Nudge — the pros and cons of Noble prize winner Richard Thaler’s work

Default choices, irrational human beings and lessons for building products.

The Nudge. Image courtesy: http://www.ellisjones.com.au/

I’ve been reading a lot of behavioral economics books lately. I came across Richard Thaler’s book — ‘Nudge — Improving decisions about health, wealth and happiness’ when I was reading Daniel Kahneman’s Thinking Fast and Slow. Nudge was a natural progression from Kahneman’s book.

The art of the Nudge is especially relevant to products managers who depend on soft influence to affect decisions. In a team/organization usually, different stakeholders can have different aims. For example the designer wants to optimize for users, the engineer wants to solve for elegance of the solution, the business person wants to optimize for revenue. Building consensus requires a lot of subtle nudges — whether it’s calling a meeting to discuss a design decision or an email listing down the minutes of a meeting or presenting user feedback to emphasize urgency of the problem to the engineer. Thus I was excited to read Thaler’s work.

In the book Thaler discuss an idea called ‘libertarian paternalism’ — gently, non-coercively pushing people toward doing something that they really want to do. For example, a company might, by default, enroll new employees in a 401K plan and put a certain salary percentage into that plan. The employees can opt out or change their contribution amount at any time, but by enrolling everyone by default, the company does an end run around its workers’ natural procrastination tendencies, without forcing them into anything.

The power of defaults

Experience shows that most users don’t bother to change the default settings — whether it’s your WhatsApp background or phone ringtone. Thus designing good default settings is crucial to improving the overall user experience.

The iconic WhatsApp background:

The iconic Whatsapp background

The legendary Nokia ringtone. More info here: http://mobile.softpedia.com/blog/Nokia-s-Famous-Ringtone-Is-Much-Older-Than-You-Think-483226.shtml

Another good example of power of default settings is a SIP — systematic investment plan. Surely we’ll be richer if we timed the market, studied stocks and invested in the right ones. However usually we’re too busy or too lazy to spend any meaningful time researching stocks. SIP ensures we’re diligently investing a % of our salary every month thus avoiding extra expenditure & ensuring a compounding return on our investments.

Consider MakemyTrip which adds an insurance to your ticket by default.

MakeMyTrip adds an insurance to your ticket by default

How does one choose the ‘right’ defaults?

Does one optimize for the user or business?

In some instances the choice is clear, the right choice for a user and business are one and the same — like the Google widget on the home screen. However it isn’t always so clear — consider autoplaying videos on Facebook.

Autoplay on Facebook — why oh why?

While auto-playing videos help increase video views for Facebook, it consumes precious data for the user. How does one choose between the two?

Private products and companies are answerable to their users & the stock market. Free market competition ensures that companies strive to build products optimal for users. Thus if a default choice is detrimental to users it gets panned on the playstore forcing the developer to make changes. However in case of public policy, how does one ensure the default choice is in interest of the citizen?

Thaler says that the individual should be nudged towards the more rational choice — something a rational human being or in his language 'econ' would choose. There are 2 variants of such a choice — 1. Helping an individual make a choice that is rationally better for himself 2. Nudging an individual towards a choice that is rationally better for the society but not necessarily for the individual. (Example everyone being an organ donor by default).

Consider the example of retirement savings — contributing to your 401k or your PF account in the Indian context. While contributing more to your PF account might be more ‘rational’ choice in the long term, it reduces the amount of money available to people who might need it to send their school to children and to get food.

The 2nd variant is more controversial. No framework is presented on when and how to make such a decision between 'good for the society' and 'good for the individual’ cases and how to inform the user about the choices being made. We see that in cases of public policy a nudge turns to a mandatory requirement — example Aadhaar.

In conclusion, Richard Thaler makes an important point that we should pay keen attention to default choices as they have a big effect on our product experience/well being. Awareness about Thaler’s work helps us understand the innumerable default choices that the government and other products make for us and how it affects us. However we need to think about frameworks that ensure nudging is used in a constructive way, especially by governments.

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At Comic Con, 2 years ago! Hello 👋

References:

1. https://www.forbes.com/sites/washingtonbytes/2017/10/21/when-the-nobel-prize-goes-pop-richard-thaler-and-the-uncertain-future-of-nudge/amp/ — echoes similar thoughts on the pros and cons of the Nudge approach.