Google recently slapped a fresh coat of paint on Gmail, its ubiquitous email platform, to incorporate a host of new tools. Among these updates is a "nudge" feature, which provides Gmail's 1.2 billion users with gentle reminders when they fail to respond to emails from their regular contacts in a timely manner.
In some ways, Google appears to be looking out for its users' best interests by lending a guiding hand when it comes to communication breakdowns. Perhaps the company's developers have been taking notes from Nobel laureates.
Richard Thaler, who was awarded the Nobel Prize in economic sciences for his thesis that people can be nudged to make better choices. The economist asserts that individuals are not always good at recognizing the actions that benefit them most — sometimes we need help.
People often give in to seemingly irrational whims. They fail at their diets because they opt for a donut instead of a salad. When fuel prices dip, they decide to buy premium gas rather than standard. Thaler's thesis, which builds on the inherent irrationality of human behavior, affects the field of economics and will certainly have larger implications in society.
Thaler asserts that people value different things in different situations simply because they will pick whatever they find beneficial at that moment. Because people often make seemingly irrational decisions that value the immediate future rather than long-term consequences, Thaler believes, they can sometimes be nudged to choose "better" options. As such, his win carries significant ramifications for consumers — particularly regarding the nitty-gritty ideas that guide business decisions.
The Heat of the Moment
Thaler and his theory received a lot of attention when he released his book “Nudge.” The book discusses how it’s possible to help people make "better" choices.
This approach is certainly interesting, but it has just as many negative consequences as it does positive elements. The upside is that it instigates a renewed focus on core economic assumptions, such as subjective value. But Thaler adds psychological context to economic analysis, essentially reinventing these assumptions by making poor caricatures instead of sticking with what we once knew.
He assumes it’s possible to determine what people truly want by considering how they rank different options. Considering our innate bias for immediate gratification and the fact that people prefer to attain value sooner rather than later, this theory is quite flawed. The only way we can learn about what people actually want is by monitoring their behavior. Economics is based on subjective value — Thaler agrees with this — which is impossible to measure. Saying you like apples 2.5 times more than you like oranges is absolutely meaningless (and inaccurate).
Thaler’s theory is based on identifying non-maximizing behavior that can be "corrected." This presumes that people should value the “best” choice most in any situation. But when you talk with people after the fact, they likely will report a different valuation than they had at the moment of decision. Most people would tell you that it’s better to save for retirement than to splurge on a new gadget, but many of them end up buying the gadget anyway. They choose to sacrifice retirement savings for the gadget for a reason, and that decision is right for them in the moment. In other words, they aren't tricked or deceived; they prefer the gadget over retirement.
People value different things in different situations and at different times. As such, they tend to pick whichever choice will be most beneficial to them at any given moment. They might change their minds, but nudging them one way or the other means only that you place a cost on — or take away — their preferred option.
A Nudge Too Far
Approaching economics with an agenda to change human behavior might help promote more robust 401(k)s and better nutrition, but it also means preventing people from placing a higher value on "poorer" choices. But should this responsibility fall into anyone’s hands but our own?
Anything from putting the cookie jar on a higher shelf to locking the liquor cabinet is, in a sense, “Thalerian.” Nobody knows this tactic better than marketers, who try to nudge people to buy their products via advertising.
These nudges become more persistent as big data's power grows. The Nest thermostat, for instance, encourages consumers to keep their homes at eco-friendly temperatures. Likewise, your favorite shopping app undoubtedly sends suggestions and coupons for products you might want to buy. Those little nudges can be surprisingly effective.
Of course, there are positive applications for marketing-focused nudges. When Amazon acquired Whole Foods, it cut prices on a variety of organic produce and meats to encourage customers to eat healthier. Nudge economics has applications in countless scenarios, but it can also end up exploiting consumers by nudging them too far. This risk is greatest when we're not offering a value in exchange, as is the case when businesses try to attract customers but only try to change behavior — providing the "nudger" with undue (and uncontrolled) power.
Big Brother Is Nudging You
More concerning than marketing’s use of Thaler’s brainchild is the role it can serve in the political realm. Nudging is akin to libertarian paternalism, in which policymakers can use marketing “tricks” to influence people to make decisions that they think benefit society as a whole.
These policymakers might be well-intentioned, but the situation sparks major control concerns. While democracy calls on politicians who represent the people, what happens when our representatives use the power of the state to nudge us in certain directions for "the greater good"?
Governments can effectively strong-arm people into choices they wouldn’t otherwise make or into decisions that benefit society at large or political decision makers themselves. But could they nudge us toward voting for certain candidates? This obviously becomes a much more serious issue than marketers using tantalizing pictures of donuts to make us visit a bakery.
It’s unsettling in theory, but the U.S. government has a history of nudging. Former President Barack Obama instituted the use of behavioral science to "better serve the American people." This could be beneficial, but it means subjecting consumers to the values of the policymakers. Considering how fallible those policymakers can be and how little insight they have into what their constituents actually value in certain situations, there’s plenty of room for error.
Furthermore, many people are skeptical of the government's right to encourage consumer decisions — even for the better. "Nudge" co-author Cass Sunstein reports, "If people are told that they are being nudged, they will react adversely and resist."
They naturally resist, as their autonomy is literally being taken away from them under the auspices of it being "for their own good." This resistance also negates the intention of the nudge, reaffirming the value people place on their in-the-moment decisions.
While Thaler’s newfound celebrity has been a boon to so-called behavioral economics by bringing attention to the field, his theory deviates from proven economics in problematic ways. It gives marketers free rein, it provides policymakers with the problematic power to persuade the public, and it devalues the choices people would make of their own free will. Although Thaler would advocate for outcomes that work in the best interest of consumers, having a third party define “best interest” is dangerous territory.
Per Bylund is Assistant Professor of Entrepreneurship and Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. His areas of research are entrepreneurship, management, and economic organization. Connect with him on Twitter.