I: Humans And Econs

I/1: Biases and Blunders

Think about things in nontraditional ways:
Use available tools in non-naive ways.
Practice this skill on every day routine.

Arrangement of choices matters.
  • Arrangement of food in menu in restaurant.
  • Arrangement of food in school cafeteria – order of items.
  • Arrangement of goods in supermarket.

Learn from commercial sector. Apply marketing theories at the kitchen, apply economical theories in education.

Supermarket floor plan -> school cafeteria.

Become choice architect.

There is no such thing as a “neutral” design.

Seemingly arbitrary decisions, such as where to locate the bathrooms, will have subtle influences on how the people who use the building interact.

// ASK: Architect, what are common patterns in influencing human behavior in architecture? (eg. should trips to bathroom encourage to meet colleagues?)

“If a man sees a fly, he aims at it.”

Libertarian paternalism

Easy for people to go their own way; they do not want to burden those who want to exercise their freedom.

“paternalistic” – influence choices in a way that will make choosers better off, as judged by themselves.
Alternative choices are not blocked, fenced off, or significantly burdened.
Nudge – self-consciously attempting to move people in directions that will make their lives better.
Freedom to choose is the best safeguard against bad choice architecture.

Intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.

Understanding of human behaviour can be improved by appreciating how people systematically go wrong.

Knowing something about the cognitive system has allowed others to discover systematic biases in the way we think.

I/2: Resisting Temptation

E-cons vs Humans

We are not homo economicus; we are homo sapiens.
Overweight is necessarily failing to act rationally,
Humans cannot afford to think deeply about every choice they have to make.
We should let ourselves be advised by professionals – we get trainers in gyms, financial [poradce] in accounting, and many more. Do not avoid guidance in other fields.
Econs – not required to make perfect forecasts, but required to make unbiased forecasts. Forecasts can be wrong, but can’t be systematically wrong in a predictable direction.
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.

Human Thinking

System 1 – Automatic System (uncontrolled, effortless, associative, fast, unconscious, skilled)
System 2 – Reflective System (controlled, effortful, deductive, slow, self-aware, rule-following)
Automatic System is your gut reaction and the Reflective System is your conscious thought.
Automatic Systems always win over Reflective ones.

Default choice

If an option is designated as the “default,” it will attract a large market share.
Utilize in organ donations.

Rules of Thumb

We use rules of thumb because most of the time they are quick and useful.

Anchoring bias

Anchor, the number you know, and adjust in the direction you think is appropriate.
City population, Human age, lawyers sues, …

Availability bias

Governments are likely to allocate their resources in a way that fits with people’s fears rather than in response to the most likely danger.

Representativeness bias

Stereotypes are sometimes right!
Story: Linda – bank teller and active in the feminist movement.

Patterns bias

When they see the outcomes of random processes, they often detect patterns that they think have great meaning but in fact are just due to chance.
People to confuse random fluctuations with causal patterns.
Examples: cancer clusters

Overconfidence and Planning bias

“above average” effect – driving, sex, professors, marriages
Unrealistic optimism can explain a lot of individual risk taking, espe- cially in the domain of risks to life and health.
If people are reminded of a bad event, they may not con- tinue to be so optimistic.

Framing

1 of 10 is dead versus 90 of 100 are alive.
Discount versus extra fee for full price.


Gain and Losses

Loss aversion – Losing something makes you twice as miserable as gaining the same thing makes you happy.
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 ur- gent need to buy one.
Same with partners.
Students tend to sit in the same seats in class, even without a seating chart.
Strong desire to stick with your current holdings.

Status Quo Bias

Subscription model – automatic renewal.
GuitarJamz, Mobile operator, Extabit, ...

Trick humans to nudge them
Eg. visual trick to nudge drivers to slow down

Remove candies out of sights.
Smaller plates.

Self- control issues arise because we underestimate the effect of arousal.

Battles “Planner” versus “Doer.” ourself
Thinking about new ideas is usually more fun than writing up old ones.

[ ] shopping list
[ ] healthy food
[ ] put food out of reach

I/3: Following the Herd

Influenced by the statements and deeds of others.
If you see a movie scene in which people are smiling, you are more likely to smile yourself
yawns are contagious

most people learn from others. This is usually good, of course. Learning from others is how individuals and societies develop. But many of our biggest misconceptions also come from others.

Obesity is contagious. If your best friends get fat, your risk of gaining weight goes up.
Maybe parents should worry less about which college their kids go to and more about which roommate they get.
Live, work and be with successful people

Like to conform

Doing What Others Do
people were responding to the decisions of strangers, whom they would probably never see again. They had no partic- ular reason to want those strangers to like them.
Good to be in opposite, learn to argue, learn to stay for you opinion.
Good to be in opposite, learn to argue, learn to stay for you opinion. Eg wearing ties.
Most of us are affected by the eating habits of our eating companions,
Advertising: most people prefer
We think of ourselves as autonomous individuals, each driven by our internal abilities and desires and therefore solely responsible for our own behavior, particularly when it comes to voting. – not true.

The Spotlight Effect

people are paying less attention to you than you believe.

Far more likely to download songs that had been previously downloaded in significant numbers, and far less likely to download songs that had not been as popular.
I s filmsma, kdyz ma na csfd nizke hodnoveni tak si ho tak neuziju.

Success depending on the choices of the first downloaders.

Positive nudge – simply inform people about what other people are doing. successes!

Priming

people’s intentions, they affect people’s conduct.
If people are asked whether they intend to eat certain foods, to diet, or to exercise, their answers to the questions will affect their behavior
Ask yourself what you want to be
Ask students what they want to become
Use in workout

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.

I/4: When Do We Need a Nudge?

Benefits Now—Costs Later

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. living healthy

Frequency

Hard problems become easier with practice.

Feedback for learning

Learning is most likely if people get immediate, clear feedback after each try.
For example, we usually get feedback only on the options we select, not the ones we reject.
Jaci budeme, a tudiz jaci nebudeme - ukazat obe strany
Eg. fake dial tone in mobile phones

Markets:

How to protect all these biases: For irrational consumers to be protected there has to be competition.

I/5: Choice Architecture

Automatic Systems always win over Reflective ones.
Large number of people end up with default option, whether or not it is good for them.
Use default choice in diet

Expect Error and design to avoid it

USB ports – prone to error.
Buzzing when seatbelt not buckled.

Post-completion error when you have finished your main task, you tend to forget things relating to previous steps.
Leaving original on copying machine.
Forgetting credit-card in ATM.

Want to know the secret to successful innovation? Simple. You need to create innovations that are designed to be chosen.

Give Feedback

The best way to help Humans improve their performance is to provide feedback.
Some cell phones, aimed at the elderly, include a fake dial tone, for similar reasons. Handy in design
Painting white over white – Pink when wet but turns white when dry.


II: Money

II/1: Save More Tomorrow

II/2: Naive Investing

Asset-allocation decision – where to allocate your assets (stocks, bonds, money).
Attitudes toward risk depend on the frequency with which investors monitor their portfolios.
Judge people mood about company by looking at the percentage of money being invested in stocks by new participants who have just made the decision.
Initial allocation is never changed.
In the house with both kinds of candy, every child selected one of each candy. In contrast, only 48 percent of the children picked one of each candy when they were choosing in sequence in two houses.
There is no correlation between the allocation to company stock and subsequent stock performance.
By contrast, those who have the option, but not the requirement, to take the employer’s match in the form of company stock allocate only 18 percent of their own funds to company stock.10
A dollar in company stock is worth less than half the value of a dollar in a mutual fund!
A natural alternative would be to treat company stock just like every other investment, without any kind of preference.

II/3: Credit Markets

II/4: Privatising Social Security


III: Health

Nudges can be social influences.
People are more likely to engage in self-examinations for skin and breast cancer if they are told not about the reduced risk if they do so but about the in- creased risk if they fail to do so.
Most vulnerable population, specifically the poor and the poorly educated.

III/1: Prescription Drugs

III/2: How To Increase Organ Donations

80 percent of the organs coming from deceased donors.
waiting list is growing at a rate of 12 percent per year.
simple interventions would save thousands of lives every year
each donor can be used for as many as three organs,

Explicit consent – people have to take some concrete steps to demonstrate that they want to be donors.
people’s stated willingness to become donors did not translate into the necessary action.

would not only save lives but also fit with the wishes of the potential donors.

individuals should be able to decide what is to be done with and to their bodies.
shifts the default rule – opportunity to register their unwillingness to donate.
the harder it is to register your unwillingness to participate, the less libertarian the policy becomes.
In Germany, which uses an opt-in system, only 12 percent of the citizens gave their consent, whereas in Austria, nearly everyone (99 percent) did.

Renewal of your driver’s license would be accompanied by a requirement that you check a box stating your organ donation preferences.

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. (Facebook avatar badge)

Better Incentives

“rights” to pollute in certain amounts (the “cap”) and these rights are then traded in a market.

III/3: Saving The Planet


IV: Freedom

IV/1: Improving School Choices

Explain workout discipline on girls.
submit at least one college application before they graduate.
customers of many businesses face higher prices simply because they retain the right to sue those businesses.

IV/2: Should Patients Be Forced To Buy Lottery Tickets?

Many doctors must pay $100,000, or significantly more, in insurance bills every year. Your medical bill reflects those costs.
“defensive medicine,” ordering expensive but unnecessary treatments for patients, or refusing to provide risky but beneficial treatments, simply in order to avoid liability.

IV/3: Privatising Marriage

To respect the liberty of religious groups while protecting individual freedom in general, we propose that marriage, as such, should be completely privatised. Under our proposal, the word marriage would no longer appear in any laws, and marriage licenses would no longer be offered or recognised by any level of government.

Official status of marriage

Eliminate the ambiguity of word marriage – now refers both to an official legal status and to a religious one.

Instead of channeling every partnership into the same one-size-fits-all arrangement of state marriage, couples could choose the marriage-granting organisation that best suits their needs and desires.

As long as state grants official marriage licences, marriage will has immense importance.

When people marry, they receive not only material benefits but also a kind of official legitimacy from a state.
Marriage should be similar to book writing partnership. Official licensing system no longer fits modern reality.

Benefits of marriage from state:

  • tax benefits & burdens
  • Entitlements (care for partner)
  • Inheritance
  • Ownership benefits
  • Decision making (e.g. in emergency)
  • Evidentiary privileges (spousal testimony, confidential communication)

Unfortunate division between married and single. Unnecessary polarisation and confusion about relationships between state-sponsored and religious marriage.

People take private commitments seriously even without government licensing.

Nothing prevents people from making commitments through the civil union.

Marriage should be for private institutions, not for the state.
Religious organisations would be free to set their own rules regarding who could marry.

Set explicit formula for dealing with exiting formal civil union.

Marriage nudge

Marriage does not limit entry, but police exit – it make it difficult for people to abandon their commitments to one another. – form of nudge. If divorce is difficult, then marriages are more likely to be stable.

Marriage is solution to a self-control problem. Similar to voluntarily entering other ways of protecting long-term interest.

Protect children and more vulnerable. But marriage is not the right tool for this protection. Other legal institutions are more suitable.

Extreme unrealistic optimism about marriage.
Paradox: Accurate estimate of divorce rate of others, but total bias of their marriage.


V: Extensions And Objections

V/1: A Dozen Nudges

www.nudges.org

Give more tomorrow

Reflective system wants to be charitable, but Automatic System doesn't get around to it.
Commit to increasing donations automatically every year/month.

The charity tax deductions

Keeping track of donations for tax return is burdensome.
Your bank will take care of that for you.

Automatic tax return

No sensible choice architect would design the current income tax system.
Tax report would be pre filled by IRS, you will only check it and send it back.

Stickk.com

Social help in achieving goals and aspirations.
Commitments with finance or social status (e-mails to friends announcing your success or failure).
If one reaches his goal, he gets his money back, if he fails, money goes to charity (or successful ones).

Quit smoking with bank account

For six months, deposit the amount of money otherwise spend on cigarettes into specific account.
Urine test, if passes, get the money back, if not, money goes to charity.

Motorcycle helmets

Promote safety while maintaining freedom.
Riders who do not want to use helmet have to ge special licenses. To qualify for this license, a rider would have to take an extra driving course and submit proof of health insurance.

Gambling self-bans

Ban yourself from casinos.

Destiny Health Plan

Improve people's health while reducing medical bills for all.
Earning "vitality bucks" for good health, doing sport, joint a sport club, regular medical tests.
Exchange "vitality bucks" for other services.

Dollar a day

Teenage girls with baby receive a dollar for each day in which they are not pregnant.

No-bite nail polish, Disulfiram
The Civility check

Avoid sending angry emails that you will regret.

V/2: Objections

Possible counterarguments against nudges.

The slippery slope

Ban smoking, then alcohol, sex?

Sliding all the way down the slippery slope is unlikely, to be sure, but faced with the risk of overreaching, critics might think it is better to avoid starting to slide at all.

Evil nudgers

Choice architects may have their agendas.
Those who favour one default rule over another may do so because their own economic interest are at stake.

The invisible hand works best when products are simple and purchased frequently.

The right to be wrong

Skeptics might argue that in a free society, people have the right to be wrong, and it is sometimes helpful for us to make mistakes, since that is how we learn.

We insists on easy opt-out rights.

Children should not learn how to swim falling into ocean and hoping for the best.
Pedestrians in London should not be teach to look right by hitting them by a bus.

Subliminal advertising

Is subliminal advertising good way of achieving libertarian paternalism? It doest steer people's choices, not making decisions for them. What limits should be places on private or public manipulations as such.

Drink more water, Don't drink and drive, Smoking kills, Support your president, Abortion is murder

Publicity principle – government are banned from selecting a policy that it would not be able or willing to defend publicly to its own citizens. The government should respect the people whom it governs and do not treat its citizens as tools for manipulation.

Neutrality

Neutrality is often thought to require randomness.

Why is randomising ballots good and randomizing assignment to insurance policies bad?

In some cases, forces choosing is best.

Should governments educate people about the risks of smoking, drinking ,unprotected sex, spike-heeled shoes?

When nudgers have expertise, and when differences in individual preferences can be easily estimated, then the potential for helpful nudging is high.

Why stop at Libertarian Paternalism

If we want to protect people, why not go further? Would it be best if wee took away freedom of choice at all?

Rule: Opting out has to be easy – "one-click away"

Asymmetric paternalism: Guiding principle that we should design policies that help the least sophisticated people while imposing the smallest possible costs on the most sophisticated.

Prevent human errors by cooling-off periods – any door-to-door sale must be accompanied by a written statement informing the buyer of his right to rescind the purchase within three days of the transaction.

Mandatory wanting period before divorce. Nudgers are aware that people might act in a way that they will regret – regulators do not block their choices, but do ensure a period for sober reflection.

Should be possible to trade individual workers right to safe work environment in return for a higher salary?

V/3: The Real Third Way

Seemingly small features of social situations can have massive effects on people's behavior – nudgers are everywhere, even if we do not see them.

Choice architecture, both good and bad, is pervasive and unavoidable, and it greatly affects or decisions.

Choice architects can preserve freedom of choice while also nudging people in directions that will improve their lives.

Society is too diverse, individuals are too creative, circumstances change too rapidly and government is too fallible to one-solution-fits-all.