[Cass Sunstein, guest-blogging, April 17, 2008 at 2:18pm] Trackbacks
Give More Tomorrow and Choice Architecture

Libertarian paternalists and behavioral economists are enthusiastic about the Save More Tomorrow plan, by which employees agree that some portion of their future wage increases will go to savings. Save More Tomorrow helps overcome the two behavioral obstacles of loss aversion and inertia. The plan is making it more likely that many thousands of Americans will have more comfortable retirements.

Those of us who like Save More Tomorrow do not want to require private or public employers to offer the plan. But we hope that it will be made increasingly available as a nudge.

Richard Thaler and I think that it is possible to build on Save More Tomorrow. In Nudge, we observe that many people have strong charitable impulses, and they give less than they might because of inertia. Many of us decide, at one or another time, that we ought to give more, but we fail to do so because time passes and we focus on other things.

A Give More Tomorrow plan might help. The basic idea is to ask people whether they would like to donate a small amount to their favorite charities in the near future, and then agree to increase their donations every year. Such a plan might even be offered through the workplace, in which employers and employees might agree to devote a small percentage of future wage increases to charity. A pilot Give More Tomorrow experiment, conducted by Amy Bremen, has found some exceedingly promising results.

There is a larger point here. Often private and public institutions seek to alter behavior by changing material incentives (sometimes, in the case of government, at taxpayer expense). But the most effective approaches sometimes put material incentives to one side and change what Thaler and I call "choice architecture," which is the background against which people make their decisions. Good choice architects maintain liberty while also making it easy for us, and for what Lincoln called the "better angels" of our nature, to do what we would like to do.

teqjack (mail):
"A Give More Tomorrow plan..."

Do you mean like the old "voluntary" United Fund® plan which was tracked by management with strong "encouragement" (yes, including being called to meet the boss one-on-one) to sign up so their "participation" rate would look good? And which never took into account other donations?

As to "Save More Tomorrow" - there are already a number of these offered through employers of more than a few people, 401k and US Savings bonds being only two of the many.

New names for things which have been around for decades.
4.17.2008 2:46pm
Ventrue Capital (mail) (www):
I'm an extremely hard-core libertarian, and I have no problem with libertarian paternalism, although I'm very leery of the name being misused, once it becomes popular, to describe non-libertarian paternalism.

As far as I can see, real libertarian paternalism is completely consistent with, e.g., Epstein's concept of the State (or, for hard-core libertarians such as myself, some private court or other agency) setting default rules but allowing everyone to contract out at will.

IMO the single most urgent and important piece of libertarian paternalism would be to make everyone an organ donor by default. I believe that is something which can be a bipartisan position, one of the few bipartisan positions which is not harmful.
4.17.2008 2:53pm
Prof. Sunstein,

Could you try to reply to some of the more interesting comments that have been made over the last few days? At least a few?

The great benefit to this format, rather than just writing an opinion piece or law review article, is give-and-take with the audience. The regular bloggers on this site are great at that and for me that is one of the primary reasons I like this site so much.

This seems to be a recurring issue with guest bloggers. The woman who argued in favor of coeducating the military ignored pages and pages of trenchant commentary on the issues she raised.
4.17.2008 3:15pm
Do you mean like the old "voluntary" United Fund® plan which was tracked by management with strong "encouragement" (yes, including being called to meet the boss one-on-one) to sign up so their "participation" rate would look good?
I remember that! My boss harangued me until I agreed to participate, at the 0% level. That seemed to make everyone happy.

Yes, the connection between "libertarian paternalism" and "libertarianism" seems pretty tenuous, but given a choice between a nudge and a shove, I know which I would prefer to receive.
4.17.2008 4:00pm
Sticky (mail):
I have two questions about this. 1) Can the person opt out of the plan at any time? 2) In the case of Give More Tomorrow and if the person can opt out, how is the plan different from post-dating a check or going online and scheduling a future payment?
4.17.2008 4:01pm
Thorley Winston (mail) (www):
Do you mean like the old "voluntary" United Fund® plan which was tracked by management with strong "encouragement" (yes, including being called to meet the boss one-on-one) to sign up so their "participation" rate would look good?

I remember that! My boss harangued me until I agreed to participate, at the 0% level. That seemed to make everyone happy.

I don’t necessarily have a problem with setting up defaults that people can sign up for and stay in (until they indicate that they want to change) for things like insurance and retirement planning but I’m against it for charitable contributions because I think it’s crass for employers to solicit their employees for things like the United Way.

Actually I think it would be better if we disconnected health insurance and retirement savings from employers and each employee set up a portable savings plan in a tax-advantaged account (like Singapore except voluntary) for things like health care, retirement, housing, and education. Employers could offer to match employee contributions or just pay them more in wages and salaries.
4.17.2008 4:40pm
qsi (www):
Having just read the posts by Prof. Sunstein here, and also having read the book, I must say that he's doing a poor job of putting across his ideas here. It's because I've read the book that I see what he's getting at, whereas without that context it's easy to misinterpret what he's trying to say.

I'll also echo Carolina's comment above that Prof. Sunstein is not making good use of the blog medium in that there has been no interaction at all, and no response to the comments. In many cases a simple explanation would have avoided long threads of argument in the comments.

For instance, to answer Sticky's points above, 1) yes, you can opt out at any time, and 2) it's not different at all. The point is that by putting a "Save More Tomorrow" framework in place, you can get people actually do to this. Loss aversion means people are loath to save more now as it'll mean a cut in their current paycheck, but schedule it such that a part of your future raise goes to savings, and you don't feel it. The second part mentioned by Prof. Sunstein, inertia, is that people simply don't get around to doing things they rationally know they should be doing, and by offering a simple, automatic default, you can overcome the intertia. This "Save More Tomorrow" plan is all about using behavioral traits to achieve the desired outcome.

One of the first comments IIRC to the first post here described Libertarian Paternalism as "creepy," or at least sounding creepy. That was my first reaction too, and in a way it's an unfortunate name; or perhaps it's a deliberately provocative one that is bound to engender comment and discussion from all sides.

The book is pretty fascinating and contains interesting ideas that deserve to get a wider hearing, but on the basis of the posts here I'm not sure I would have come to the same conclusion. Shame.
4.17.2008 4:55pm
Thoughtful (mail):
It seems Professor Sunstein thought the default option here was that guest-bloggers didn't have to participate in the subsequent discussions. And yet the default option is so easily changed...

4.17.2008 5:06pm
Reminds me that the best form of seduction is to get the other person to think it's his or her idea.
4.17.2008 5:12pm
Sticky (mail):
qsi, as you mention, it seems we have a "Save Tomorrow Framework" already in place. Why would we need to add another layer of bureaucracy? Also, as to inertia, if people are putting off post-dating checks to charity simply because they can do it tomorrow, won't this inertia also mean people will put off joining a Give More plan? If Give More is opt-out rather than opt-in (to counter inertia), who picks the default charity or default rate of giving?

Also, for Save More, the Present Self will always be loathe to save. Wouldn't a person just constantly push back the Save More date; think of a person who keeps renewing a library book they never started because they know that "next month" they'll have the time.
4.17.2008 6:15pm
qsi (www):
Sticky, you don't need another layer of bureaucracy because, as you point out, the framework is in place already. This is not about mandating employers to adopt a plan, but simply saying to employers who provide 401(k) plans "here's how you can make it easier for people to save for retirement."

Sometimes you need changes in legislation to facilitate this. Allowing for auto-enrollment greatly increased participation rates in 401(k) plans. The Pension Protection Act now allows for default investment options to be offered to participants who don't want to choose themselves.

Overcoming inertia is a big problem and you're right that simply joining such a plan is subject to inertia itself. This can be overcome by making it simple and user-friendly to join. But the will has to be there, and often it is. Most people actually do say that they ought to be saving more for retirement, yet don't want to see their current paycheck get cut. That's what Save More Tomorrow attacks: you know you need to save more, and pay for it from your next raise. Your paycheck never goes down, but instead goes up a little less. And you commit to it now; by the time your 401(k) contribution rate goes up, you'll likely have forgotten about it.
4.18.2008 4:30am