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Choice Architecture: Nudging for Sustainable Behavior

Sustainable management demands an in-depth understanding of current global economic, social and environmental pressures. This chapter deals with the use of choice architecture and its potential to influence decision-making. It focuses primarily on the discussion of how nudges influence choice, their applications to design interventions to promote behavioral change, and the challenges and ethical concerns to individuals' freedom of choice.

1.1. Choice architecture and nudging

1.1.1. Choice architecture

People are becoming more concerned about the impact of their choices and are increasingly motivated to engage in sustainable behavior. Being environmentally sensitive in consumption, making healthy choices, and changing troublesome habits are critical to individual and societal well-being.

Choice architecture refers to the context or environment in which people make choices. Behavioral science has come to realize that the way in which options are presented can have a significant impact on the option that is chosen, and that small changes in the decision environment may influence the decision-making process.

People make countless choices in daily life, including decisions on how to use money, time, effort and attention. As individuals face a wide range of possible choices, have limited cognitive resources, and need quick decisions, they use heuristics to facilitate routine choices. Heuristics are shortcuts or rules of thumb that simplify and facilitate decisions. They are not bad per se but do not always produce the best outcomes. Frequently, they produce systematic biases in thinking and judgment that generate expected mistakes and postponement of complex decisions. For instance, in terms of formal logic, having more options should always be better than having fewer options. Nevertheless, due to limitations of time, attention and self-control, individuals often feel overloaded when given too many options. They may perceive having more options as worse than having fewer options, when, rationally, adding more options should always be better. Indeed, people do not have time, motivation, or attention to carefully and consciously think about every decision. For instance, research has shown that we make more than 200 daily food-related decisions [WAN 07]. In general, habits and impulses govern our decisions without awareness. Nudging overcomes this problem by recognizing that choice architecture has a huge impact on the decision-making process and that small changes in that process may generate better outcomes. Small changes, such as organizing the way the food is displayed in cafeterias, where healthy food is made more visible, contribute to healthier choices.

1.1.2. Nudging: using choice architecture for good

Nudges are changes in the choice architecture or in the design of the choice environment that facilitate better decision-making without affecting the freedom of choice. Coined by Thaler and Sunstein [THA 08], the term gained immediate worldwide notability when Thaler was awarded the 2017 Nobel Prize in Economics.

Nudges are nearly imperceptible premeditated changes in the choice environment that influence the chosen option. A nudge does not regulate, sanction, or ban certain choices. Rather, it simply emphasizes particular options and moves individuals' choices onto a more sustainable track. A nudge is a slight change in the way options are presented, enhancing the best option without removing the other set of options to promote the best interest of the individual. Techniques that can be used to encourage or discourage certain behaviors range from a cue to boost individual self-interest to an incentive to avoid self-defeating behavior. Most people want to make better choices but routinely persist in making poor choices, by default, or because they are seemingly easier. By defaulting or facilitating better choices without restricting individuals' freedom of choice, it is possible to promote sustainable behavior and improve individual and social welfare.

One example of a breakthrough use of nudging is organ donation policy design. Organ donation saves lives, but donations are scarce around the world when compared with waiting lists. For instance, in the US, according to the Health Resources and Services Administration (HRSA)1, approximately 20 people die each day waiting for an organ transplant, and more than 112,000 people needed an organ donation in March 2020. In general, research has shown that more people support organ donation than are actually registered to donate [JOH 03]. Based on this knowledge, in recent decades, many countries have changed their human organ transplant systems from explicit-consent to presumed-consent systems. Instead of an explicit opt-in organ donation system that requires the individual to express their consent to become a potential donor, many countries have moved to an explicit opt-out system where consent is presumed unless the individual explicitly refuses to become a potential donor. Countries such as Austria, Belgium, the Czech Republic, Finland, France, Greece, Hungary, Israel, Italy, Luxembourg, Norway, Poland, Portugal, Slovenia, Spain, Sweden and Turkey have significantly increased their organ donation rates by changing the default status from explicit to presumed consent [JOH 03, UGU 15].

Neutrality is a key feature of nudging incentives, which means that all options should remain easily available at no relevant cost or effort to the participant. Nudges are neutral because the entire set of options is still available (individuals can still choose whether or not they want to be a donor), and individuals can opt-out of the nudge "incentive" without difficulty or relevant cost. However, in practice, nudging may strongly influence the decision-making process and, consequently, the final outcome.

Singapore, Israel and Chile went even further in organ donation policies by establishing an allocation priority clause for donors [ZÚÑ 15]. This clause states that if a person opts out of the donation system, he or she will lose priority if they need an organ donation in the future. While priority for donors is part of policy design, it is not classified as nudging because it is not neutral, and therefore, there is a clear advantage for those who are donors and a sanction against those who are not. To be classified as a nudge, the intervention cannot change incentives significantly.

Moreover, all organizations that use nudging should be transparent about why they aim to influence choices. For example, when organ donation default is altered from explicit consent to presumed consent, the purpose of the change is clearly to increase organ donation. This begs the question of whether transparent nudges are effective. If people understand that they are being nudged, they might deliberately choose to deviate from the suggested choice. However, evidence has shown that nudges can be transparent yet effective [BRU 18, SUN 16]. Transparency is key to making nudging policies ethically acceptable. For example, being aware that organ donation policies have been designed to increase donations does not discourage people from donating. It has been an effective policy and has saved lives.

Nudges are neutral and transparent interventions that specifically aim to steer people's behavior, ethically using behavioral insights to do good. However, the dark side is the emergence of the symmetric term: sludge. Sludging techniques use the same behavioral insights to favor others' interests, at the expense of self-interest. The main difference between nudging and sludging is the intention: if the purpose is to increase individual welfare, then it is classified as nudging; if the purpose is to deliberately harm individual interest, however, then it is classified as sludging. The main goal of nudging is to promote effective and ethical ways to improve behavior which conventional policies have failed to reach.

1.2. Theoretical roots and applications around the word

Improving decisions while preserving freedom of choice is clearly ideal. These theoretical principles are not new and have been developed by behavioral sciences for the last four decades. The major contribution of nudge theory was to aggregate and bring the concepts to the public debate and encourage its application by governments and policymakers in large-scale public policy.

1.2.1. Heuristics and systematic errors

Behavioral economics has developed over the last few decades in opposition to rational economics, which assumes that people rationally maximize self-interest. Humans are not homo economicus, who consistently use rational judgment, as defined by John Stuart Mill in the 19th Century in his Principles of Political Economy [MIL 48]. Rather, humans behave in surprising and irrational ways. Due to cognitive limitations, people use heuristics or rules of thumb to speed up the process of finding a satisfactory outcome and to ease the cognitive load of making a decision. These mental shortcuts are quick, effortless and work efficiently in routine decision-making, however, mental shortcuts do not work well all the time. Frequently, people are affected by cognitive bias as they process information and, consequently, act against their own self-interest [TVE 74]. And, they do so in ways that are systematic and predictable.

Daniel Kahneman, an influential psychologist - who was awarded the 2002 Nobel Prize in Economics for bridging economics and psychology - has...