For anyone interested in human behavior and decision making, September 15 will likely be a day to remember. On that day, President Obama ordered government agencies to use behavioral science insights to “better serve the American people.” In his executive order, Obama instructed federal agencies to identify policies and operations where applying findings from behavioral science could improve “public welfare, program outcomes, and program cost effectiveness,” design strategies for using behavioral science insights, and recruit behavioral experts whenever considered necessary or helpful. (Here is the full report by the White House Social and Behavioral Science Team, which discusses some of the work that has been already conducted using behavioral insights.)
This order reflects the evidence that scholars across a variety of fields — from behavioral economics to psychology to behavioral decision research — have accumulated in recent years that people often fail to make rational choices. Across a wide range of contexts, we often make foolish decisions that go against our self-interest. We exercise too little and eat too much. We spend too much, don’t save enough, and wind up heavily in debt.
Such deviations from rationality, well documented in the decision-making literature, are consistent across time and populations. For example, the typical person would dislike losing $50 more than he would enjoy gaining $50, which would not be the case if he were fully rational. And when making decisions, people tend to give disproportionate weight to information that readily comes to mind (a recent discussion, for example) and overlook more pertinent information that is harder to retrieve from memory. Again, this shouldn’t happen to so-called “rational agents.”
Public policy has often relied on assumptions of rationality when accounting for human behavior, which has led to suboptimal policies in the past. For example, citizens are sometimes bombarded by mass-media campaigns (designed to decrease smoking, increase seat-belt use, etc.) that assume they will be able to process an onslaught of messages to their best advantage. But such campaigns often have not worked, and may even have backfired at times.
Over the last decade or so, insights from behavioral science have been applied to public policy issues such as tax payments, medical decisions, consumer health and wellness, and climate-change mitigation. Consider work conducted by the Behavioural Insights Team (BIT), an organization set up in the United Kingdom to apply “nudges” to improve government policy and services. (A nudge, a term introduced by Richard Thaler and Cass Sunstein in their 2008 book Nudge: Improving Decisions About Health, Wealth, and Happiness, is any aspect of a process that changes how people behave in predictable ways “without forbidding any options or significantly changing their economic incentives.”)
For example, in one study, the BIT partnered with the U.K. Driver and Vehicle Licensing Agency to change the wording of the letter sent to people who were delinquent in paying their vehicle taxes. Departing from the complex legal language of the existing letter, the new letter in effect told people to “pay your tax or lose your car.” To make the demand more personal, some of the letters also included a photo of the car in question. The rewritten letter increased the number of people paying the tax; the rewrite with the photo changed behavior even more dramatically.
Another successful nudge (not involving BIT) involved sending letters to residential users of high amounts of energy in San Marcos, Calif. To influence them to consume less energy, the letters told them how their consumption compared with that of their neighbors. Finding out that they were consuming more than others like them triggered strong negative emotions that in turn led to behavioral changes and a 10% reduction in energy consumption.
Nudges like these speak to the power of developing interventions and policies that consider people for what they are: creatures whose information-processing capacity and emotions limit them from being rational agents. Well-designed behavioral studies can offer policymakers useful insights into human behavior that can improve policies. Such studies are applicable to a wide range of policy areas, wherever human behavior plays a role.
Similarly, as I wrote in the past, organizations can identify more effective management practices through a better understanding of human behavior. The implications could be wide ranging, from helping employees adopt healthier habits to increasing their happiness and productivity at work.
In its cafeterias, Google has experimented with this idea to encourage employees to adopt healthier eating habits. When “Googlers” reach for a plate, they encounter a sign informing them that people with bigger plates are inclined to eat more than those with smaller plates. Thanks to this simple change, the proportion of people using small plates has increased by 50%.
Or consider how simple interventions can increase employee happiness and productivity. Lalin Anik, Lara Aknin, Michael Norton, Elizabeth Dunn, and Jordi Quoidbach conducted a series of field experiments in which they found that when employees share their bonuses with coworkers and charities, they are more satisfied and perform at a higher level than those who don’t. Giving employees opportunities to spend money on others increases happiness, job satisfaction, and team performance, their research discovered.
As another example, a few years ago, my colleagues and I conducted a study in collaboration with a major U.S. car insurance company. We sent 13,488 of the company’s customers a form that asked them to report the number of miles they had driven the prior year, as indicated on their cars’ odometers. Cheating by under-reporting mileage would come with the financial benefit of lower insurance premiums. On about half of the forms sent out, customers were supposed to sign to indicate their truthfulness at the bottom of the page. The other half of the forms asked the customers to sign at the top of the page. The average mileage reported by customers who signed the form at the top was more than 2,400 miles higher than that reported by those who signed at the bottom. The simple change put customers in a more honest mindset.
Behavioral science can help managers design new practices, suggest improvements to existing ones, or provide ex-post explanations of why people reacted in a particular way. In short, using insights from behavioral science can have profound benefits across government and business, and more are being implemented every day. So, are you ready for a nudge?