In education reform, like other policy areas, analysts are busy trying to identify how to channel people’s behavior in directions that we believe will improve their lives. If we think people should eat less, we devise interventions to encourage them to cut back. If we think too few students go to college, we nudge them to enroll. If we think people save too little, we arrange systems to increase retirement contributions. In what is imagined to be a kinder, gentler approach to these problems, we “nudge” people toward desired outcomes rather than mandating them. Mandating can seem too harsh and produce backlash, but nudges allow social scientists to influence behavior without feeling like they are infringing on the autonomy and liberty of the people whose behavior they are shaping. Most people behave irrationally and lack impulse control, but the priestly class of social scientists can detect and correct these problems for other people.
A central problem with this approach is that we know too little about the lives of others to know with confidence what is good for them or how our nudges will affect their entire lives. We may think we are helping people, but absent the same contextual information that individuals possess about themselves we are liable to push (excuse me, nudge) people in ways that actually harm them.
A recent NBER study on a plan to increase retirement savings helps illustrate the challenges associated with managing other people’s lives. That study examined a natural experiment in which civilian employees of the military were automatically enrolled in contributing 3 percent of their income toward a retirement plan that would be matched by employer contributions. Previously, employees had to opt-in to this retirement plan, but the policy changed so that employees would have to opt-out if they did not wish to contribute. Already employed workers were exempted from the change, so researchers could compare those hired just before the policy was implemented to those hired just after to identify the causal effect of the switch toward automatic contributions.
As intended, the plan increases retirement savings: “At forty-three to forty-eight months of tenure, automatic enrollment increases cumulative employer plus employee contributions since hire by 5.8 percent of first-year annualized salary.” While the plan succeeded in increasing retirement savings, employees did not appear to decrease their consumption. Instead, they increased their borrowing, particularly for cars and homes, by an amount that exceeded the amount by which their retirement savings increased. Even if we exclude the mortgage borrowing, which has a more ambiguous affect on long-term wealth given that house prices may appreciate by more than interest and depreciation, even just the auto loan increases exceeded the amount by which employees increased their savings. If we include the employer match, increased retirement wealth was close to the increase in auto loan amount. Overall, it is unclear if the policy increases the total wealth of the employees. Excluding the employer match, employee wealth is likely decreased. So the only clear effect of the automatic savings policy is a transfer of wealth from whoever pays for the employer match to employees, but no overall benefit to society.
As this study reveals, shaping other people’s behavior is complicated. People may not contribute to retirement plans because they want to consume things now. Pushing (er, I mean, nudging) them to save anyway may just cause them to increase their borrowing in a way that has no net benefit or even a net harm. We don’t know enough about other people’s lives to manage them optimally.
But retirement savings is usually considered one of the clear success stories for nudges. I suspect that is because people typically judge those interventions by the extent to which they change the narrow behavior on which we are focused rather than overall well-being. That is, we nudge people to contribute more to retirement savings and sure enough they do. Mission accomplished. But we really need to look at their total consumption and borrowing behavior to see how this policy affects folks. When we step back to see the bigger picture, the benefits disappear or even become harms.
The same is true for educational nudges. We have a number of studies that look at short-term and narrow effects of nudges to get students into college. Sure enough, if we push (I mean, nudge) people to enroll in college, they tend to do that. All that shows is that people believe we are experts and are willing to substitute our expert advice for them (even though we know almost nothing about them) for their own, better informed judgement about what they should do. The real proof of college-going nudges is not whether people listen to us, but whether that helps them long-term. Those long-term results have not yet been published, but those results exist and I believe based on leaked drafts that the short-term benefits go away or even turn into harms after a few more years. That is, students who didn’t think they were ready for college but were pushed into attending may have difficulty finishing and other students who enroll later may be better prepared at that point to succeed, causing the overall effect of these nudges to be null or even negative. One has to wonder about the ethics of researchers touting short-term positive results if they know that longer-term effects tend to go away or turn negative. Are they nudging us to accept the idea of nudge interventions, so it is really for our own good to only hear about positive short-term results?
(H/T Bob Costrell for alerting me to the retirement study.)
This article first appeared in slightly different forms in Jay P. Greene’s Blog and Education Next.
The views expressed herein represent the opinions of the author and not necessarily the Thomas B. Fordham Institute.
