| Heads, You Die: Bad Decisions, Choice Architecture, and How To Mitigate Predictable Irrationality |
| Per Capita Research Paper | |
by Jack Fuller, Project Leader, Per Capita
Executive Summary
Modern societies are organised around the assumption that people are perfectly rational. This understanding of human nature assumes that we are hardwired to be perfect rational calculators. It is an assumption out of touch with the latest evidence from brain research. It is also out of touch with common sense. The assumption leads policymakers to ignore the role of predictable irrationality in a wide range of problems across health, macro- and micro-finance, business, education, and sustainability.
The context in which we make decisions is as important as the actual choices offered. This paper argues that policymakers should design choice contexts for social outcomes – an approach called ‘choice architecture’. It is based on an understanding of how humans really make decisions. While sometimes calculating and rational, people are also irrational in predictable ways. We are influenced by framing and social contexts. We are motivated by factors other than price: social norms, habits, morality, formal and informal authority, non-monetary incentives, community expectations, and the way choices are presented.
Two themes run throughout this paper. Firstly, that choice architecture offers a range of tools to solve problems and save resources, without resorting to either mandates or laissez-faire approaches. Secondly, that there is a progressive rationale for designing choice contexts, to improve patterns of choice in relation to social outcomes and individual lives. Choice architecture employs five tools to design the contexts in which people make choices:
1. Setting the default option in a set of choices
2. Offering ‘self-contracting’ to support commitment
3. Presenting and organising information
4. Designing physical spaces to guide behaviour
5. Supporting the development of social norms
The applications of choice architecture are immediate. Rebuilding a resilient economy will require behaviourally-informed regulation, and improving health and sustainability outcomes will require policies informed by realistic human decision-making. Its applications are also long term. Policies based on a real account of human decision-making will enable communities, organisations, and government to improve social outcomes. By focusing on how physical and social environments shape choice patterns, and how choices are framed, we can put markets to the service of a better society.
This paper is the first in a series of Per Capita reports on choice architecture. Subsequent publications will examine the rationale and approach to "promoting good choices".
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