Whenever the government is designing applications and forms, its choices affect people’s decisions. Complexity produces different results from simplicity. Many laws require disclosure from the government or the private sector, and this can occur in different ways. The architecture of disclosure (including which items are placed first, font size, color, readability) is likely to influence what people select.
Life would be impossible to navigate without default rules. Computers, mobile phones, health-care plans and mortgages come with defaults, which you can change if you wish. An employer might say that you must opt in to be enrolled in a savings plan, or alternatively that you must opt out if you don’t want to participate. In either case, a default rule is involved.
Some skeptics (especially on the left) object that nudges may be ineffective or even counterproductive. In their view, coercion is often both necessary and justified. The objections are most pointed, as New York University School of Law professors Ryan Bubb and Richard Pildes argue in a forthcoming article in the Harvard Law Review, when nudges are seen as affirmatively harmful.
Automatic Enrollment
An example involves automatic enrollment in savings plans, which both of us have supported. Critics point out that if employers choose a low contribution rate, automatic enrollment can decrease employees’ total savings -- a perverse effect. That observation, however, is a reason for smarter nudging, not for coercion, and is thus not a persuasive critique of nudges in general. One smarter approach in this area is “automatic escalation,” a complement to automatic enrollment.
With automatic escalation, as time goes on and people earn more money, a higher share of their wages goes into savings -- unless they opt out. The objection that nudges reduce retirement savings collapses.
And guess what? A survey from Towers Watson & Co. found that in 2012, 71 percent of plans with automatic enrollment included escalation. In 2009, 50 percent did. So much for the critique that contributions in these plans are fixed at their initial levels.
To be sure, coercion might turn out to be justified when the benefits clearly outweigh the costs. But behaviorally informed approaches, which maintain freedom of choice, have growing appeal. As we continue to learn what works, we will identify numerous ways to improve people’s lives while avoiding the costs and the rigidity of more heavy-handed alternatives.
(Peter Orszag is vice chairman of corporate and investment banking and chairman of the financial strategy and solutions group at Citigroup Inc. and a former director of the Office of Management and Budget. Cass R. Sunstein is the Robert Walmsley University professor at Harvard Law School, the co-author of “Nudge” and a former administrator of the White House Office of Information and Regulatory Affairs. They are Bloomberg View columnists.)