Designing systems to work in people's own stated interests
Richard Thaler's research on Behavioral Economics highlights how the way that choices are presented and implemented deeply impact the observed outcomes.
For example, say that you want to increase what percentage of income employees choose to get discounted of their paychecks into a savings account for their retirement.
If the choice is presented as “the recommended amount you should save is 10% of your income, what percentage do you elect to save?”, the outcomes observed are that people on average will choose to save less than 5% and will likely only revisit that decision when they change jobs. Maybe, through no fault of their own, people are already struggling to make ends meet. Maybe they are in a position where reducing the levels of expenditure by 10% would be untenable or unsustainable.
Thaler's intervention is to frame this question another way: “suppose you receive a pay raise, would you agree to put away an additional 3% of your income into the savings retirement account?” This approach, that he called “Save More Tomorrow”, makes use of our natural tendency to hold our hypothetical future selves to a higher standard, somehow better able to fulfill commitments and better positioned to deal with setbacks.
Note that this is essentially the same strategy that credit cards use, although for more nefarious purposes and in reverse, with “buy now, pay later” offerings.
Through some psychological shortcoming, we reliably misjudge the situation for our future selves. Maybe we can call this “optimism”. Note, also, this is what drives a surge of sign-ups to gyms after January 1st, although actual gym attendance sharply falls to baseline after that for most of the year. Maybe we can call this effect “work out more tomorrow”.
Back to our topic at hand. What Thaler found out is that by framing this question as a decision in the future, prompting a choice in the present and, somewhat crucially, implementing it through automated systems (should people opt-in), this would have a consistent effect of raising savings above 10% in the long run (after consecutive pay raises).
Their present selves, given the opportunity, made the best decision for their future selves, even if their present selves wouldn't make these same decisions for themselves.
One important push back that must be addressed is: “Isn't this coercive and paternalistic?”
For the “coercive” part: it can be argued that no, it isn't. People were presented with the choice of opting-in, as well as the choice of dropping out of the plan at any time. It is true that what is to be expected is that the status quo will prevail and thus people won't go through the trouble of raising or lowering their savings percentage. What changes with this intervention is only that people have the added choice to make it so the status quo works toward what their own stated goal, a healthy retirement savings account.
For the second part, is this paternalistic? Maybe. One may question “should it be anyone's job to save people from themselves?” That's, after all, a value judgment, and we will tactfully sidestep this whole notion, because the central element of this intervention, as proposed, is informed consent and the ability to opt-out.
The only thing it does is remove all the friction to do “The Right Thing” -- the right thing, very crucially, as measured by the affected people themselves. It lets people recognize that they are not infallible and tools are provided for their own advantage, if they choose so.
The whole argument is maybe we can foment better societal outcomes if “the easy thing to do” would also be “the thing that I would like to have done”.