When you think about innovative organizations, governments are probably not at the top of the list. Yet, in recent years, governments from South Korea and Germany to the U.S. and the U.K. have been remarkably innovative when it comes to changing people’s behaviour without relying on laws, rules or regulations and without limiting the choices available to citizens. Underlying this success has been a new approach that applies advances in behavioural science to “nudge” people towards certain choices and away from others. As a simple example, consider plastic bottle recycling. It turns out that a surprising number of people throw their used bottles in the garbage bin even when it is right next to a recycling bin. However, if the garbage bin is relabeled “landfill,” then a significantly greater number of bottles are recycled. This approach to influencing behaviour is known as “libertarian paternalism” because it doesn’t limit the choices that people have (libertarian), but it does nudge people towards particular behaviours that the government would like to encourage (paternalism). If you want to throw your plastic bottle in the landfill bin, then you can. But it turns out that many people were throwing bottles into the garbage without really thinking about it at all. A key feature of this approach is that it doesn’t cost any additional money and the government doesn’t have to introduce any rules or regulations. In the case of plastic bottles, when garbage bins are replaced they get a new label and, as a result, recycling increases and the amount of plastic that ends up in the landfill decreases.
These ideas began to take shape decades ago, when a branch of psychology, led by Amos Tversky and Daniel Kahneman, challenged the traditional assumption that people are rational decision makers. In 2002, Kahneman won a Nobel Prize in economics for this work, which over more than 40 years revealed many biases in the way humans think and behave. Recent research in this area has focused on how to help people overcome those biases. For example, in 2003, researchers at Columbia University’s Business School published a seminal paper in the journal Science that demonstrated the real world power of simple government nudges. The article was entitled “Do Defaults Save Lives?” and it examined the impact of a common decision that governments around the world have to make: do citizens opt-in to organ donation or opt-out? Governments have to decide if people don’t take any action should they be listed as organ donors or should organ donation require citizens to explicitly agree to be on the list? The researchers found that 85 per cent of Americans approve of organ donation, but only 28 per cent had opted-in and signed their donor card. The same study reported that more than 5,000 people die every year in the U.S. waiting for an organ. In comparison to other opt-in countries, Americans are actually good about choosing to be donors. The study found that in Denmark only four per cent opted-in, in Germany 12 per cent and in the U.K. 17 per cent. However, in most of the countries that had an opt-out system – that is, citizens had to take explicit action to remove themselves from the donation list – the percentage of people who gave consent for organ donation was over 99 per cent.
This and similar studies have had a real impact on how governments think about the way they present choices to people. In the U.S., Cass Sunstein, a professor at Harvard’s Law School and co-author of the book "Nudge" spent three years applying the principles of libertarian paternalism as the head of the White House Office of Information and Regulatory Affairs. The U.K. government created a specific Nudge Unit – also known as the Behavioural Insights Team – which focused on enabling people to make better choices for themselves. That unit has since been spun off as an independent advisory business that works with governments around the world. Many for-profit businesses have also adopted this approach. Google has nudged its employees towards healthier eating habits. Banks and pension funds have improved the savings and investments decisions their customers make. Even health clubs and personal trainers are using nudge techniques to motivate individuals to exercise.
Some observers have expressed concern that this approach will become more paternalistic than libertarian. But nudges work because they move people towards doing things they want to do – recycle, donate, save money, make better investment decisions, exercise regularly and so on. It is far more difficult to nudge people towards things they do not want to do. Remember that a nudge doesn’t restrict choice. If people want to throw their bottles into the landfill or opt-out of organ donation those options are still available to them.