Are you being nudged? The choice paradox3 min read . Updated: 03 Nov 2009, 10:47 PM IST
Are you being nudged? The choice paradox
Are you being nudged? The choice paradox
As consumers, we’re used to wearing a mental helmet while counting our money before we buy, especially when dealing with our banks and credit card firms. We’ve got smart about sussing out negative consent (which went like this: If you don’t call us to cancel this loan, we’re putting you on a galloping interest rate loan that will result in you getting bankrupt in five years. OK, not exactly that, but almost!) pitches simply because these were like hammers on the head. But less easy to filter out are consumer choices that are using choice architecture to get us to spend more or bind us in products that we do not want.
Also Read Monika Halan’s earlier columns
Choice architecture is the way a given system is set up to encourage certain actions over others. It can take the shape of an auto-tick on an e-commerce website to bill you for a product you may not need. I face this each time I book movie tickets online. At the end of the transaction, when I click submit, I see a small box that is already ticked. It is my consent to buy a health insurance plan. They already have my credit card details, it will just take a small, unnoticed tick for me to lose at least one year’s premium. Each time as I cancel the auto-tick, I wonder how many people are holding policies of a particular company simply because of a choice architecture that is designed to cheat. While nudges have been used by firms wanting to maximize profit, there is an increasing interest of policymakers in using this small tap. The Consumer Financial Protection Agency in the US is using product architecture and nudges to steer consumers towards plain-vanilla products that are not harmful for the consumers. In India the use of nudges in product architecture is within the regulatory radar. While speaking at the annual conference of Foreign Exchange Dealers’ Association of India at Kolkata in January this year, Shyamala Gopinath, deputy governor of the Reserve Bank of India, said that India could consider using nudges in a “viable framework" to influence individual actions, especially in the context of selling complex products (http://bit.ly/1yVoh1). US regulators are already battling corporate war chests that are against the government using nudges; I wonder if India will be any different.
End note: And while I am on behavioural finance, I must admit that this is already the third time in under a year that I write about this. An earlier column got reader Ana to share this nudge (http://bit.ly/33ndjG). “I used to know a person who used the nudge technique without being aware of it. Every evening after work, everyone has free time, say around 2-3 hours. This is how this person used to spend hours. Monday was Main Day—the main people for this person were his family, so Monday was “my family day" and the evening was spent with family. No staying late at work, no friends’ phone calls, no meetings would stop this person from spending quality time with his family. Tuesday: Treasure Day. In the evening, he would spend time looking at bills, finances, or anything to do with money. Wednesday was Wealth Day. Now this person considered health as real wealth, so that day went in looking into reviewing weekly health data. He was a diabetic and a weekly report analysis was necessary. Thursday was Thrust Day or a day that he would work in gaining new skills for the workplace, upgrade computer skills and so on. Friday was Friends Day or the day he spent time with friends, go for parties and movies. Saturday was Self Day, a day to relax, enjoy time with himself, riding, painting, introspecting. This day was used to plan the week ahead and some soul searching and spirituality. Sunday was Social Work Day when he would volunteer to teach street children and do other kind of social work." Ana’s friend simply used the name of each day of the week as a nudge to lead a fuller life. Thanks Ana.
Monika Halan works in the area of financial literacy and financial intermediation policy. She is consulting editor with Mint and advisor PFRDA and can be reached at firstname.lastname@example.org