Better Choices

Here's a new way of thinking about government programs.

People make bad decisions all the time. They make unhealthy food selections, choices that hurt their wallets and actions that not only aren't in their own interest, but are not in the public's interest either. A new book by University of Chicago professors Richard Thaler and Cass Sunstein suggests, however, that people shouldn't always be blamed for those bad decisions. The government programs and private sector options meant to help make their lives better often are designed poorly, leading them to make the wrong call. A key flaw in government, the authors point out, is complexity. Look at the new Medicare prescription drug program. It has so many choices presented in such counterintuitive ways that seniors usually end up selecting coverage that is ill-suited for their needs.

In the book, Nudge: Improving Decisions About Health, Wealth and Happiness (Yale University Press, 2008), Thaler and Sunstein say a key problem is "choice architecture," or the way options are offered to people. Look, for example, at how food choices are presented in school cafeterias. If chicken fingers and pizza and cookies are displayed more prominently than veggies and fruit, kids are more likely to pick the junk food. For adults, mortgages and credit cards are presented with such complex descriptions that people often sign up for them without understanding what they're getting into-and without determining whether a better option exists.

Thaler and Sunstein are economists, so they have an innate belief in markets that offer choices. But, they note, the discipline generally assumes that people are rational and always act in their self-interest. Those assumptions are wrong, the authors argue. People often don't have the knowledge, time or concern to make the most rational, advantageous decisions. That's where choice architecture comes in. Instead of assuming that people always can make the most rational decisions, they should instead assume that people are busy and aren't experts in everything. They sometimes need help.

A choice architecture filled with "nudges" would encourage people to make good decisions. For example, the Medicare prescription drug program could automatically enroll people in a good option, but allow them to switch if they wanted to take the time to pick one that could be even better. Retirement savings programs should automatically enroll people, allowing them to opt out rather than to opt in. One program more companies are offering automatically boosts retirement contributions when employees get raises-that way they don't have to take the time each pay cycle to fill out forms to increase their contributions. Food programs should nudge people toward healthy options. If a school cafeteria had "banana day," kids might be more apt to choose fruit over cookies.

Why not just make decisions for people? Why not pick seniors' prescription programs for them? Why not take cookies out of the cafeteria? The reason is government planners are people, too. They don't always make the most rational choice themselves. "Those who are in position to shape our decisions can overreach or make mistakes, and freedom of choice is a safeguard to that," Thaler and Sunstein explain.

Brian Friel covered management and human resources at Government Executive for six years and is now a National Journal staff correspondent.