"I liked Nudge, but we need to go further"
The 'nudge agenda' is proving increasingly attractive to governments, but as the renowned behavioural economist Dan Ariely tells Chris Cox, designers and policymakers could be even bolder
15th December 2010
When Dan Ariely attended a recent meeting at the American Medical Association, he asked everyone in the room to raise their hand if they considered themselves susceptible to conflicts of interest. Unsurprisingly, no hands went up. Then he asked if they thought other people in the room were susceptible. “They all raised their hands,” says Ariely.
This scene illustrates something that Ariely, a professor at Duke University, has been researching for nearly twenty years: the irrational side of human behaviour. As a behavioural economist, Ariely’s work questions the basic assumption of conventional economics that, provided we have enough information, we make rational decisions in our own best interests. Instead, as Ariely and others have shown, we are vulnerable to myriad biases, emotions and environmental factors that lead us to make far from rational decisions. We plan to exercise; then we get distracted or lose our motivation. We intend to sign up for our company pension scheme, but instead we just procrastinate.
If that wasn’t bad enough, we rarely notice this happening. Ariely has argued that people ‘repeatedly misunderstand the consequences of their behaviours and, for that reason, repeatedly make the wrong decisions.’ But herein lies the opportunity. If there are patterns to our bad decisions, then we can spot these and do something about them, which could help us make better choices about everything from healthcare to finance. “I’m a designer at heart,” says Ariely. “And I think we have two choices. We can design the world in a way that’s incompatible with our abilities. Or we can design the world in a way that is sensitive to what we can and can’t do.”
In the last few years there has been a surge of interest in behavioural economics , with books such as Predictably Irrational and Nudge becoming bestsellers. Why has this come about now – and why not sooner?
Firstly we had a big marketing campaign for behavioural economics: the financial crisis. For a long time, people believed in perfect rationality, and when we would say something to the contrary, the general response was: “Well, that only applies to small decisions that regular people make from time to time. With the really big decisions, the important decisions, in the context of the market... all of these irrationalities disappear.” Now, behavioural economists are empirical people. If you have an ideology, you can argue – but if you believe in data, well, you can’t create two versions of the stock market, one that works this way and one that works that way...
So in a way, the financial crisis was very helpful because it showed irrationality is not limited to ‘little people’. It showed instead that it’s part of a system where people are getting paid a lot of money and it doesn’t necessarily protect them against irrationalities. It was an important catalyst.
Your experiments are often small scale, incremental and use few resources, yet they are very scientific. With less public money around, could these methods be usefully applied to policy making?
Well, I would never recommend taking an experiment I did on a few hundred students and create a policy based on that. But I would also never recommend taking a theoretical finding from economics, with absolutely no evidence, and base a policy on that. But working with the budgets and tools we have, I think we have cleared some of the forest. And now that we have a better view, it’s time to do things on a bigger scale and start moving towards implementation.
Is there a particular area where behavioural research could help on this bigger scale?
Yes. I’ll give you a financial example that we have been researching. Both the Bush and Obama administrations have given out tax rebates to help stimulate the economy. (In 2008, millions of Americans were given rebates of up to $600 by the Bush administration. Obama sent out cheques to millions more the following year.) But the question is, how do you give a rebate to make it more efficient? How do you get people to spend it? Do you want to send people cash, or a cheque, or a gift certificate – or a pre-paid debit card with Obama’s smiling face ? All of these things matter.
We found that it would make much more sense to give people a pre-paid debit card than to send them a direct deposit into their checking account – it’s wrong to assume that money is fungible and it doesn’t matter how you give it to people. It’s a trivial example, but it matters. When the government is giving back $150bn, increasing the amount that is spent by consumers by even a few per cent can make a big difference.
You’ve called for more empirical approaches to policymaking, arguing that small-scale experimentation should be used before policies are rolled out nationally. Can you explain why, as you’ve put it, ‘we need to test everything’?
Our intuitions are often wrong, which is something that behavioural economics has shown time and time again. And because of our faulty intuitions about how the world really works, it’s irresponsible – to say the least – to base policy decisions on such intuitions. How do we make sure we don't just use bad intuitions as the starting point for policy? We test things systematically and make sure that we implement policies only when we are sure that they are going to be useful and efficient.
Have you witnessed much progress on that in the United States?
It’s going slowly but there is progress being made. I spend time with healthcare providers and with government and with hospitals and companies, pushing for experimentation. It’s easy to say, but it’s difficult to implement when people don’t know how to do it. Recently, I’ve been looking into inviting people from industry to come to the university for a few months and learn how we do experiments. I hope this might help.
Your research is about the often irrational ways that humans make decisions – presumably there are lessons that designers can learn from it?
Yes, absolutely. Generally I want to make sure that the design I push for is more cognitive than physical, but there are still lots of physical design issues to look at. Currently I’m speaking with a major design museum in the United States about hosting a design competition to rethink food.
How can designers rethink food?
In lots of ways. For example, with refrigerators, the vegetable drawer is incredibly badly designed – it’s at the bottom, it’s opaque, it’s out of mind. Even people who like fruit and vegetables end up letting them rot in the bottom of the refrigerator. And when that happens to you once, you’re less likely to buy them again. Also, there are no expiry dates on many fruit and vegetables. There are lots of things like that. So I want designers to rethink food – supermarkets, utensils, pots, pans, refrigerators, everything.
On the one hand, I’m very interested in that. On the other hand, I’m very interesting in questions such as how we design systems where there are no conflicts of interest. Which is just cognitive.
Lots of business and policy ideas about how to apply behavioural economics have been inspired by Richard Thaler and Cass Sunstein’s book Nudge. Do you think we should be nudging?
I liked Nudge, but I think we need to go further. The point where I differ from Thaler and Sunstein is that I’m more paternalistic. The ‘nudge’ version of design says: let’s just design for human abilities and tendencies. I actually want to design to change human behaviour in a way that is not necessarily natural. For example, we have a tendency to eat fat and sugar, and I don’t want to design for that natural tendency – I want to design away from it. So I think that there is one type of design which says let’s try and design with an eye for what people can naturally do. And there’s another version of design which says let’s try and design for what people should be doing.
Looking at the decade ahead, what are the policy areas where you think behavioural economics could have the most impact?
Personally my energies are focused on small healthcare decisions and financial decision making. Many of those cases involve trade-offs between now and later. They are areas where we fail routinely and I think we can do a lot to help. We have lots of things we are trying. We’ve just proposed to try to get kids to guilt parents into eating healthier. So the kids get an inventory and they grade their parents on the quality of the food in their home. Then they bring this report card to the classroom and they talk about it, so it would use this pressure from the kids to influence the parents. We’ll see if it works, but I have high hopes!
Mr Spock vs. Homer Simpson
Ariely has published two books presenting his work to a non-academic audience. Predictably Irrational (2008) discussed a series of experiments showing how expectations, social norms and other invisible, seemingly illogical forces shape many of our decisions – whether they are emotional, financial or professional. The book received much media coverage for its seemingly playful subject matter – in one study, Ariely and colleagues found that sexual arousal reduced the ability of young men to provide respectable answers to questions about sexual tastes, violence and condom use. But more substantial was Ariely’s assertion that understanding our irrational habits is essential for designing environments and the choices they present to us.
In The Upside of Irrationality (2010), Ariely combined reflections on his experience of recovering from severe burns with accounts of further experiments. He reported findings that it’s better to endure painful or unpleasant experiences, rather than taking breaks from them. And that huge bonuses could actually reduce executive’s performance. When it comes to our motivations, Ariely wrote, we are less like “hyper-rational Mr. Spock” and more like the “fallible, myopic, vindictive, emotional, biased Homer Simpson.” But by examining these undertows, we can “figure out how to get the most good and least bad out of ourselves.”
According his website, Ariely is currently working on a third publication: Dining Without Crumbs: The Art of Eating Over the Kitchen Sink.