Why nudge theory will make you read this blog post
Nov 16, 2017
Richard Thaler, the father of 'nudge theory', has been awarded the 2017 Nobel Economics prize. But what is nudge theory? And why is everyone talking about it?
Nudge theory is a concept of subtly changing behaviour through positive reinforcement. A nudge is a small and simple push in the right direction and that’s why it’s so appealing, we find it a lot more intuitive to nudge someone than to try and convince them to make a big change. Nudges work by promoting or encouraging a “better” option (eg putting healthy fruit displayed at eye level in the snack aisle)
The aim of a nudge is to result in a better choice being made, it works on the assumption that, given two choices, we are likely to pick the wrong one either through lack of time, confusion, habit etc. But do people really make “wiser” decisions as a result of nudging?
A nudge is just one option
It’s not necessarily that simple – it is recognised that a nudge is not transformative on its own because nudging changes behaviour but not necessarily through engagement. Because of this a series of measures are required to change behaviours in the long term. A House of Lords Review on the effectiveness of nudging stated that, in order to change the behaviour of a population, a nudge should be just one option in an range of tools to change behaviour.
One example of nudge theory in action is using an “opt out” policy rather than “opt in”. It’s asking people to make the same decision but in a way that nudges you in a particular direction. For example the recent pension changes of auto enrolment force people to opt out, similarly Theresa May recently announced that the UK will have the same approach to organ donation. Organ donations and pension contributions are two decisions that most people would want to take, however because of the fear of being faced with forms to complete, decisions to make a potential confusion they don’t. When automatically “enrolled” the decision is made much easier.
“Nudging” is proving more and more popular in the world of politics so what about economics? The theory is to focus peoples choices so that they make a better decision – it suggests providing choices in a certain way then they will make a wiser choice however, it is vital that the freedom of choice is retained and vital that nudging is used in a way which doesn’t take peoples choices away.
How does this all tie in with running your business?
Nudging can be used day to day to encourage people to make better choices – maybe you encourage staff to be healthy through providing a fruit bowl, encourage them to arrive at work earlier by making the coffee machine free before 8.30am, encourage teambuilding by having a space dedicated to collaboration. In marketing terms the possibilities are endless, simplifying choices and options reduces the perceived effort for buying, use of social proof (examples of what other people also bought, items which are most viewed, testimonials) nudges a buying decision, limited time offers nudge people by playing to today’s all too common “fear of missing out”
Nudges are everywhere. It is worth considering how they could help you and your business. If you want to find out more, please get in touch with one of our advisers.
Leanne Bulley FCCA
With a wide ranging portfolio, Leanne has a broad range of knowledge and skills. Leanne works particularly closely with growing owner-managed businesses who are looking to maximise their potential and get more form their accountant. Along with extensive knowledge of Sage, Leanne also specialises in Xero and prides herself in offering a professional yet personal service.
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