Thaler and Sunstein are back … with Nudge once again. The 2007 Nobel Laureate in Economics and the 2018 Holberg Prize winner have published a fully revised version of Nudge. The book was issued for the first time in 2008 and was a huge success, so “why mess with a good thing?” (This is what both authors wondered when editors proposed that they revise Nudge.) The answer was, “Because the book could use a bit of tidying up”, as the preface to the new edition admits.Footnote ¹

The new Nudge looks very much like the old one.Footnote ² The core assumptions and notions that the authors of the old Nudge got us used to are still the same: individuals acting and making decisions like humans, not like econs (ie Homines oeconomici); the influence of behavioural biases on human choices (a long list, including systematic biases, anchoring biases and cognitive biases); the role of nudges in individuals’ decision-making processes; the notions of choice architects and choice architecture; the idea of libertarian paternalism through default rules and opt-outs.

In the first edition of Nudge, Thaler and Sunstein started by pointing out that humans are not nearly as rational as neoclassical economic theories would have us believe. Nudges are soft interventions designed to improve the decision-making processes of human actors, inevitably jeopardised by many behavioural biases.Footnote ³ Through nudges, individuals are guided towards their actual wishes. The authors showed that people might be positively influenced in contexts where particular choices are encouraged with appropriate tools by what they call “choice architects”.Footnote ⁴ Thaler and Sunstein also introduced the idea of libertarian paternalism, in which policies aimed at influencing individuals’ behaviour to improve their lives and make them happier are legitimate. Libertarian paternalism goes beyond the traditional dichotomy between paternalism and libertarianism, resulting in a mitigated form of paternalism that preserves freedom of choice.

The essential theoretical framework of the old Nudge – whose fundamental ideas and concepts were outlined in Parts I and II of the book – has been preserved. In the latest version, the authors have added two new chapters dealing with additional topics in Part II: Smart Disclosure and #Sludge.

Chapter 7, on Smart Disclosure, opens with a consumer facing the problem, familiar to many readers, of choosing a new phone and a service provider. In this case, the decision-making process is complicated by the lack of information about many technical details (like the phone’s gigabytes of storage and the screen’s pixel resolution, or what the phone plan will charge us if we make calls abroad) that the consumer needs to make a good choice. As in many other circumstances, the way in which the choice architect collects information and makes it available can improve consumers’ decisions. It would be useful if data and findings, as well as all sorts of information, were reported using standard measures or formulas, essentially standardising the way data are collected and offered to econs. This is smart disclosure.

On this point, Thaler and Sunstein claim that more up-to-date tools (at least twentieth-century technology) should be used to develop more efficient and effective disclosure rules to simplify consumers’ decisions. In particular, complex information should be released in a standardised and machine-readable format to facilitate consumer access. Moreover, customers should have access to all of the data about their own purchase history that both private and public organisations regularly collect.

In Chapter 8, #Sludge, the authors introduce the reader to “the dark side of choice architecture”.Footnote ⁵ Nudges have shown that people can be induced to make decisions or encouraged to adopt a particular behaviour just by making these things simple for them. But the reverse is also true. This means that if achieving certain goals involves overcoming difficulties, people may decide not to pursue them. Individuals can in fact be induced not to make certain choices or not to adopt a certain behaviour simply by putting obstacles or barriers in their way. Thaler and Sunstein admit that behavioural economics can also be used for “evil”. Experience shows that “bad” choice architects can prevent and discourage people from making choices or achieving certain goals by putting many kinds of barrier in their way.

The obstacles that people face in their decision-making processes are what Thaler and Sunstein call “sludge”. At the very beginning of the chapter, the authors explain the curious origin of the term sludge with a hashtag, as in the chapter’s title. #Sludge was used for the first time by Thaler on Twitter to express indignation at a particular business practice (the rather amusing story is told in detail as it is a perfect example of “sludge”). Since then, the term has grown so popular that the authors decided to use it themselves.Footnote ⁶

So, what exactly is sludge? Individuals are subjected to sludge each time they come across “friction” that significantly reduces their willingness to act or affects their decisions. Thaler and Sunstein provide many effective examples from daily life. These are obstructions that low-income students regularly have to face in order to obtain financial aid at universities. In many cases, difficulties in filling out aid application forms prevent students from completing procedures and reduce their willingness to achieve the goal. The authors show that economist Susan Dynarski’s experiments to increase the number of low-income applicants to the University of Michigan provided measures aimed at “de-sludging” forms and procedures for students.Footnote ⁷

In her experiment, half of the 4000 students involved in the experiment received the usual information from the university encouraging them to apply for financial aid. The other half were told that they were guaranteed aid without having to complete any forms as long as they applied to the University of Michigan and were admitted. Aid was guaranteed to those students who received subsidised meals at high school, as these data are very predictive of financial hardship and easily accessible to researchers.

Such “de-sludging” strategies have significantly increased enrolment at the University of Michigan and have made it easier for students to achieve their goals.

Cookie policies are another example of sludge that people regularly face online.Footnote ⁸ Cookies are tools that websites use to collect a large amount of information about users, and Thaler and Sunstein argue that the regulations governing the use of cookies “include a bit of choice architecture”. Accepting cookies is optional, so users can decide for themselves. However, several measures adopted by website architects to encourage users to allow cookies reveal that nudges can be used not to improve decisions, but to reduce individuals’ willingness to act by affecting their behaviour.

The opt-in policy, apparently more democratic than impositions, gives users two alternatives: accept cookies or reject them. However, users’ freedom to select the option they actually like is subject to significant limitations. No clear explanation about the alternatives is given, nor can users who refuse to accept cookies online surf the web without having to deal with sludge. On websites where cookies are regulated according to this policy, nudges are used to gently steer users towards the “yes, I accept” button, thus affecting people’s freedom of choice and consent. The risk that users will say no to cookies online is much higher than the opposite. Knowing this, choice architects use nudges to influence people’s behaviour and decisions only to their own advantage. In this case, individuals probably know what they actually prefer but nudges force them to make decisions that run counter to their own interests.

Thaler and Sunstein have also devoted more space to environmental issues, extending the discussion they introduced in the first edition of Nudge.Footnote ⁹ Both authors consider climate change to be a central problem in people’s lives, especially for people living in poorer countries. What Thaler and Sunstein claim is that climate change is a complex issue that everyone must contribute to resolving. The efforts of countries all over the world to contain and prevent ecological collapse are not enough, and there are many reasons why nations “have not done more” to hammer out a common strategy for fighting climate change.

Thaler and Sunstein examine the issue through the lens of behavioural economics and list the factors that have now produced what they call a “perfect storm”:

1. (1) Present bias. In people’s minds, climate change might not seem to be a present or imminent threat to their lives because the most serious dangers and risks are expected to affect future generations.

2. (2) Salience. Unlike smog or dirty water, the greenhouse gases that contribute to climate change do not produce concrete or tangible effects, so they may not be immediately perceived as affecting people’s lives.

3. (3) No specific villain. Climate change is a faceless enemy, not clearly identifiable. This is not conducive to joint measures and policies on the part of governments.

4. (4) Probabilistic harms. The effects of climate change are unpredictable. People frequently hear many sceptics say that a great number of events might not be clearly related to the impact of climate change on the environmental equilibrium.

5. (5) Loss aversion. People perceive efforts to reduce the impacts of climate change as immediate losses and show more aversion to these than to the losses that climate change will bring to their lives in the future.

All of these factors affect people’s perception of the serious risks that climate change brings to their lives, functioning as biases that undermine people’s decisions and influence policies for facing this crucial problem. Countries need common strategies to prevent environmental collapse and leave future generations with a planet that is still hospitable. Thaler and Sunstein pay particular attention to the problem of international cooperation in fighting climate change, which should be regarded as a “global choice architecture problem”.

Many problems arise when nations try to settle on coordinated plans and shared policies for combating climate change. We recently saw this at the UN Climate Summit in Glasgow, where different opinions on who should contribute, and how much, to saving the planet led to a somewhat disappointing agreement. We know that countries like China or Brazil are unwilling to limit their gas emissions by the same percentages as rich nations, citing the large amounts of energy that the USA and Europe have used in the past. The greenhouse gases that these countries have been emitting for years have ensured their wealth but have also contributed the highest percentage of the cumulative total of gases now in the atmosphere. This is the reason why all attempts to reach an agreement or adopt shared strategies to combat climate change have so far been unsuccessful.

Thaler and Sunstein claim that behavioural economics can help support plans for cooperative action by underlining that in playing the public goods game all participants are “conditional operators” (ie “they cooperate if others do”). Nordhaus’s Climate Club model seems to follow this rationale. Countries involved in cooperative action to combat climate change can be compared to members of a club. This means that all members have to follow the same rules, and all members can punish those who do not respect, or reject, those rules. The Paris Agreement also reflects such a rationale, as do the international debates and the agreements that world leaders have recently reached on climate change. However, what Thaler and Sunstein wonder is how to ensure that all countries (the members of the club) comply with the rules they have agreed on. The answer is through economic incentives.Footnote ¹⁰

The authors claim that economic incentives are useful tools for redirecting or reorienting the behaviour of the most influential actors involved in the environmental issue, namely firms. This is true whether incentives take the form of taxes or cap-and-trade systems. After exploring the circumstances, effects and limits of applying these methods, Thaler and Sunstein return to their starting point, reiterating that correct economic incentives are the most useful tools for dealing with climate change and the environmental issue.

In “The Complaints Department”, the authors report on objections and doubts about Nudge, recognising the importance of criticisms of their work.Footnote ¹¹ Critics have maintained, for instance, that Thaler and Sunstein’s ideas undermine independence, encourage infantilism and are not applicable to hard questions. But the new Nudge “is better” because it has clearly benefitted from objections by scholars and researchers from different areas of knowledge.Footnote ¹²

In the final part of the book, Thaler and Sunstein return to defending the concept of libertarian paternalism – especially in the light of authoritative criticism.Footnote ¹³ Libertarian paternalism means that individuals are guided through many obstacles (such as behavioural biases or a lack of information) towards the choice they would make in the absence of barriers. In other words, this is a guided choice that preserves freedom of choice. It does not mean people are forced to choose, because such a strategy might be “pretty paternalistic”. However, the authors also argue that well-designed defaults can be particularly convenient for preventing people from having to make complex decisions in many circumstances.

Another common objection is that nudges are hidden and individuals cannot know if nudges steer their decisions or influence their choices.Footnote ¹⁴ The authors’ reply is that nudges do not necessarily have to be covert; in fact, reminders and warnings have to be visible in order to work. Moreover, transparency does not reduce the impact of nudges.

Criticisms have also come from researchers and scholars who see nudging as taking the place of educating.Footnote ¹⁵ Thaler and Sunstein are keen to point out that there is no reason to choose one over the other, as both strategies should be applied together. Education can be effective and help people make decisions. It would be good, indeed, if statistics and economics were introduced in high school curricula so that students could become more conscious of financial tools and their use. However, basic courses cannot provide them with sufficient knowledge to deal with more complex choices, nor can skills learned at the school level last over time. Both authors thus believe that we should not dispense with nudges.

Thaler and Sunstein argue that reality is a place where individuals make suboptimal decisions because of their incompetence or lack of information, and such decisions turn out to be qualitatively low grade if compared to choices made by those who try to influence people’s opinions in their own interests. The authors say “we do not think that people are dumb … we think that the world is hard!”Footnote ¹⁶ And nudges are a good tool for gaining the awareness needed to face such a hard world!

However, I would like to show here that nudging poses a risk. In doing so, I want to take a very different perspective from the standard objections to Nudge regarding independence, infantilism and its inability to deal with hard questions.

My point is: if people are used to being systematically guided in their choices by nudges that steer them to optimal decisions, they probably will not be able to respond appropriately to different and unexpected situations that reality may have in store for them.

By way of example, let’s say we have made a train journey and have just reached our destination. We have to get off the train and leave the station to take the bus home. Lots of people are heading towards to the turnstiles at the station exit, and we are being guided by various nudges, such as illuminated signs, direction indicators and voice announcements, whose function is to help us reach the exit quickly and in an orderly manner. Once there, we find that one of the three turnstiles has a flashing red light indicating that it is not working, but it is open! Everyone else is waiting in line to pass through one of the two turnstiles with a flashing green light.

People are simply ignoring the fact that the third gate is open, as they probably looked first at the flashing red light that means “do not pass through here” or “out of order”. We choose to pass through the turnstile left open with the flashing red light and we take the bus home. We would probably have missed our bus if we had waited our turn at the turnstiles with the green lights.

The example shows that although nudges can help people make better choices, they can interfere with individuals’ ability to think for themselves when the actual circumstances (red light = no exit, but turnstile open) do not match the scenario designed by the choice architect.

Nudges influence people’s choices, inducing them to respond by default to the messages they convey (red light = no exit; green light = exit here) even when different choices are needed (red light = no exit, but turnstile open so exit possible).

Nudge pledges to help us make better choices that we can always opt out of. Nevertheless, the problem here is not whether the choices that nudging helps us to make are better – which may often be the case – but whether we are able to understand when to opt out; namely, to make a decision that is different from what the architect intended.

I have argued elsewhere that in the administrative regulation of fake news on social media platforms nudges are better than government intervention from the point of view of democracy.Footnote ¹⁷ This is true providing that they can help individuals – such as by empowering users to distinguish between fake and real news without impairing their judgment and self-criticism in realising whether a news item is a real scoop or an outright hoax. This is a challenge that Nudge may have to face in the near future.