Nudges in Transport The central message of the behavioural economics approach to policy making is that there are many situations where people run the risk of acting against their own interest. As a result, transport externalities are exacerbated. Moreover, behavioural biases such as the status quo bias may hinder the effectiveness of some policy instruments such as congestion charging. Behavioural economics can help to improve the effectiveness of market-based instruments and regulation, but also of “soft” policy measures, for instance by increasing the salience of the variable costs of a private car. • Behavioural biases may hinder the effectiveness of policy instruments such as congestion charging. • Behavioural economics can help to improve the effectiveness of market-based instruments and regulation, but also of “soft” policy measures. • There are many situations where people may act against their own interest, therefore exacerbating transport externalities. Transport planning is firmly embedded in a neoclassical economic framework, which assumes perfect rationality in all decision making. However, this intellectual framework has been questioned by an alternative approach, behavioural economics, which aims to align economic analysis with insights from other behavioural sciences, such as psychology. There are essentially three possible approaches to deal with the findings of behavioural economics (Gifford and Checherita-Westphal, 2008). Ignore the problem The first approach is to ignore the problem. Proponents of this approach argue that findings in behavioural economics are often based on experiments in laboratory settings. Apparently irrational behaviour may then follow from the fact that people are not familiar with this type of decision making, and do not have the time to learn from their mistakes. In real life, people have concrete and substantial stakes in correct decision making, and they feel the consequences of poor choices. Others argue that the rationality assumption is good enough as an approximation of people’s actual behaviour. In both cases, non-rational behaviour is ignored in modelling transport choices. Heuristics as the new norm for decision-making The second approach is to accept that people are less than perfectly rational and to incorporate deviations from perfect rationality into modelling. In this approach, the norm is the use of heuristics, i.e. “any ‘rule of thumb’ or simple rule of behaviour by which a person solves a problem” (Cartwright, 2011, p. 27). Proponents of this approach argue that people do not have the time nor the information that is necessary to make fully optimal decisions, and it can be better to make a decision that is ‘good enough’ (for instance, always taking the same bus line at the same hour to go to work), rather than continuously reassessing the situation. This third approach has largely been brought to the attention of policy makers through the work of Thaler and Sunstein (2008). Their central message is that there are many situations where people run the risk of acting against their own interest: they take both unnecessary risks and exaggerated precautions (depending on the situation), letting their decisions be influenced by irrelevant information. Thaler and Sunstein refute the argument that the ‘anomalies’ detected by behavioural economists only hold in the lab, and give numerous examples taken from real life. The central policy innovation they propose is the concept of “libertarian paternalism”, which they define as policies that: Maintain or increase freedom of choice – the “libertarian” side. Try to influence choices in ways that will make choosers better off, as judged by themselves – the “paternalistic” side. The central concepts in their approach are “choice architecture” (the organisation of the context in which people make decisions) and “nudges” (small features designed in the environment of choice making). Libertarian paternalism and transport policy Most transport problems (congestion, air pollution, accidents) arise because private and public interests are not aligned – in economists’ jargon, because there are externalities. One may thus wonder what the relevance of the nudging approach is for transport problems. The answer is threefold. First, in some cases, externalities are exacerbated because people make choices against their own interests. For instance, there may be instances where people would be better off taking public transport rather than a car, but still take their car. This is usually attributed to ‘status quo bias’: people tend to stick with the current situation, even if they would gain by changing. Second, behavioural biases such as the status quo bias may hinder the effectiveness of some policy instruments such as congestion charging: even if the congestion charge is set high enough to make a switch to public transport the optimal choice, people may still stick to using their cars. Third, the insights derived from the “nudging” approach can help to improve the effectiveness of market based instruments and regulation, but also of “soft” policy measures (Avineri, 2012) such as (sustainable) travel plans, promotion of car sharing, or leveraging social media. Some examples of tools and insights from behavioural economics that could be useful in this context are: Increasing the salience of the variable costs of a private car (for instance, through real-time reporting of the value of fuel consumption) could compensate for some of the behavioural biases that induce people to favour cars. Route planners could propose “sustainable” travel modes as the default option (Avineri, 2012) – defaults have a strong impact on the options people choose. People can be helped in the selection of alternatives, by expressing information in such a way that they can translate it directly into benefits and costs, such as expressing automobile fuel consumption in financial terms (“mapping”). Thus, the insights from behavioural economics can improve the impact of market-based instruments and other forms of traditional policy intervention. Avineri, E. (2012), On the use and potential of behavioural economics from the perspective of transport and climate change. Journal of Transport Geography 24, 512-521. Cartwright, E. (2011), Behavioral Economics, 2nd Edition, Abingdon, New York: Routledge. Gifford, J.L. and Checherita-Westphal, C.D. (2008), Boundedly- and Non-Rational Travel Behavior and Transportation Policy, mimeo, George Mason University, Arlington, Virginia, USA. Halpern (2015), Inside the Nudge Unit: How small changes can make a big difference, WH Allen Thaler, R. and C. Sunstein (2008), Nudge, Yale University Press.