Law in Business and

Economics – Class 1405

Nudge and Conformity
This lecture is based on Notes taken at Harvard Law School, October 2019, Refer to cited Bibilography for further
detail: Cass Sunstein, The Storrs Lectures: Behavioural Economics and Paternalism:
http://ssrn.com/abstract=2186210

Professor Leonor Rossi

 Before the Book, everyone
already knew what a nudge
was
The Cambridge Dictionary of English stated that it was:

to push something or someone gently,

especially to push someone with your elbow (= the middle part of your arm where it
bends) to attract the person's attention:
The children were giggling and nudging each other.
He nudged the cat off the sofa so that he could sit down.

[ I + adv/prep, T ] to move slowly and almost reach a higher point or level:

Oil prices continue to nudge higher.
Peter must be nudging 40 now.
Cass Sunstein and Richard Thaler
Bibliograph
y
Keep in mind that there is a parallel
theory Conformity - 2019
Conformity is when to you…
 “The actions and statements of other people
provide information about what is true and
what is right.

 The actions and statements of other people will

tell you what you ought to do and say if you
want to remain in their good graces.

 Then, unless your imagination and experiences

lead you in fresh directions, you will think and
act like your neighbours do.”

In Conformity, 2019, Preface, pages 9&10

Therefore we…

• Approach Nudge without forgetting:

 That there is a risk that it might lead persons without a robust sense of independence to Conformity
 Nudge opens up a brave new world
 “A nudge, as we will use the term, is any aspect
of the choice architecture that alters people’s
behavior in a predictable way without
forbidding any options or significantly changing
their economic incentives

 To count as a mere nudge, the intervention

must be easy and cheap to avoid. Nudges are
not mandates. Putting fruit at eye level counts
as a nudge. Banning junk food does not.”
(Thaler & Sunstein 2008, p. 6)
(Before Nudge) Economics seemed so simple

People were described as naturally inclined to engage in Rational

Profit Maximization

 Yet… observation of literature, of art, music, pointed out that

 Behavior constantly belied the rationality assumption

 Default rules, are opt-in and opt out perfect
substitutes?

 People tend to understate the power of Default

rules

 They believe that opt-in/Opt-out are the same

 But they are not

 5 step analysis

Recently, Cass Sunstein proposes a 5 step analysis

1) Clarification of Nudge: past and present

2) Exploiting the idea of Choice Architecture
3) Navigability as an objective (unto itself)
4) Defining Sludge (noise)
5) A Bill of Rights for Nudging
 Eat cake first?!

cake and
sweets
meat, fish, eggs
and dairy This Photo by Unknown Author is licensed under
CC BY-SA

vegetables and grains

This Photo by Unknown Author is licensed
under CC BY-SA
It starts like this, and seems so simple…
This book ( 2011) Inspired Nudge.
How?

 Thinking fast and Slow: “Think of yourself on the beach in 3

weeks/in 3 yrs”
 FAST: System 1: Present Bias + Unrealistic Optimism
 SLOW: System 2: Cost-benefit analysis
Clarification of Nudge
Persons Suffer from:
• Limited Attention/ Inertia ( you cannot control all the features of what you buy, all of the catches
in a credit card contract: the probability that you will attend to high late fees is low. There are
shrouded attributes and hidden features.
• Present Bias: when your future self is a stranger: can lead to smoking, addiction and obesity:
prefer 5 Eur Today than 50 next week
• Unrealistic Optimism
 Countries are worried about
Obesity Poverty Environment

Cigarettes Highway accidents, traffic Violence

WE cant FORBID ( that is for the law) and We Can’t USE MONEY (that
changes incentives)

• Obesity: The calorie counters, the position of the brownies, stating “4

out of 5 exercise”. Diet Pepsi v Pepsi MAX.
• Poverty “opt-in rule for credit card overdraft”
• Environment: Don’t MESS with Texas
• Cigarettes: Photographs + “Only 1 in 8 smokes”
• Highway accidents, traffic: “Forget the PHONE”, GPS
• Violence: 2-3 day waiting period for guns
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Results

EAST: Easy Attractive Social Timely

 Default rules
 Simplification
 Information
 Reminders
 Social Norms: tell people about existing ones and emerging ones “some reservations here” if
actors are not robustly independent
Exploiting the idea of Choice Architecture
What the World Likes:
• Calorie Labels, Graphic Warnings for cigarettes, traffic lights for food, automatic enrollment in
savings plans/green energy

Who likes it?

• A- China, South Korea, Mexico/ B - Ger FR Italy Spain, Irl, UK, Belgium, Canada , US/ C – Japan,
Hungary, Denmark

What the world doesn’t like

• Automatic enrollment in charitable contribution or carbon-emissions contribution ( even if you
can opt-out).
• When people are in favour of NUDGE that are against a BAN.
Defining Sludge
Red Tape is an obstacle to many things
• Sludge is friction that causes harm
• Scholarships
• Research Projects
• Access to help for “mental health” issues of students
• Global Entry (returning to the US): now Kiosk-based

NB: Different to Administrative burdens that are justified (say, for mortgages)
A Bill of Rights for Nudging

1. Must be for Legitimate ends

2. Must not violate individual rights:(based on reference to human
dignity in the German Constitution)
3. Must be consistent with people’s values and interests.
4. Transparent
5. Ought not to take things from people without their consent
6. Should not manipulate people
7. The benefits must justify the costs.
Nudging the Nudgers
 One suggestion is to analyze effects including cost and benefits BOTH before you proceed AND on
a continuing basis
 Do images that create fear or revulsion cross the line? Do they subvert person’s capacity for
rational deliberation?
 In Germany, Literacy BOOSTS have been suggested as a strong alternative to Nudges: Boosts in
Statistical Literacy, Finance and Nutrition
 To this suggestion defenders of Nudge have responded that for example anyone taking the
Cognitive Reflection Test while they’re in the Doctor’s office shows that their cognitive capacity
sinks. The Stress reduces agency.
Success
• Plate not Pyramid
• Calorie Counters