Today, I spoke with Richard Thaler, who is a professor at the Graduate School of Business at the University of Chicago. He also authored the bestselling book Nudge. Richard talks about what a nudge is, an example of a nudge, how they can help us make better business decisions and how technology fits in the picture.
What do you mean by “nudge,” and why do people sometimes need to be nudged?
“A nudge is some small feature in the choice environment that attracts our attention and alters our behavior, for good or evil. “
People sometimes need to be nudged because they are human and so sometimes find the world too complicated or too tempting. A nudge can just be a gentle helping hand.
Can you describe a nudge that is now being used successfully?
In the 401(k) world I have helped develop a program called Save More Tomorrow. Workers sign up for the program that automatically increases their contributions to the 401k plan every time they get a raise. The program is available in many companies, and is very popular with the employees who want to save more but never get around to it. With what has happened to all our 401(k) balances we need more than ever to start saving more.
In our work lives, what ways can we employ nudges to help us make better decisions? Are there any that have worked especially well for you?
One trick I adopted early in my career was to accept obligations to give a paper at an upcoming conference in order to make sure that I would get the paper done. Since I am absent minded, I also try to arrange meetings at times that I expect to be in my office anyway, so if I forget, no harm done!
The best solutions combine technology with behavior modification. So, thermostats that allow you to alter the temperature during the day are useless if people never figure out how to use the thing. We need to make technology more user friendly. In the book we talk about one experiment that installed something called an Ambient Orb in people’s homes. This was essentially a light bulb that glows brightly when the home is using a lot of energy. Equipping homes with this simple devise but energy use in peak periods by 40%.
How does a nudge and Homer Simpson go together?
Homer Simpson is a great (though exaggerated) example of the human failings we all share. A great example we use in the book is this: Homer was mad at someone and wanted to buy a gun to get revenge. At the gun store he was told that there was a 48 hour waiting period to get a gun (a good nudge!). When Homer heard this he said, “48 hours! But I’m mad now!”
Richard Thaler is the Ralph and Dorothy Keller Distinguished Service Professor of Economics and Behavioral Science at the Graduate School of Business, University of Chicago, and Director of the GSB’s Center for Decision Research. Richard is the coauthor of Nudge: Improving Decisions About Health, Wealth, and Happiness. He is also Research Associate at the National Bureau of Economic Research where he co-directs the Behavioral Economics Project (with Robert Shiller). Thaler is considered by many to be the inventor of the field of behavioral economics, which integrated psychological research with economic theory.