Give More Tomorrow — a questionable nudge for good?
The impact of Richard Thaler and Cass Sunstein’s book Nudge since it was first published in 2008 is undeniable. According to the publishers, more than 750,000 copies have been sold so far. It was the inspiration for the UK government to set up a ‘nudge unit’ in 2010 to help design public policy based on its principles, and for numerous other governments that followed suit since.
One of the most famous interventions that embody the Nudge principles is ‘Save More Tomorrow’. This mechanism for escalating (retirement) savings was originally devised by Shlomo Benartzi and Richard Thaler in the mid 1990s, and is currently widely applied, thanks to the use of digital tools. It “alters people’s behaviour in a predictable way”: by allocating a proportion of future pay increases to their retirement fund, participants increase their overall contribution. It does so “without forbidding any options”, since it is a voluntary decision, and “without significantly changing their economic incentives” — it neither gives extra money for joining the scheme nor does it take money away for not joining. It is also “cheap to avoid”: a person who joined the scheme can opt out at any time.
A nudge for good…
Save More Tomorrow cleverly uses several behavioural science insights to achieve its aim of helping people secure a decent retirement income. By asking employees to commit to an increase in contribution a long time before it actually happens, the resistance to channelling future income into a pension fund is much reduced compared to sacrificing present income. The effect at work here is hyperbolic discounting, which counters present bias. Because it is taken out of a pay rise, even when it happens there is no actual reduction in net income, which mitigates loss aversion. And status quo bias (a fancy term for inertia) means that, the employees are likely to continue the scheme (which will happily continue to escalate contributions) rather than taking action to cancel the scheme.
Most importantly, Save More Tomorrow is in the nudgee’s interest, and therefore a proper, benign nudge — a nudge for good. Or is it?
Arguably it is, if not in all cases then certainly in many. Loss aversion, present bias and procrastination prevent many among us from doing what we know we should do: save for our retirement. Save More Tomorrow helps us overcome this. Those who really don’t want to save more can easily decide not to join, or leave the scheme whenever they want. And even if they don’t (because of the status quo bias), they’re not materially losing out — the money they are precluded from spending now is waiting for them in their retirement fund.
In a Bloomberg column on 11 December, Cass Sunstein appears to be advocating a similar approach for charitable donations. He refers to a scheme put to the test by Anna Breman in Sweden in 2006. She got a telemarketing firm to ask one group of regular donors to charities whether they wanted to Give More Now by increasing their donations on the spot, and another one whether they wished to Give More Tomorrow, by increasing their donations two months later. In the second group, the average increase in donations was 32% higher. Professor Sunstein attributes this to the fact that donors can benefit immediately from the ‘warm glow’ that giving to charity produces, without feeling the immediate loss of the money donated.
So Cass Sunstein concludes that charities should ask their regular donors to commit to a regular future increase in their donations, say, every quarter or six months, just like the Save More Tomorrow scheme.
For sure, anyone changing their mind later, for example because their financial circumstances have changed, could halt the increase or indeed stop donating altogether. But both schemes work precisely because the status quo bias works so well… even if it is in our interest not to stick to it.
…or a sludge?
And herein lies the problem. Nudging for good relies crucially on helping people make the decisions that are in their own interest. Save More Tomorrow by and large fits this requirement, not least because, irrespective of their preferences, the money remains the property of the participant. But can we say the same for Give More Tomorrow?
We should not be blinded by the fact that it concerns payments to a charity. Imagine a commercial company were to use a similar approach to get customers to buy more of a particular good or service, by automatically increasing the regular subscription payments. It is doubtful that many people would consider this a benign nudge.
Richard Thaler likes the term ‘sludge’ for nudges that prevent people from doing what is in their interest. But if relying on the status quo bias to make people buy more than they want is a ‘sludge’, is that not also the case for using the same approach to make people to donate more than they want? It is not because many of us consider charitable giving a good thing, that everyone will agree that giving more to a charity is necessarily a better thing.
Knowing what we want, what we really really want, is tricky, not least because it seems we may not even have stable, defined preferences. For that reason, we should be very careful with designing, implementing and proposing nudges when it is not clear that they are not detrimental to the nudgee.
We have no way of knowing whether donors to a charity will, in the future, still stand by their choice to donate more, and that raises questions over how ‘good’ this nudge really is. And it It is remarkable to see one of the fathers of the concept of nudging advocate just such a questionable nudge.
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