What if the default option for energy supply was renewable?
Tension is building between Google and me. Google would rather I didn’t use its “incognito” setting regularly. It absolutely will not allow me to set it as a default. Conversely, I don’t want to tell Google that I am shopping for a pair of shoes, or, incidentally, my foot fetish, not least because I don’t want ads for thigh-high leather boots appearing on every site I visit.
Google doesn’t want to give the impression it’s interfering with the personal freedoms of its users. But at the same time the search giant practices modern-day alchemy. All this data can be turned into oceans of money – it pays for Google to be cagey about defaults
In behavioural economics the “default” is a classic nudge. There are plenty of others. The status quo bias – people tend to avoid change. Anchoring. If a charity suggests a donation size of $10 dollars, donations will pour in around this figure. The same applies to estate agents and house prices. Loss aversion is another nudge. We value losing something twice as highly as gaining something. If you want to convince people to buy a new fridge tell them they’re losing $100 a year with their old fridge. Nudges encourage a particular behaviour without constraining options. While businesses have been quick to adopt nudging it has been applied less systematically in policy.
The concept broke into the mainstream in 2008 when two American academics Richard Thaler and Cass Sunstein published Nudge: improving decisions about health, wealth and happiness. (There’s a good summary here.)
On the back of his research, Sunstein ran Barack Obama’s Office of Information and Regulatory Affairs, which reviews federal agency regulations relating to finances and Medicare for example. Earlier this week, Sunstein, a tall and quietly spoken, spoke at the Royal Swedish Academy of Sciences as part of an event on green nudging – how a nudge philosophy can be employed to encourage cleaner, greener living. His lecture took us on a whirlwind ride through examples of recent policy nudges and the underlying psychology behind them.
The right to be wrong
Nudging has been attacked in some quarters. Some argue it interferes with individual freedoms and personal choice. Sunstein counters this saying a nudge is good if it promotes human welfare. This is supported by recent research (Warning: you are about to be nudged) that indicates, when it comes to defaults at least, people don’t mind being nudged whether they know about it in advance or after the fact. Perhaps this research can act like a nudge to governments to pay more attention to this technique as a policy instrument.
More to the point, those that attack nudging must ignore the staggering corporate advertising budget of over $500 billion a year globally. While freedom of choice – or something masquerading as it – is maintained in the free market, corporate greed drives subtle nudges, like positioning of candy in supermarkets close to check-outs, not human welfare.
Intellectually Sunstein’s book is closely related to Robert Cialdini’s Influence first published in 1984. Cialdini challenges the economist Adam Smith’s notion of a “rational actor model” of human behaviour. Choosing is complex and fraught. Marketeers prey on weak and vulnerable – all of us.
Cialdini revealed six “weapons of influence”. First, we feel obliged to reciprocate. If someone does us a small favour, we try to repay it, usually with something slightly larger. Second, we want to stick with commitments and be seen to be consistent. Third, we tend to go along with suggestions from people we know. Fourth, we tend to believe what our friends and family believe. Fifth, we tend to respect authority. Finally, we value things that seem scarce – sales are always “ending soon”.
Thinking fast and slow
Both Cialdini and Thaler and Sunstein owe a debt to the grandfathers of behavioural economics Daniel Kahneman and Amos Tversky. Kahneman’s Thinking Fast and Slow argues humans have two distinct thinking modes: System 1 and System 2. System 1 operates on the fly through a series of short cuts and rules of thumb. It doesn’t dwell, it doesn’t ponder, it relies on gut instinct. But we all know what guts are filled with. System 2 is slow and cumbersome. It does the heavy intellectual lifting. As a rule, we try to short circuit System 2, only activating it if absolutely necessary. This may explain why logic doesn’t always play such a significant role when we make decisions. More to the point advertisers and marketeers can exploit this knowledge to force us to part with our cash. Academia is playing catch up. While Kahneman and Tversky were developing their theories in the sixties and seventies, since the fifties large corporations were applying identical ideas with increasing sophistication.
So successful are corporations at manipulation that, when it comes to pushing for sustainable consumption, the economist Pavan Sukhdev wrote in the influential academic journal Nature, “Consumerism is often blamed, and consumers can indeed make crucial choices on the basis of how much material and energy is used for making, packaging and transporting goods. But on this road of economic choices, it is corporations, not consumers, in the driver’s seat, and they are driving us in the wrong direction. Corporate advertising converts our insecurities into a chain of wants, needs and excessive demands, which have made our ecological footprint exceed the planet’s ability to produce resources and absorb emissions.”
The Green Nudge
Personal choice is an essential ingredient of human dignity. This poses a specific challenge for weaning ourselves off fossil fuels and other unsustainable behaviour. The Green Nudge event at the Royal Swedish Academy set out to explore how societies could nudge themselves out of their complacency and towards green choices. The underlying principle is that good “choice architecture” – gentle nudges – could replace heavy-handed regulations at least partially if not completely.
The “default” has potential. What if power suppliers were mandated to offer renewable energy as the default option? People tend to be loss averse and prefer the status quo. Sunstein used the fact that golfers pot better for par than for a birdie – people really hate losses – to empahsise the point. When it comes to a renewable default, people might rationalise staying with green energy rather than moving to a slightly cheaper supply by saying “I don’t want to lose out on clean air and a good environment”. The reference point – another classic nudge – also comes in to play. The current default encourages the thinking: “I don’t want to lose money.”
Another classic nudge is feedback. Simply giving people easy and instant access to the costs or implication of their behaviour can change it. The warnings on cigarette packages is one such nudge. A visible electricity or water meter clearly identifying financial cost has been shown to drive down electrical or water consumption drastically.
On another level, in the US, simply mandating that corporations disclose inventories of the toxic chemicals they store or have released to the environment has spurred a fall in releases.
You can try this at home
Nudging is not just for the professionals. On Friday, the US online magazine Slate ran this story: Finally, a website that uses math to make your difficult decisions for you. The website in question Something Pop helps people make big life-changing decisions on which city to move to, which job to take, which apartment to rent. The trouble is, the site’s default priority list for each life decision takes no account of the environment. Adding a priority related to reducing carbon emissions would be a default nudge. I tweeted Ben Gimpert and emailed Kate Elswit, the two site creators, and they both agreed, responding pretty much instantly saying they’d put it on the list to include in the next update. Nudge accomplished. But none of this solves my Google fetish problem.
The event at the Royal Swedish Academy of Sciences was introduced by Gunhild Stordalen the founder of the Norwegian organisation GreenNudge.