Lessons on water conservation from Down Under

Residents of Queensland, Australia, have lived a decade of drought. Shriveled vegetables and brown lawns led to mandates restrictions on outdoor water usage, but water remained scare. The reservoirs serving Australia’s most populous cities dropped to just above 15 percent of normal. The country’s water authority needed to change its citizens’ behaviors. Water officials set a target of reducing daily per person consumption from 80 gallons to 37. And they met it, says Patrick Whyte. How? With lots and lots of nudges.

Officials developed a relatively cheap social marketing campaign, with the aim of getting people to think about individual water use. Ads promoted simple things, such as taking four-minute showers and turning off the tap while brushing your teeth. Crucially, the program set targets, and for the first time put gallon figures on the amount of water used in car washing, toilet flushing and other activities.

Before the drought and Target 140, as the program was called, my wife, two sons (ages 8 and 11) and I routinely wasted water. Our faucets dripped, our sprinklers ran, we washed our cars and hosed our driveway without a second thought.

Now the radio was awash with talk of water and how to conserve it. Reservoir levels became the subject of everyday conversation. Just two weeks into Target 140, average daily per-person use dropped from 80 to 32 gallons. The water saved was equivalent to bringing a desalination plant online — overnight.

In the United States, people use an average of between 100 to 150 gallons a day, depending on whose statistics you use, so you’d have a little more cutting to do. But it was surprisingly easy. At my house, water-saving fever caught on quickly. We made sure to only do full loads of dish and clothes washing, we bought a four-minute shower timer, and we used a $15 government-funded, one-off plumbing service to fix leaking faucets and install water-saving shower heads. We took advantage of generous government rebates to install rainwater tanks and gray-water systems.

It was discouraging to watch the garden die and our green lawn turn to dust. But then so did everybody else’s. In fact, healthy gardens raised eyebrows and suspicions. We tracked our progress in our water bill, which displayed household usage on a bar graph, along with our suburb’s average and the overall city average.

There were some isolated neighborhood tensions and even the odd case of tank theft, but collectively, residents saved about 148 billion gallons of water under Target 140, which ran through July. The typical household saved about 190,000 gallons.

Fifteen months into the program, we got unexpected rains that took the reservoirs to the required 40% level, and the target was adjusted up to 45 gallons a person a day, where it remains. But longer-term behavioral change seems to have occurred, and daily use has stabilized at 38 gallons a person.

Hat tip: Rory Sutherland

Cass Sunstein goes to Washington

From Chicago to Cambridge and now to D.C.

Cass Sunstein is headed for Washington to lead the White House Office of Information and Regulatory Affairs. A well-deserved congratulations are in order. And now a plea to reporters: Please don’t call him the “regulation czar.”

The OIRA has been around officially since 1980, and unofficially as Presidential regulatory principles and centralized review since the Nixon administration. A trivia question for our readers: Who was the first OIRA administrator? Like Sunstein, this person graduated from Harvard and spent time at Chicago. The answer is here.

There was a lot of chatter in the media and the blogosphere about Sunstein’s appointment (here, here, here, here, here, and here), with frequent references to Nudge – which is great, of course. But it is worth mentioning that Sunstein started writing and thinking about regulation long before he turned to nudges and choice architecture. The behavioral bit may generate the big buzz, but Sunstein’s deep understanding of regulatory issues extends far and wide. At Chicago, Sunstein taught a number of regulatory courses, including Theoretical Foundations of the Regulatory State; Regulation: What Works and What Doesn’t; Employment and Labor Law; Environmental Law; Law, and Behavior and Regulation. And (surprise!) he’s written plenty about these subjects. Interested readers may want to check out some of the highlights below

1) The Cost-Benefit State. (paper)

2) Risk and Reason: Safety, Law, and the Environment. (Amazon link)

3) Beyond the Precautionary Principle (paper) and The Precautionary Principle as a Basis of Decision Making (paper). For a shorter version, see this op-ed in the Boston Globe.

4) Remaking Regulation. (American Prospect article)

5) A New Executive Order for Improving Federal Regulation? (paper)

5) Administrative Law and Regulatory Policy. (Amazon link to law school case study textbook)

6) Worst Case Scenarios. (Amazon link)

Addendum: Thanks to Matt Welch, Reason magazine’s editor in chief, for obliging the Nudge blog’s request, and for having a sense of humor about it.

Assorted links

1) Cass Sunstein, someone “whose philosophies have captured the moment,” says Newsweek, which named him one of its thinkers of 2008.

2) May everyone be quoted this accurately (and literally) by USA Today.

When you diversify, you spread risk among several different types of investments. And diversification is a good strategy. Don’t believe it? Ask someone whose entire retirement plan was in Bear Stearns stock. Or in Lehman Bros. stock.

“Puh-leeze,” says Richard Thaler, professor of economics at the University of Chicago. “Any mutual fund is more diversified than the company you work for.”

3) Behavioral Bias 1004: On average, when asked, people overestimate the length of time they stood in a line by 50 percent.  From a talk by about airport design by Paco Underhill at the 2008 New Yorker Festival.

4) Another economist with a commitment strategy for publishing.

David Laibson knows that when he procrastinates, mere deadlines are not always enough to get him going. So, when this Harvard economics professor collaborates on a major project, he’ll sometimes promise to deliver a finished product by a certain date — or else pay his co-authors $500.

From CNN.

How does a choice architect decide on a default rule?

That’s one of the $64,000 questions facing choice architects everywhere. Marketing professors Daniel Goldstein, Eric Johnson, Andreas Herrmann, and Mark Heitmann have an answer. Writing in the December issue of the Harvard Business Review, the quartet lays out some design principles from their “field guide to defaults” that are adaptable to (almost) every business environment.

Accompanying their insights is a decision tree (we recommend clicking on the image below and viewing it in a separate window) for their typology of default rules. The major division in their eight default rules is a smart rule and dumb rule, or what the authors call a “personalized” and a “mass” default. The less you know about your customers, the less you tailor your products to them, the less you need to worry about a complex set of default rules. You’ll probably want to go with something simple, benign, and idiot-proof. If, however, you know something about your customers you’ll want to consider “persistent” default rules pegged to someone’s previous selection, or “smart” default rules that make guesses based on data about past choices.

The authors are also kind enough to suggest a principle for when it’s best not to use a default rule, and instead force customers to make a choice, which is an idea we discuss in Nudge in the context of 401(k) investment plans. Cases where a default choice is not obvious and when the costs of customers who would be denied service outweigh the costs of customers who wouldn’t agree to the terms of use in the default.

It might be tempting to want to use forced choices on large, serious decisions, as an Econ might prefer. But, sadly, there is good evidence from behavioral economics that errors are prevalent in these settings. Forced choice is an option to be exercised with caution, as forcing choice can backfire by leading to higher rates of post-choice regret as customers feel like they were unfairly shoved into an option.

(A preview of the article “Nudge Your Customers Toward Better Choices” is here.)

Addendum: A new, interesting example of the power of default rules.

A large national railroad in Europe made a small change to its website so that seat reservations would be included automatically with ticket purchases (at an additional cost of one to two euros), unless the customer unchecked a box on the online booking form. Whereas 9% of tickets included reservations before the change, 47% did after, earning the railroad an additional $40 million annually. This substantial boost in revenue was produced with only a small fixed cost in programming and infrastructure.

Can humans avoid financial bubbles?

Here is how the standard economic experiment in trading works: A group of a dozen people are given money and shares to trade in isolation from behind a computer terminal. Each share pays some dividend, which averages 24 cents, paid at the end of a trading round (the actual dividend for different shares vary, just like real stocks). The fundamental value of each stock can be easily calculated by an Econ. Heck, by a Human too. It is just the expected value of a future dividend stream at any time. So if there are 15 trading rounds and the dividend is 24 cents, the expected value is 15*.24 or $3.60. This simple calculation ignores capital gain, which is unknown, and depreciation, which is zero in this case because all the rounds are finished in an afternoon. So do stock prices follow fundamental values? Of course not.

Again and again, in experiment after experiment, the trading price runs up way above fundamental value. Then, as the 15th round nears, it crashes. The problem doesn’t seem to be that participants are bored and fooling around. The difference between a good trading performance and a bad one is about $80 for a three-hour session, enough to motivate cash-strapped students to do their best. Besides, (Charles Noussair, a professor at Tilburg University) emphasizes, “you don’t just get random noise. You get bubbles and crashes.” Ninety percent of the time.

From the Atlantic.

Going to the blackjack table? Bring your dad

A commitment strategy to avoid gambling away your winnings from the non-fiction dad’s five part review of Nudge.

The last day of the cruise I couldn’t get the losses out of my head and was sure that if I sat down again I could get my money back.  This time my Dad came along to watch.  I sat down with $50 this time just in case I caught a cold streak before the winning was to begin.  Well sure enough the first few hands didn’t start off all that well, and I was down to $20.  Then finally the dealer busted and I won a hand.  This was followed by a tap on the shoulder.  My Dad told me to give him the chip that I had just won so I wouldn’t be tempted to bet with it.  Then I won the next hand, followed by another chip in my Dad’s pocket.  Then again, same routine.  I started to think that there was something to this, as after the fourth win in a row there had to be some kind of karmic energy involved with “being responsible” with your winnings.  I believe I won something like the next five out of seven hands and ended up even for the whole trip, all thanks to my Dad playing the role of the blackjack jiminy cricket.

The secret to the medical checklist nudge

In the field of medicine, there is perhaps no better nudge than Peter Provonost’s medical checklist. Adapted from pre-flight preparations by airline crews, the medical checklist is a six-step set of routine actions for preventing Intensive Care Unit line infections that doctors may otherwise forget to do because of time constraints, stress, or distractions. The success of this checklist in Michigan hospitals has been well documented. After two years the checklist had prevented 43 infections and eight deaths, saving $2m dollars in costs. (The graph below comes from a lecture by former Congressional Budget Office Director Peter Orszag.)

Changemakers, an initiative by the non-profit social entrepreneurship group Ashoka, is preparing to launch a competition to generate medical nudges (more on that in a later post), and the contest organizers have selected the checklist as one of their case study examples. They remind us why the checklist is such a brilliant idea. It’s not the six simple steps. It’s the observing nurses who provide instant feedback ensuring that the medical checklist is followed.

Pronovost’s masterstroke came next: asking ICU nurses to observe doctors’ behaviors after the lists were posted. If they didn’t follow the list, nurses should intervene. Nurses were also to ask doctors daily whether lines ought to be removed, so as not to leave them in longer than necessary.

“When we first said it, the nurses said, ‘Hey, I’m gonna get my head bit off’,” recalls Pronovost. “And docs said, ‘You can’t have nurses second-guessing me in public’. So I pulled all the teams together and said, ‘Is it acceptable that we can harm patients here in this country?’ And everyone said, ‘No’.”…

(Provonost) made the nudge public – involving nurses and reframing the issue as one about harming patients, not authority, Provonost created a cultural shift, empowering everyone in ICU to nudge each other toward right choices to preventing infections.

Anti-drunk driving ignition locks gaining political support in 2009

Last May, we noted the ongoing political fight between restaurateurs and anti-drunk driving advocates over special ignition locks that prevent people over a certain blood alcohol limit from driving a car. This squabble, which combined a legal mandate with a technological nudge, has continued into 2009, with drunk driving foes winning political support in Alaska, Colorado, Nebraska, Washington, and here in Illinois. Starting this year, the states are requiring that all motorists convicted on first-time drunk driving to have them installed in their cars. And they are not cheap, according to Newsweek.

Users must pay for the fist-sized devices, which in Illinois cost around $80 to install on dashboards and $80 a month to rent; there’s also a $30 monthly state fee. And they require periodic retesting while the car is running.

The fine print in some of these laws does give convicted drunk drivers a choice. Illinois drivers can opt-out of the ignition locks, but must give up driving privileges over the entire suspension period. Colorado drivers have a similar choice. They can install the devices, or take a longer suspension. To the Nudging community: Do these arrangements qualify the ignition lock laws as examples of libertarian paternalism? Or are they still just an old fashioned legal mandate?