Behavioural economics is a discipline that applies behavioural science and psychology in assessing consumer behaviour. It emerged as a reaction to the assumption made by traditional economist that individuals were always rational. However, through integrating behavioural science and psychology to study how different individuals make decisions, researchers found out that people are not rational and that they tend to make biased choices: Also, emotions have a high impact on how people make their decisions. For example, most people know that smoking is harmful to their health but won’t stop it, people are concerned with their health but won’t stop eating junk foods, they are concerned about the environment but won’t utilize dustbins.
A nudge is an aspect of choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. It steers people in a certain direction but also allows them to go in their own way: A message that reminds people when to go for a clinic checkup is a nudge, an app that benchmark the household usage of electricity is a nudge, an automatic payment system is a nudge. Research has found out that small alteration in choice architecture can produce a large behavioural change. For example, using a simple message to reinforce a social norm was found to influence electricity consumption.
Even though it is a new concept, governments around the world are incorporating nudging as a tool for influencing behaviour change alongside traditional methods such as restrictions, incentives, disincentives and persuasion. In the year 2010, the government of the U.K. set up the cabinet office’s behavioral team that would help try improve public services and save money. One of their breakthrough was a project that cut the high drop rate on government-subsidized adult literacy by 36% simply by sending students a personalized text message every Sunday night that read: “I hope you had a good break, we look forward to seeing you next week. Remember to plan how you will get to your class. Manchester College.”
Different such nudging techniques can help in policy implementation.
Biases in decision making and how to nudge your audience
- The power of defaults: Default options heavily influence individual’s behaviour. It refers to the outcome of what is more likely to happen if an individual was to make a choice. In Australia, it is assumed that everybody will donate organs and those wishing to opt out follow a procedure to get de-registered. In Denmark, citizens wishing to donate their organs must follow a procedure to get registered. Organ donation rate in Australia is more than 90% while in Denmark, organ donation rate is less than 5%.
- Hyperbolic discounting: People would rather get less today than more in the future. For example, get KES 1,000 today rather KES 2,000 at the end of the month. This is either because of difficulties in projecting the future or is a result of the human tendency in undervaluing the future. To mitigate the bad consequence of this behaviour, people need to be encouraged to focus on short term goals rather than long term goals. For example, save KES 50 every day rather than KES 50,000 in a year.
- Loss and risk aversion: An outcome that is presented as a loss is more likely to have a great psychological impact than when it is presented as a gain. If you need to change people’s behaviour, you need to explain to your audience the benefit and gains of the choice that they will make, and contrast it with the losses so that there is a fair assessment.
- Social norms Individuals have a perception that the society expect them to behave in standard way; consequently, they usually conform with this expectation. To influence their behaviour, use of peer pressure becomes very effective. Example: In UK, households were sent letters to encourage them pay taxes on time with a statement, “9 out of 10 people in UK pay their taxes on time”. The outcome was impressive.
- Feedback of perceived progress: Providing feedback on how an individual performs is more likely to influence his performance. The driving force behind the motivation is perception. Example: People who are queuing in a line that is moving are more patient than those who just take number and wait.
- Compromise effect: When an individual is presented with three choices that vary in dimension like quantity, price and quality, they tend to choose the one in the middle. Example: When selling three coffee beverages of different sizes, the medium size will become most popular.
- Automatic enrollment: Automatic enrollment of people in a benefit program but allowing the option of withdrawal increases the likelihood of participation.
- Reminders: People have a lot on their mind and may fail to engage in certain obligations e.g. paying bills, taking medicines, the reason may be because of competing obligations. A short reminder can have a significant impact.
- Goal visibility: When people are in the middle of a goal-oriented task, they work hard to it. Moreover, making the goal visible increases motivation. Example: When parents put their children’s photographs on saving envelopes, they will increase the saving rate for their children’s education.
- Framing: Shillings a day: Presenting a large amount of money as an equivalent of amount in shillings per day will increase the acceptability of the expense. Example: If instead of telling individuals to contribute KES 350 and instead framing it as “less than one shilling a day”. Chances are that donations will increase.
- Eliciting implementation intentions: “Do you plan to save?’. Are the kind of questions that elicit implementation. Also, emphasizing on people’s identity can be effective. “You are about to retire, as your age suggests…”.
The nudging process
For an effective nudging strategy, one need to incorporate the following steps.
- Audit the current behaviour: Map the current reality and take into consideration the behaviour itself and factors like that influence the behaviour.
- Target a behaviour: A target behaviour is identified and defined, insights are generated that will determine what motivators or levers will guide a target audience towards a particular behaviour.
- Intervention design: In this phase, insights gained from current and target phases are matched with nudging techniques that will guide the target audience to exhibit the intended behaviour.
- Pilot and monitor: Interventions selected are piloted and monitored with a sample population alongside randomized control groups.
- Evaluate: The pilot is evaluated to measure success of the nudge against previous baseline.
- Feedback: Lessons learned in pilot and evaluations inform on whether a reassessment of current reality is necessary.
- Scale-up: If the nudge intervention is successful, it can now be scaled up to have a wider reach impacts.