A Practitioner's Guide to Nudging

ROTMAN Magazine

Rather than placing restrictions on our choices, ‘nudges’ influence our behaviour by changing the way choices are presented.

by Kim Ly, Nina Mažar, Min Zhao and Dilip Soman

HAVE YOU BEEN ‘NUDGED’ to behave in a more socially- or economically-sustainable way lately? While you might not realize it, you probably have. Drawing on findings from Behavioural Economics, University of Chicago Professors Richard Thaler and Cass Sunstein first introduced the notion of ‘nudging’ in their 2008 best-seller, Nudge: Improving Decisions about Health, Wealth, and Happiness. A nudge, they taught us, is any aspect of the ‘choice architecture’ that alters people’s behaviour in a predictable way, without removing any options or significantly changing economic consequences.

For example, consider two school cafeterias that want to help students consume less junk food. The first one decides to attack the problem by placing a ‘tax’ on burgers and French fries and banning the sale of desserts altogether. The second cafeteria takes an alternate route, adjusting its food-display system so that junk foods are less visible and hence, less likely to be chosen.  They place cookies, cupcakes and similar items on higher, harder-to-reach shelves, while healthy foods like bananas and yogurt are placed at eye level, within arm’s reach.  

Both cafeterias are trying to influence behaviour, but they are going about it in entirely different ways: the first is attempting to influence behavior by financially incentivizing customers to choose healthier options and restricting available options —and thus, freedom of choice, while the second does neither of these things, instead employing a ‘nudging strategy’ towards healthier options.

Research indicates that such nudges can have dramatic results.  For example, while most people support the idea of organ donation, they often fail to follow through with their intentions.  In many countries, potential donors must proactively sign up for the program at the department of motor vehicles and licensing, and the burden of requesting the required forms rests with the potential donor. Meanwhile, in a nudging scenario, every applicant for a license is actively asked whether he or she would like to participate in the program. In the state of Illinois, this simple nudge has increased organ donation rates dramatically, from 38 to 60 percent.   

While a significant change in economic outcome or incentives does not qualify as a nudge, a nudge can serve to highlight an economic incentive. For example, members of a gym may be nudged to exercise more frequently by framing their $600 annual membership fee as $50 a month or approximately $12 a week. Another form of nudging involves ‘the compromise effect.’  Studies show that, when presented with three different options that vary in quality and price, most individuals will pick the middle option. Therefore, if a wine company wants to sell more of a particular brand, it can surround that wine with higherend and lower-end options to increase sales of the middle option.

Both of these examples show that changes in the environment or context can influence our behaviour without significantly changing financial incentives or restricting freedom of choice.  Indeed, a recent paper by Harvard’s Raj Chetty and colleagues compared a nudging strategy in the realm of retirement savings (automatic contributions) with a more active incentive (tax subsidies), concluding that the former is significantly more effective than the latter.

With this article, our goal is to complement the existing literature on nudging and provide practitioners — or ‘choice architects’, per Thaler and Sunstein — with some guidelines for developing nudges of their own.  

A Nudging Framework

Nudges vary widely in terms of implementation and characteristics, from slight changes in the text of a message to entirely new product innovations. However, regardless of the method or medium used for implementation, they share four characteristics.

1. NUDGES SEEK TO BOOST SELF-CONTROL OR ACTIVATE A DESIRED

BEHAVIOUR.

The first dimension looks at whether a nudge is designed to boost self-control and help individuals follow through with a decision (such as contributing to a retirement plan). With certain behaviours, such as saving money or exercising, there is a discrepancy between what people would like to do and what they end up doing.  Nudges that help boost self-control can correct for this discrepancy.  In other domains such as littering, individuals might not always actively consider what the right behaviour should be.  In this case, nudges are designed to activate a desired behavior or norm and influence a decision that an individual is indifferent or inattentive to. These behaviours are not at the top-of-mind for the majority of people, and hence people are unlikely to impose nudges that influence these behaviours upon themselves. Therefore, nudges that seek to activate latent or non-existent behavioural standards in people rely on exposing them to conditions in which those standards become more salient.

2. NUDGES CAN BE EXTERNALLY-IMPOSED OR SELF-IMPOSED.

The second dimension considers whether a nudge will be voluntarily adopted. Self-imposed nudges are voluntarily adopted by people who wish to enact a behavioural standard that they feel is important. Such nudges may include using products, such as the well-known Save More Tomorrow™ program (developed by Thaler and UCLA’s Shlomo Benartzi), or practices such as voluntarily asking for a reduction on one’s credit limit. Externally imposed nudges do not require people to voluntarily seek them out. Rather they passively shape behaviour in the way they present available options, without constraining the user.

3. NUDGES CALL FOR THE USER TO BE EITHER MINDFUL OR MINDLESS ABOUT THE DECISION AT HAND.

The third dimension considers whether a nudge will guide the individual to take a more cognitive, deliberate approach to decision-making and remove some of the effects of the often unconscious behavioural influences present in the context; or whether it will guide them towards a more automatic, implicit approach that utilizes well-established behavioural influences or heuristics.

Mindful nudges guide individuals towards a more controlled state and help people follow through with a behavioural standard that they would like to accomplish but have trouble enacting.  Such nudges influence the intention to eat healthier, stop smoking, exercise and save more. Mostly, these nudges help people make better intertemporal choices so that their behaviour in the present better reflects their wishes for the future. Mindless nudges, on the other hand, include the use of emotion, framing, or anchoring to sway the decisions people make.

4. NUDGES ENCOURAGE OR DISCOURAGE A PARTICULAR BEHAVIOUR.

The fourth dimension considers whether a nudge encourages or discourages behaviour. Encouraging nudges facilitate the implementation or continuation of a particular behaviour. Discouraging nudges on the other hand, hinder or prevent behaviour that is believed to be undesirable. 

When combined, these four dimensions result in 12 different types of nudges. Figure One displays the taxonomy we have developed based on these dimensions, listing specific examples for each type of nudge. In some cases, comprehensive programs can have multiple nudges embedded within them, and hence it is possible for a program to fall across multiple categories.

Nudging in Action

We will now present four examples of how nudges have been used successfully to help people make better decisions.

INCREASING VOTER PARTICIPATION. Improving voter turnout is an ongoing challenge for many constituencies. A common strategy is to emphasize low voter turnout in campaign communications, in hopes that it will motivate citizens to come out and vote. However, emphasizing the opposite — that voting is a common social practice — might be a more effective strategy.

Experiments conducted by Yale’s Alan Gerber and the Analyst Institute’s Todd Rogers compared the effects of both strategies on voter intention during the 2005 New Jersey and 2006 California elections. A phone campaign was developed using two sets of telephone scripts: one emphasizing that voter turnout was expected to be low, and another emphasizing that voter turnout was expected to be high. After listening to the script, respondents were asked how likely they were to vote in the upcoming election.

RESULTS: The high-turnout script increased the likelihood of receiving a 100 per cent likely-to-vote response by seven per cent. In addition, researchers found that the high-turnout script was most effective on respondents who were occasional and infrequent voters.

DECREASING PUBLIC LITTERING. Littering is a problem for most of the world’s cities. While people know about its harmful effects, they continue to litter. For example, in Copenhagen, it is estimated that one in three individuals is guilty of occasional littering.  To resolve this problem, a research team from Roskilde University tested a nudge directed at pedestrians. The team placed green footprints leading to several garbage and recycling bins in the city’s core. To test their efficacy, they twice handed out wrapped caramels to nearby pedestrians, both before and after the green footprints were applied. After handing out the candy, they observed how many pedestrians followed the footprints to the garbage bins to dispose of the caramel wrapper.

RESULTS: When the green footprints were in use, the amount of caramel wrappers left littering the streets was reduced by 46 percent.

INCREASING POST-SECONDARY ENROLLMENT IN LOW-INCOME FAMILIES.

Access to higher education is an important issue, particularly for low-income families. Financial aid programs have been developed to alleviate tuition costs in order to make higher education more accessible. The United States federal application for financial aid (FAFSA) is a long and tedious process that frustrates many students and families; yet it is an important application that must be completed in order to qualify for most state and institutional grants.

A team of researchers partnered with H&R Block—the tax filing service company—to design an intervention to reduce the complexity of the process. Researchers designed software that worked with H&R Block’s tax filing software to extract information from an individual’s income tax form and use it to automatically fill in the FAFSA form. Approximately two thirds of the form could be completed with the tax information provided, and the remainder could be completed in less than 10 minutes with the help of a tax professional and the researchers’ software.

RESULTS: Families with high school seniors or recent graduates were 40 per cent more likely to submit a FAFSA application and were also 33 per cent more likely to receive a Pell Grant—a major needs-based federal grant.

INCREASING COMMITMENT TO EXERCISE. ‘Exercise more’ is a common New Year’s resolution for many people, but most fail to follow through with it. One reason, according to Yifan Zhang, co-founder of Gym-Pact, has to do with gym memberships, which are usually paid up front at the beginning of the year. Once that hurdle has been jumped, in the individual’s mind, the money is spent (‘sunk’), and missing a gym session doesn’t hurt any more than it would to attend. To counteract this problem, Zhang and Geoff Oberhofer developed Gym-Pact, which employees what they call ‘motivational fees’. Participants set a target number of gym visits each week and must pay a penalty when they miss a gym session.

In Gym-Pact’s initial trial phases, Zhang and Oberhofer purchased memberships on behalf of the participants. While participants did not pay for their membership, they committed to exercising four times per week. If they failed to follow through, they would have to pay $25, and if they decided to leave the program, they had to pay $75. Gym-Pact has now become a fullfledged business, and while its business model has been adapted slightly, it still uses the concept of motivational fees: participants still pay a penalty for missing their commitments, but these penalties are now distributed back to the participants who manage to follow-through, as a small reward.

RESULTS: In its first five months, participants followed through with their commitments 90 per cent of the time. Gym-Pact has been featured in the press and has expanded its business to help individuals not just track workouts at the gym, but also at home and outdoors.

How to Design a Nudge

The first step in designing an effective nudging strategy is to audit the decision-making process of your end user, which requires an analysis of both the context and the task. Next, you identify the key heuristics and influences that may affect the decision  outcome.

Let’s take a closer look at each step.

1. MAP THE CONTEXT

Auditing your end-user’s decision-making process will identify factors that might prevent a user from following through with his or her intentions. These factors (or ‘bottlenecks’) represent areas where a nudging strategy can yield quick dividends. Figure Two presents a set of questions that should be answered when performing such an audit. The questions address four aspects of the decision-making process:

• THE PROPERTIES OF THE DECISION, including understanding the incentives and motivations associated with the decision, and how much attention the decision receives. It also includes identifying the choices presented to the individual, especially the default option.

• INFORMATION SOURCES and how information related to the decision is gathered and presented.

• FEATURES OF THE INDIVIDUAL’S MINDSET, and whether emotions influence the outcome of the decision.

• ENVIRONMENTAL AND SOCIAL FACTORS such as peer pressure and lengthy application processes. These factors can also influence the outcome.  

After auditing the decision, a map of the decision-making process is created. This ‘decision map’ outlines the critical actions involved with following through with the desired decision.

Typically, the outcome that a practitioner is aiming to influence is the culmination of a number of smaller decisions and actions.  One of the biggest challenges in this domain (and indeed, domains like health care, where the outcomes are distant and seemingly irrelevant to a young person) is to trigger the importance of health and wealth management. The desire to achieve an outcome (e.g., savings for a family home, children’s education expenses) could be the result of a life event (e.g., marriage, birth of a child) that motivates an individual to complete the needed actions (e.g., open an account, purchase a fund). As a result, life events are good moments to nudge people to action.

2. SELECT THE NUDGE

As indicated, bottlenecks in the decision-making process are good starting points to implement a nudge. For example, determining a contribution amount requires two evaluations: how much money is available for retirement savings, and how much will be needed for a comfortable retirement. Understanding how much money is needed can be a bottleneck because individuals may not have the appropriate calculation tools at hand.

Another bottleneck relates to emotion: individuals may not feel they have enough money to contribute to retirement and as a result, do not even bother to investigate their options. An additional bottleneck that exists further down the process can occur when selecting an investment fund: so many investment options are available that the individual might not have the ability to analyze all options.

Perhaps the biggest bottleneck in solving the retirement savings problem is need recognition — the fact that people seem to believe that retirement is so far off in the future that it is too early to start thinking about it.  

In thinking through a solution to the various bottlenecks that an individual might face, we recommend that the choice architect carefully think through the following questions:

1. Is the individual aware of what he or she needs to do, but unable to accomplish it — or does a desired behaviour or action need to be activated?

2. Is the individual motivated enough to impose a nudge on his or herself?

3. Is the action more likely to be taken with increased cognition, or is the individual already hampered by cognitive overload?

4. Is the desired action not being accomplished because of a competing action, or due to inertia? Consequently, should you aim to discourage the competing action or encourage the target action?

In closing

Developing nudges is an interdisciplinary process that is project based and experimental in nature. As indicated, it is a powerful approach that is now being applied effectively in both for-profit and individual welfare domains.

While there are many subtleties and nuances associated with developing effective nudges, we hope that the general framework we have presented will make the process more accessible to leaders across industries who are seeking more sustainable behaviour from their end users.

 

 

Kim Ly (MBA ’08) is a research manager at the Rotman School of Management. Nina Mažar and Min Zhao are associate professors of Marketing at the Rotman School. Dilip Soman is the Corus Chair in Communication Strategy and professor of Marketing at the Rotman School and director of the India Innovation Institute at the University of Toronto.