A Firm Nudge

FINANCIAL TIMES
August 12, 2008

THE DRAMATIC EFFECT OF A FIRM NUDGE
By Cass Sunstein and Richard Thaler

In the past three decades, psychologists and behavioural economists have learnt that people's choices can be dramatically affected by subtle features of social situations. For example, inertia turns out to be a powerful force. If people's magazine subscriptions are automatically renewed, they renew a lot more than if they have to send in a renewal form. Moreover, people are influenced by how problems are framed. If told that salami is "90 per cent fat-free" they are far more likely to buy salami than if they are told it is "10 per cent fat".

Social norms matter a lot. If people think others are recycling, or paying their taxes, they are far more likely to recycle and to pay their taxes. The important message is that small details can induce large changes in behaviour.

Findings of this kind suggest that even when people have freedom of choice they are influenced, or nudged, by the context in which their decisions are made. This power gives business and governments opportunities. Automatically enrolling people in a savings plan dramatically increases participation, even though people retain the right to opt out. Informing citizens of how their energy use compares with that of neighbours can nudge energy hogs into adjusting their thermostats. ...