
Introduction to nudging
Traditional economics
Assumes humans are “optimal” decision making machines.
- They know what’s in their best interest
- They act on that knowledge
- Reasoning capacity is infinite
- Incentives can solve all problems
- Markets are perfectly efficient
- Every act is entirely selfish
Normally, the human mind works remarkably well. People sometimes get confused and even
when we do understand what’s best, we often don’t follow through.
Behavioral economics
More realistic assumptions about humans
- Motivated by cognitive biases
- Systematically & consistently irrational
- Largely unaware
Assumes humans predictably deviate from “optimality”. For example…
- Heuristics: shortcuts that sometimes backfire (e.g. anchoring, availability,
representativeness)
- Overreaction to losses: people detest losing
- Status quo: stick to what we have (inertia)
- Social norms: other-regarding preferences, fairness concerns, herd mentality
- Impulsivity: we want rewards right now
- Optimism and overconfidence: help us maintain positive self concept
Predictable problems
Separation of benefits and costs (should-want conflicts)
- Exercise, flossing, dieting (costs now, benefits later)
- Smoking, alcohol, chocolate (pleasure now, suffer later)
Difficulty of problem
Frequency
Feedback – only on the options we accept, not on the ones we reject
Outcome of choice difficult to predict, then nudging becomes effective
,Two systems of thinking
The two systems generally work well together, allowing us to act quickly and instinctively
when required, or allowing deep, powerful thought.
If people only decided based on their reflective, rational System 2, we wouldn’t need
nudging because people would simply consider what is best (utility, preferences) in a
given moment.
However, humans often decide with their intuitive fast System 1, especially when they
are tired, rushed, not paying attention.
The automatic system is especially prone to bias, in fact it uses bias to speed up decision
making. While the reflective system can often back up or reinforce decisions made. So,
nudging is especially helpful in these situations.
Nudge = it is a gentle push, especially in order to gain attention or give a signal. (Thaler &
Sunstein, 2008)
Libertarianism
The state should have respect for all citizens as free and equal human beings.
The state should enable all citizens to develop and pursue their own conception of the good
life.
Harm to others is only basis for legitimate government intervention.
Paternalism
The state should interfere with people’s liberties if this generates desirable outcomes.
The state should promote the interests of all citizens in living secure, healthy, wealthy and
happy lives.
Paternalism goes further than the minimalist ‘no harm’ principle of libertarianism and argues
that people should also be protected against harming themselves.
Libertarian paternalism
Libertarian paternalism or ‘nudging’ aims to improve people’s choices by being both:
- Libertarian: it does not block people’s choices and thus respects people’s liberty
- Paternalistic: it makes people better off and thus improves their well-being (health,
wealth and happiness).
,Choice architecture
A choice architect designs the choice environment so as to encourage the chooser to select
a preferred choice.
Maintains the chooser’s freedom to select other choices
Makes desirable choice available, and EASIER
Makes undesirable choice available, and HARDER
A big part of being a great choice architect is to understand nudging better. So, what are the
principles of nudges that can be observed?
Great architects design experiences that understand and build on stimulus-response
compatibility.
Great architects know or are able to predict what people want, need and how they react and
behave!
Nudging principles
Principles of nudges
- Cheap and easy way of guiding and changing behaviors.
- They are often small solutions to big problems.
- Any aspect of the “choice architecture” that alters people’s behavior in a predictable
way without forbidding options or dramatically changing economic incentives.
- They preserve freedom of choice: No force or prohibition!
- They are not mandates.
- They are transparent and must of easy to avoid.
There is no such thing as neutral design. Everything matters.
, Nudge: Influencing Behaviour
Lecture 2 01-11-2022
Intuition, overconfidence and defaults
Intuition
- Go with / trust you gut
- Play your hunch
- I have a gut feeling / my gut tells me today’s going to be a good day
- Intuition is seeing with the soul
- Intuition is the whisper of the soul
- Intuition is a superpower
Intuition = a quick judgment or a hypothesized initial proposal with little modification. It helps
with processing multiple pieces of information.
System 1 quickly proposes intuitive answers to judgment problems as they arise.
System 2 monitors the quality of these proposals, which it may endorse, correct, or override.
Predicting partner’s preferences:
Monty hall problem
Why would you want to keep the box/door? Regret, you don’t want to get tricked, endowment
effect, status quo
It makes more sense to switch to the other box/door, because of the probability of winning.
Cognitive biases:
- Incorrect reasoning (equal chances for switch vs don’t switch
- Acting as if Monty Hall’s choice is random
Emotional biases:
- Endowment effect
- Illusion of control
- Switching/change aversion
- Anticipated regret, switching and losing < sticking and losing
