Richard Thaler, co-author of Nudge, wrote an op-ed in The New York Times this weekend arguing that we should change the default option for organ donation. Reading the article helped crystallize for me a vague concern I’ve had with all this behavioral economics-inspired, benevolent-paternalistic behavior modification that has gotten so much attention lately among the smart set. But I’m getting ahead of myself.
The poster child for “changing the default option” (I’ll explain that in a minute) is 401(k) enrollment. We all know that, in general, people don’t save enough for retirement. It has something to do with overly high discounting, or fallacies in how we perceive present and future utility, or something like that, but that’s not relevant here. One problem is that not many people enroll in their 401(k) plans, even though a 401(k) plan is free money from the government, because of the tax deduction. The solution is to change the default option so that people are automatically enrolled in the 401(k) when they join the company, and some modest amount of their salary (like 2%) is automatically directed to an appropriate investment, like a stock index fund (not a money market fund, which is another bad default option). The arguments for doing this are: (a) you’re not forcing anyone into anything, since it’s easy and free to switch out of the 401(k) if you want to; and (b) it works – by changing the default option, you can get higher 401(k) participation, which we’ve posited is a good thing.
Thaler extends this argument to organ donation. 12,000-15,000 people each year end up brain dead but temporarily on life support. It’s good for society if more of them agree to become organ donors in advance. However, in most (or all?) states, you have to explicitly sign up to be an organ donor, which most people don’t get around to doing, even if they would like to. The alternative to this “opt in” system is an “opt out” system, where everyone is automatically a organ donor, but it is free and easy to opt out.
The results? “Consider the difference in consent rates between two similar countries, Austria and Germany. In Germany, which uses an opt-in system, only 12 percent give their consent; in Austria, which uses opt-out, nearly everyone (99 percent) does.”
Thaler recognizes that making everyone organ donors by default is politically impossible, so he ends up recommending a “mandated choice” system, where you have to choose one way or another. Before I move on, let me say that I agree with this. But let’s go back to the opt out system (default option = organ donor) and ask, leaving aside political issues, whether this is a good thing.
The thing that started me thinking was this paragraph:
“In the world of traditional economics, it shouldn’t matter whether you use an opt-in or opt-out system. So long as the costs of registering as a donor or a nondonor are low, the results should be similar. But many findings of behavioral economics show that tiny disparities in such rules can make a big difference.”
The general argument for changing the default option is twofold. First, you are preserving free choice; second, you are getting better outcomes. The thing that bothers me is that you are getting outcomes that people would not have chosen. The default option is getting some people to do what they don’t want to do. Let’s put this in the 401(k) context. I’m going to make up the numbers, but the principle is sound.
Let’s say that, if people thought about it carefully, 75% would enroll in their 401(k) plans. The other 25% absolutely need the money now (college debts, sick children, sick parents), or they are rationally income-smoothing over their lifetimes (taking income now because they expect their incomes to go up in the future). If the default option is not to enroll, you get only 35% participation, because people are busy and don’t think about it carefully. But if the default option is to enroll, you get 90% participation, for the exact same reason.
Now how does this look? The arguments are still pretty strong. The participation rate is closer to what it would be if people thought about the question carefully, because the default option is what a majority would choose. But now you’ve swung too far the other way. You have fewer people doing something they wouldn’t have chosen, but you’ve still tricked 15% of the people into doing something they wouldn’t have chosen.
However, you can partially justify this: some people who, on reflection, would not enroll, really should enroll. That is, part of the error in low enrollment rates is due to the default option; but part of it is due to people making mistakes about whether they should save or spend, and those mistakes are due to cognitive fallacies we all suffer from. But this is much shakier ground to be on. Protecting people from mistakes due to inattention is a form of paternalism I am perfectly comfortable with; using their inattention to protect them from logical mistakes they would have made I am less comfortable with.
This becomes more visible when we move from 401(k) plans to organ donation. There are well-meaning people who think that everyone who is eligible should be participating in a 401(k) plan – it is free money, after all. So if the default option gets more people to sign up than would otherwise, you can rationalize it by saying (a) it’s good for them anyway and (b) it’s good for society (people not saving for retirement creates an externality). With organ donation, though, (a) falls away completely; while many people (including me) don’t care what happens to their organs, some people care a lot; if you make them donors by default, not all of them will make the effort to opt out, and now you’ve tricked them into something that is bad for them. You can balance that against the social welfare created by having more organ donors, and I think that’s a legitimate position to take, but it’s not one that flies very well in our society.
To be clear, again, Thaler is arguing for mandated choice, not making everyone organ donors by default. But I think the reasons that I (and probably others) are uncomfortable with the latter apply, perhaps to a varying extent, to all of these attempts to use the default option to change people’s behavior – even when changing their behavior is in the their own interests.
By James Kwak
The Baseline Scenario 
I appreciate this argument, but in the end I don’t find it very compelling.
I don’t know how Thaler and others would answer, but I’m willing to say that if I was satisfied the policy was a good one, then the fact that someone’s too lazy and apathetic to make the slightest exertion to achieve his “right” choice (for the sake of argument I’m assuming as you did that making this choice really is “free and easy”, something I of course don’t assume really would always be the case) isn’t something I’d lose sleep over. It’s his own fault.
Some people care a lot; if you make them donors by default, not all of them will make the effort to opt out
To me, this contradicts itself. By definition, if you care a lot, you would make the effort. If you don’t make the effort, prima facie you don’t care.
I’m surprised you don’t give another couple of sentences to the 401(k) argument. Maybe something like: “But on reflection, given how badly everyone’s retirement savings have tanked due to the borderline criminality and self-payment-first-attitude of investment bankers, maybe an opt-out system for 401(k)’s is really just a hidden regressive redistributive tax.”
You’ve argued persuasively that no matter what the default is set as, it will shape some people’s behavior in ways that they would not have chosen otherwise. But this argument applies equally well no matter where you set the default. So it seems to me that rather than finding a paternalistic weakness in behavioral economics, you’ve hit upon a much more basic problem with the rational actor model itself.
If the defaults necessarily shape behavior, then no default is justifiable on revealed preference grounds, and so we need a thicker account of what’s good to guide social decision making. I’d argue that the market is not particularly well optimized for making such determinations, but that democratic deliberation, when suitably structured, might be quite well suited to do so.
If we can’t help but shape our fellow’s behavior through any default we set, then doesn’t that put the lie to naive libertarianism, and indicate that we need to have a much more robust social conversation about how we ought to live?
change ‘brain donor’ to ‘organ donor’ in pp3.
Your argument about 401k participation is weak. There are many companies that have a default setup, and you could research their results. Also, if people need the money, they’ll get it – 100% of the time. The idea that people will not reduce their 401k out of laziness when they need the money for (college debts, sick children, sick parents) is laughable.
Dealing with the ‘brain-dead’ has more to do with we, as a society, coming to grips with death and the point where nothing more can be done. W/o a living will, the family could keep a person on a vent for long enough to render the organs less valuable or unusable for transplant. That is probably a bigger issue than just getting people reg’d as organ donors.
Forcing people to buy junk insurance through the mandate, with the IRS acting as the collection agent for the insurance companies, definitely falls into the “shove” and not nudge category.
So, I’d say we’re seeing a transition from paternalistic nudge to neo-feudal shove somewhat sooner than James imagines…
On the organ donor thing – why not have everyone opt in while filling in another form?
In the UK you opt-in to the donor register automatically on applying for a driving licence, if you want to opt out tick the box. Captures more people than it would otherwise, and the effort required to opt out is marginal.
You make a good assessment of how the age old question of positive vs. negative liberty applies to a thorny moral issue of today. You strike the same chord of authors who grappled with this issue a lot like Rouseau, but in a very easy to follow approach.
However an additional consideration you might want to make is that when we consider social policy, no man is an island. While you do mention social impact towards the end, you mostly discuss whether the decision is natural from the individual perspective. However the natural choice that you want people to make is not a choice about themselves, but a choice about how they affect others. If we were able to make the most natural choice about organ donation, if we had a chance to know the stranger that our donation would help, I think the donor rate would be very close to %100. People are charitable towards those they know, but they can’t get to know everyone they will affect over the course of their lives.
Once again our leaders in Washington have become swept up in a new fad. Behavioral economics is interesting and may explain certain phenomena, but it seems like every time I turn around someone is tossing out a new cure for whatever problem is in the media based on behavioral economics. Used to be the free market was going to save us from making tough choices. Now it’s this new theory.
thanks
We’ve come to take your liver.
But I’m still using it.
You signed this organ donor card, didn’t you?
Yes, but…
Mr Bloke: Don’t worry dear, I’ll get it!
[He opens the door.]
Mr Bloke: Yes!
First Man: Hello, er can we have your liver…?
Mr Bloke: My what?
First Man: Your liver… it’s a large glandular organ in your
abdomen… you know it’s a reddish-brown and it’s sort of –
Mr Bloke: Yes, I know what it is, but I’m using it.
Second Man: Come on sir… don’t muck us about.
[They move in.]
Mr Bloke: Hey!
[They shut the door behind him.]
[The first man makes a grab at his wallet and finds a
card in it.]
First Man: Hallo! What’s this then…?
Mr Bloke: A liver donor’s card.
First Man: Need we say more?
Second Man: No!
Mr Bloke: Look, I can’t give it to you now. It says ‘In The Event
of Death’…
First Man: No-one who has ever had their liver taken out by us has
survived…
Fun stuff, with implications far beyond organ donation and 401(k)’s.
James,
I really think, from reading this post of yours, that you are either unaware, or ignoring the entire field of evolutionary psychology, which is where the behavior economics theories are deriving from.
Humans have a whole bunch of cognitive challenges. These have been established through extensive research by scientists at MIT, Harvard and many other institutions around the country and the world.
Thes issues are based on the fact that the brain is an evolved organ and the rationality is not near as perfect as we like to believe. The whole concept of a rational actor is completely flawed and if we continue to base economic theories on that idea, we will continue to have all sorts of issues that will only get worse as populations rise and resources diminish.
For anyone interested, a nice primer on the subject of evolutionary psychology is listed below.
http://www.psych.ucsb.edu/research/cep/primer.html
This primer is not going to fix our current set of circumstances, but only through coming to grips with true human nature, and disgarding the myths we live by in the many aspects of our cultures, societies, economic systems, you name it, will the human species begin to get to sustainable systems – and we might not like that much, based on our evolved nature, but that does not make it wrong.
David
One thought I had reading this, is let’s say that it was donor by default or an opt-in system. If I decide to make the effort (fill-out a form, or check a box) I’m most likely going to communicate that to some public service worker at some government agency, yes?? Wouldn’t there be some social pressure there NOT to change to opt-out of being a donor??
If it’s default opt-in I obviously have to clearly communicate that somehow. There could be social pressure there not to opt out at the state agency. It would be like wearing a sticker on your chest at work that said “I DID NOT donate blood today!!” wouldn’t it? Maybe I’m overanalyzing here, but it seems to me that could be a problem.
I think I got my opt-in, opt-out mixed up. Opt-in to me means donate the organ. I’m mentally thinking “opt-in to the organ donor program”. Anyway I think you understood me better than I did myself. I would honestly appreciate James’ or anyone’s thoughts if I’m being overly sensitive in my above thoughts.
How do you reconcile your unease with your support of the coercion manifested by an insurance mandate? What is so much more important about that policy versus people not dying and getting organs? I think the answer will be that you really want the first thing and the second is not as important to you.
That’s the problem of coercion and nudges and all. We’ll tend to make judgments about whether to use them based upon what WE want.
A default option that delivers a societally beneficial result only needs to be backstopped by a secondary withdrawal process. Then folks who feel honestly tricked can make the conscious decision to withdraw after the fact. While this will drive angry political discussion prior to adoption, that is not necessarily a bad thing either.
Let them eat pate. ;)
A digression: I realize the post is about behavioral economics and setting default options. But I would like to address a tacit assumption about organ donation that I find wrong, and have never understood.
This entire discussion, and every discussion of organ donation I have ever seen, assumes that individuals have the ultimate right to determine the disposal of their remains. Where does this come from?
When I am dead (or brain dead) I no longer have any neurologic apparatus that will know or care what is done with my remains. There is absolutely no utility or disutility whatsoever to me in any disposition of my remains–there is no “me” to experience such a utility. Does it not follow that not only do I _not_ have a _right_ to determine the disposition of my remains, but, indeed, it is _none of my business_ what is done with them.
The decision should lie with those who are actually affected by the actions taken: my next of kin (or, generically, others close to the deceased), and society at large, to the extent that there may be people in need of the organs.
“The general argument for changing the default option is twofold. First, you are preserving free choice; second, you are getting better outcomes. The thing that bothers me is that you are getting outcomes that people would not have chosen. The default option is getting some people to do what they don’t want to do.”
Well, we can get into what choice and wants mean. However, you are not talking about passive choice, saying OK, versus active choice, considering options and outcomes and mulling judgements. To makes something a default is not to put something over on people. Yes, it relies upon inertia to achieve socially beneficial effects. To the extent that their desire for something other than the default does not overcome their inertia, they will accept the default. That is a choice.
A more accurate way of describing the situation, I think, is that you get people to accept an option about which they are relatively indifferent.
Another thing: Setting the default sends a message about societal preferences. (Accurately, in the cases we are considering.) That fact affects the preferences of individual members of society. There are various reasons for people to go along, conform, and cooperate. We are, after all, social animals. There is nothing wrong with indicating priorities.
I guess if everybody, while alive and sentient, believes in the idea that “I have the right to determine the disposal of my remains”, then when such a wish is honored it’s not really being honored for the sake of the deceased himself, but to validate that belief for everybody else.
It was my understanding that even when you enroll in the organ donor program the government goes to great lengths to discuss with the family of the deceased how the organs should be handled.
If, for religious or other reasons, a person did not opt-out when he should have, the family will have the chance to explain that to the proper people before they consider cutting him open and giving his organs away.
I’m strongly opposed to having my body go to waste when I die. Aren’t people like me being tricked into doing something they don’t want – having their body become so much useless cargo when they kick it – by the current default?
Also, as Byron pointed out, generally the family is consulted even when someone has opted it. Foolish, in my opinion – shouldn’t my opinion count for more than my folks’? – but it’s true nonetheless.
“We’re not unreasonable”…
I’m puzzled by your thinking. Would it not also give the government a right to invalidate the whole principle of testamentary disposition of an estate? There may be people who want to do that, but I suspect there would be more who do not.
I am confused! I am under the impression that the Chicago School of Economics has proven that the brain is a rational organ and that economic man makes all decisions with complete rationality based upon having all necessary information. If this negates the work of the entire field of evolutionary psychology, so be it!
No, it wouldn’t. The acquisition of property, and all of the actions undertaken towards that end, are influenced by my expectations and desires about what will happen to that property after my death. If I cannot leave it to my family, I am less likely to pursue it as aggressively and might devote more of my life to leisure, etc. The point is that during my lifetime I have a definite stake in what will be done with my possessions after I die, and I make decisions based on those expectations.
But the same cannot be said of one’s corpse. I cannot think of anything one would do differently during one’s lifetime based on expectations about disposition of one’s remains.
“The thing that bothers me is that you are getting outcomes that people would not have chosen”. I think the behavioral economists are just arguing that it is a perception problem. Changing the framing changes the perception, changes the decision. It doesn’t mean they are being tricked. If information isn’t left out, and they aren’t selecting an option that is against their best interests, then it’s not misleading. We have biases built into our decision making, which sometimes produce bad results – like selecting low introductory rate, high APR credit cards. A bit of paternalism isn’t the worst thing. It’s better to acknowledge that we aren’t all perfectly rational, and there are situations in which we could use some help to make better decisions – like 401ks and maybe organ donation. Those two might have some bias against commitment. The person thinks they can always deal with it later and is avoiding making a decision rather than deliberately choosing not to opt-in.
I believe that in any case where the clear benefit goes to the opt in, then the mandate should be applied. In the cases of organ donation and 401(k)’s, this is true (that the opt in is clealy the best choice, unless circumstances are such — in a very few cases — that it’s not). Why should this be further discussed unless we’re interested in having a deep existential discussion of decision making processes. Sorry, but I really fail to see the compelling issue.
This analysis is too weak, and highlights a weakness of modern orthodox economics. The vast majority of economists are so used to dealing with Utility that they forget that it is but a mathematical analog to the physical processes of satisfaction/happiness/whatever it is that utility is meant to measure.
“With organ donation, though, (a) falls away completely; while many people (including me) don’t care what happens to their organs, some people care a lot; if you make them donors by default, not all of them will make the effort to opt out, and now you’ve tricked them into something that is bad for them.”
Well, quite obviously, when you are dead you garner no utility from any external stimuli. It makes no sense at all to speak something being “bad” for somebody who has left this existence.
Prior to one’s death, of course, it is perfectly reasonable to speak of something as generating positive or negative utility. But here, again, there is a problem. Utility, being a mathematical analog to some physical/mental condition, does not exist independently of personal experience. To experience disutility from being an unwilling organ donor, one has to be aware of that status prior to death. No awareness, no utility consideration. As a thought experiment, posit the existence of a vastly cool alien race, which is tragically exterminated by a gigantic comet before they could make contact and enrich your life with all sorts of nice technology and alien jokes. Is your utility affected by this happenstance? No. What if, in the future, your grave becomes the place to be for the smartest people in the world, all debating the human condition in honor of your existence. Cool? Yes. Does this have any effect on your lifetime utility? None whatsoever. You cannot experience (utility) what you do not experience (stimuli). If you have no knowledge of your donor status, then you cannot be affected by it either way.
Now, if you do happen to find out you were registered against your will, then it becomes an economic choice that can register some utility effects. In the case of mandatory enrollment, that is essentially the cost of opting out. This could be made very small. This must be balanced against the welfare gain had by those who wished to enroll, and now find out that they have been saved the trouble.
Finally, one must consider the immense utility generated by receiving a heart, and thus a 20 year extension on life. That is actual utility experienced by a living person, not disutility ‘experienced’ by a person who, then, is not.
Now, you can argue about the moral correctness of forcing people into outcomes “that people would not have chosen,” but that sort of thing is the basis for policy-making specifically and society more generally. And you can argue about respecting personal intent, but that is a socio-normative consideration, not an economic one.
Just food for thought.
CBS from the West: “But the same cannot be said of one’s corpse. I cannot think of anything one would do differently during one’s lifetime based on expectations about disposition of one’s remains.”
Well, if one is to be the, ahem, main course in one’s funeral banquet, it might be a good idea to fatten up a bit, to get some nice marbling. :)
The difference is that if someone takes my organs after my death or irreversible death-in-life, it doesn’t matter to me one bit. (Me, not my relatives, mind you.) But being forced to participate in a 401(k) has turned out to be disastrous for many, many people who now have to live the rest of their lives trying to regain economic ground they would have otherwise not lost.
BTW, I’m listed as an organ donor on my drivers’ license–an option that PA gives every driver, every time they re-new their license. Unfortunately, it’s easily overlooked.
What do you think about lifesharers? http://lifesharers.org
basic idea is that people who are willing to donate organs go to the front of the line, should they need one.
Being very tired of being a Computer “PLUGGER” if you recognize the cartoon, how about this;
If one is an Organ Donor one can receive Organs.
Seems fair to me!
Herb
What if, in the future, your grave becomes the place to be for the smartest people in the world, all debating the human condition in honor of your existence. Cool? Yes. Does this have any effect on your lifetime utility? None whatsoever. You cannot experience (utility) what you do not experience (stimuli).
Actually, it seems like the world is full of people who have the delusion that something like this will be the case.
So ironically, they do get the utility of vicarious vindication, however wrongheaded they are.
“The thing that bothers me is that you are getting outcomes that people would not have chosen.”
I think this is misleading. The premise of the argument (and the nudge approach to default-setting policy) is that there are some people for whom their choice-when-the-default-is-X is different than their choice-when-the-default-is-Y (because they just accept the default in both cases). But it seems to me that you are then saying that *because* the current institutionalized default is X, their choice-when-the-default-is-X is somehow their “true” choice that it would be wrong to nudge them away from. That makes no sense. If those people’s choices are influenced by context then the choice they make in either context is just as true as the other.
You are getting those outcomes (in the default-Y scenario) precisely because those people, in that scenario, do choose them. There isn’t some Platonic essence of choice in a vacuum (and if there were, there would be no reason to believe that choice-when-the-default-is-X is it, just because you happen to be writing from a society in which the default is in fact X). Choice is a context-dependent act.
Or to put it another way, if they *want* to go with the flow more than they want any specific outcome – which is what their behavior in both scenarios, taken together, indicates – then you aren’t coercing them by changing the flow.
Maybe it’s easier to understand if you imagine two countries in the same world with opposite default policies, and two flow-goers who immigrate in opposite directions. In a sense, both of them are now choosing things that they would not have chosen if they had remained in their original homelands, but I don’t think it follows that either is being coerced.
>I am under the impression that the Chicago School of Economics has proven that the brain is a rational organ
That is one of the funniest statements I have read in years.
I think rather than proving economic man was perfectly rational, they start with it as an assumption, based on the ramblings of Ayn Rand, and from there, built a perfectly logical and fundamentally flawed model.
They would not be the first.
You have overlooked a cost. A law saying basically “your body doesn’t belong to you” is likely to decrease respect for the Law in general.
absolutely disagree with the line of reasoning in this post. Please remember that noone is taking away choice. a person can opt out with little or no cost (the basic premise of a nudge).
chris and others here have emphasised the same point. You cant get away without a default (ignoring mandated choice) – so choose a socially optimal one
You state, “…, and now you’ve tricked them into something that is bad for them.” I’m sorry but where is the so called “trick”? My sense is that if you are going to use that term then you need to run a study to see if people in fact perceive this to be the case. Otherwise, this might just be your own personal “smart set” reaction.