Can anyone be gently pushed toward a more secure retirement? Or a healthier diet? That’s the hope of a growing number of policymakers, economists, and psychologists. They aim to “nudge” people into spending and eating less, while saving and exercising more. Sometimes the nudges are merely informational: A law may require restaurants to reveal the number of calories in items on their menu. Or they can be more direct: A firm might choose to default to enrolling employees in its 401(k) plan. Ordinarily, workers need to opt in to such a plan. But, nudged by a different default setting, they could be required to build retirement savings unless they opt out.
Behavioral economists, who are responsible for the theories that inspired nudging, are the ones most excited about its possibilities. Richard Thaler and Cass Sunstein’s book Nudge: Improving Decisions About Health, Wealth, and Happiness has won numerous awards, and influenced both liberal and conservative politicians. Thaler and Sunstein are thrilled that many firms are defaulting employees into retirement-savings plans. They and their many followers are intent on bringing more nudges to areas such as corporate-wellness programs and food labeling.
Yet nudging has limits not adequately acknowledged by its boosters. For one thing, nudging sometimes simply isn’t effective. Some employers are finding that their wellness programs don’t work, bringing about diminished morale instead of health benefits (let alone corporate savings). Likewise, calorie labeling may raise awareness of health issues without reducing junk-food consumption.
Even if a nudge does work, the one doing the nudging can alter the context of a single small decision, but cannot change the larger environment. For instance, the nutritionist Kelly Brownell once observed that in the U.S., cumulative annual government spending on promoting healthy food amounts to what food advertisers spend every few days. A prim little reminder that a Big Mac has 563 calories is easily overwhelmed by the saturation of McDonald’s toy promotions, jingles, and movie tie-ins. Nor can the average consumer even begin to comprehend the efforts of countless scientists and marketing researchers aiming to make food appealing to the point of addiction.
In finance, the problems with nudging reveal it may even have a dark side. Nudgers are quick to push workers toward retirement savings, but sometimes are not doing enough to warn them about possible risks. The think tank Dēmos estimates that, over a lifetime, retirement-account fees “can cost a median-income two-earner family nearly $155,000.” John Bogle, an investor, has noted that a 2 percent fee applied over a 50-year investing lifetime would erode 63 percent of the value even of an account with healthy returns. As Bogle puts it, “the tyranny of compounding costs” is overwhelming, but that’s what some workers are nudged toward by their employers.
Thanks to problems like these, the economist (and frequent Atlantic contributor) Teresa Ghilarducci has called the 401(k) a “failed experiment,” inappropriate for many savers. So why are policymakers so enamored of it? Because the nudge is really a fudge—a way of avoiding the thornier issues at stake in retirement security. The most worrisome unexpected costs of old age, including medicine and personal care, should be addressed by politicians via programs such as Medicare and Medicaid. But by focusing on individuals’ decisions to save up for retirement, they can shift responsibility.
This focus on the individual, rather than the wider social context, is not surprising given that nudging comes out of microeconomics and psychology, two disciplines that tend to break the world into dyadic transactions between isolated individuals and firms. A sociological or political perspective, on the other hand, points to the real roots of retirement insecurity: a great shifting of risk from corporations to individuals. Workers can be urged to take all manner of “personal responsibility” for saving—but if their wages are stagnant while other costs are rising, it is hard to imagine that strategy really working.
Similarly, it is fun to know that people can be nudged to eat less candy or popcorn if they’re given a teaspoon rather than a cup to measure out their portion. But it is hard to imagine an appreciable reduction of the U.S.’s obesity rate via strategic placements of smaller scoops at workplaces and movie theaters. Americans live in an extremely calorie-rich (and tempting) environment thanks to government policy (which subsidizes corn and thus corn syrup), corporate strategy, food engineering, and clever marketing. Even if people could be steeled against these temptations, such an investment in training and willpower seems like a great waste compared with more direct efforts to improve the American food system.
William H. Simon, a Columbia law professor, wrote in the Boston Review that the nudge mentality “implies an oddly constrained conception of the means and ends of government. It sometimes calls to mind a doctor putting on a cheerful face to say that, while there is little he can do to arrest the disease, he will try to make the patient as comfortable as possible.” By reducing the great political issues of health care and finance to quotidian struggles over whether to save or spend, eat or abstain, behavioral economists have generated policy recommendations easily related to voters and promoted by politicians. But their individualistic approach to what are ultimately social problems may end up exacerbating the very conditions they claim to ameliorate.