A Nudge in the Right Direction? Richard Thaler and Libertarian Paternalism 

Sylvia Patterson

We don’t often stop to think about the thousands of influences that contribute to the decisions we make every day, or the hidden forces that may be exploiting our psychology to act a certain way. The nudge is one such force, and although it seems like an innocent reminder, as we will learn, we should never underestimate the effect of the nudge.

Bounded Rationality 

It was an economist named Dr. Richard Thaler who defined the idea of the nudge, beginning with the idea that human beings are not rational creatures. Thaler was the recipient of the Nobel Prize in Economic Sciences in 2017 for his contributions to Behavioral Economics. His awarding was met with a degree of controversy due to the merging of the field of Psychology with Economics.

On October 10, 2020, Dr. Richard Thaler spoke at Trinity University. Despite his prestigious place in the world of academia, Thaler came across as a very knowledgeable, yet down to earth and even humorous speaker, someone who illustrated his points through a series of entertaining stories, real world examples of human nature. 

Dr. Thaler stressed the importance of that which economic theory tends to ignore, most crucially, the fact that human beings are not rational. Humans have bounded rationality and bounded willpower, and will more often than not submit to temptation in the moment, rather than act for the long-term good. This is because, for most of human history, people did not live long enough to worry about saving. This is why long term planning is evolutionarily one of the spheres where rationality falls short. 

Through his research, Thaler found that people have a strong tendency to keep what they have. Although economic theory says that the people who value something the most will end up with it, in reality, status quo bias comes into play, and people have the tendency to stick with what they have, what he refers to as ‘inertia.’ The tendency toward inertia can be utilized through a type of nudge. 

The Default

In real life, Thaler used his work to nudge people into choosing the optimal pension plan that would allow them to save the most in the long run. Instead of having them opt into the program, they were automatically enrolled as the default option and instead would have to opt out. It was successful in getting people that normally wouldn’t have saved to acquire a retirement fund. The idea of the nudge all comes down to choice architecture, or how you create the environment in which people choose. 

Nudges are a part of choice architecture because they are features of the environment that influence humans. According to Thaler, nudging is not taking away choices, it is choice preserving, or  “libertarian paternalism,” which, Thaler explains, is not an oxymoron. Essentially, we are encouraged to act a certain way, but the choice is still ours.

One of the most powerful types of nudges is the default. By changing the default option, we can change people’s choices. Because of people’s tendency toward loss aversion, and their resistance to change options, or inertia as Thaler called it, the desired outcome happens if they simply do nothing. Thus, a new default, or automatic enrollment, can achieve the optimal goal. 

Libertarian Paternalism

This research comes with a series of implications, first, that nudges are very powerful, and second, that the effects are long lasting. The work of Richard Thaler shows us that human nature is key to understanding any human decision, and that we can nudge for good. But the question remains: are all nudges good?

At the end of the day, there are nudges all around us, more than we think, and not often as nobly applied as in the pension-plan case. Some common examples of this marketing tactic include, the default “subscribe and save” option on Amazon, pop-up announcements or reminders from websites, a psychological anchor, like a visible before and after price on a good, or even simply the relative ease or noticeability of a choice, such as the placement of food items in a cafeteria. 

In the right hands, the nudge can be used to influence productive and beneficial behavior in individuals, but at the least, it is a clever marketing tactic.  But this leaves the unanswered question: can the nudge be used for ill?

The Nefarious Nudge

The concept of the nudge gets the most murky when it comes to the government and policy enforcement. Although Thaler published a paper defending libertarian paternalism, our instinct is to see it as something dystopian. Needless to say, the nudge has not been without its fair share of criticism. It’s human nature to bristle at the thought of a powerful entity subtly influencing us into making the desired choice. Where do we draw the line with the nudge? Ultimately, who determines what the “right” decision is? The Nudge can be used for good, but like any phenomenon, it can also be abused

Already, we have witnessed the rise of the Behavioral Insights Team (BIT), also known as the ‘Nudge Unit’, which is a “ global social purpose company” founded in 2010. The BIT has offices around the world, including in the UK where it began, as well as in America, Australia, New Zealand, Singapore, and Latin America. The BIT uses social engineering based on behavioral insights and tactics from psychology and marketing to influence public thought and decision making to be in compliance with government policy. The goal is to minimize costs related to poor compliance of government policy and regulation. 

The BIT has done work in a variety of concepts, from assessing the risk of gambling, to more overtly progressive political goals, like designing ways to get people to drive less to reduce emissions, studying how to establish diversity task forces, and running numerous experiments to find the most effective way to use social norms to get people to wear masks during COVID. 

Nudge theory has also been used to nudge people into getting the COVID vaccine. Researchers used reminders that were “carefully designed to reduce barriers to following through” in addition to “behaviourally informed messaging designed to amplify individuals’ desire to get vaccinated” and “information-provision intervention aimed at correcting the misconceptions that drive vaccine hesitancy”. What else could be achieved by nudge units if they so desired? 

Due to the Nudge Unit’s success, a number of similar organizations have since popped up around the world. According to OECD, there are 202 institutions across the globe that have applied behavioral insights to public policy. Most people don’t know that these organizations exist, or that they are influencing compliance and promoting their goals all around us. 

What is most off-putting is the fact that nudges are not transparent about their objectives. Instead of being forthright about their desired policy, they rely on manipulative methods to achieve their goals. At what point does the nudge become deceit? When does it become subversive? At what point does it become unethical? Governments and corporations see the need to act as a parent-figure and guide us in the “right” direction, as if we are not worthy of hearing a logical argument and making a decision based on evidence and reasoning.

Closing thoughts 

Originally used to help clients save for the future, the concept of the nudge has since been adopted in politics, finance, retail, and beyond. It is important to be aware of this phenomenon, how it can not only help you, but also how it can hurt you. Due to human nature and imperfect information, it is impossible to be perfectly rational. We should, however, learn all that we can and ultimately strive for rationality. Only then will we be free to make the best decision for ourselves, not the decision that other entities nudge us towards. The first step is to identify and accept that we are irrational, and understand how these irrationalities can be manipulated for a desired outcome. Then, we can consciously, rather than subconsciously, choose whether to follow or resist the nudges we encounter. 

The Trump Citizenship Clause

On Tuesday, 30 October, in an exclusive interview with “Axios on HBO,” Trump stated that in the foreseeable future he will be ending birthright citizenship for illegal immigrants through executive order. He said that the idea that a person can illegally come into the United States, have a baby and “the baby is essentially a citizen of the United States … with all of those benefits… It’s ridiculous. It’s ridiculous. And it has to end.” This isn’t the first time that Trump has expressed opposition to this policy, making similar headlines in August 2015 when he was still a candidate in the Republican primary. But can Trump really carry out this action through executive order, and is he right to scrutinize the current understanding of the 14th amendment?

Trump thinking that he can change the constitution or its interpretation through executive order is almost certainly presidential overreach. It is up to Congress and the 50 states of the Union to decide whether or not the Constitution is amended and it is up to the Supreme Court to interpret the Constitution to determine if a law or executive order is unconstitutional or not. If this does indeed go to the Supreme Court then President Trump will be immediately shut down for trying to change constitutional law and interpretation. However, then comes the issue of whether Trump right to say that the children of illegal immigrants are not automatically citizens of the US.

For this, we will have to go back to the late 1800s and look to the men who wrote the 14th amendment and the Supreme Court cases that determined its precedent. First, what does the 14th say? Section 1 reads,

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

The 14th amendment was written in 1868 as a way for the federal government to grant citizenship to all former slaves and to reaffirm the Civil Rights Act of 1866 due to fear that many states in the Union would not allow former slaves to be citizens and enjoy the rights and privileges provided. Most of the current debate revolves around the key phrasing of “and subject to the jurisdiction thereof” and its relation to the Civil Rights Act of 1866 which granted citizenship to “All persons born in the United States, and not subject to any foreign power, excluding Indians not taxed.”

The purpose of this wording can be found by looking to key figures on the drafting and ratification of the 14th amendment. Senator Jacob Howard (R-MI), a sponsor of the citizenship clause, stated it “is simply declaratory of what I regard as the law of the land already,” further explaining with “This will not, of course, include persons born in the United States who are foreigners, aliens, [or] who belong to the families of ambassadors or foreign ministers.” When asked what the phrase “and subject to the jurisdiction thereof,” meant Senator Lyman Trumbull (D-IL), Chairman of the Judiciary Committee, stated “That means ‘subject to the complete jurisdiction thereof.’ What do we mean by ‘complete jurisdiction thereof’? Not owing allegiance to anyone else. That is what it means.” Senator Howard would actually respond to this stating “I concur entirely with the honorable Senator from Illinois [Trumbull], in holding that the word ‘jurisdiction,’ as here employed, ought to be construed so as to imply a full and complete jurisdiction on the part of the United States… that is to say, the same jurisdiction in extent and quality as applies to every citizen of the United States now.” Now since only US citizens can own complete allegiance and are subject to the “complete jurisdiction thereof” to the United States this exchange would suggest that only the children of American citizens can automatically become citizens. It also works in Trump’s favor that the Supreme Court has never ruled on whether the children of illegal immigrants automatically become citizens of the US since they were born the US. The closest case that has been ruled on was from the 1898 case of United States v. Wong Kim Ark. In the case, it was ruled that the children of a Chinese immigrant couple who immigrated to and resided in the US legally were deemed US citizens. Another case often cited is the 1982 case of Plyler v. Doe where the ruling was a 5-4 vote but which contains a dictum, meaning that the ruling was based on opinion and is not binding.

However, until Trump actually issues the executive order we can not know for certain what the reaction from Congress and the Supreme Court will be. Until this action becomes reality all we can do is speculate as to whether or not this action is unconstitutional and whether or not Trump would be right.