Summary

A nudge is any aspect of a decision design that affects behavior while preserving choice. Examples include default options and social influence. Reducing choice friction is the most effective nudge. Humans are wired for immediate reward and temptation goods, so use stimulus response compatibility to increase the attractiveness of investment goods.

Key Takeaways

• Study and leverage the power of social influence: 20-40% of people go against own obvious judgement to fit crowd
• Beware collective conservatism: reduce friction, switching cost
• Investment goods vs temptation goods
• Adjust friction and nudge depending on desired outcome

Notes

Part 1: Humans and Econs

• Choice architect: In charge of designing context for which people make decisions
• Libertarian paternalism: Affecting behavior while preserving, respecting choice
• Nudge: any aspect that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives
• Social influence: Going with crowd
  • Conformance studies: 20-40% of people go against their own obvious judgement to fit the crowd
  • To influence, tell people what others are doing
• Collective conservatism: Tendency of groups to stick to old patterns, even as new means arise

Part 2: Tools of choice architects

• Investment goods: Goods whose costs are immediate but benefits delayed
• Temptation goods: Goods who benefits are immediate, consequences later
• Stimulus response compatibility: want stimulus to match desired response
• Make the desired choice the one with the least friction
• Sludge: Friction that makes it harder for user to make the beneficial decision

Part 3: Money

• People are twice as willing to pay with credit cards vs cash (earned, friction)
• When choosing an insurance, get largest deductible can feasibly pay

Part 4: Society

• Focusing on default vs inferred opt-in
• Tragedy of the commons