Choice Architecture

The Basic Idea

Before heading to the grocery store, you make a list of the items you need. Eggs, milk, and bread. “I won’t buy anything other than these,” you tell yourself. As you wander down the aisles of the store, a large sale sign catches your eye: there’s a shelf of all your favorite snacks, labelled “2 for $8”. “What a steal!” you think to yourself, grabbing four packages without realizing that the original price was $3.99 per item. Once you get home, you realize you spent more than you intended and wonder how this happened yet again. Would you have bought the items if you realized you were saving $0.02?

This is an example of choice architecture, which means that our decisions are influenced by the way that choices are presented.1 To this end, a choice architect is someone who creates the environment that influences decision-making. In the situation above, consumer decisions are influenced by directing their attention to a sale, which we associate with being good, by default. Choice architecture is related to libertarian paternalism and nudge theory, which proposes that positive reinforcement and implicit suggestions can influence behavior.2 However, choice architecture is not always used to benefit those making decisions.1

The first misconception is that it is possible to avoid influencing people’s choices.

– Richard Thaler, Nobel Prize winning behavioral economist for his nudge theory

Key terms

Choice architecture: The presentation of choices in different ways will impact decision making.

Choice architect: Someone who frames information and designs the presentation of choices. Many people turn out to be choice architects, without realizing it.

Libertarian paternalism: The idea that it is both possible and legitimate for institutions to influence behavior while also respecting freedom of choice (i.e. without coercion).

Nudge: Any aspect of choice architecture that alters behavior in a predictable way, without forbidding options or significantly changing economic incentives.

Reinforcement: Strengthening the likelihood of a future behavior. Positive reinforcement adds a desirable consequence while negative reinforcement removes an undesirable consequence associated with the behavior.

History

Choice architecture first emerges with Richard Thaler and Cass Sunstein’s 2008 book, Nudge: Improving Decisions about Health, Wealth, and Happiness.2 Thaler coined the term choice architecture to describe how insights from behavioral economics could be used to influence choices, without changing their objective values. In the context of Nudges, choice architecture was said to minimize biases that result from bounded rationality. Limitations such as cognitive capabilities, the difficulty of the problem, and the time available to make a decision could be overcome if choice architects nudge humans toward beneficial choices.

When expanding on choice architecture, the researchers drew inspiration from cognitive scientist and design researcher Donald Norman’s 1990 book, The Design of Everyday Things.1 The main lesson from Norman’s book was that designers must remember humans are confronted daily with a multitude of choices and cues, so products must be designed for ease of use. Thaler and Sunstein aimed to develop the same idea for choice architects: by detailing principles of effective choice architecture, the researchers wanted to help choice architects better design their environments to match how humans behave. To achieve this goal, Thaler and his colleagues highlighted six “tools” for choice architects: (1) understanding defaults; (2) expecting errors; (3) providing feedback; (4) understanding mappings; (5) structuring complex choices; and (6) incentivizing.

For understanding that people are more likely to choose default options (1), defaults are defined as the choices that people must take active steps to avoid, such as being enrolled in student health insurance.1 To combat defaults, choice architects can require people to make their own choices, such as developing the student health insurance form to be empty, with students required to either opt in or opt out by checking one of two boxes.

As for understanding mapping (4), this refers to exploring the different ways that the presentation of information can influence option comparison.1 For example, mapping choices between ice cream flavors is much easier and less riskier than mapping choices of health treatments. The researchers suggest that good choice architects should improve people’s ease of mapping choices, which can be done by making information about the various options more comprehensible.

Finally, choice architects should be cognizant about how they structure complex choices (5), since people are more likely to adopt simplifying strategies as the number of choices increase.1 As options increase in number and become more complex, choice architects have more opportunity to present information in a way that will be more likely to influence behavior.

Starting out with the broader theory of nudges, Thaler and colleagues moved on to detail the six principles of good choice architecture. By providing examples of choice architecture and suggestions for choice architects, the researchers expanded on choice architecture to improve behavioral outcomes.

People

   

Richard Thaler

Richard Thaler has researched applied decision making for over four decades.3 Thaler’s work has focused on how decisions made by both individuals and institutions alike are influenced by cognitive limitations and biases, refuting the assumption of economic theory that humans always act rationally and selfishly. He has identified many influences on behavior such as bounded rationality, social preferences [for fairness], and lack of self-control, to name a few. Thaler was awarded the 2017 Nobel Prize for Economics for his contributions regarding nudge theory. Specifically, the award was presented on the basis that Thaler’s contributions have bridged economic and psychological analyses of decision making, synthesizing research that has been critical for the expansion of behavioral economics.

Cass Sunstein

Working alongside Thaler to develop Nudges and expand on choice architecture, Cass Sunstein has not only worked on behavioral economics, but he is also an American legal scholar.4 Sunstein received his J.D. from Harvard Law School and has since worked on administrative, behavioral, constitutional, environmental, employment, and labor law. His impressive history landed him a position with the Obama administration from 2009 to 2012, working as the Administrator to the White House Office of Information and Regulatory Affairs. Sunstein has advised officials at the European Commission, the World Bank, and the United Nations regarding law and public policy. He is also an advisor to the UK’s Behavioural Insights Team, further applying his expertise in behavioral economics.

Consequences

Supported by the 2017 Nobel Prize for Economics, Nudge theory and choice architecture have had a large influence on behavioral economics research, as well as policy making.2 Advocates of libertarian paternalism have supported choice architecture to nudge consumers toward desirable behaviors such as choosing healthier foods, registering as an organ donor,5 signing up for health care, and even saving for retirement.6

Choice architecture has also been impactful on significant policy making groups: Sunstein was appointed to lead the White House’s Office of Information and Regulatory Affairs and the Behavioural Insights Team was established under the UK’s Cabinet Office.7 Other countries soon followed in forming similar organizations, and international institutions such as the World Bank, the European Union, the Organisation for Economic Co-operation and Development, and UN agencies adopted behavioral insight units. Teams at the federal level such as Germany’s office of Federal Chancellor in Policy Planning Unit and the White House’s “Nudge Unit” work directly with implementing agencies to diagnose, design, test, and evaluate interventions informed by choice architecture.

Since the implementation of nudges and choice architecture, research by behavioral economics including Sunstein and Thaler has shown that nudges are much more cost-effective than traditional policies in the domains of financial security, education, job training, and health, to name a few.8 The comparative advantages of choice architecture will normally be larger when policy objects are to change daily behaviors of people who are making biased, rushed, and imperfect decisions. In this context, imperfection is determined by reference to the welfare of said people. The researchers acknowledge that nudges often work with other tools such as simplifying procedures, but show that choice architecture can be beneficial nonetheless, regarding both cost and efficacy.

While Thaler and colleagues provided the first detailed account of choice architecture and the six associated principles,1 other behavioral scientists divided the “tools” into two categories: (1) those that structure the choice task; and (2) those that describe the choice options.9 The former addresses the issue of what information and options choice architects should present, and the latter focuses on how to present said options. When structuring the choice task, choice architects should pay special consideration to the number of alternatives, decision aids such as technology, defaults, choice over time, and how task structure affects the way people consider their options. As for describing choice options, choice architects should carefully divide options into groups and design the attributes associated with their options.

Controversies

Despite the popularity of nudge theory and choice architecture, there is still some criticism. Although libtertarian paternalism is built on the foundation that behavior can be influenced without any coercion, respecting freedom of choice, the main concern is whether choice architecture is ethical.10 In fact, Sunstein has been called “the most dangerous man in America” for his role in behavioral economics and policy, by Conservative commentator Glenn Beck.

By designing options to overcome decision making biases, choice architects may only be able to do so by imposing costs on agency, such as limiting choices.11 Although individuals are free to choose between the choices presented to them, the original design of choices may threaten autonomy. Economist and philosopher Luc Bovens claims that choice architecture leaves people with “fragmented selves” as they behave one way under nudges, that they would not otherwise behave.10 The main point of criticisms around the ethics of choice architecture is that, if people become used to being nudged, we may become passive and tolerable of more controlling tactics, similar to a “Big Brother” world.

Nudging has been labelled by some as a “rationality paradox”, such that it represents an approach that emphasizes bounded rationality without reflecting on its own limits to rationality.12 If individual decision making is limited in rationality, then the policy groups composed of individuals are also limited. Although governments possess superior resource bases relative to those of individuals – in terms of knowledge, finances, organization, and authority – and have safeguards in place, at the heart of these organizations are people who are individually limited in their rationality. This means that bounded rationality cannot be dismissed on the basis of having more resources, which lends to the question of whether such institutions are in a position to nudge others through policy.

Case Study

Defaults in organ donation systems

The discrepancy between demand and supply over transplantable organs is a significant health problem, especially for developing countries.13 Thus, policy debates in such countries focus on solving this shortage and mostly compares two systems: explicit consent versus presumed consent. In the former, the default is that nobody is a donor unless they explicitly register and opt in. The main drawback with the explicit consent system is that donation rates tend to be low, and less than reported willingness to donate. On the other hand, the presumed consent system registers every adult as a donor unless they explicitly opt out. However, a drawback with presumed consent is that families of a deceased relative may object on their behalf and withdraw consent, which lowers donation rates and governments can be seen as taking advantage of citizens’ consent.

To address these issues, researchers from the Netherlands considered a third option: a system of mandated choice.13 In this situation, there is no default and citizens have to actively make a choice. The researchers used hypothetical choices from a national survey in 2011, and chose to sample citizens of the Netherlands in which there is an explicit consent system in place. 2069 individuals aged 16 years and older were divided into three groups representing the explicit consent, presumed consent, and mandated choice systems. Participants were asked whether they would stay with the default or actively opt in or out for explicit and presumed consent, respectively, and whether they would opt in or out for mandated choice. All participants were also given the choice to answer that they didn’t know.

The results of the study showed that – at least in the Netherlands, which is a country with an explicit consent system – both systems of mandated choice and presumed consent were more effective than explicit consent in increasing the number of registered donors.13 The researchers suggest that people may be more inclined to register in the mandated choice system than the explicit consent system due to humans’ propensities to procrastinate when making decisions. Such an explanation would support the power of defaults and encouragement for choice architects to mandate choices, as suggested by Thaler and colleagues in the first principle of choice architecture.1 While results from a study in the Netherlands does not guarantee equivalent results in developing countries that are experiencing an organ shortage, the results suggest that a mandated choice system should be considered in policy debates and points to the power of defaults in which people are opted out.

Save More Tomorrow: Easy and painless retirement

As average life expectancies increase, the time spent in requirement commonly increases as well, subsequently increasing the money required for security and comfort. The life cycle theory in economics holds that the general population will solve this problem like economists would, by calculating their required savings and distributing their finances to match this.14 However, this is not always the case, due to two reason: it is difficult to make such calculations, and in the case that correct calculations are made, people may lack the required self-control to appropriately reduce their consumption rates.

Richard Thaler and behavioral economist Shlomo Benartzi recognized that people have a loss-aversion bias: when people are forced to cut their present spending to save for their pension, they perceive a loss instead of a future gain.14 This is where the problem of self-control ties in. Additionally, people tend to procrastinate when making decisions, especially for unpleasant or difficult tasks. While people may want to save for retirement, they keep putting it off. This leads to the status quo bias, allowing people to remain in their current situation regardless of what they know the rational optimal choice is.

To address these issues and to help people save for retirement, Thaler and behavioral economist Benartzi designed the Save More Tomorrow plan.14 The intervention implements choice architecture through seemingly simple, but very influential components. The first aspect is automatically enrolling all employees in a savings plan right when they become eligible. This means that while employees can choose to opt out of the plan, their default choice is a commitment. The second aspect is that increases in savings rates are linked to future pay raises. This way, take-home pay always increases and deductions are taken from money that the employee was not used to having, helping overcome loss aversion.

Thaler and Benartzi’s intervention of choice architecture has proven to nudge a higher savings rate for long-term gains and has appealed to people who were not otherwise interested in a savings plan.14 Designed in 2004, it was enforced as part of the Pension Protection Act of 2006, encouraging companies to adopt the core principles.15

Related TDL Content

Dancing to the tunes of a choice architect

If you’re interested in more examples of choice architecture at work, look no further! This article provides a great breakdown of how choice architects can influence behaviors through their design of choices, as well as how we can use our awareness of choice architecture to move forward.

Giving people the tools to nudge themselves

Moving past research on the effectiveness of nudges, some people wonder if implicitly influencing others’ behaviors is ethical. Who is in a position to make the decisions of a choice architect for someone else? An interview with Samuli Reijula, a researcher who has studied how nudging interventions can be used as an individual tool, provides some alternatives to consider. If nudging others is indeed unethical, perhaps we can nudge ourselves!

Sources

  1. Thaler, R. H., Sunstein, C. R., & Balz, J. P. (2013). Choice architecture. The Behavioral Foundations of Public Policy, 428-439.
  2. Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving Decisions about Health, Wealth, and Happiness. Yale University Press.
  3. Duigan, B. (2020, September 8). Richard Thaler. Encyclopedia Britannica. https://www.britannica.com/biography/Richard-Thaler
  4. Harvard Law School. (n.d.). Cass R. Sunstein. https://hls.harvard.edu/faculty/directory/10871/Sunstein
  5. Johnson, E. J., & Goldstein, D. (2003). Do defaults save lives? Science, 302(5649), 1338-1339.
  6. Benartzi, S., Peleg, E., & Thaler, R. H. (2013). Choice architecture and retirement saving plans. The Behavioral Foundations of Public Policy, 245-263.
  7. Afif, Z. (2017, October 25). “Nudge units” – Where they came from and what they can do. World Bank Blogs. https://blogs.worldbank.org/developmenttalk/nudge-units-where-they-came-and-what-they-can-do
  8. Benartzi, S., Beshears, J., Milkman, K. K., Sunstein, C. R., Thaler, R. H., Shankar, M., … & Galing, S. (2017). Should governments invest more in nudging? Psychological Science, 28(8), 1041-1055.
  9. Johnson, E. J., Shu, S. B., Dellaert, B. G. C., Fox, C., Goldstein, D. G., Häubl, G., … & Weber, E. U. (2012). Beyond nudges: Tools of a choice architecture. Marketing Letters, 23(2), 487-504.
  10. Selinger, E., & White, K. (2011). Is there a right way to nudge? The practice and ethics of choice architecture. Sociology Compass, 5(10), 923-935.
  11. Mitchell, G. (2004). Libertarian paternalism is an oxymoron. Northwestern University Law Review, 99(3), 1245-1287.
  12. Lodge, M., & Wegrich, K. (2016). The rationality paradox of nudge: Rational tools of government in a world of bounded rationality. Law & Policy, 38(3), 250-267.
  13. Van Dalen, H. P., & Henkens, K. (2014). Comparing the effects of defaults in organ donation systems. Social science & Medicine, 106, 137-142.
  14. Thaler, R. H. & Benartzi, S. (2004). Save More Tomorrow: Using behavioral economics to increase employee saving. Journal of Political Economy, 112(1), 164-187.
  15. Save More Tomorrow. (2017). Shlomo Benartzi. http://www.shlomobenartzi.com/save-more-tomorrow

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