Sludge, and what we can begin to do about it.

September 11, 2025

I keep a piece of the Berlin Wall on my desk at home. I chipped it off myself in the spring of 1990, six months after the wall came down. By that time, enterprising East Berliners had purchased sledgehammers and were charging tourists 20 Deutsche Marks to take home a piece of history. So much for International Socialism.

It’s comforting to believe that the Eastern Block fell due to an innate yearning for western-style freedom. But anyone familiar with Jared Diamond’s work knows that system collapse is far more often the result of internal decay than of ideologically driven revolution.¹ As banal as it may seem, the Eastern Block failed in large part because its citizens simply got sick of a society where nothing worked. Anna Funder writes about this in her 2003 book Stasiland:

"The GDR was a state where nothing worked properly; the system … created endless dysfunction. Offices dreamt up solutions that only made things worse, rules piled on rules until no one could keep track . . . everything was broken or about to break, and the gap between the state's actions and reality was vast."²

In lesser form, the modern-day term for this type of dysfunction-by-design is sludge. A recent Atlantic article defines sludge as “tortuous administrative demands, endless wait times and excessive procedural fuss” designed to “wear down individuals trying to access services or exercise rights.” ³If you've suddenly been disconnected after being on hold with a big bank for 40 minutes, or have gotten caught in the doom loop of trying to cancel an unwanted subscription, you've experienced sludge firsthand.

Sludge happens because it’s so effective at getting people to give up on what they want. Research has shown how sludge leads people to “forgo essential benefits and quietly accept outcomes they never would have otherwise chosen.” ⁴

As a financial advisor, I see sludge in action all the time. A client might say, ‘my spending feels out of control,’ only to learn that they are spending hundreds of dollars a month on unwanted subscriptions – many of which they don’t even remember signing up for. Among the more egregious examples are when folks are stuck in an underperforming annuity they can’t get out of without high fees or surrender charges. The spectrum of sludge is vast and the examples too numerous for a simple newsletter.

What’s the solution? Simply, choose your allies wisely, and be careful what you sign up for. That big-bank money market fund paying 0.2% more than your local credit union? Seems like a good deal until you need to get a real person on the phone. A flat-fee robo-advisor? Has appeal until you realize no one’s paying attention and your retirement assets are being run by an algorithm.

Additionally, take some time this fall to get your fiscal house in order. Even small steps can make a big difference over time. Scour credit card statements and bank statements for recurring transactions and cancel any unwanted ones (some credit cards even keep track of this for you). Sludge may be a permanent fixture of our financial lives, but it doesn’t have to be the dominant one.

On the bookshelf: Isola by Allegra Goodman. Based upon a true story about a 16th century French noblewoman marooned on a deserted island off the coast of Labrador, the novel deals with themes of human endurance, survival against the elements, the role of women in 16th century society, and the complex intertwinings of human relationships. What does this have to do with investing? Nothing. Sometimes a good read is simply that – a book to be enjoyed for its own sake.

- Seth Gillim

1. Collapse, How Societies Choose or Fail to Succeed (2004) is Diamond's seminal work on the subject.
2. Funder, Anna Stasiland: Stories from Behind the Berlin Wall. Harper Perennial Paperback Edition. 2011
3. Colin, Chris. "That Dropped Call With Customer Service? It Was on Purpose." The Atlantic, June 29, 2025.
4. Shahab S, Lades LK. “Sludge and transaction costs.” Behavioural Public Policy. 2024;8(2):327-348