Thaler and Sunstein correctly assume that people are busy, their lives are increasingly complicated and they have neither time nor inclination nor, often, the ability to think through even all important choices, from health care plans to retirement options. Therefore the framing of choices matters, particularly using the enormous power of the default option—the option that goes into effect if the chooser chooses not to make a choice.
For example, Obama advocates that where defined contribution savings plans such as 401(k)s are offered, there should be automatic—note well: not mandatory—enrollment by employers of new workers. Contributions to such plans are tax deductible, taxes are deferred on the accumulating money and often employers match part of the employees’ contributions. What is at stake is, essentially, free money. Yet when an employee must affirmatively opt in, participation falls far below 100 percent. Obama’s proposal would simply change the default option: Employees are in unless they choose to opt out, which they would be free to do.
Abundant evidence indicates that most would not, which would serve the national interest because Americans’ savings rate is a disgrace. In fact, in 2005 it turned negative, and if insufficient saving persists, that inevitably will mean bigger government to provide for people who have not provided for themselves.
By a “nudge” Thaler and Sunstein mean a policy intervention into choice architecture that is easy and inexpensive to avoid and that alters people’s behavior in a predictable way without forbidding any options or significantly changing an individual’s economic incentives. “Putting the fruit at eye level counts as a nudge. Banning junk food does not.”
Thaler and Sunstein say the premise of libertarian policy is that people should be generally free to do what they please. Paternalistic policy “tries to influence choices in a way that will make choosers better off, as judged by themselves.” So “libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened.”