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show that efforts such as seminars on saving leave participants
feeling more knowledgeable and intending to save more; how-
ever, this fails to translate into actual increases in savings. In con-
trast, changing the defaults — allowing people to opt out of future
saving, rather than opting in — had much bigger impacts on me-
dium- to long-term savings behaviour.
Still, just because changing the default works, is it what peo-
ple really want? Policymakers on both sides of the Atlantic wor-
ried greatly that many people would object to the idea that they
had been automatically enrolled in a pension. “Not so,” explains
David Laibson, professor of Economics at Harvard. “It is hugely
popular. U.S. survey data suggests that nine out of 10 workers
who have experienced the pension opt-out support the changes
in 401(k) defaults. And even among the small minority who do
opt out, more than seven out of 10 of them still think the opt-out
is preferable to an opt-in arrangement.”
As well as being extremely effective, changing the default
so that savers are automatically enrolled illustrates how we can
often achieve better outcomes by making it easy for people to
do things that they would quite like to do — if only it were more
straightforward.
The Power of Reducing ‘Friction’
As indicated, if you want someone to do something, a pretty
good start is to make it easy. In Economics, there’s a phrase that
captures this simple concept: ‘Friction costs’. As in Physics, from
where the phrase is borrowed, it helps to explain why otherwise
‘perfect’ models might sometimes throw out predictions at odds
with messy real-world observations.
For those who studied Physics at school, the phrase ‘calcu-
late, ignoring frictional effects’ will be familiar. Economists have
deployed similar simplifications to make the world more ame-
nable to elegant mathematical models. But in the real world of
people and bureaucracy, friction matters a great deal. Just as a
real weight pushed across a real table will soon grind to a halt
as a result of friction, a human impulse to do something soon
grinds to a halt when it becomes a hassle. Hence John, the young
worker mentioned earlier, really did mean to start saving, and
to get that ‘money on the table’: He just didn’t get around to it,
because it involved effort and tedious paperwork — and was less
attractive than all the other things he could be doing in the next
hour or day.
Frictional costs are not a peripheral issue. Rather, they of-
ten make all the difference between something happening or
not — be it a stone rolling down a slope, or a policy succeeding
or failing.The fact is, humans have a deep-rooted tendency to
take the line of least resistance, be it cutting the corners across a
park, to deciding what to eat. Try putting out a selection of fruit
in your office, or even at home, and see what’s left at the end of
the day. Chances are, it’ll be the oranges: They are just that little
bit more hassle to eat compared with an apple, or that master of
convenience, the banana.
The simple insight that ‘hassle and friction have big impacts
on behaviour’ opens the door to countless policy interventions —
as well as to use (and abuse) by companies.
Businesses work hard to make it as easy as possible for you to
sign on to a new deal: To get a mobile; to try out a new product for
10-day period for free; or to walk out of the showroom with a new
car. However, most will not make it as easy to return the product
or end the deal. They’ll go to great trouble to make sure that when
it comes to paying the instalments or renewing a subscription, it’s
an effort to opt out, but as easy as possible to renew.
If it’s a product you are happy with, there’s no problem. But
if you aren’t sure about it and genuinely want to try it out, think-
ing you’ll cancel it in the offer period is generally a mistake: The
frictions are now working strongly against you. As the literature
shows us, even a small amount of friction will defeat most of us.
Hence the retailer, or manufacturer, can afford to offer dramaticThe human impulse to do something
grinds to a halt when it becomes a hassle.