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The art of presenting decisions

According to classical economic theory people react rationally to incentives such as prices, penalties and taxes and therefore sustainable behavior can be promoted by means of such incentives. However, research in social psychology and behavioral economics demonstrates that the way decisions are presented influences how people decide, independently of incentive structures.

It is important to bear in mind that there is no such thing as a context-free decision. There is always a status quo, something is always in the middle (easy to reach) shelf of the supermarket or on top of a list. In behavioral economics, government or corporations are thought to act as decision architects (voluntarily or involuntarily). As there is no way to present a decision in a neutral way, the context always has an influence on our decisions. Thus, it makes sense to be aware of the situation’s influence and also to use it to attain one’s goals. The term “nudge” is often used to describe context design to promote certain behaviors (e.g. more organ donors, honesty in tax declarations, respecting speed limits, but also sale of ones’ products), without limiting the freedom of choice. Those who are convinced that they do not want to donate some of their organs will not be influenced by a nudge, as nudges do not alter personalities or attitudes. Below, some frequently used nudges are described in more detail.

Status quo and defaults

The way a decision is presented has a strong impact on the final choice – this is especially true for decisions which are difficult, or in situations were the decision maker is lacking experience. One important influence is what is seen as the status quo (or default).

Such defaults can have strong societal consequences. Some countries automatically register everybody to be an organ donor. In such countries donation quotas are between 80 and 90%. In contrast, countries where people have to opt-in for organ donation, only between 10 and 20% of people are organ donors. The only difference is what is defined as the status quo or the default.

Norms

People care about what other people do. Especially when we do not know how to act, other people’s behavior has a strong influence on ours. This is also the reason why people sometimes do not intervene during accidents or attacks. Everybody watches what everyone else does and acts according to the norm of doing nothing. Therefore it is more likely to get help if fewer witnesses are present. As such, norms also have a big influence on sustainable behavior.

When hotel guests are being told that most other guests reuse their towels for multiple days, more people use their towels for multiple days, too. Similar effects are observed when the electricity bill contains the electricity use of one’s neighbors. Both people who waste power as well as those who use very little power adapt their use to their neighbors' average use.

Loss aversion

Losing money has a stronger emotional impact than gaining the same amount. This so-called loss aversion has plenty of different implications, and amongst others can explain prevalence of the status quo. For example, we would sell something for a higher price than we would be willing to pay for it (the so called endowment effect).

When using monetary incentives for dieting, losing money for failures proves to be more effective than gaining money for successful diets. This difference can be purely semantically. One could initially give money to participants and demand that money back in case of failure (and therefore create the feeling of a loss), instead of paying the same money after a successful diet. Financially, almost nothing would change. The psychological impact, however, is large, as people now try to avoid losing money instead of trying to gain money.

The more money, the less it is worth

The subjective value of a certain amount of money does not only depend on whether we gain or lose it. We are willing to walk a long way to buy a book for 10, instead of for 20 euros. On the other hand, we would not walk the same distance to buy a camera for 990 instead of 1000 euros (and also save 10 euros). The more money involved, the less we care about the single euro. This means that we subjectively spend more when paying 10 times 10 euros than when we spend 100 euros at once. To motivate oneself to visit the gym on a regular basis, a monthly payment makes more sense than a yearly one. Not only does one subjectively pay more, one is also reminded of the gym payment once a month.

Today is worth more than tomorrow (time-discounting)

Loss of subjective value also happens with temporal distance. We prefer 9 euros today to 10 euros tomorrow. The loss of value is, however, not linear (e.g. 10% a day). It is initially strong, but then gets weaker (following a so-called hyperbolic function). We are willing to pass on one euro to get the money today instead of tomorrow, but would prefer 10 euros in in 8 days instead of 9 euros in 7 days.

Time discounting is responsible for several non-sustainable behaviors. Diets are difficult as passing on a dessert happens now, whereas a healthier and more attractive body lies in the future, where it is valued less. Environmental protection, retirement savings, passing on alcohol, etc. all has momentary costs, but gains that lie in the future.

As time discounting follows a hyperbolic function passing on a chocolate cake is much less costly when thinking about a future consumption, whereas the gains of passing on said cake are not discounted in the same way as they were lying in the future anyways. Who wants to follow a diet should therefore try to commit oneself as early as possible by planning meals and shopping as much in advance as possible.

Guiding attention towards a specific behavior

We often act without paying much attention to our behavior. Certain behaviors, such as saving water or using dental floss, correspond to our values and ideals, but are often neglected due to inattention or comfort. Guiding attention towards those behaviors can be a helpful nudge to promote said behaviors. More awareness towards ones consumption behavior can be achieved by providing a clear feedback concerning the consequences, as for example the use of water or electricity. A water counter at the sink or the shower could reduce the use of water, as one becomes more aware of it. Information about energy-efficiency (e.g. for fridges) leads to a higher perceived relevance of these criteria.

Guiding attention towards values and ideals

In the previous examples, sustainable behavior was promoted by guiding attention towards behaviors and their consequences, thus increasing awareness. It is, however, also possible to directly guide attention towards values and ideals. The presence of a mirror leads to more honesty by strengthening the salience of ones’ values and ideals (“I want to be able to look at myself in the mirror afterwards”). In a classical experiment, kids were more likely to follow the instructions of taking only one sweet each, when the sweets-basket was positioned in front of a mirror. Even a poster with eyes on it led to an increase in donations in an honesty box where people could pay as much as they wanted for the consumption of tea or coffee. A mirror in a supermarket could increase the sale of organic vegetables (if the consumption of organic food corresponds to the customers’ values), likewise wearing name tags (e.g. for police officers) could also increase behavior corresponding to one’s values.