Virginia Hughes

How can we encourage large corporations, or small families, to conserve energy? Or Harley Davidson types to wear helmets? What about getting my mom to kick her smoking habit? University of Chicago economist Richard H. Thaler and law professor Cass Sunstein say that all it takes is a little nudge.

Thaler and Sunstein believe that “choice architecture”—usually not in the form of explicit regulations or laws—”can be established to nudge us in beneficial directions without restricting freedom of choice.”

John Tierney has an article about the idea as it relates to carbon footprints in the NYT today. I wasn’t particularly convinced until I read, linked in his accompanying blog post, a chapter called “A Dozen Nudges” from Thaler and Sunstein’s book, Nudge: Improving Decisions about Wealth, Health and Happiness. The chapter lists a dozen proposed nudging programs, many of them already up and running. Here are three that I find particularly smart (notice that these are all completely voluntary…which is not the case for all of the duo’s suggestions):

Stickk.com. Committing oneself to a specific action is one way to improve the odds of success. Sometimes it is easy to make a commitment, as, for example, by cutting up your credit cards…Other times it is hard. Dean Karlan, now a Yale economics professor, has teamed up with his Yale colleague Ian Ayres to propose a Web-based business [called] Stickk.com.

Stickk offers two ways to make commitments: financial and nonfinancial. With financial commitments, an individual puts up money and agrees to accomplish a goal by a certain date. He also specifies how to verify that he has met his goal. For example, he might agree to a weigh-in at a doctor’s office or a friend’s house; a urine test for nicotine at a clinic; or an honor-system verification. If the person reaches his goal, he gets his money back. If he fails, the money goes to charity. He also has the option to enter into a group financial commitment, in which the group’s pooled money is divided among those members of the group who reach their goals.

Quit smoking without a patch. CARES (Committed Action to Reduce and End Smoking) is a savings program offered by the Green Bank of Caraga in Mindanao, Philippines. A would-be nonsmoker opens an account with a minimum balance of one dollar. For six months, she deposits the amount of money she would otherwise spend on cigarettes into the account. (In some cases, a representative of the bank visits every week to collect the deposits.) After six months, the client takes a urine test to confirm that she has not smoked recently. If she passes the test, she gets her money back. If she fails the test, the account is closed and the money is donated to a charity.

The early results from this program have been evaluated by MIT’s Poverty Action Lab and look very good. Opening up an account makes those who want to quit 53 percent more likely to achieve their goal. No other antismoking tactic, not even the nicotine patch, appears to have been so successful.

The Automatic Tax Return. No sensible choice architect would design the current income tax system, which is famous for its complexity. Withholding was a major advance that simplified life for everyone. Ordinary people and the Internal Revenue Service would benefit even more if the process could be made more automatic. A simple step, suggested by the economist Austan Goolsbee, is the Automatic Tax Return. Under this approach, anyone who does not itemize deductions and has no income (such as tips) that is not reported to the IRS would receive a tax return that is already filled out. To file, the taxpayer would need only to sign it and mail it (or, even better, go to a secure IRS Web site, sign in and click). (Of course, the taxpayer would be required to make changes if her status changed, or if she started receiving unreported income.)

Goolsbee estimates that this proposal would save taxpayers up to 225 million hours of tax preparation time and more than $2 billion a year in tax preparation fees. True, many people don’t trust the IRS, so here’s one way to assure them that our tax collectors are honest: if there’s an error, you get the money back, plus a bonus (say, $100).

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