The dark side of nudging?

(featured image: socialneuron)

Are companies like Uber really into nudging for evil?

In a recent New York Times article, the maverick taxi company Uber came under fire for “pulling psychological levers” to influence when and where their drivers work. A company whose drivers are employees could simply tell them what to do, but a key feature of the Uber model is that drivers are self-employed contractors, who are free to choose their working hours.

So Uber is resorting to other means to persuade their drivers. It uses a female persona (Laura) to send texts with tips of where to go next, because that is more likely to influence the overwhelmingly male contingent of drivers. It uses techniques from the gaming industry, showing income targets just within reach, to entice drivers to keep on working. And it uses defaults on their screen (“keep driving” is the highlighted answer when a driver is trying to log off).

The article caused many commentators to question the ethics of Uber’s practices: this is a company blatantly pursuing its own interests, exploiting the weaknesses of its drivers to their detriment. Surely this was not nudging for good? The title of a Harvard Business Review article by Francesca Gino, a professor at Harvard Business School was unambiguous: “Uber Shows How Not to Apply Behavioral Economics”. Yet other behavioural experts were a lot more sanguine. Co-author of Nudge Richard Thaler didn’t see anything evil in the practices that were exposed by the NYT, and Dean Karlan, a professor of Economics at Yale University, suggests that what is painted “as mind control” would be regarded as “good business practices in another section of the paper”.

When a win-win is not a win-win, and when a win-lose is still a win-win

Professor Gino concludes her article saying that the great potential of applying behavioural economics in organizations is to create win-wins. How could one disagree with this? After all, the win-win is the foundation of human progress and wealth creation. As Adam Smith said in his Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”  We win from buying our meat, beer and bread just as much as the suppliers win from selling, and it is win-wins like these that are behind the relentless increase in wealth.

But perhaps there is more to the idea of a win-win than meets the eye.

Imagine you want to buy a used bicycle. You’ve found a splendid specimen in the local ads and you go and see the seller. It looks every bit the part, and you’re willing to pay up to £450. The seller’s minimum  price is £250 (but of course you don’t know that). Any sale at a price between £250 and £450 would be a win-win outcome: both you and the seller would end up better off than before. (The transaction produces a win-win because there is a positive difference between the maximum offer and the minimum accepted prices – an economic surplus of £450-£250, or £200.)


Now one of you breaks the ice and makes the first bid – let’s say it’s the seller, who asks for £400. Great news! You’d be getting the bike for £50 less than you maximum price so you’re already ahead. But rather than accepting that price, you do the air-sucking-through-teeth thing, and you point at some imaginary flaws and say you couldn’t really pay more than £300.

That price would be just as much a win-win, but compared to the opening price of £400 it is a zero-sum move. The seller would lose the £100 you would gain. And no matter how the negotiation proceeds further, even though the eventual outcome is a win-win overall, every move is a zero-sum, win-lose step.

The division of the economic surplus between seller and buyer is often the result of what can be described as trickery. Each side wants to maximize their part of it and so neither party would willingly reveal their maximum offer or minimum acceptable price. Instead, they seek to lay down an anchor (the first amount mentioned acts as a reference point), or make claims that are hard to prove (“I can only afford X” or “I have two other buyers who are willing to pay this price”). Or they may simply bluff (“I’m going to have to walk away”), or use reciprocity to great effect, like this guy who saved $400 on a second-hand motorbike with a bottle of coke worth $1.99.

Is this kind of thing unethical? Hardly. Both parties are better off than they were before the transaction. And it is important to see that the negotiation involves more than just the price – it involves intangibles, such as the perception of what constitutes a reasonable price, the risk of losing the sale (or the item), the value of a favour and even sympathy for the other side. All this is weighed up against the successive moves, and so eventually both buyer and seller still end up with a real win-win.

In the relationship between Uber and its drivers, the situation is very much the same. A driver might consider signing off  because the extra revenue would not outweigh the extra time. But the response from Uber is persuasive, and they stay on longer. Uber has won – but has the driver really lost by changing their mind? Or have they simply reassessed the relative value of the extra time and the extra revenue, and concluded that it is actually better to keep driving for another hour?

Whose interest?

It is interesting to look a bit deeper at the mechanics behind successful nudging. A famously ‘failed’ nudging experiment in the Netherlands found that placing wholemeal bread more prominently and accessibly than white bread made no difference at all in sales. A plausible explanation for this ‘failure’ is that the preferences of the customers were so strong that a simple nudge did not persuade them enough to change their choice.

Nudging can really only work on you if your preferences are relatively weak (or indeed undefined, as discussed here). If you know very well what you want (or don’t want), nudging will have little or no effect on you. If mussels are your favourite and you don’t like beef, you will be immune to the nudges on the menu William Poundstone discusses in this article.

If our weak preferences make us susceptible to nudging, then of course it opens up the possibility that someone will nudge us in their interest rather than in ours. But is that necessarily unethical?


A nudge in your favour… or in theirs? (photo: Unsplash)

Consider government nudges to encourage us to pay our taxes. Arguably there is a moral obligation on all of us to do so. But tax evasion and (even more so) avoidance are not rare, which gives us a reasonable idea of where some people’s preference lies. So perhaps this is a case of the government nudging us in their interest (to raise tax revenue) rather than in that of the individual being nudged (who ends up paying more in tax, and keeping less). Is this an unethical use of nudging?

Or imagine someone were to ask you whether you would be willing to volunteer with an organization working with young offenders, and counsel the young people for a couple of hours each week during two years. That’s a big ask, and you would probably decline. But if the requester would then ask you whether you would chaperone a group of juvenile delinquents on a one-day trip to the zoo, what would you then say? Robert Cialdini and colleagues did exactly this in a 1975 experiment to explore the so-called Door in the face technique*. If you are anything like their participants you’d be three times as likely to say yes to the second request, than if all you had been asked to do was the chaperoning.

If a charity were to use this technique to increase the number of volunteers, would that be unethical? What if they use reciprocity (by sending you a free pen) or the identifiable victim effect (depicting and naming an emaciated child) with their request to donate, to make you pay more?

Careful now

We all have strong preferences for or against things. But we are also all often in situations where our preferences are weak or ill-defined. That is when we can be swayed by the environment, and in particular by the way in which it interacts with our cognitive biases.

But neither the swaying in itself, nor the fact that the outcome of the nudge appears to favour the nudger more than the nudgee should be seen as signs that something sinister is going on. Remember – as even the NYT article says – nudges happen “without a whiff of coercion”. People are always free to make any choice.

Does that mean nudges are not manipulative? No, they definitely are. But they are not inherently more so than more direct interventions. Everything that is aimed at changing behaviour, from a simple informative sign to bonus payments and threats of severe punishment, is manipulative. So we should not get hung up about this characteristic either.

For by their nature nudges are gentle. They do not ban any possibilities, nor do they materially affect the incentives of any available choice. That makes nudges pretty poor tools to manipulate people into doing something that goes against their self-interest. If you want to mislead, defraud or fool people, look elsewhere.

So nudges that actually reduce nudgees’ welfare may be rare. But if we insist that only nudges that demonstrably increase the welfare of the nudgee are ethical, we are being way too purist. It is not because psychology is not explicitly used to someone else’s benefit, that it is to their detriment. Much like the negotiations in the win-win domain of economic transactions, they tip the balance from one win-win to another one.

Let us not get all hysterical about “psychological trickery” – the ‘brilliant jerks’ at Uber may deserve criticism for many of its policies and practices, but their use of behavioural science should not be among them.

And let us bear in mind that it is not because we cannot see a clear win-win in a behavioural intervention that it is evil.

* Thanks to Richard Shotton for helping me turn a vague recollection into a precise description.



About koenfucius

Wisdom or koenfusion? Maybe the difference is not that big.
This entry was posted in Behavioural economics, Cognitive biases and fallacies, Economics, Ethics and tagged , . Bookmark the permalink.

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