One of the themes of this blog is that behaviour change, which attempts to affect our behaviour through the use of psychological findings – informally known as “nudging” people – is a coin with two sides. Proponents of nudge policy usually see these methods as a way to improve our lives, be it in organ donation, increasing savings rates, or encouraging prosocial behaviour (see Thaler and Sunstein’s book as an early exposition). Although there are many opponents of nudging, most critics focus on a perceived reduction in civil liberties. My view is a little different. Although there are many beneficial nudges and nudgers out there, there are also many people out there attempting to nudge us in harmful ways. I would never want to add fuel to the fires of the anti-nudge brigade, only highlight other ways in which interventions could improve behaviour (by wiping out the “dark” nudges, which seem to be proliferating everywhere).
Enthusiasm for behaviour change is growing in both public- and private sectors. There are surely many incompetent nudgers in the public sector, who perhaps attempt to change policy without performing enough randomised controlled trials to ensure that their nudges actually help people on average. And there are surely many intelligent and well-intentioned nudgers in the private sector. But in general, I would like to claim that the majority of risks in the nudge wars is posed by the imbalance of a large number of profit-seeking nudgers in the private sector, and an insufficient degree of public attention. The problem might seem relatively small at the moment, but the forces of economic incentives lead me to believe that this issue will only grow in size if left unchecked.
Economic theory teaches us that firms in the private sector aim to maximise profits (that is, take on projects where net expected cashflows exceed the firm’s required rate of return). Nudges are, quite often, incredibly profitable for the nudger. Fixed costs are very low: often it only involves a few smart people kicking ideas around a room. Marginal costs – cost per product delivered – are also very low. Some nudges, such as rephrasing or personalising an email, have effectively a zero marginal cost. Nudges can then be rolled out to a very large population quite easily. A nudge can be very profitable even if it has a tiny effect on behaviour. Companies starved of profitable opportunities in our post-Great Recession world can be expected to start looking at new avenues for making money; and nudges can be very profitable indeed. Take these two cases as examples, from a recent event on behaviour change that I attended: how hand-written envelopes can easily justify their greater costs, and how simple website choice architecture can vastly increase profits. Now I have no doubt that these nudgers have only the best of intentions, only that similar techniques could be used by others for personal gain instead of societal gain. In fact spammers, those dark urchins of the internet, are starting to pick up on these ideas. I increasingly receive unsolicited emails which are personalised with my name; how long until senders of junk mail start hand-writing their letters too? Not only might this nudge people in bad ways, but it might also reduce the effectiveness of well-intentioned nudges.
One topic of interest is whether dark nudges are merely evolved, or specifically created by people with an understanding of the relevant literature. I have no doubt that much of it is evolved (take as an early example many of the techniques spontaneously developed by practioners in Cialdini’s book). One thing is certain though: no matter how these elements of choice architecture arrive, their prevalence seems likely to increase. Random changes in firm policy that “work”, by increasing profits at the expense of customer satisfaction, can lead to firms increasing in size. Dark nudges that work can even increase the probability of copycat behaviour from competitors. And though these changes might be random, evolutionary pressures might force them to become steadily more fine-tuned over time. (The double glazing example in this post is my most terrifying example.) One point that I’d like to reject is that we can expect the forces of competition to produce only beneficial nudges; as consumers we are simply too prone to systematic biases, and too unsure about what we really want. And I have plenty of cases of very large firms nudging us in ways that can only be seen as self-serving. Perhaps their dark approach to behaviour change is what leads to their success!
We are increasingly living in a man-made world. Many institutions have evolved over time, but there is always at least an element of intentional design. Apple are experts at making things very easy for you if you buy only their products, while making it increasingly hard for you to integrate your Apple gadgets with over providers’. While technology is improving our lives all the time, there are many ways in which it can achieve gains for the few while imposing unnecessary costs on the many. My personal belief is that many features of the investing world are used merely because they help the sellers of high-cost financial services, without actually benefiting their customers at all.
An alcoholic’s first step is to admit that they have a problem. I think that there is a serious problem with how many behaviour change practitioners underestimate the scope of their field – by specifically ignoring the darker side. The next steps will be long and difficult, but only an accurate appraisal can allow these ideas to benefit us positively – and I believe the potential upside is enormous. Needless zero-sum losses in the financial sector are so vast, and do so much to increase inequality, that a few strong nudges could greatly help the majority of individual investors saving for their retirement. This will of course involve overturning the entrenched interests that currently benefit from the massive industry of exploiting investors’ systematic mistakes.
There is an ongoing struggle over how information is presented to the masses; it shouldn’t be too much hyperbole to consider it a war.