Cambridge Forum; WGBH Forum Network; Improving Decisions About Health, Wealth, and Happiness; 4185-2008_11_12.mov

Welcome to Cambridge form. Tonight we'll be discussing Nudge Improving Decisions about health wealth and happiness with Cass Sunstein one of its authors and I'm Alan professor of economics and business administration at Harvard. So many of you who just turned off your cell phones are still using the default ringtones and the settings that were on your cell phone when you bought it. And that's partly Cass's subject tonight 40 years of research in psychology and economics has left us with a better understanding of how people make choices like these. We aren't always rational. We make mistakes and we have a strong tendency to stick to simple things and to the status quo. And so the question that the book asks is What does this knowledge of human decision making mean for policymakers. Should the government recognizing these human limitations try to influence our decisions on issues such as obesity and health and savings. What's the moral content of creating policies that not just to make wise decisions. What's the role of government in this. These are some of the questions that Cass Sunstein will address as he discusses his new book

coauthored with his fellow newage University of Chicago professor of behavioral science and economics Dick Baylor. Once again the book is Nudge Improving Decisions About Health Wealth and Happiness. It's Cass's latest offering in a storied career as a professor of law first at the University of Chicago and now at the Harvard Law School where he's the Felix Frankfurter professor of law and first director of the new program on risk regulation. His research is wide ranging including constitutional law environmental law labor law and behavioral law and economics behavioral law and economics that phrase that you'll come to know. SUNSTEIN presents original applications of legal theory to real world issues that are sometimes provocative and always illuminating. Welcome to Cambridge forum. Thank you so much I'm completely thrilled to be here the moderator Al Roth is actually one of my heroes. And to see so many people come

out to talk about these questions well we must be in the midst of a financial crisis mustn't wait for the United States is entering a new era in terms of the occupant of the White House. The theory of governance and one way to think about the presentation today is is one angle on at least what some aspects of the new era might look like. Before we get there I'd like to back up a bit and go in a little time machine and tell you the origins of the ideas here. In the 1980s I was a young blockhead a professor at the University of Chicago Law School in a time when the rational actor model was in the ascendancy in legal academia as well as in the social sciences. And it was having a very large impact on government policy. The rational actor model

posited that at least for making predictions about behavior. And also for thinking about what government ought to do we should suppose that human beings make rational decisions about the best way to promote their hands with respect to food investments exercise smoking everything else as a block headed young man. I reacted to these claims with a kind of clueless skepticism. It seemed to me as to many others that this notion of unbounded rationality was inaccurate. It didn't even capture the behavior of the proponents of the theories some of whom were overweight or divorced Stephen. At about the time the clueless skepticism of some of us in the law school was reaching its height young economists that at Cornell named Richard Thaler was trying to bring to

bear some work on human psychology and to introduce it into economics serendipitously. Richard Thaler came to the University of Chicago. We became good friends and co-authors and for a long time I thought how can we use what we now know about human behavior to get our institutions working better. We developed an idea which I'm going to name it is called libertarian paternalism. This is an unlovely name. It combines two syllable and despised concepts. Paternalism Nobody likes and libertarianism. Well Ron Paul didn't do incredibly well in the election. We think that libertarian paternalism combining the two reviled concepts shows us a path a path toward helpful

interventions that that can actually make lives go better. When we went around New York with our book called libertarian paternalism the publishers thought we needed some paternalism and maybe less liberty. And so the book is called not judge. Not I hasten to add. No good judge. An important distinction to poster children let me get right out front for libertarian paternalism or the nudge. Many Americans aren't saving for retirement. Lots of Americans have nothing at the time they retire. A simple intervention has been used in many workplaces which has dramatically increased retirement savings and it is automatic enrollment in the savings plan. The idea is once you get to the workplace you are automatically enrolled in a for a 1 k plan. If you don't like it you can opt out. But the automatic rule

is in rather than out that simple intervention has produced dramatic increases in savings rates. That's my first poster child for libertarian paternalism. The second is a plan devised by my co-author Thaler which I think is full of implications. It's called the Save More tomorrow plan. The ideas a lot of American workers don't want some of their current wages to go into their savings program. They need that money or they think they do. But if they're asked what would you think if some percentage of your future wage increase goes to savings. They say OK that's a good deal. I like that. Employers who have adopted the save more tomorrow plan have also produced very large increases in savings and workers are delighted with the program. The third example of libertarian paternalism is slightly off collar very slightly as men and women know

though in different ways. When men go to the bathroom sometimes they're an aim is imperfect. As public health problems go this is not number one on the list but in some public places such as airports it's a little bit worse than irritating in the Netherlands a few years ago a bunch of policy makers put their heads together and thought how do we get men to aim better. Do we try moral suasion. Do we remind them of the harms and annoyance they're inflicting on others. None of that seem to work. Instead what they did was to paint a little black housefly at the relevant place in the year and that little design reduced spillage. By 80 percent. These three interventions the automatic enrollment plan the save more

tomorrow plan and the housefly painting not a real fly turn out to be forms of libertarian paternalism. What I mean by that is they maintain freedom of choice. They insist that in a free society people have an inalienable right to make a mess of their lives. If that is what on reflection they want to do. No one's liberty is diminished by any of these three interventions at the same time they are paternalistic in the sense that there's an entity or a person or an institution in the background who is attempting self-consciously to steer people in directions that will make their lives go better. We thought at one point about calling our book one click paternalism in a moment of madness. Who would buy such a book. Yes but the idea of one click paternalism does capture what we have in mind. We want to make it very easy for people to opt out of the solutions that

are sought by the person who's trying to be helpful. The knowledge program is undergirded by two assumptions and they're quite straightforward. The first is that small changes in social context often have very large effects on our behavior. In cases involving restaurants or cafeterias or grocery stores the the the order in which items are organized turns out to have significant and sometimes massive affects on behavior in first thinking about libertarian paternalism. We thought of a little kind of thought experiment not anything real not a proposal which involved a cafeteria director who decided to try to help kids eat better by having the fruits and vegetables highly visible out the front of the line and having the desserts on the less healthy stuff higher up than at the end. And we suggested in this fanciful thought experiment that by

switching the order of the foods there could be significant non-coercive effects on kids diets. A few years ago I was at a cocktail party and someone who worked for Tony Blair came up to me and said we took your policy proposal very seriously. I thought no one aside from my mother maybe had read this article. And he said We implemented it we redesigned our cafeterias and we got kids eating much healthier. That has a kind of analytic resemblance I think to the cake into the housefly case doesn't it. It's manipulating human attention. The idea behind this claim about small changes in context having massive changes in behavior. We organize under a second concept and it's the only other one aside from libertarian paternalism and the contests Sapt is choice architecture. The idea is that buildings have an architecture don't they in a way that will have large effects on what happens in them. You can

design a building so that it's highly social and people are running into one another all the time and that can have beneficial or undesirable effects. You can design a building so that it makes a great deal of space and privacy so that people see each other hardly at all and maybe are working like crazy which can be desirable too. There's no such thing as a fully neutral architectural design with respect to buildings you can't dispense with an architecture and have a building. Our claim is that choices are like that too. And rental car companies cell phone companies mortgage brokers universities employers parents certainly children often all of these are choice architects in the sense that they set up the context against which people make their decisions. The contacts have often subtle sometimes damaging sometimes wonderfully beneficial effects on our decisions and I hope you can see a

suggestion implicit in these remarks that the environmental problems that the United States and other countries are running into the credit card crisis which is causing so much havoc all over the world. These are important and important part a function of unfortunate choice architecture which is steered people poorly rather than well. So assumption number one behind the nudge program involves the omnipresence of choice architecture often involving subtle influences with a big impact. The second assumption is that decades of work in psychology and economics has established not just that kind of clueless skepticism about the rational actor model is accurate but also specified the way that human beings deviate from the axioms of rational choice theory. The notion is and this has actually neurological evidence about the brain that human beings have two families of

cognitive operations in their heads. Each of us does one imaginatively referred to in the literature a system one. Is impulsive quick often emotional when it hears a loud noise. It says run when the plane starts to tremble it says threat. When a dog is large and starts its mouth it says flee system two by contrast is more deliberative it's more calculative it's slower it's less intuitive. It often runs the numbers. System 1 often rules our behavior but System 2 is often a better guide a way to be a little more particular about this is to say that we now know that human beings use mental shortcuts that aren't exactly irrational but they get us into trouble and are systematically bias in our biased in our approaches to social situations. Here's an example of bias which has an

upside. Human beings are pervasively unrealistically optimistic. If you ask most people whether they're safer than the average driver 90 percent will say yes. If you ask college teachers whether than the they're better than the average college teacher 94 percent. Say yes. If you have a couple and ask them what percentage of the household work you do and then add up the two. If you've got a number over that's not that's not over 100 percent. It's a very unusual couple. OK I'm realistic optimism can get us in a lot of trouble in the sense that it can lead us to take insufficient precautions. We also know that human beings are very reactive to whether recent events have caused alarm or not. Many of the specialists before the 9/11 attacks said there have got to be better security precautions at airports. The risks are real. But

both ordinary citizens and public officials we can't remember an occasion on which a serious terrorist attack occurred in the United States. What's the point. Expensive inconvenience inducing precautions that sometimes called an availability bias meaning the on availability of the event causes under reaction to a genuine risk. I think Hurricane Katrina and the reaction of many people lost their property and sometimes their lives and advance of the the. The hurricane OK availability bias by contrast can make us terribly frightened of a risk that really isn't so large. And my hope is that everyone listening can think of an example in their own lives where risk did come to fruition and for at least a time there was a kind of fear leading to precautionary behavior that wasn't justified by reality. That's what system one does. It reacts greatly to the existence or absence of recent salient events.

Human beings are unrealistically optimistic other things being equal. They're very much buffeted about by recent events or their absence. We also know that human beings are loss averse which is just a way of saying that people hate losses from the status quo. In fact they hate losses from the status quo. More than they like corresponding gains. If you tell people if you use energy conservation strategies you will save $200 next year. You've got a real but modest reaction. If you tell people if you don't use energy conservation strategies you will lose $100 next year. You get a much larger reaction. To phrase it as a loss from the status quo rather than again has a big impact. And notice the save more tomorrow plan exploits loss aversion says you're not going lose anything you now have. You're going to have a reduced future game. Human

beings are pervasively loss averse. We also know that conformity pressures have a tremendous influence on what each of us does when people are going into real estate big time. It's often because they think other people are doing the same or believe that that's the thing to do when people are accepting the market in a kind of panic. It's often because conformity pressures are leading them to react strongly. There's nothing irrational about reacting to the beliefs and actions of other people. But it is the case that human beings sometimes can look like herds or lemmings and that can get each of us into trouble. Incidentally lemmings are not. A species that goes over a cliff into the water and commits suicide. The belief to that effect is a result of an all too human cascade. OK I'm just going to give now by way of a closing. One example of a nudge and to suggest its immense power

are to be used for good or for bad. And the simple nudge here is the default rule with respect to cell phones or credit card plans or rental car plans. The default rule is often very sticky meaning human beings often stay with the default rule even though if it were otherwise they'd stay with that one too. I got a lesson to this effect a few years ago when American Express. Notified me and I was very pleased to hear this that I could get three months of five magazines for free. That's good how can you loose. So I chose five magazines I didn't like any of them particularly but to get them for free that's not good. Here we are about nine years later and I'm still subscribing to the same magazines. It's just I have to call them up I'm paying now and I have to call up to cancel. I recently learned from someone at Time

magazine that if they can get people an automatic Riess of Scripture the research scription rate is about 80 percent and they think that's misleadingly low because the other 20 percent have either moved or died. If you have to get people to. This resubscribe on their own that it's about 20 percent. The default rule is immensely powerful in multiple domains in which the government or a private institution sets them. Why is it so we have such an impact. Well it seems that the default rule carries information about what it's sensible to do and it's a signal about proper behavior. But there's another reason the default rule works so well and it's that inertia is an immensely powerful human force. I as a university professor I am in a plan called TIAA CREF and I'm proud to say I'm at the median level of changes in TIAA CREF for a university professor over a period of

decades. The median number is zero. OK so the suggestion is the default rules have tremendous power and if we're interested a new president a new administration a new Congress in doing something about health care about credit markets about poverty the manipulation and savvy switch in the fall rules often can have exceedingly beneficial results. One example is a quick and easy way to save at least hundreds and maybe thousands of lives each year in the United States would be to shift from a default rule from organ donations from you have to opt in to make your organs available to you have to opt out. We have every reason to think that if the default rule is you want them to be available you'll have a great increase in available organs. The OPT in rule people are frequently

reluctant to upset the status quo. OK I've tried to suggest that libertarian paternalism is not an oxymoron. That nudging is a feasible project that it takes advantage of the fact that small changes in social context often have massive effects on our behavior. I've tried to suggest also that people are bounded Lee rational in ways that we now understand pretty well. The default rule is the simplest nudge for maintaining liberty while also steering people in preferred directions. There's a larger agenda here. I'm going to tell you about it right now. For too long the United States has been caught between Often people on the right who see Ronald Reagan as the giant figure looming over their policy proposals suggesting that markets markets markets and liberty liberty liberty are the

organizing principle for private and public institutions. On the other side of this pitch battle have been the usually liberals people left of center who see Franklin Delano Roosevelt's ghost or shadow giant. And the notion is that when people's decisions run them into trouble or into the ground the best approach is one that involves regulatory Band-Aids and bands of the sort that Roosevelt did introduce in many domains. When Taylor and I think is that this battle is a 20th century one that's decreasingly suited to the numerous problems that the 21st century. For sounds that it's possible to agree with those who see Reagan's ghost that ultimately freedom of choice is usually the best guide while also agreeing with those who think fondly of Roosevelt that people's decisions often get them into big trouble especially when they're asked to plan over the

long term. There is a lot of talk under Blair and Clinton of the possibility of a third way something between the way of markets and the way of commands. It never went very far. We don't think that with the nudge program we've identified anything like the Holy Grail. But if there is a way to combine the kind of compassionate interest in protecting people against their own propensity to error while also insisting that planners not to override individual choice if there is such a third way the knowledge might be the place to start. Thank you. Of the. Will you start the discussion with a question of my own and then we'll ask for questions from the audience. I know you've given this a lot of thought.

It gets apparent from you know the human factors of cell phones and from marketing that they were all very susceptible to nudges. But when you start to think of it as a political movement how will we watch the nutters nudging is so powerful. You know how do we trust and regulate government as it as it nudges us. It's a great question. And let me try avoidance first as one should with a great question and then direct response. The avoidance is that for those who take the question as a rhetorical one that is the incompetence and bias of the Niger often should counsel against not Jane. Notice if you would that not judging in a certain sense just isn't avoidable. That if the government is going to have a Social Security plan or a prescription drug plan or if

cell phone companies are going to have plans or if there is going to be property in tort and contract law. There are notches so the just like buildings can't lack architecture so nudges can't be eliminated from the human domain. That's the avoidance point the answer point is transparency. So the best way to protect against bad dodges is to make sure that the government is required to disclose what it's doing and if it's having a energy plan that has certain features we should know jet as well is it not just us by ensuring that the contents and grounds and interests that turned into the energy plan are available. So there's a suggestion that the next

administration will be the first Internet administration. And if so that will be a mechanism for transparency. Another way to put it is that both markets and democracy in their different ways are nice corrections aren't they against self-interested or incompetent Najeh. And before the financial crisis at least the thought was that market pressures will ensure that bad Niger's will just be competed out. If your cell phone has ridiculous default rules that ensure you don't if you don't change it your fees are going to go through the roof. That cell phone company isn't going to be terribly popular. But there are some domains where market pressures actually reward rather than undermine the self-interest of Niger. The suggestion is that markets often work well. Democracy provides its own checks a new era of transparency and disclosure requirements are the the first crack at that safeguards.

Thanks. Let's take some questions from the audience if people would like to ask questions will light up at the microphone. I'm going to hope that the questioning will be self-organizing but I reserve the right to nudge the recalcitrant questioners. I mean I love your approach we have relatively simple changes that produce huge positive results. I mean it's just I like the simplicity of it most of the effectiveness but I'm wondering in something as complicated as the economic crisis that we're in now this some aspects of it that would sort of lend themselves to your particular approach this this kind of default system where you sort of in English but you get the idea. Yes there is. They're in a crisis it might be that the Niger response is just pitifully inadequate. So because the economic crisis is on so many people's minds let me talk just a little bit about

why it occurred. The answers are multiple but three reasons are closely connected with our concerns in the in the project. One involves bounded rationality where if you're given I don't know how many people here have signed mortgage within the last 15 years or so they're really complicated and people presented with complicated forms often follow what we call the yeah whatever here is stuck. And so the fact that the forms are so complicated and that the fine print that puts us really at serious risk is in comprehensible is an ingredient in what led to the problem. So bounded rationality in dealing with complex transactions a second is a temptation that

homo sapiens as opposed to homo economic us is suffers from self control problems. And there used to be a norm which is you should have your mortgage paid off by the time of retirement. Indeed they're also used to be a norm which is if you have extra cash you should use it to pay off your mortgage. That norm fell in the last decades with the refinancing being part of the reason so people would refinance and use the money not to pay off the loan but to get a vacation in Hawaii. Temptation is a contributor to the problem and a third problem a real part is herd behavior where the boom of about 900 97 to 2003 roughly. It was a speculative bubble identified as such by behavioral economists who said that the widespread view that home prices always home prices always get bigger is just historically inaccurate. This is the only outlier time in the last 50 years as in that roughly seven year

span where they're jumping. How could that happen. It seems to be it was a result of a kind of social cascade in which people were talking to one another and steering each other up into bad investments. Okay so in terms of preventing future crises of this sort I think we don't want only and maybe we don't want mostly to rail against greed and corruption. We want to understand what kind of human fallibility lead people to make the deals that created these problems and the way end would be to say how do you protect people against temptation. This form of herd behavior and. Mismanaging complexity let's call it. And the first crack answer is require such things to be transparent and simple. So we have disclosure requirements that are unhelpful because it's just so complicated to tell it's it's you're going to drown or something

in the in the material simplified transparency Thaler and I think would be a nice safeguard incomplete perhaps but a but a start in a way that would get markets going. And if this seems a little bit optimistic think for a moment if you would about nutritional disclosures at the grocery store where it is simple where you see how the caloric content etc. and that has had very beneficial effects. Now this won't get us out of the current crisis but it might be a safeguard against future crises. And gosh we've had this one just for a few months now. So we need a lot of a lot of sustained empirical as well as theoretical work to understand what exactly the mechanisms were and how to prevent it in the past from happening in the future. Be a big surprise if human frailty wasn't a huge contributor. And that's what we want to ensure our regulators are attuned to.

Thank you I have another question about the line behind you long. Today in today's nose there was a Adekunle on how to tax have dramatically been reduced in this area. The Greater Boston Massachusetts because AV no smoking in restaurants now I would think that a nads was when they said no smoking sections but they had to legislate in order to get the smoking out of the restaurants entirely. So I think that sometimes legislation is necessary. That's a great question thank you. What would a niger think about smoking. At first glance the Niger wants smokers to be informed of the risks they face. So disclosure requirements clear concise simple vivid would be the first line.

The second line the Niger thing says look even if people are told about the risks they may not process the information sensibly. So here's a statistic for you. Smokers have if anything an exaggerated sense actually of the risk that smokers face. But individual smokers tend to think that they themselves are sick or are at less risk of heart attack and cancer then nonsmokers. Us Your average smoker how their risk compares with out of the average non smoker. They say I face that risk less. So it's one thing to understand the statistical reality it's another thing to have a vivid sense of its personal reality. So the nodular would say OK information isn't enough. You want to take steps so that people understand the statistical reality for them. Not in the abstract. And we can imagine ways to do that and some public education campaigns have tried what are sometimes called the

biasing strategies by giving vivid a vivid sense to people of what the threats they personally face. And there's evidence that this is itself working. OK for the people who like the finding that heart attacks in Massachusetts have gone down significantly and the claim that this can be attributed to smoking bans in public places nudging isn't enough. And not only is a ban on smoking in public places not beyond a nudge a no smoking section is beyond a nudge too because that imposes more than one click costs on smokers. They have to go to the section. It's not a big coersion but it's beyond what we're talking about. So let me say a little bit about that. Niger's acknowledge that in some cases the acts of one person hurt others. And so sometimes we're interfering with people's freedom not to protect their welfare but to protect third parties.

And in so far as the smoking restrictions can plausibly be defended as a way of protecting nonsmokers against the health risks or the irritation that comes from the presence of smoke then something more aggressive might be justified whether that would satisfy the anti paternalistic person depends on the evidence doesn't it. You might say at this point I don't really care about the effects of secondhand smoke. I want to protect those smokers and nudging won't do it enough. At this point the nodular will say well you're going to have to persuade me that there's something special about smoking that justifies paternalism of the non libertarian sort. And we could imagine some candidates we could imagine that that people are addicted get addicted in a way that overcomes their standard capacities or we could say that when people first start smoking they have such a weak understanding both of the risks and of their

own inability to quit that the original decision is not worthy of the same level of respect that most original decisions are. And the Niger might start picking up his her ears at that point and say oh you're pointing to ways that system one in the brain the more primitive intuitive kind can lead us very badly astray in such a way as to justify sometimes a more coercive intervention. And the Niger I think will have to yield and say there are some such cases. For example the Niger would be fully principled want nudges against suicide and not bans. But I confess I think that a legal ban on suicide is an important part of entrenching a social norm that protects people in periods of distress from taking their own lives. And we might think that there are certain forms of behavior which are close enough to suicide to

justify the override. But in most o mans at least the idea is the preferred approach is not to mandate but to help. I am soaping First of all just a one word answer question. It's a cigarette tax counters and or is that something else is it is it a nut yes or no. No perfect. I was wonder if you could talk about what nudging could do for the environment specifically for talk about global warming and push what sort of nudges do you envision. OK let's take two examples. Of all the examples in our book the housefly Juan has gotten the most attention. Which in a way is for the authors. That's not great but they are unrealistically optimistic view is that the reason it's gotten so much attention is that it's profound Not that it's off color. And the unreal

is this thickly optimistic view would say for the environment a real problem as we don't see. It's not visible the environmental costs of what we're doing even when ultimately we're going to pay the economic price either in dollars or in health. So when you spend a week running your air conditioner or heating equipment chances are you're not seeing on a moment by moment basis what the costs are even to you let alone the environment. There's an organization actually not far from here that invented something called the ambient orb. The end door has a little ball which lights up. It's a check attached to your electricity system and it lights up red when you have high levels of use and lights up green when you have low levels of use. An energy conservation focused utility company decided to

give people the MBA dorg and see what effects it had on behavior. It reduced electricity use by 40 percent in the relevant households. And it's because people didn't like to see that red ball. It might be that they thought of themselves money my wallets hurting when they see the red bar. Word might be they think I'm not being a good citizen that this is having environmental and other effects. OK that's one that has been effective. Here's another that I'm even more excited about. I confess there's a company in California that wanted people to conserve energy and tried various strategies nothing worked. What they ultimately did was to tell people who were above average users just that fact on their electricity bill. You are an above average user of electricity. And they told people who are below average users. You are a

below average user of electricity. The good news is the above average users significantly cut their use either because they thought they were being bad citizens or they were foolishly losing money. The bad news is the below average users increase their use. But there was a little intervention. This is this was the first of a series Tao of projects that the utility companies are using. There was a little kind of wrinkle on the what I just described where they had a smiley face for the below average users. Your below average user smiley face. Then they didn't go up to average. They stayed below average. And all over the all over the country utility companies are telling people excellent you're way below average user and they're even saying not compile only compared to average they're comparing people to efficient neighbors. Say

you're above your official neighbor but you're right with your efficient neighbors or your better than average or below your official neighbors. And these are having very significant effects and it's a it's a little bit of a movement here so low the ambient orb knowledge what it manipulates is people's attention. That's the that's the kind of behavioral insight the most of the time we live our lives on automatic pilot unless something really goes across our view screen grabs or I we're not going to attend to it in the environmental problems partly a product of absence of attention. Also people are very susceptible to knowing they're doing worse than their peers. And in the environmental domain A lot can be done to help by telling people who are above average users. That's just what you are. My question concerns the persistence of positive effects over time related to your note examples. Some of the examples seem compelling some less so in that

sense. If I made a save more program and assuming that wages are stagnant or inflation isn't high everyone seems to get better over time. In the example the fly. If people learn after a while. It's a decal and not real behavior. Go back to the old norm. If kids remember to look up and not down when they walk into the cafeteria that does behavior go back to the norm. What I'm asking is if your improved choice architecture erodes over time in some of your knowledge examples and it's has a surface sort of plausibility but social scientists haven't really measured it against controls to see whether there really is positive persistence over time. It's a fabulous question. We know that making things automatic is robust over time so I don't know how many of you have automatic bill payment. If you don't maybe the next day get you'll save money probably as well as

convenience for automatic bill payment and that by definition pretty much is robust. You'll be paying after you moved or after your great grandchildren are living in your house. So that one is robust. It seems to me both private and public institutions have done far too little to exploit the power of making things automatic. Some advisors to the president of the elect have referred to I-Pod government by which they mean in part making things really easy in part by saying if you don't do anything you're going to get stuff that's the that's that's good that works for you. OK then you're right that it's possible in principle that some of the stuff could decay if only because what makes it effective is it's getting your attention and after awhile it becomes part of the background again.

So that's an important point. We haven't come to terms with that and I don't know data with respect to our examples on the fly tell you what way it might go on the fly. It seems to be that with the flies painted there guys can't help but to aim at it. It's almost evolutionary. And if that's true it won't decay and I don't think the guys think that's a real fly. We think it's a game and we can do it. If you think about car design some of the new hybrids like the Prius and the Camry operate on the same similar principle of attention where you can see your fuel economy on a moment by moment basis even. And people compete with one

with each internally to make sure sure that. This time this tank I'm not going to do worse than last tank and they get somewhat alarmed if they're doing less well than they've typically done. So it's good driving driving so to speak your attention in that direction that we would be expected would decay some. We don't we don't know. On the ambient or it could go the other way couldn't that where the ambient orbit becomes a little like teeth brushing where over time for a large part of the populace at least the automatic nature of it meaning you do it in the morning at night. Doesn't mean you stop doing it. It means that's just what you do and what you look at. And the ambient orb could have a similar feature. So you're you've got an important point where I'm just not sure of is what are the examples when the attention grabbing ceases to grab attention it becomes like furniture

after a while. This is this is not fasten your fly. The next administration one might say it's maybe a bit simplistic but I guess perhaps largely it could be seen as a system to administration. I guess thankful for that. I want to ask about a blog entry that I noticed of yours a couple weeks ago where you said and correct me if I'm not paraphrasing correctly that the people who thought Obama was progressive are mistaken and that he's really not progressive in the way those people might think that. And I forget whether the term was centrist or or what exactly but something like that. And while I would disagree with what I took to be the implication which was that well those people have no reason for thinking that they're just deluded. I think there was a kind of studied ambiguity

about the Obama campaign which is partly responsible for why a lot of people might have mistakenly thought that. But I guess the key question that I want to get to for you is since you know him personally and I think are more familiar with him politically than certainly I am. Could you talk about where you think he really is politically. What we can expect from him a little bit in this next administration and how even though you might not agree with us those of us who would consider ourselves a more progressive who would like a swift withdrawal from Iraq who would like not to have an increase in troops in Afghanistan who would like to entertain the possibility of a single payer health care reform. How do we know age or or nudge than the next president. OK there's a lot there and. I hope I didn't say that he's not a progressive but instead a centrist because I don't think

that's the right way to think about it. OBAMA I think what makes him a bit new in American politics is that to say there's a continuum from the far left to the far right. And on what point does he stand on that. That's kind of the way of thinking of politics that he is trying to transcend. So I guess what I'd say about him is that he's highly impure acall and very pragmatic that he does stand with those aspects of the progressive tradition that are really concerned with ensuring that every American have a chance. So notice his intense concern with education. His long time interest in. I hope your eyes will glaze over the Earned Income Tax Credit which is which is a way of ensuring the working poor have more money. He is in

that line of democratic both small d and capital D thought that thinks that in America everyone wherever you're born should have a real crack out. And in that sense it's fair to describe him as part of the progressive tradition not as the richest redistributor in chief and not as a socialist. The reason I think these old categories just don't work for him is that he's highly pragmatic. So for nuclear power for example which many progressives have their system one rebel strong and their system too as has good good concerns about Senator at least and I expect this would be true as president also he's empirical. So what are the facts show. So on the issues involving the environment he wants to find

market friendly ways to do what must be done. So he's given Republicans credit for having market trading programs for the environment. I guess I think that there is a kind of progressive that thinks because I'm a progressive I believe these sorts of things and I want to evaluate a candidate in terms of whether he has these beliefs and that seems to me. To listen too poorly to what I want either a public official or a skeptic would say. And so Obama is an amazing listener. I mean that's really one of his great features I talk with him at the University of Chicago Law School and any argument he's willing to listen to. So I think you'll probably be surprised. Unpredictability isn't the right quite the right word but the cabin ability.

It's just not categories for it. I can say in connection with some of the ideas here that he is the first president we've had who is on top of behavioral economics. He also knows some old style economics. And the automatic enrollment for savings plan is something that he actually talks about in his book The Audacity of Hope. And in speaking of credit markets credit card school loans mortgages generally transparency has been long before the crisis erupted. Part of his central part of his policy. He thinks you know people just aren't being given anything straight about what the deal is. And the government has an important role to play there. So I guess I'd say the foreign affairs just that's my not a demand I know very much about. But I'd say give him a chance. See what

he's doing and if it seems like he's not promoting goals that you hold dear then you know we have a democracy. And now if there's anything that central to him it's self government. He's a listener in person and he's a listener. And in public life and there's a beautiful part of this maybe it will bother you a bit I hope not where his book The Audacity of Hope where he talks about abortion and his website had a very strong stand very strong pro-choice stand and was very hard on Roe against Wade its critics. And he got a letter from a doctor at the University of Chicago saying you know I respect you when you're doing your website casting contempt like this on me when I have moral convictions that are pro-life and Obama changes website and he said that night I said a prayer that I could give the same kind of presumption of good faith to

that doctor that he clearly gave to me. And that's a bit exemplified in what I found the most moving part of the Audacity of Hope where he said speaking again of abortion he said there are some of us middle age feminists in America who mourn their own abortions and there are religious women in the United States who don't believe in abortion who have paid for the abortions of their best friend's daughter. To me one big thing that I'm not hearing here is well two things One is how perhaps corporations have already nudged her. A lot of air laws so that there aren't always choices if you take transportation it's only within the last few years that there are more. Fuel efficient vehicles that are more readily available to more people and so that's one aspect then another is the whole

area of advertising which is just seems to me to be super naging. I think there are three really important points about choice architecture by corporations. First in so far as corporations deal directly with their customers they are choice architects. So when you buy a product. There's choice architecture which may or may not serve you well if the market's functioning properly then the people who are exploiting you will be competed out and thank goodness that happens a great deal of the time. But because system one is often in charge people sometimes companies benefit from exploiting people. And there are if you try to deal with people fairly you'll be competed out. So first there's choice architecture and the markets will sometimes insure bad choice architecture the credit crisis is partly a product of that. Second the point about

advertising that's really important that advertisers are at least intuitively and possibly by training. Highly attuned to optimistic bias to availability bias by saying you know I know a person to use this that great things happened and to loss aversion they say you can't afford not to get this product. So they they have all the tricks they know about. People are tempted to can be tempted and they try to tempt them by appealing to that part of our brain that is that is tempt a bull. So advertising is true and then the third point is also a really good one that the public. Action by our representatives often embeds a kind of art choice architecture for which well organized private groups are responsible. So one example which is the whole story is more

interesting than I'm going to tell but if you are President Bush's prescription drug plan. Which has choice architecture in it in one sense of the good sort that seniors got to choose from more than one option because President Bush is right one size doesn't fit all. But it's also the case that seniors go on a website and have to figure out which of 25 or so to choose. And it's a complete mess. We tried to do it in writing the book go on the website and if you misspell Xanax if you put a Z rather than an X in instead of like Google saying did you mean instead it says that's not a drug. We hate you or something. And after all the time we spent on this trying to get a drug plan for a hypothetical senior we felt we ourselves needed Xanax. So this was terrible. And there's little question that some aspects of the prescription drug plan is a product of

corporate interests trying to push the plan in directions that are economically beneficial and not not in consumer's interests. So that's a real challenge. My question is actually very related to that which is just what do you do in a circumstance where a corporation's product is the status quo. So how do you nudge people against doing something that they've in your example of the Time magazine so recent corruption I think that's a good one but also just if a geographic area is completely dominated by say Wal-Mart or someone's accustomed to always eating at McDonald's how what kind of an entity can nudge someone in the other direction I mean how is that possible. That's great I have. I think I have only have very conventional answers. If you have a monopoly literal monopoly then the government says get rid of the monopoly. If you instead have a product that people love like Wal-Mart

or McDonald's then. You need to introduce a competitor. Yes the people will like better and there are techniques that can be used which could involve moral suasion if it involves if you think Walmart is mistreating people work could involve just delivery of goods that are better if not cheaper and are cheaper if not better. And for McDonald's there are things to do about health that seem to be having some attraction aren't they and producing alternatives to make to McDonald's. So the pedestrian point I'm making is that in a market the only thing you can really do is first to do better and second to use the techniques we know about human behavior to move people in directions that will promote their interests. Thinking that there's more to be said about this great question and I'll tell you one one thing that I think your question

is on to that we haven't talked about enough. It's a little experiment I did at the University of Chicago. Where I said we have there's a plagiarism policy at the University of Chicago asked a whole bunch of students which is that if you plagiarized the first offense you're suspended for two years of law school. Number of members of the faculty think that's too tough and it should be turned to back to a one semester suspension. What do you think of that. Then ask another large group of University of Chicago law students we have this plagiarism policy at the law school. There's one semester suspension a number of members of the faculty think that's too weak and it should be shifted up to a two year suspension. The ones who were told the current policies a two year suspensions that's good should remain more lenient. That would be bad. And those who were told it was a 1 1 semester suspension should be made tougher they said no that bad which is they were the ones this master suspension. So I did this in Chicago about Chicago students they didn't happen not to know what

the policy was. I. Think that's because they're so honest they didn't care. They they they stuck with the status quo then I did a gale about Chicago. They stuck with the status quo. So it may be that Wal-Mart and McDonald's sometimes are more successful just because that's what people are used to. And then so this is a great question and there are some thoughts that are in the book about how to jar people out of a routine and one way to do it is to make it really easy to give them a very clear path or to ask them certain questions like if you asked people Do you plan to vote. People say yes in a way that out runs the percentage of the population that actually does. But those who are asked that question and voting more. So if you say to people would you try an alternative to McDonald's. If they say yes then they're more likely to. So there are a bunch of

strategies for jarring people out of the status quo. It's a great question. We just do that jarring. That coming from the government coming from private groups. It depends on the organization doesn't it. I mean if it's the ripped Democratic Party trying to get people to vote in Missouri then the Democratic Party. If it's a company trying to get people to go to a new restaurant then it how exactly it asked people is a nice question but kind of functional equivalence of that either through advertising campaigns or through signs. This one kind of clue about the importance of small changes is if you if you tell dog if doctors tell patients 90 100 people have this operation nine you're alive after five years. If the medical conditions a certain way people have the

operation you tell them of 100 of the operation 10 will be dead after five years they say no. Even though it's the same. Right so. So if if if it's if it's framed if the relevant question is framed the right way with respect to supermarket choice. You know I'm stumbling a bit over exactly what the comparative advantage of new Wal-Mart would be. But there are ways a friend is saying if you go to Wal-Mart you're losing X rather than if you come here you're gaining y. That's a way to do it. Thank you. Thanks. You began your talk by talking about the problems of the rational actor model and I want to ask you how you would counter my argument which is that there are dangers of treating people as not rational actors and effectively exploiting that more instinctive non-rational

impulses. Two of the examples you cited I want to draw attention to a couple of problems. First the example of the children's food model where you put the vegetables at the front. The fatty food to the back of the school kids I imagine as you say the vast majority will pick the fight you will pick it up as a front that will be a few who will be the model and will think well actually I really want some greasy fries for lunch. I'm going to go for that. And I think there's something troubling about taking advantage of the mass you don't think about it and leaving a small percentage to it to be your system and the second example again using the default premise is the one about organ donation. It's not that I'm anti organ donation it's that there's something troubling about people not even thinking about the issue and then having their organs donated against their against any reasoning of their own. And my question is given that governments have a choice to either intervene

nudging or doing something more active or changing the way people think about a problem and encouraging people to actually engage with the issue and at least trying to act as rational agents as opposed to exploiting the instances in which they don't behave as Russian agents why would you not watch. And just to contemplate the idea of people bumbling through life being nudged by one thing and another I mean there was a woman who put the lady a couple of questions in front of me was talking about the influence of advertising companies and you know me even if it's. Public benefits if you know someone on the subway you're expected to apologize. Yeah that's great thank you. Maybe we needed a better title for the book libertarian a few libertarian paternalist someone on the subway. There's no convention whether. OK. You might think this is a great point. So you might think there are domains

where you don't want to have a default rule one way or the other. You want to educate people and let them make their own decision. OK. So how would that be turned into a reality. You might think for organ donations instead of having the default rule be you're not going to be giving unless you say or the opposite people are going to be provided with information and required to make an actual choice. Or you could say for a savings plan it's not going to be automatic non-Roman or automatic enrollment you're going to have to make an active choice. So there is a literature actually coming out of the economics department here on required active choose which frequently has an element of education perceiving it. And that's I guess that's what you prefer. Yeah I see circumstances where that where that's better. Where would it be better where it would be better if we thought that the choice architect was self-interested or biassed or

incompetent. And then we really want the people to be making their own judgement. I would be there and we might think with you that that the Niger should be apologetic. So there's a kind of moral reason always to have required active choosing proceeded by education. Ok fine here's here's a way into thinking that that is in some domains but not all domains. Would you like it in a restaurant if the waiter said. Why didn't greedy and spic you literally do you want in this dish. Rather than giving you 10 options would you like to have an infinite number of options. Or do you like having 10. You can imagine if you're going to a foreign country where if you're required actively to choose things you're going to be just overwhelmed. So a thought is the extreme

version of what you're suggesting isn't life and there's a reason it isn't life that required active choosing would multiply the burdens of decision in too many domains and also lead us given how busy we are often either just randomly to peck or to blunder or to start yelling at our choice architecture. You tell me. So think a little bit. Maybe this is a good example for domains in which what you're favoring isn't ideal. Believe it or not there's one country in the world that took a very ambitious path toward Social Security privatization in recent memory. And that's Sweden Sweden pro privatized Social Security and gave people not 10 not 30 not 100 not 200 but 450 options. Sweden did not so well every citizen had a little

book with 450 options not such a little book. They didn't say here's the default plan. This is where you're going to be unless you go out there instead of what you want. They want to have a lot of education for people and they were so insistent on required active choosing as we're calling it that they had Harrison Ford come to Sweden and be in advertisements emphasizing you make your own choice. And you remember Indiana Jones what university he taught at the world of free markets. The University of Chicago. So Harrison Ford was doing required active choosing. Now people they did this. The Swedes did create a default plan. The experts created one and all over the world people thought the default plan's a good one but they can encourage people to make their own choice rather than to default into the expert plan they lost 40 percent of their money in the three year period after. On average the Swedes did because they went into Internet stocks. And it was a little bit

predictable they go into Internet stocks it was like investing in real estate about four years ago. Internet stocks are booming. Availability suggested that was the way to go. But no no that was not the default the default way outperformed individual choice and in the mandatory individual choice. So the only suggestion is that there are there are domains in which education and require choosing is just a really big bother and people hate it. I think for example I got a some sort of plan it was too complicated even to figure out what it was today. You're listening to the person who was subscribing to five magazines he hates so I have a bias against required active choosing. And the plan was six pages which seemed too much and I put it down after a minute and thought I wish they'd just default me into something sensible given my situation and then I started preparing the stock.

And and so I take your point it's a really good point that that there are areas where what you're suggesting is the preferred one. The I guess the deepest question is whether the moral concern that this is manipulative is universally strong or whether there are cases where the default by a planner is kind of a respectful way of saying to people you're really busy this is probably what's going to be best for you if you don't like it try something else. Thank you. Of the will.