Many nations are in the midst of a lot of talk about environmental protection and climate change. Some people are arguing vigorously for aggressive regulatory controls, whereas others contend that, in a difficult economic time, such controls are best put on hold. While the debate simmers, there’s a lot that can be done right now, and it doesn’t involve mandates, bans or controls. The simplest approach involves the use of default rules, which specify what happens when people do nothing at all.
Here’s a small example. Human beings use a lot of paper, and paper requires use of a lot of trees. Suppose that a private or public institution wants both to save money and to protect the environment by reducing its use of paper. A small intervention: Alter the institution’s default printer setting from “print on a single page” to “print on front and back.”
A few years ago, Rutgers University adopted such a double-sided printing default. After one semester, paper consumption was reduced by more than seven million sheets, the equivalent of 620 trees. People use far more paper than they need only because of the “single page” default, so a change would produce significant savings.
Many environmentalists have been interested in increasing consumers’ use of “green energy” – energy sources that don’t significantly contribute to air pollution, climate change and other environmental problems. While such energy sources are available in many places, most people in the United States and Europe don’t choose them. Nonetheless, two communities in Germany show strikingly high levels of green energy use – more than 95 per cent. This is a dramatic contrast to the level of participation in green energy programs in other German cities and towns.
The reason for the difference? In the two relevant communities, people are automatically enrolled in green energy programs, and they have to opt out.
Green default rules have the advantage of maintaining freedom of choice, but they also promise to protect the environment, save money, increase energy independence and reduce energy use. They ensure that, if people do nothing at all, they will act in an environmentally friendly fashion.
Some green defaults are desirable on both economic and environmental grounds. But, in other cases, the environmentally preferred approach is inescapably expensive, and we should hesitate before defaulting people into an outcome that costs them a lot of money. In deciding which default rule is best, we might have to make some hard choices about how to balance economic and environmental values.
A lot of research explores exactly why default rules have such a big effect on outcomes. There appear to be three contributing factors.
The first involves inertia and procrastination. To change the default, people must make an active choice to reject it. In view of the power of inertia and the all-too-human tendency to procrastinate, people simply continue with the status quo.
The second factor involves what people might see as an implicit endorsement of the default rule. If your state presumes you want green energy, you might think that most people, or most informed people, believe this is the right course of action, and you might trust them well enough to follow their lead. Many people think that the default was chosen by someone sensible and for a good reason.
Third, and most interestingly, the default rule establishes the reference point for people’s decisions. Behavioural economists have emphasized the phenomenon of “loss aversion”: Human beings really hate losses from a reference point. Suppose you aren’t getting green energy and asked whether you want to switch to it, even though it costs a bit more. You might think you don’t want to lose the money. But if you now have green energy, and are asked whether you want to save a little, you might not really care. Where you begin sets your reference point.
But which default rule should public and private institutions select? How do we know which is helpful and which is harmful? A reasonable approach is to select the default rule that reflects what most people would choose if they were adequately informed.
If we know that a particular default rule would place people in the situation that informed people would select anyway, we have good reason to adopt it (with the understanding that those who differ from the majority may opt out). Suppose we know that 80 per cent of people, given a lot of information, would choose double-sided pages or green energy. That’s a pretty good reason to choose those defaults. And if we don’t know which default rule is best, we might adopt a system of “active choosing,” in which people are simply asked to say what they prefer.
Defaults are a pervasive part of life. If we don’t notice them, it’s only because they’re an invisible part of the background. And because they maintain freedom of choice, they have big advantages over mandates and bans. If private and public institutions take smart steps to be automatically green, they will often win the trifecta: saving money, protecting the environment and increasing our energy security.
Cass R. Sunstein, a U.S. legal scholar, was the administrator of the White House Office of Information and Regulatory Affairs in the Obama administration from 2009 to 2012. His latest book is Simpler: The Future of Government.