Choice architecture

Choice architecture is the design of different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision-making. For example, the number of choices presented, the manner in which attributes are described, and the presence of a 'default' can all influence consumer choice. As a result, advocates of libertarian paternalism and asymmetric paternalism have endorsed the deliberate design of choice architecture to nudge consumers toward personally and socially desirable behaviors like saving for retirement, choosing healthier foods, or registering as an organ donor. These interventions are often justified by the fact that well-designed choice architectures can compensate for irrational decision-making biases to improve consumer welfare. These techniques have consequently become popular among policymakers, leading to the creation of the UK's Behavioural Insights Team and White House 'Nudge Unit' for example. While many behavioral scientists stress that there is no neutral choice architecture and that consumers maintain autonomy and freedom of choice despite manipulations of choice architecture, critics of libertarian paternalism often argue that choice architectures designed to overcome irrational decision biases may impose costs on rational agents, for example by limiting choice or undermining respect for individual human agency and moral autonomy. Choice architecture is the design of different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision-making. For example, the number of choices presented, the manner in which attributes are described, and the presence of a 'default' can all influence consumer choice. As a result, advocates of libertarian paternalism and asymmetric paternalism have endorsed the deliberate design of choice architecture to nudge consumers toward personally and socially desirable behaviors like saving for retirement, choosing healthier foods, or registering as an organ donor. These interventions are often justified by the fact that well-designed choice architectures can compensate for irrational decision-making biases to improve consumer welfare. These techniques have consequently become popular among policymakers, leading to the creation of the UK's Behavioural Insights Team and White House 'Nudge Unit' for example. While many behavioral scientists stress that there is no neutral choice architecture and that consumers maintain autonomy and freedom of choice despite manipulations of choice architecture, critics of libertarian paternalism often argue that choice architectures designed to overcome irrational decision biases may impose costs on rational agents, for example by limiting choice or undermining respect for individual human agency and moral autonomy. The choice architecture term was originally coined by Richard Thaler and Cass Sunstein in their 2008 book Nudge: Improving Decisions about Health, Wealth, and Happiness. Thaler and Sunstein have endorsed thoughtful design of choice architecture as a means to improve consumer decision-making by minimizing biases and errors that arise as the result of bounded rationality. This approach is an example of 'libertarian paternalism', a philosophy endorsed by Thaler and Sunstein that aims to 'nudge' individuals toward choices that are in their best interest without limiting choice. Libertarian paternalism may also be described as soft paternalism. Behavioral scientists have grouped the elements of choice architecture in different ways. For example, Thaler, Sunstein, and John P. Balz have focused on the following 'tools' of choice architecture: defaults, expecting error, understanding mappings (which involves exploring the different ways that information presentation affects option comparisons), giving feedback, structuring complex choices, and creating incentives. Another group of leading behavioral scientists has created a typology of choice architecture elements dividing them into those that structure the choice set and those that describe the choice. Examples of choice set structuring include: the number of alternatives, decision aids, defaults, and choice over time. Describing choice options include: partitioning options and attributes, and designing attributes. Research from the field of behavioral economics has shown that individuals tend to be subject to predictable biases that may lead to decision errors. The following sections describe these biases and describe the ways that they can be minimized by changing decision context through choice architecture. Classical economics predicts that providing more options will generally improve consumer utility, or at least leave it unchanged. However, each additional choice demands additional time and consideration to evaluate, potentially outweighing the benefits of greater choice. Behavioral economists have shown that in some instances presenting consumers with many choices can lead to reduced motivation to make a choice and decreased satisfaction with choices once they are made. This phenomenon is often referred to as choice overload, Overchoice or the tyranny of choice. However, the importance of this effect appears to vary significantly across situations. Choice architects can reduce choice overload by either limiting alternatives or providing decision support tools. Choice architects may choose to limit choice options; however, limits to choice may lead to reductions of consumer welfare. This is because the greater the number of choices, the greater the likelihood that the choice set will include the optimal choice for any given consumer. As a result, the ideal number of alternatives will depend upon the cognitive effort required to evaluate each option and the heterogeneity of needs and preferences across consumers. There are examples of consumers faring worse with many options rather than fewer in social-security investments and Medicare drug plans As consumption decisions increasingly move online, consumers are relying upon search engines and product recommendation systems to find and evaluate products and services. These types of search and decision aids both reduce the time and effort associated with information search, but also have the power to subtly shape decisions dependent upon what products are presented, the context of the presentation, and the way that they are ranked and ordered. For example, research on consumer goods like wine has shown that the expansion of online retailing has made it simpler for consumers to gather information on products and compare alternatives, making them more responsive to price and quality information. A large body of research has shown that, all things being equal, consumers are more likely to choose default options. A default is defined as a choice frame in which one selection is pre-selected so that individuals must take active steps to select another option. Defaults can take many forms ranging from the automatic enrollment of college students in university health insurance plans to forms which default to a specific option unless changed. Several mechanisms have been proposed to explain the influence of defaults. For example, individuals may interpret defaults as policymaker recommendations, cognitive biases related to loss aversion like the status quo bias or endowment effect might be at work, or consumers may fail to opt out of the default due to associated effort. It is important to note that these mechanisms are not mutually exclusive and their relative influence will likely differ across decision contexts.