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Business News/ Opinion / The ethics of nudging

The ethics of nudging

In the vast universe of nudges, some may be politically unacceptable, while some are non-controversial


I read with interest Sowmya Rao and Anirudh Tagat’s piece entitled ‘India’s Nudge Unit: An idea whose time has come’ (17 February, 2016). While I enthusiastically support nudging, I would like to highlight some concerns (and the corresponding counter-arguments) which have been highlighted in recent volumes of academic debate.

Without significantly changing economic incentives or closing off choices, a ‘nudge’ involves ‘choice architects’ steering people’s behaviour in a manner that is good for themselves (guided by the philosophy of libertarian paternalism) or corrective of market failures.

Nudges are largely founded upon findings in economics and psychology. Behavioural scientists have found through innumerable experiments that humans regularly use mental shortcuts called heuristics, which can lead to systematic biases. These heuristics and biases make humans irrational. A classic example is the availability heuristic, which relies on ease of recall. Studies have shown people are likely to answer that homicide is more common than suicide, whereas the national figures demonstrate that suicides are four times more common than homicides (homicide is more newsworthy and seen as more vivid, clouding human judgment).

Nudges are of three types: (a) they combat heuristics and biases; (b) they enlist heuristics and biases and/or (c) they are bias-neutral. Nudges that provide information, reminders or disclosure belong to the third type. Rao and Tagat’s example of road signs or text message reminders fall under this category. They are fairly non-controversial (although their effectiveness is being questioned).

Types (a) and (b) deserve closer scrutiny. Consider the following nudge. In order to encourage employees to save more for retirement, companies changed the default from manual enrolment to automatic enrolment into a retirement savings program (with an option to opt-out if they so wished). Alongside this, the companies also introduced a sister program that automatically increased employees’ contribution rate to the pension plan with every pay raise (‘Save More Tomorrow’). Thus, an employee, who may later regret not saving for retirement, is being nudged into saving. In the sister program, Save More Tomorrow, those who do not increase their contribution rate due to inertia are nudged.

Here, a bias (status quo bias, or inertia) is being enlisted to combat a bias (time inconsistent preferences—where people have different preferences at different points of time). Several questions arise while questioning the legitimacy of this nudge. First, should we even aim to combat time-inconsistent preferences? Philosophers like Guilheim Lecoteux and Derek Parfit argue that we at time t1 and time t2 can be two different persons, depending on the degree of psychological interconnectedness—thus making time inconsistent preferences rational. For example, it may be completely rational to smoke at the cost of bad health at a later point in life, simply because the person at a later point in life is a different person. In other words, whether certain biases merit paternalistic intervention is an unsettled question.

Second, is enlisting the status quo bias by the use of default rules violative of autonomy? Philosophers like Sarah Conly and Jeremy Waldron argue that nudges like default rules push people in certain directions by exploiting their biases rather than engaging in persuasion through open debate. Making choices for others is also symptomatic of a nanny state.

There are several other concerns. One arises from transparency and fairness. One nudge, for example, is announcing longer waiting times so as to ensure that customers are pleasantly surprised when their turn comes quicker than expected. Some consider this manipulative and non-transparent. Similarly, it is argued that using subtle cues or clever framing to manipulate choice is unjustified and non-transparent. Second, there are also privacy concerns. Since many nudges use personalised default options, the apprehension is that private information may be compromised. A third concern is ethical—when nudges are used for illicit or illegitimate ends. Consider a default rule established by an authoritarian government, according to which you are presumed to support the incumbent party in power, unless you state otherwise (that is, opt-out). Finally, another worry stems from arguments in classic libertarianism—who will nudge the nudgers? Policymakers suffer from the same behavioural biases and it need not assumed that they know more than us.

Proponents of nudges have strong counter-arguments. First, not all nudges raise concerns of autonomy, transparency and privacy. Some, such as the road sign, or a mandated disclosure, simply provide information and may, in fact, enhance autonomy. For instance, to counter the problem of freebies, the Election Commission of India added a provision to the Model Code of Conduct that directed political parties to “reflect the rationale for the promises and broadly indicate the ways and means to meet the financial requirements for it". This counts as a disclosure nudge, and is uncontroversial.

Second, we must recognise that choice architecture and nudges are inevitable and universal. Take the following case: studies have shown that asking for signatures at the beginning of a sheet induces more honestly than if asking for a signature towards the end. The regular practice of asking us to sign at the end is also a form of choice architecture, and it nudges us in a certain direction. Thus, nudges do not introduce choice architecture, they only modify them.

Third, there are many alternatives to nudges that are politically unfeasible or seen as violative of autonomy. For example, instead of changing the default rule in case of organ donations to presumed consent (something that may be controversial), one can instead have a system of active choosing. Here, a citizen is asked whether he/she would like to be an organ donor at the time of receiving his/her driving licence. Contrast this to the traditional default system—either (a) consent for organ donation is presumed, with an option to opt out, or, (b) those who wish to donate organs are required to explicitly register, barring which it is presumed that there is no consent.

Four, and perhaps the trump card, is that nudges are easy to avoid—they leave open the freedom of choice. Thus, any misuse of the policy tool has an inherent safeguard, in that the nudgees can steer clear of it with ease.

The bottom line is that in the vast universe of nudges, some may be politically unacceptable, while some are non-controversial. While embracing the latter, we must debate the former. Studies conducted in countries like Sweden and the US have shown that there is general widespread support for the use of nudges; people prefer those nudges that appeal to conscious, deliberative thinking (like disclosure rules—for example, calorie labels) rather than those that enlist fast and automatic thinking (like default rules). Such studies need to conducted in India to determine the contours of the debate.

Vasujith Ram is a penultimate year student at the National University of Juridical Sciences, with an interest in behavioural economics.

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Published: 15 Mar 2016, 01:06 AM IST
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