Every day we make hundreds of decisions, most of them unconsciously. What we decide, to a large extent, depends on our habits and on the context in which a choice is made. Economics in particular has been concerned with how people make decisions and behavioral economists specifically, among them Nobel Laureate Richard Thaler, were the first to incorporate insights from psychology into their work.
One of the most important concepts of Thaler’s work is what he refers to as nudging. He coined the term “choice architecture” which allows people to make their own decisions under a design that favors the better choice. By making the healthier or improved choice easier, this creates a structure in which people can ultimately make better decisions. If, for example, a chocolate bar is in a hidden corner of the supermarket instead of at the counter, shoppers will be less likely to buy it. The choice remains theirs whether they buy the chocolate or not, but by removing the temptation, they’re being nudged away from it.
Thaler emphasizes that nudging is not about forcing or restricting choices. “People say we’re bossing people around, which we’re not,” he argues. “The analogy we like is GPS. Imagine that we can have GPS for life that just made getting where you want to go easier, without ever commanding you must do something.”
Thaler uses the cafeteria at the Chicago Booth School of Business, where he teaches, as another example. When you enter the cafeteria, the first thing you see is the salad bar. To get to the unhealthy food – fries, burgers, pizza – you need to pass the salad bar first. “This is an example of how something that seemingly isn’t very important may nudge people to eat something healthy,” Thaler explains. “There has to be a design of that cafeteria. Why don't we make it a good one?”
Nudging can also be found in devices like smart watches that alert people to how much time has been spent sitting in front of a computer or how many calories they’ve burned.
Countries across the globe have begun to implement behavioral insights into actual policy shifts, including environmental initiatives to stop climate change.
Behavioral economists know that even if beliefs change, breaking habits and changing behavior is difficult to do. The United Nations Environment Program emphasizes that there is a big difference between good intentions and actual action. While it’s true that a growing number of people are concerned about the human impact on the environment, changing one’s own behavior is difficult for many, even when it comes to the smallest changes.
Thaler believes that one of the big issues that needs to be tackled on a global scale is carbon pricing. “If there’s something bad, raise the price,” he says. “Most places tax alcohol and cigarettes, we should be taxing carbon.”
He acknowledges the difficulty of finding an agreement that all nations would support which is why he emphasizes how everyone can make a contribution at the individual level. There are plenty of areas where people can make an impact, from limiting the amount of red meat in diets to choosing greener means of transportation.
“Behavioral enhancements can work well around the edges,” says Thaler. “You could imagine a thermostat on a hot day, when you turn the thermostat down a degree or two, says this is going to cost you 10 dollars.”
The idea behind this is similar to a tax on carbon emissions. The choice is still there and companies and individuals can decide how to respond, but the less sustainable choice’s cost is made clear. This could lead to more people opting for the more sustainable path.
Thaler also stresses what behavioral economists call the importance of default options. If a business makes double-sided printing the default option, over time this will automatically reduce paper use. Employees are thus acting more sustainably without actively deciding to do so. It’s just one of many promising examples that once combined, can make a big impact.
Thaler knows there is power in numbers. “These are all little things,” he says. “But the only way we’re going to deal with climate change is a lot of little things.”