Nudge Richard Thaler Quotes

A choice architect has the responsibility for organizing the context in which people make decisions.

First, never underestimate the power of inertia. Second, that power can be harnessed.

The combination of loss aversion with mindless choosing implies that if an option is designated as the “default,” it will attract a large market share. Default options thus act as powerful nudges.

people have a strong tendency to go along with the status quo or default option.

you want to nudge people into socially desirable behavior, do not, by any means, let them know that their current actions are better than the social norm.

The first misconception is that it is possible to avoid influencing people’s choices.

Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened.

A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.

The more choices you give people, the more help with decision making you need to provide.

Just as no building lacks an architecture, so no choice lacks a context.

The moral is that people are paying less attention to you than you believe.

Schiphol Airport in Amsterdam. There the authorities have etched the image of a black housefly into each urinal. It seems that men usually do not pay much attention to where they aim, which can create a bit of a mess, but if they see a target, attention and therefore accuracy are much increased.

So to put it simply, forcing people to choose is not always wise, and remaining neutral is not always possible.

MBA students are not the only ones overconfident about their abilities. The “above average” effect is pervasive. Ninety percent of all drivers think they are above average behind the wheel,

An especially good way to gain weight is to have dinner with other people. On average, those who eat with one other person eat about 35 percent more than they do when they are alone; members of a group of four eat about 75 percent more; those in groups of seven or more eat 96 percent more.

Loss aversion helps produce inertia, meaning a strong desire to stick with your current holdings.

People are unrealistically optimistic even when the stakes are high. About 50 percent of marriages end in divorce, and this is a statistic most people have heard. But around the time of the ceremony, almost all couples believe that there is approximately a zero percent chance that their marriage will end in divorce—even those who have already been divorced!10 (Second marriage, Samuel Johnson once quipped, “is the triumph of hope over experience.”)

Recall that people like to do what most people think it is right to do; recall too that people like to do what most people actually do.

Roughly speaking, losing something makes you twice as miserable as gaining the same thing makes you happy. In more technical language, people are “loss averse.

One of the causes of status quo bias is a lack of attention. Many people adopt what we will call the “yeah, whatever” heuristic.

Real people have trouble with long division if they don’t have a calculator, sometimes forget their spouse’s birthday, and have a hangover on New Year’s Day.

In complex situations, the Just Maximize Choices mantra is not enough to create good policy.

make an active decision

Markowitz’s strategy can be viewed as one example of what might be called the diversification heuristic. “When in doubt, diversify.

our understanding of human behavior can be improved by appreciating how people systematically go wrong.

a nudge is any factor that significantly alters the behavior of Humans,

It turns out that if you ask people, the day before the election, whether they intend to vote, you can increase the probability of their voting by as much as 25 percent!

First, incentives are not properly aligned. If you engage in environmentally costly behavior next year, through your consumption choices, you will probably pay nothing for the environmental harms that you inflict.

In economics (and in ordinary life), a basic principle is that you can never be made worse off by having more options, because you can always turn them down. Before Thaler removed the nuts the group had the choice of whether to eat the nuts or not—now they didn’t. In the land of Econs, it is against the law to be happy about this!

Unrealistic optimism is a pervasive feature of human life; it characterizes most people in most social categories. When they overestimate their personal immunity from harm, people may fail to take sensible preventive steps. If people are running risks because of unrealistic optimism, they might be able to benefit from a nudge. In fact, we have already mentioned one possibility: if people are reminded of a bad event, they may not continue to be so optimistic.

First, never underestimate the power of inertia. Second, that power can be harnessed. If private companies or public officials think that one policy produces better outcomes, they can greatly influence the outcome by choosing it as the default.

A slightly longer answer is that people will need nudges for decisions that are difficult and rare, for which they do not get prompt feedback, and when they have trouble translating aspects of the situation into terms that they can easily understand. In

Luckily, scientists have uncovered a few secrets to help make the process of creating habits easier. In their bestselling book Nudge, the economist Richard Thaler and the law professor Cass Sunstein show how to influence other people’s behavior through carefully designed choices, or what they called “choice architecture.” You

(Hint: always take the largest deductible you can. It will save you a lot of money over the long run.)

Recall that the more insurance you buy, the more you pay, and the right to sue is a form of insurance.

The nudge provided by asking people what they intend to do can be accentuated by asking them when and how they plan to do it. This

Doctors are crucial choice architects, and with an understanding of how Humans think, they could do far more to improve people’s health and thus to lengthen their lives.

specific values to objects. When they have to give something up, they are hurt more than they are pleased if they acquire the very same thing.

we will see, loss aversion operates as a kind of cognitive nudge, pressing us not to make changes, even when

people’s choices are pervasively influenced by the design elements selected by choice architects.

That does not mean something is wrong with us as humans, but it does mean that our understanding of human behavior can be improved by appreciating how people systematically go wrong.

What this means is that people do not assign specific values to objects. When they have to give something up, they are hurt more than they are pleased if they acquire the very same thing.

special case of this rule of thumb is what might be called the “1/n” heuristic: “When faced with ‘n’ options, divide assets evenly across the options.”3 Put the same number of eggs in each basket.

Benefits Now—Costs Later We have seen that predictable problems arise when people must make decisions that test their capacity for self-control. Many choices in life, such as whether to wear a blue shirt or a white one, lack important self-control elements. Self-control issues are most likely to arise when choices and their consequences are separated in time. At one extreme are what might be called investment goods, such as exercise, flossing, and dieting. For these goods the costs are borne immediately, but the benefits are delayed. For investment goods, most people err on the side of doing too little. Although there are some exercise nuts and flossing freaks, it seems safe to say that not many people are resolving on New Year’s Eve to floss less next year and to stop using the exercise bike so much. At the other extreme are what might be called sinful goods: smoking, alcohol, and jumbo chocolate doughnuts are in this category. We get the pleasure now and suffer the consequences later. Again we can use the New Year’s resolution test: how many people vow to smoke more cigarettes, drink more martinis, or have more chocolate donuts in the morning next year? Both investment goods and sinful goods are prime candidates for nudges. Most (nonanorexic) people do not need any special encouragement to eat another brownie, but they could use some help exercising more.

The false assumption is that almost all people, almost all of the time, make choices that are in their best interest or at the very least are better than the choices that would be made by someone else.

The winning formulation was to say, “Nine out of ten people in the UK pay their tax on time. You are currently in the very small minority of people who have not paid us yet.” Notice this short message conveys (truthfully) both that most people pay on time and that you are in the minority of those who don’t. A follow-up experiment found that the message could be further strengthened by making it local, as in “Nine out of ten taxpayers in Manchester pay on time.” The impact of these letters was substantial, increasing the number of people paying within the first twenty-three days by as much as five percentage points.24 That may not sound like a large

If you look at economics textbooks, you will learn that homo economicus can think like Albert Einstein, store as much memory as IBM’s Big Blue, and exercise the willpower of Mahatma Gandhi. Really. But the folks that we know are not like that. Real people have trouble with long division if they don’t have a calculator, sometimes forget their spouse’s birthday, and have a hangover on New Year’s Day. They are not homo economicus; they are homo sapiens.

We are also greatly influenced by consumption norms within the relevant group. A light eater eats much more in a group of heavy eaters. A heavy eater will show more restraint in a light-eating group. The group average thus exerts a significant influence. But there are gender differences as well. Women often eat less on dates; men tend to eat a lot more, apparently with the belief that women are impressed by a lot of manly eating. (Note to men: they aren’t.) So

Large plates and large packages mean more eating; they are a form of choice architecture, and they work as major nudges. (Hint: if you would like to lose weight, get smaller plates, buy little packages of what you like, and don’t keep tempting food in the refrigerator.)

You might think that employees have especially good information about their firm’s future prospects, but a careful study by Shlomo Benartzi (2001) finds otherwise. Specifically, there is no correlation between the allocation to company stock and subsequent stock performance.

It follows that either desirable or undesirable behavior can be increased, at least to some extent, by drawing public attention to what others are doing. (Note to political parties: If you would like to increase turnout, please do not lament the large numbers of people who fail to vote.)*

Or consider this one: people’s judgments about strangers are affected by whether they are drinking iced coffee or hot coffee! Those given iced coffee are more likely to see other people as more selfish, less sociable, and, well, colder than those who are given hot coffee.27 This, too, happens quite unconsciously.

There is a new wave of interest in exploring how to frame choices so that people make better decisions. Richard Thaler and Cass Sunstein, professors of economics and law, respectively, teamed up to write Nudge: Improving Decisions About Health, Wealth, and Happiness, which advocates using defaults to nudge us to make better choices.9 Even when we are choosing in our own interests, we often choose unwisely. When employees have the option of participating in a retirement-savings scheme, many do not, despite the financial advantages of doing so. If their employer instead automatically enrolls them, giving them the choice of opting out, participation jumps dramatically

Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened. If people want to smoke cigarettes, to eat a lot of candy, to choose an unsuitable health care plan, or to fail to save for retirement, libertarian paternalists will not force them to do otherwise—

The money that has recently been won is called “house money” because in gambling parlance the casino is referred to as the house. Betting some of the money that you have just won is referred to as “gambling with the house’s money,” as if it were, somehow, different from some other kind of money. Experimental evidence reveals that people are more willing to gamble with money that they consider house money.

A choice architect has the responsibility for organizing the context in which people make decisions. [T]here are many parallels between choice architecture and more traditional forms of architecture. A crucial parallel is that there is no such thing as a “neutral” design. [A]s good architects know, seemingly arbitrary decisions, such as where to locate the bathrooms, will have subtle influences on how the people who use the building interact. [S]mall and apparently insignificant details can have major impacts on people’s behavior. [I]n many cases, the power of these small details comes from focusing the attention of users in a particular direction. Good architects realize that although they can’t build the perfect building, they can make some design choices that will have beneficial effects. And just as a building architect must eventually build some particular building, a choice architect must [for example] choose a particular arrangement of food options at lunch, and by so doing she can influence what people eat. She can nudge.

A third positive result even further from the traditional tool kit of financial incentives comes from a recent randomized control trial conducted in the U.K., using the increasingly popular and low-cost method of text reminders. This intervention involved sending texts to half the parents in some school in advance of a major math test to let them know that their child had a test coming up in five days, then in three days, then in one day. The researchers call this approach “pre-informing.” The other half of parents did not receive the texts. The pre-informing texts increased student performance on the math test by the equivalent of one additional month of schooling, and students in the bottom quartile benefited most. These children gained the equivalent of two additional months of schooling, relative to the control group. Afterward, both parents and students said they wanted to stick with the program, showing that they appreciated being nudged. This program also belies the frequent claim, unsupported by any evidence, that nudges must be secret to be effective.

After all, behavioral economists have spent years demonstrating the clear relationship between making something easy to do and getting people to actually do it. My very good friend and longtime collaborator Richard Thaler puts it this way: “My number-one mantra from Nudge [his book, cowritten with Cass Sunstein, on the application of behavioral economic principles to public policy] is, ‘Make it easy.’ When I say make it easy, what I mean is, if you want to get somebody to do something, make it easy. If you want to get people to eat healthier foods, then put healthier foods in the cafeteria, and make them easier to find, and make them taste better. So in every meeting I say, ‘Make it easy.’ It’s kind of obvious, but it’s also easy to miss.”7

In the language of economics, the group is said to display behavior that is dynamically inconsistent. Initially people prefer A to B, but they later choose B over A. We can see dynamic inconsistency in many places. On Saturday morning people might say that they prefer exercising to watching television, but once the afternoon comes, they are on the couch at home watching the football game. How can such behavior be understood? Two factors must be introduced in order to understand the cashew phenomenon: temptation and mindlessness. Human beings have been aware of the concept of temptation at least since the time of Adam and Eve, but for purposes of understanding the value of nudges, that concept needs elaboration. What does it mean for something to be “tempting”?

Singer, and Jones (1965) on the campus of Yale University. The subjects were Yale seniors who were given some persuasive education about the risks of tetanus and the importance of going to the health center to receive an inoculation. Most of the students were convinced by the lecture and said that they planned to go get the shot, but these good intentions did not lead to much action. Only 3 percent actually went and got the shot. Other subjects were given the same lecture but were also given a copy of a campus map with the location of the health center circled. They were then asked to look at their weekly schedules, make a plan for when they would go and get the shot, and look at the map and decide what route they would take. With these nudges, 28 percent of the students managed to show up and get their tetanus shot. Notice that this manipulation was very

Self-control problems can be illuminated by thinking about an individual as containing two semiautonomous selves, a far-sighted “Planner” and a myopic “Doer.” You can think of the Planner as speaking for your Reflective System, or the Mr. Spock lurking within you, and the Doer as heavily influenced by the Automatic System, or everyone’s Homer Simpson. The Planner is trying to promote your long-term welfare but must cope with the feelings, mischief, and strong will of the Doer, who is exposed to the temptations that come with arousal. Recent research in neuroeconomics (yes, there really is such a field) has found evidence consistent with this two-system conception of self-control. Some parts of the brain get tempted, and other parts are prepared to enable us to resist temptation by assessing how we should react to the temptation.1 Sometimes the two parts of the brain can be in severe conflict—a kind of battle that one or the other is bound to lose.

As good architects know, seemingly arbitrary decisions, such as where to locate the bathrooms, will have subtle influences on how the people who use the building interact. Every trip to the bathroom creates an opportunity to run into colleagues, for better or for worse. A good building is not merely attractive, it also works. As we shall see, small and apparently insignificant details can have major impacts on people's behaviour. A good rule of thumb is to assume that everything matters. In many cases, the power of these small details come from focusing the attention of users in a particular direction. A wonderful example of this principle comes from, of all places, the men's rooms at Schiphol airport in Amsterdam. There, the authorities etched the image of a black housefly into each urinal. It seems that men usually do not pay much attention to where they aim, which can create a bit of a mess. But if they see a target, attention, and therefore accuracy, are much increased. According to the man who came up with the idea, it works wonders... Etchings reduced spillage by 80%. The insight that everything matters can be both paralysing and empowering.

Life as an Enron employee was good. Prestwood’s annual salary rose steadily to sixty-five thousand dollars, with additional retirement benefits paid in Enron stock. When Houston Natural and Internorth had merged, all of Prestwood’s investments were automatically converted to Enron stock. He continued to set aside money in the company’s retirement fund, buying even more stock. Internally, the company relentlessly promoted employee stock ownership. Newsletters touted Enron’s growth as “simply stunning,” and Lay, at company events, urged employees to buy more stock. To Prestwood, it didn’t seem like a problem that his future was tied directly to Enron’s. Enron had committed to him, and he was showing his gratitude. “To me, this is the American way, loyalty to your employer,” he says. Prestwood was loyal to the bitter end. When he retired in 2000, he had accumulated 13,500 shares of Enron stock, worth $1.3 million at their peak. Then, at age sixty-eight, Prestwood suddenly lost his entire Enron nest egg. He now survives on a previous employer’s pension of $521 a month and a Social Security check of $1,294. “There aint no such thing as a dream anymore,” he says. He lives on a three-acre farm north of Houston willed to him as a baby in 1938 after his mother died. “I hadn’t planned much for the retirement. Wanted to go fishing, hunting. I was gonna travel a little.

1.​கல் மேல் நடந்த காலம் – சு. தியோடர் பாஸ்கரன் 2.​அக்னிச் சிறகுகள் – அப்துல் கலாம் 3.​தென்னாப்பிரிக்காவில் காந்தி 4.​Rich Dad Poor Dad – Robert Kiyosaki 5.​The Art of War - Sunzi 6.​Steal Like an Artist - Austin Kleon 7.​என் இளமைக்கால நினைவுகள் - ஓஷோ 8.​புதுமைப்பித்தன் சிறுகதைகள் 9.​ஜெயகாந்தன் சிறுகதைகள் 10.​அசோகமித்திரன் சிறுகதைகள் 11.​ஓலைப்பட்டாசு சிறுகதைத் தொகுதி, கற்றதும் பெற்றதும் – சுஜாதா 12.​புயலிலே ஒரு தோணி, கடலுக்கு அப்பால் – ப. சிங்காரம் நாவல்கள் 13.​Ogilvy David Advertising Books 14.​இன்றைய காந்தி, சங்கச் சித்திரங்கள், இந்து ஞான மரபில் ஆறு தரிசனங்கள், அறம் சிறுகதைத் தொகுப்பு – ஜெயமோகன் 15.​திருடன் மணியன்பிள்ளை - ஜி. ஆர். இந்துகோபன் 16.​சு. தியோடர் பாஸ்கரனின் சூழியல் நூல்கள் 17.​அன்னா கரினீனா, போரும் வாழ்வும் – லியோ டால்ஸ்டாய் 18.​குற்றமும் தண்டனையும், அசடன் – பியோதர் தஸ்தாயெவ்ஸ்கி 19.​The Magic Mountain – Thomas Mann 20.​ரேமண்ட் கார்வர் கதைகள் 21.​ஆண்டன் செகாவ் கதைகள் 22.​என் சரித்திரம் – உ. வே. சாமிநாதய்யர் 23.​The 7 Habits of Highly Effective People – Stephen R. Covey 24.​Nudge – Richard Thaler 25.​மூதாதையரைத் தேடி - சு.கி.ஜெயகரன் 26.​இந்திய வரலாறு: காந்திக்குப் பிறகு – ராமச்சந்திர குஹா 27.​எமதுள்ளம் சுடர் விடுக – பிரபஞ்சன் 28.​தேசாந்திரி – எஸ். ராமகிருஷ்ணன் 29.​ஆழமான கேள்விகள் அறிவார்ந்த பதில்கள் – ஸ்டீபன் ஹாக்கிங் 30.​உருவாகி வரும் உள்ளம் - விளையனூர் எஸ். ராமச்சந்திரன் 31.​சேப்பியன்ஸ் - யுவால் நோவா ஹராரி 32.​ஹோமோடியஸ் - யுவால் நோவா ஹராரி 33.​கோபல்ல கிராமம் – கி. ராஜநாராயணன் 34.​அ. முத்துலிங்கம் சிறுகதைகள் & வியத்தலும் இலமே 35.​சோஃபியின் உலகம் - யொஸ்டைன் கார்டேர் 36.​வந்தார்கள் வென்றார்கள் – மதன் 37.​குருதிப்புனல் – இந்திரா பார்த்தசாரதி 38.​இந்தியப் பயணங்கள் – ஏ. கே. செட்டியார் 39.​காலை எழுந்தவுடன் தவளை – பிரையன் டிரேசி 40.​சுதந்திரத்தின் நிறம் – லாரா கோப்பா 41.​கொங்குதேர் வாழ்க்கை – 2 (நவீன தமிழ்க் கவிதைகளின் தொகுப்பு) 42.​மோக முள் – தி.ஜானகிராமன் 43.​பொன்னியின் செல்வன் – கல்கி 44.​எட்டுத் திக்கும் மதயானை, கம்பனின் அம்பறாத்தூணி – நாஞ்சில்நாடன் 45.​புளியமரத்தின் கதை – சுந்தர ராமசாமி 46.​சிலப்பதிகாரம் 47.​காவல் கோட்டம் – சு. வெங்கடேசன் 48.​வேலையைக் காதலி – ஆர். கார்த்திகேயன் 49.​அப்பம் வடை தயிர் சாதம் – பாலகுமாரன் 50.​யேசு கதைகள் – பால் ஸக்காரியா நீங்கள் வாசிப்பிலும் வாழ்க்கையிலும் உயர என் நெஞ்சார்ந்த வாழ்த்துக்கள்! [1] நூல்: புன்னகைக்கும் பிரபஞ்சம். மொழிபெயர்ப்பு: செங்கதிர்

As for information and educational campaigns, one of the main lessons from psychology is that it is impossible for such programs to be “neutral,” regardless of how scrupulously designers try to achieve that goal. So to put it simply, forcing people to choose is not always wise, and remaining neutral is not always possible.

The first is that seemingly small features of social situations can have massive effects on people’s behavior; nudges are everywhere, even if we do not see them. Choice architecture, both good and bad, is pervasive and unavoidable, and it greatly affects our decisions. The second claim is that libertarian paternalism is not an oxymoron. Choice architects can preserve freedom of choice while also nudging people in directions that will improve their lives.

Hundreds of studies confirm that human forecasts are flawed and biased. Human decision making is not so great either. Again to take just one example, consider what is called the “status quo bias,” a fancy name for inertia. For a host of reasons, which we shall explore, people have a strong tendency to go along with the status quo or default option.

individual risk taking, especially in the domain of risks to life and health.

Self-control issues are most likely to arise when choices and their consequences are separated in time.

Two of the best restaurants in Chicago (Alinea and Charlie Trotter’s) give their diners the fewest choices. At Alinea diners just decide whether they want fifteen very small plates or twenty-five tiny ones. At Charlie Trotter’s, the diner is asked only whether to limit the dining to vegetables or not. (In both, one is asked about dietary restrictions and allergies.) The benefit of having so little choice is that the chef is authorized to cook you things you would never have thought to order.

The three social influences that we have emphasized—information, peer pressure, and priming—can easily be enlisted by private and public nudgers. As we will see, both business and governments can use the power of social influence to promote many good (and bad) causes.

Generally, the higher the stakes, the less often we are able to practice.

Marriage might be seen, in part, as a solution to a self-control problem, in which people take steps to increase the likelihood that their relationship will endure. If divorce is difficult, then marriages are more likely to be stable. Marital stability is usually good for children (though children can also benefit from the end of a bad marriage).

We can even see the legal institution of marriage as a precommitment strategy, not unlike that of Ulysses in approaching the Sirens, in which people knowingly choose a legal status that will protect them against their own errors.

Private relationships, intimate and otherwise, might be structured in many different ways, and the simple dichotomy between “single” and “married” does not do justice to what people might choose.

Given that people would often choose not to choose, it is hard to see why freedom lovers should compel choice even though people (freely and voluntarily) resist it. If we ask the waiter to select a good bottle of wine to go with our dinner, we will not be happy if he says that we should just choose for ourselves!

14. Procrastinator’s Clock. For those who are chronically late to meetings, there’s the Procrastinator’s Clock, a downloadable program for your computer, that displays a digital clock that is guaranteed to be up to fifteen minutes fast. How fast? Well, that’s the nudge. You are never exactly sure because the clock unpredictably speeds up and slows down. That assures that users can’t game the system. We think that this device might help the lawyer of this team (who shall remain nameless) get to Noodles on time for lunch. A physical version of this clock has already been patented by a company called Emergent Technologies.

As usual, the place to start is with people’s actual goals and intentions. If people make explicit promises to one another, the law should generally enforce their promises. ========== Nudge: Improving Decisions About Health, Wealth, and Happiness (Thaler, Richard H.;Sunstein, Cass R.) - Your

Marriage might be seen, in part, as a solution to a self-control problem, in which people take steps to increase the likelihood that their relationship will endure. If divorce is difficult, then marriages are more likely to be stable. Marital stability is usually good for children (though children can also benefit from the end of a bad marriage). ========== Nudge: Improving Decisions About Health, Wealth, and Happiness (Thaler, Richard H.;Sunstein,

Compare subliminal advertising to something just as cunning. If you want people to lose weight, one effective strategy is to put mirrors in the cafeteria.

10. Calories count in New York City. The Big Apple recently adopted a law that requires fast-food restaurants with at least fifteen outlets in the city to post, in prominent places, the calories of each of their food items so that customers can make informed choices.

People are unrealistically optimistic even when the stakes are high. About 50 percent of marriages end in divorce, and this is a statistic most people have heard. But around the time of the ceremony, almost all couples believe that there is approximately a zero percent chance that their marriage will end in divorce—even those who have already been divorced!10 (Second marriage, Samuel Johnson once quipped, “is the triumph of hope over experience.”) ========== Nudge: Improving Decisions About Health, Wealth, and Happiness (Thaler, Richard

Private relationships, intimate and otherwise, might be structured in many different ways, and the simple dichotomy between “single” and “married” does not do justice to what people might choose. ========== Nudge: Improving Decisions About Health, Wealth, and Happiness (Thaler, Richard H.;Sunstein, Cass R.)

PM The upshot is that where the law is unclear, long and intense disputes are likely. Both sides would benefit if they could be nudged toward a smaller range of expected outcomes, so that their expectations will have some overlap. ========== Nudge: Improving Decisions About Health, Wealth, and Happiness (Thaler, Richard H.;Sunstein, Cass R.)

Trayless cafeterias. Cafeteria managers have been taking a keen interest in reducing food waste. Seeing how easy it is to load up a tray with extra food that often goes uneaten and extra napkins that go unused, curious managers and students at Alfred University in New York tested a trayless policy over two days. When trays weren’t offered, food and beverage waste dropped between 30 and 50 percent!

Not all urinals are fun and games, though. Take the “Piss Screen” (yes, that’s the name), also from Germany. It is a game, but one with a serious message: Don’t drink and drive. Billed as “an interactive experience—not to be mistaken for the Wii,” the Piss Screen is actually a pressure-sensitive inlay set in urinals that simulates what it’s like to hit the road after a few drinks.

Mental Accounting Alarm clocks and Christmas clubs are external devices people use to solve their self-control problems. Another way to approach these problems is to adopt internal control systems, otherwise known as mental accounting. Mental accounting is the system (sometimes implicit) that households use to evaluate, regulate, and process their home budget. Almost all of us use mental accounts, even if we’re not aware that we’re doing so. The concept is beautifully illustrated by an exchange between the actors Gene Hackman and Dustin Hoffman in one of those extra features offered on DVDs. Hackman and Hoffman were friends back in their starving artist days, and Hackman tells the story of visiting Hoffman’s apartment and having his host ask him for a loan. Hackman agreed to the loan, but then they went into Hoffman’s kitchen, where several mason jars were lined up on the counter, each containing money. One jar was labeled “rent,” another “utilities,” and so forth. Hackman asked why, if Hoffman had so much money in jars, he could possibly need a loan, whereupon Hoffman pointed to the food jar, which was empty. According to economic theory (and simple logic), money is “fungible,” meaning that it doesn’t come with labels. Twenty dollars in the rent jar can buy just as much food as the same amount in the food jar. But households adopt mental accounting schemes that violate fungibility for the same reasons that organizations do: to control spending. Most organizations have budgets for various activities, and anyone who has ever worked in such an organization has experienced the frustration of not being able to make an important purchase because the relevant account is already depleted. The fact that there is unspent money in another account is considered no more relevant than the money sitting in the rent jar on Dustin Hoffman’s kitchen counter.

You can also see mental accounting in action at the casino. Watch a gambler who is lucky enough to win some money early in the evening. You might see him take the money he has won and put it into one pocket and put the money he brought with him to gamble that evening (yet another mental account) into a different pocket. Gamblers even have a term for this. The money that has recently been won is called “house money” because in gambling parlance the casino is referred to as the house. Betting some of the money that you have just won is referred to as “gambling with the house’s money,” as if it were, somehow, different from some other kind of money. Experimental evidence reveals that people are more willing to gamble with money that they consider house money.4

Similarly, people are far more likely to splurge impulsively on a big luxury purchase when they receive an unexpected windfall than with savings that they have accumulated over time, even if those savings are fully available to be spent.

The sanctity of these accounts can lead to seemingly bizarre behavior, such as simultaneously borrowing and lending at very different rates. David Gross and Nick Souleles (2002) found that the typical household in their sample had more than $5,000 in liquid assets (typically in savings accounts earning less than 5 percent a year) and nearly $3,000 in credit card balances, carrying a typical interest rate of 18 percent or more. Using the money from the savings account to pay off the credit card debt amounts to what economists call an arbitrage opportunity—buying low and selling high—but the vast majority of households fail to take advantage.

Mindless Choosing The cashew problem is not only one of temptation. It also involves the type of mindless behavior we discussed in the context of inertia. In many situations, people put themselves into an “automatic pilot” mode, in which they are not actively paying attention to the task at hand. (The Automatic System is very comfortable that way.) On a Saturday morning when we set out to run an errand, we can easily find ourselves driving our usual route to work—until we realize we are headed in the opposite direction from our intended destination, the grocery store.

Most people realize that temptation exists, and they take steps to overcome it. The classic example is that of Ulysses, who faced the peril of the Sirens and their irresistible songs. While in a cold state, Ulysses instructed his crew to fill their ears with wax so that they would not be tempted by the music. He also asked the crew to tie him to the mast so that he could listen for himself but be restrained from submitting to the temptation to steer the ship closer when the music put him into a hot state. Ulysses successfully solved his problem. For most of us, however, self-control issues arise because we underestimate the effect of arousal.

That is when Thaler intervened by offering David the following deal. David would write Thaler a series of checks for $100, payable on the first day of each of the next few months. Thaler would cash each check if David did not put a copy of a new chapter of the thesis under his door by midnight of the corresponding month. Furthermore, Thaler promised to use the money to have a party to which David would not be invited. David completed his thesis on schedule four months later, never having missed a deadline (though most chapters were completed within mere minutes of being due). It is instructive that this incentive scheme worked even though David’s monetary incentive from the university was greater than $100 a month, just from the retirement contribution alone. The scheme worked because the pain of having Thaler cash the check and consume some good wine without him was more salient than the rather abstract and pallid forgone contribution to his retirement savings plan.

Once I have a mug, I don’t want to give it up. But if I don’t have one, I don’t feel an urgent need to buy one. What this means is that people do not assign specific values to objects. When they have to give something up, they are hurt more than they are pleased if they acquire the very same thing.

Loss aversion helps produce inertia, meaning a strong desire to stick with your current holdings. If you are reluctant to give up what you have because you do not want to incur losses, then you will turn down trades you might have otherwise made. In another experiment, half the students in a class received coffee mugs (of course) and half got large chocolate bars. The mugs and the chocolate cost about the same, and in pretests students were as likely to choose one as the other. Yet when offered the opportunity to switch from a mug to a candy bar or vice versa, only one in ten switched. As we will see, loss aversion operates as a kind of cognitive nudge, pressing us not to make changes, even when changes are very much in our interests.

The most important modification that must be made to a standard analysis of incentives is salience. Do the choosers actually notice the incentives they face? In free markets, the answer is usually yes, but in important cases the answer is no. Consider the example of members of an urban family deciding whether to buy a car. Suppose their choices are to take taxis and public transportation or to spend ten thousand dollars to buy a used car, which they can park on the street in front of their home. The only salient costs of owning this car will be the weekly stops at the gas station, occasional repair bills, and a yearly insurance bill. The opportunity cost of the ten thousand dollars is likely to be neglected. (In other words, once they purchase the car, they tend to forget about the ten thousand dollars and stop treating it as money that could have been spent on something else.) In contrast, every time the family uses a taxi the cost will be in their face, with the meter clicking every few blocks. So a behavioral analysis of the incentives of car ownership will predict that people will underweight the opportunity costs of car ownership, and possibly other less salient aspects such as depreciation, and may overweight the very salient costs of using a taxi.* An analysis of choice architecture systems must make similar adjustments.

One way to start to think about incentives is to ask four questions about a particular choice architecture: Who uses? Who chooses? Who pays? Who profits?

Econs do not suffer from self-control problems, and so temptation is not a word that exists in the economists’ lexicon. As a result, most of the world’s regulators have not thought much about the problem. But when the dessert cart comes by, we humans often cave. The next thing we know we are fat.

A choice architect has the responsibility for organizing the context in which people make decisions. Although Carolyn is a figment of our imagination, many real people turn out to be choice architects, most without realising it. If you design the ballot voters use to choose candidates, you are a choice architect. If you are a doctor and must describe the alternate treatments available to a patient, you are a choice architect. If you design the form that new employees fill out to enrol in the company healthcare plan, you are a choice architect. If you are a parent describing possible educational options to your son or daughter, you are a choice architect. If you are a salesperson, you are a choice architect, but you already knew that. There are many parallels between choice architecture and more traditional forms of architecture. A crucial parallel is that there is no such thing as a neutral design.

If private companies or public officials think that one policy produces better outcomes, they can greatly influence the outcome by choosing it as the default.