Cognitive Design

One way to know if a topic is really “in the air” is to see how it is treated in a US Presidential election.  Although it is not rolling off Wolf Blitzer’s tongue, I have found at least one solid reference to cognitive-design like thinking that might generate some buzz.

Wired magazine, recently ran a cover story highlighting the views of 15 people the next president should listen to. Fortunately, they included a short piece on David Laibson, a behavioral economist from Harvard entitled, Tweak Human Behavior to Fix the Economy. The basic idea is that we do not need to overhaul the principles of the free market economy to resolve our housing, healthcare, retirement and various economic woes. Instead, small changes in programs and policies that nudge consumer behavior in a different direction is enough to fix the problem. After all, these problems are chiefly rooted in how we make decisions and behave. 

The example nudge discussed is something we have covered in this blog several times namely, changing the default on 401k plans so that people are automatically enrolled and have to opt out if they don’t want to participate. Studies show that such a small change can go a long way to addressing the fact that 50% of Americans do not save enough for retirement.

From a cognitive design standpoint this means leveraging the status quo bias and the fact that we overvalue current assets relative to future assets to work in our favor rather than against us.   With opt-out as the default on my 401k I don’t have to fight the way my mind and behavior naturally work to be a good saver.  

Are simple behavioral nudges, captured by reworking the defaults in savings programs, health policies and the like really enough to deal with our most pressing social and economic problems?  Small and consistent changes in mass behavior have often change the world before.   

Shortly, I will blog on a recent book by two other behavioral economists, titled not surprisingly, Nudge, that looks at this phenomena in-depth including the ethical questions it raises. The authors outline some 20+ nudges that could help us improve decisions about health, wealth and happiness.

Although I don’t agree with all the details it certaintly helps us to imagine a world designed to work the way our minds do.

This entry was posted on Monday, September 29th, 2008 at 2:55 pm and is filed under Behavior Change, Behavioral Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.