[Cass R. Sunstein] Nudges made British life better

Just a few days after Richard Thaler won the Nobel Prize in economics earlier this month, the UK’s Behavioural Insights Team released its annual report. What good timing! Thaler helped inspire the creation of the Behavioural Insights Team in 2010, not only with his academic work, but also by numerous (and continuing) discussions with the team.

Drawing on work in psychology, Thaler showed that people don’t always make fully rational choices, and that their decisions can be greatly affected by apparently minor factors (such as where high-calorie foods are placed in a grocery store). Guided by Thaler’s work, companies and governments found that if you enroll people automatically in savings plans, if you simplify people’s interactions with services or products, if you reduce or simplify form-filling requirements, or if you provide reminders and clear disclosures, you can make a difference in people’s lives.

With these findings in mind, the Behavioural Insights Team’s new report offers numerous success stories. Road accidents are a leading cause of deaths and injuries in the UK, and accidents are often caused by drivers who have previously been caught speeding. To address that problem, the team adopted a simple nudge, in the form of a letter, briefly explaining to those drivers that speed limits are a reasonable and important idea.

Remarkably, the intervention cut repeat offenses by 20 percent over the next six-month period–which almost certainly saved lives.

To increase and diversify enrollment at the UK’s best universities, the team identified 11,104 students with strong grades at schools whose pupils rarely attend such universities. Those students received letters from current students with similar backgrounds at top universities, emphasizing that those universities were interested in students like them. Those simple letters significantly increased applications -- and eventual attendance.

High-sugar drinks contribute to obesity, which is a significant problem in the UK The group tried to cut consumption with simple signs at hospital stores, reminding people that certain drinks have a lot of sugar in them. The result was to reduce purchases of those drinks by 7.3 percent -- not by cutting consumption of drinks overall, but by leading people to shift to less sugary alternatives.

At the time of retirement, people have to make tough decisions about what to do with their pensions. Bad choices can reduce lifetime income. In the UK, industry issues lengthy guidance (as much as 100 pages), alongside a suggestion that recipients visit the government’s Pension Wise website. The Behavioural Insights Team consolidated those documents into a one-page Pension Passport -- which made people 10 times more likely to seek advice online (and more likely to make good choices).

The Behavioural Insights Team has now worked in 25 countries. Its methods are being used by governments all over the world, including national, state, and local authorities in the US To an increasing extent, the private sector is enlisting behavioral insights as well, and saving people money while improving health in the process.

Some of the resulting initiatives have had a massive effect. Thaler himself has promoted automatic enrollment in pension plans, along with Save More Tomorrow Plans, by which employees agree to give some percentage of their future wage increases to savings. According to a recent estimate, these initiatives have added as much as $29.6 billion to retirement funds.

Inspired by this example, and with Congress’ authorization, the US Department of Agriculture is automatically enrolling poor children in free school meal programs, which means that they will get benefits to which they are entitled. More than 11 million poor kids are benefiting from that initiative. Other behaviorally informed reforms have had a comparably large impact.

By contrast, it’s fair to describe most of the UK initiatives as modest. But if you can save lives on roads, widen opportunities to attend top universities, reduce obesity and improve financial decisions at retirements, you’ve had a positive impact on the lives of countless people. In a period when public officials face high levels of distrust, it’s inspiring to find an institution with the expertise, the tools, and the commitment to doing just that.


By Cass R. Sunstein

Cass R. Sunstein is a Bloomberg View columnist. -- Ed.


(Bloomberg)