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In this post, I review an interesting paper that advocates for the use of blockchain technology to promote eco-friendly behavior through a technique known as “nudging.”
In addition to my review, I pose questions about the ethics and potential effectiveness of some of the methods discussed in the paper. I hope that this post will generate discussion about this fascinating topic and I’m looking forward to your responses.
Nudging is a term that was popularized by Harvard Law professor Cass Sunstein and University of Chicago behavioral economist Richard Thaler.
Nudging refers to the practice of encouraging good behavior by tweaking incentive structures embedded in everyday activities. Some examples of nudging in practice include:
- Organ donation: Israel has increased organ donation rates through automatically “opting in” driver’s license applicants.
- Voting: The U.S. state of Georgia allows motorists to register to vote when they receive a new driver’s license.
- Sustainability: Japan labels goods with information about the carbon footprint of the product.
With the idea of interconnected “smart cities” quickly becoming a reality, blockchain developers and local governments in the United States are starting to think about how they can encourage residents to make better decisions.
In the paper cited above, the authors provide a survey of existing blockchain-based monetary and non-monetary nudges that could encourage eco-friendly behavior in the areas of transportation, energy, and recycling.
- Transportation includes schemes which incentivize more efficient travel and mobility.
- Recycling includes schemes which provide rewards for recycling or the protection of ecosystems.
- Energy includes schemes which incentivize solar energy usage and peer-to-peer energy trading.
In addition to these examples, the authors provide a more general framework for using blockchain to nudge people toward more sustainable behavior.
This framework has six major components as shown in Figure 1 and can be implemented with the help of smart contracts and Chainlink oracles:
- Sustainable action registry: sustainable actions and the metadata associated with them can be maintained off-chain and brought securely on-chain with Chainlink decentralized oracle networks.
- Rewarding mechanism: reward scheme for users which links sustainable behaviors to different levels of reward. The rewarding mechanism allocates rewards in the form of tokens on the basis of the recorded sustainable behaviors.
- Identity management: a privacy-preserving decentralized identity management system built on a system like Chainlink’s DECO. This system would allow for the verification of behavior and reward distribution.
- Token management: a governance system, like a DAO, would provide a means to manage and distribute tokens.
- Token economy: services and rewards that can be exchanged for incentivization tokens. For example, the purchase of certain goods and services may be discounted when purchased with tokens.
- User application: a wallet app for token storage would be needed to interact with the blockchain.
Assuming that such a system can be created according to the author’s specifications, would this system be both effective in terms of promoting sustainability and also an ethical way of altering behavior?
The authors of this paper list some examples of sustainable nudging using blockchain as an incentive mechanism and then extrapolate a more general framework from these examples.
Here are some questions that I think need to be addressed to better understand whether this approach should be more universally adopted.
Treatment effect size: What % of people will change their behavior as a result of the nudge? If that % is small, implementation of the nudge may not be worth the effort.
Unintended effects: In complex systems, changing one aspect of the system has cascading effects that will result in changes in other aspects of the system. Altering people’s behavior for an intended effect may have corollary effects that can cancel out the intended effect or potentially even make things worse. For example, encouraging ridesharing systems may discourage urban residents from using public transportation, thereby increasing overall pollution and traffic congestion.
- Pareto improvement: Pareto improvement is a change in which making one person better off does not harm another person. Behavioral nudges should be Pareto improving or should at least aim to be Pareto improving. If nudges make some better off at the expense of others, this is an ethical dilemma that needs to be more deeply explored.
As an incentive mechanism, blockchain paired with smart contracts and Chainlink oracles can be an incredibly powerful behavioral nudging tool and, as with any tool, it can be used for good or ill. Improving sustainability is a noble goal and sustainable nudging with blockchain appears to be a great tool for accomplishing it. However, the effectiveness and ethical considerations mentioned above are the minimum that should be considered before implementing a nudge.