Have You Nudged Any­one Lately?

If you want some­one to do some­thing, make it easy. It sounds ob­vi­ous — so why have lead­ers been so slow to em­brace this proven prin­ci­ple?

Rotman Management Magazine - - FRONT PAGE - By David Halpern

PEO­PLE HAVE BEEN ‘NUDG­ING’ EACH OTHER for as long as hu­mankind has ex­isted. We are al­ways busy per­suad­ing and en­cour­ag­ing those around us to do one thing or another. In­deed, many bi­ol­o­gists think that much of hu­man de­vel­op­ment was pow­ered by the com­plex pat­terns of in­flu­ence that char­ac­ter­ized early hu­man so­cial groups.

Yet when it comes to gov­ern­ments and busi­nesses, many have turned their backs on the messy skills of ‘softer per­sua­sion’. In­stead, they have packed their tool­kits with tools shaped by the ‘ra­tio­nal’ dis­ci­plines of Eco­nomics and Law.

In re­cent years, how­ever, gov­ern­ments and busi­nesses alike have started re­dis­cov­er­ing this wider set of in­flu­ences on hu­man be­hav­iour. It has been a fas­ci­nat­ing re­dis­cov­ery.

Defin­ing the Nudge

A ‘nudge’ is es­sen­tially a means of en­cour­ag­ing or guid­ing be­hav­iour, but with­out man­dat­ing or in­struct­ing, and ide­ally, with­out the need for heavy in­cen­tives or sanc­tions. In ev­ery­day life, it’s a gen­tle hint; a sug­ges­tion; a con­spic­u­ous glance at a heap of clothes that we’re hop­ing our kids might clear away. Nudges stand in marked con­trast to obli­ga­tions, strict re­quire­ments or the use of force. For Cass Sun­stein and Richard Thaler, orig­i­na­tors of the con­cept, a key el­e­ment is that nudges avoid shut­ting down choices, un­like laws or other for­mal re­quire­ments. As we shall see, nudges are a sub­set of a wider, more em­pir­i­cal and be­haviourally-fo­cused ap­proach to pol­i­cy­mak­ing.

Con­sider how a law ac­tu­ally works: A par­lia­ment or ex­ec­u­tive passes a res­o­lu­tion that says that hence­forth, there will be a new re­quire­ment for peo­ple or busi­nesses to do some­thing in a par­tic­u­lar way. The law­maker nor­mally at­taches a sanc­tion or penalty to those who fail to com­ply, such as a fine or im­pris­on­ment. But the link be­tween the pass­ing of the law and ac­tual be­hav­iour is very dis­tant.

Laws are also premised on an ar­guably naive model of hu­man be­hav­iour: They as­sume that some­how, peo­ple will have heard about the new law and re­al­ized that it ap­plies to them. They then as­sume that peo­ple will weigh the costs of break­ing the new law with the risk of be­ing caught, and con­clude that they should com­ply. They also as­sume that in the mo­ment and con­text of temp­ta­tion, all of this will come to mind, and that these

con­sid­er­a­tions will out­weigh other pres­sures and temp­ta­tions.

Un­sur­pris­ingly, the pass­ing of new laws is of­ten a far from per­fect way of af­fect­ing be­hav­iour. Cit­i­zens may be ‘re­quired’ to fill in their tax re­turns on time, but ev­ery year, mil­lions fail to do so. We’re not sup­posed to drop lit­ter, but parks and pub­lic spa­ces are of­ten strewn with it. Even the very ex­is­tence and scale of the courts and ju­di­cial sys­tem can be ar­gued to be tes­ta­ment to the fre­quent fail­ure of the law-based ap­proach.

In con­trast, some­times be­hav­iour changes with a sur­pris­ingly light touch. For ex­am­ple, over the last decade, many coun­tries have in­tro­duced bans on smok­ing in pub­lic places. There were grave con­cerns that the new laws would be both un­pop­u­lar and un­en­force­able. How­ever, in this case, they have proved highly suc­cess­ful. The smok­ing ban, in the UK at least, has been sub­ject to al­most no en­force­ment. In essence, smok­ing bans have been self-po­liced, built around a new so­cial norm — and tacit pub­lic sup­port — for smoke-free en­vi­ron­ments.

Sub­si­dies and in­cen­tives have a sim­i­larly mixed suc­cess rate. Some­times, seem­ingly-small sub­si­dies or taxes have had rapid and dra­matic im­pacts on be­hav­iour. For ex­am­ple, the in­tro­duc­tion of a small dif­fer­ence in price be­tween leaded and un­leaded fu­els in the UK and else­where led to a rapid switch to un­leaded fu­els. Sim­i­larly, re­quir­ing re­tail­ers to charge con­sumers a tiny amount for a plas­tic bag has been shown to dra­mat­i­cally re­duce their use. On the other hand, many much larger sub­si­dies and taxes, such as those in­tended to drive sav­ings or in­crease en­ergy ef­fi­ciency, have proven to have lim­ited im­pact.

The fact is, nearly all gov­ern­ment (and cor­po­rate) poli­cies have a be­havioural com­po­nent, and hence be­havioural analy­ses start to un­pack what makes some poli­cies/strate­gies work and oth­ers flop. In so do­ing, they open the door to al­ter­na­tive and po­ten­tially much more ef­fec­tive ap­proaches. In recog­ni­tion of this, the UK gov­ern­ment launched its very own ‘nudge unit’ in 2010, and I was tasked with head­ing it up. The Be­havioural In­sights Team (BIT) was born.

The study of hu­man be­hav­iour re­veals that many of our abil­i­ties as hu­man be­ings rest on men­tal short­cuts or heuris­tics. It also leads you to re­spect these heuris­tics. In our early days at BIT, we leaned heav­ily on a frame­work called MINDSPACE to help guide our work (see side­bar). But af­ter the first year or so of bat­tle-hard­ened ap­pli­ca­tion — and many work­shops and con­ver­sa­tions — we de­vel­oped a sim­pli­fied frame­work for day-to-day use: EAST.

Like MINDSPACE, EAST is a mnemonic: If you want to en­cour­age a par­tic­u­lar be­hav­iour, you should think about mak­ing it Easy, At­trac­tive, So­cial and Timely. The EAST frame­work does not cover ev­ery nu­ance of the be­havioural lit­er­a­ture, but it does of­fer a good start­ing point.

My col­leagues and I have found that frame­works like EAST en­able rapid en­gage­ment of a new prob­lem — a sort of men­tal check­list that can be run through quickly to en­able the iden­ti­fi­ca­tion of some sim­ple ideas for early test­ing. In this ar­ti­cle I will delve into the first prin­ci­ple of this frame­work.

Ad­vice for the Ages: Make it Easy

John was in his late twen­ties. He had de­cent grades at school and a job he en­joyed. He was al­ready an as­sis­tant man­ager, and ris­ing fast. His em­ployer, a large re­tailer, of­fered good ben­e­fits, in­clud­ing a great pen­sion. He re­mem­bered the de­tails from when he first joined, and from a sem­i­nar they did for staff the pre­vi­ous year: For ev­ery pound he put in, his em­ployer would put in the same amount, and the gov­ern­ment added more on top. It was a no-brainer, and he knew it. The only prob­lem: John hadn’t ac­tu­ally signed up.

Like many peo­ple, John knew that he should start sav­ing for his pen­sion, and it was some­thing he ac­tu­ally wanted to do. He’d seen his grand­par­ents strug­gle with money, and he knew

Some­times, be­hav­iour changes with a sur­pris­ingly light touch.

that a few pounds put away now would be worth a lot more in the fu­ture. But it also in­volved pa­per­work, a bit of has­sle, and it didn’t feel like some­thing that had to be done to­day. Re­tire­ment was years away, af­ter all. ‘Yes’, he thought, ‘I’ll do it to­mor­row, or maybe next week.’

In 2012, some­thing hap­pened: His em­ployer wrote to him to say that, as a re­sult of a small change in the law, they would now au­to­mat­i­cally en­roll him in the com­pany-spon­sored pen­sion scheme, un­less he in­di­cated that he would rather not par­take. If he didn’t want to en­roll in the scheme for now, it was sim­ple: He just had to ask to leave the scheme within a month, and he would get another prompt in a cou­ple of years’ time.

The ‘de­fault’ had been flipped, from one in which John would have to ac­tively choose to join the pen­sion scheme (‘opt in’), to one in which he would be au­to­mat­i­cally en­rolled un­less he said oth­er­wise (‘opt out’). John read the let­ter, and went to a short talk on the new ar­range­ments. It was a bit of a re­lief: He didn’t have to do any­thing. His pen­sion was sorted.

John was not alone. Within six months of this change (which tar­geted all large UK firms), more than a mil­lion new savers started pen­sions. In short, more than 90 per cent of el­i­gi­ble work­ers chose not to opt out. The pro­por­tion of the em­ploy­ees of large firms sav­ing for pen­sions rose from just over 60 per cent, where it had hov­ered for decades, to over 80 per cent (the over­all per­cent­age is pulled down by those who were not im­me­di­ately el­i­gi­ble for a pen­sion, such as those on ex­tended leave). By early 2015, this sim­ple change in the de­fault had led to more than five mil­lion ex­tra UK work­ers sav­ing for their pen­sions.

This stun­ning re­sult il­lus­trates the power of a sim­ple nudge to change be­hav­iour, and to turn around a prob­lem that pol­i­cy­mak­ers on both sides of the At­lantic had wres­tled with for half a cen­tury. De­spite sub­si­dies run­ning into many bil­lions — more than £20 bil­lion per an­num in the UK and $100 bil­lion in the U.S. — mil­lions of peo­ple ap­par­ently pre­ferred not to save. It was enough to make many ex­perts con­clude that there was some­thing deep in An­glo-saxon cul­ture against sav­ing: We just pre­ferred to live and spend for to­day.

The pri­mary tool, em­ployed on both sides of the At­lantic for decades, had been the use of gen­er­ous tax breaks and sub­si­dies to en­cour­age peo­ple to save. And yet, as one lead­ing econ­o­mist put it, many peo­ple con­tin­ued to ‘leave money on the ta­ble’. Re­cent anal­y­sis by Har­vard Econ­o­mist Raj Chetty has shown just how cost-in­ef­fec­tive such tax sub­si­dies are. His anal­y­sis, us­ing Euro­pean data, shows that ev­ery $1 of tax­pay­ers’ sub­sidy to en­cour­age peo­ple to save more for their pen­sions led to a miserly one cent of ex­tra sav­ing by work­ers. The main ef­fect of these huge sub­si­dies was sim­ply to en­cour­age a small mi­nor­ity of savvy savers — per­haps 15 per cent — to move their in­vest­ments into the most tax-ef­fi­cient schemes. In con­trast, chang­ing the de­fault to one in which savers were asked to ‘opt out’ led to sub­stan­tial in­creases in sav­ing, lit­er­ally overnight — and very lit­tle re­duc­tion in sav­ing else­where.

Chang­ing the de­fault also beats ed­u­ca­tional ef­forts, hands down. A wide va­ri­ety of stud­ies by be­havioural econ­o­mists shows that fi­nan­cial ed­u­ca­tion — though of­ten called for by in­dus­try and some politicians — has very mod­est ef­fects. These stud­ies

show that ef­forts such as sem­i­nars on sav­ing leave par­tic­i­pants feel­ing more knowl­edge­able and in­tend­ing to save more; how­ever, this fails to trans­late into ac­tual in­creases in sav­ings. In con­trast, chang­ing the de­faults — al­low­ing peo­ple to opt out of fu­ture sav­ing, rather than opt­ing in — had much big­ger im­pacts on medium- to long-term sav­ings be­hav­iour.

Still, just be­cause chang­ing the de­fault works, is it what peo­ple re­ally want? Pol­i­cy­mak­ers on both sides of the At­lantic wor­ried greatly that many peo­ple would ob­ject to the idea that they had been au­to­mat­i­cally en­rolled in a pen­sion. “Not so,” ex­plains David Laib­son, pro­fes­sor of Eco­nomics at Har­vard. “It is hugely pop­u­lar. U.S. sur­vey data sug­gests that nine out of 10 work­ers who have ex­pe­ri­enced the pen­sion opt-out sup­port the changes in 401(k) de­faults. And even among the small mi­nor­ity who do opt out, more than seven out of 10 of them still think the opt-out is prefer­able to an opt-in ar­range­ment.”

As well as be­ing ex­tremely ef­fec­tive, chang­ing the de­fault so that savers are au­to­mat­i­cally en­rolled il­lus­trates how we can of­ten achieve bet­ter out­comes by mak­ing it easy for peo­ple to do things that they would quite like to do — if only it were more straight­for­ward.

The Power of Re­duc­ing ‘Fric­tion’

As in­di­cated, if you want some­one to do some­thing, a pretty good start is to make it easy. In Eco­nomics, there’s a phrase that cap­tures this sim­ple con­cept: ‘Fric­tion costs’. As in Physics, from where the phrase is bor­rowed, it helps to ex­plain why oth­er­wise ‘per­fect’ mod­els might some­times throw out pre­dic­tions at odds with messy real-world ob­ser­va­tions.

For those who stud­ied Physics at school, the phrase ‘cal­cu­late, ig­nor­ing fric­tional ef­fects’ will be fa­mil­iar. Econ­o­mists have de­ployed sim­i­lar sim­pli­fi­ca­tions to make the world more amenable to el­e­gant math­e­mat­i­cal mod­els. But in the real world of peo­ple and bu­reau­cracy, fric­tion mat­ters a great deal. Just as a real weight pushed across a real ta­ble will soon grind to a halt as a re­sult of fric­tion, a hu­man im­pulse to do some­thing soon grinds to a halt when it be­comes a has­sle. Hence John, the young worker men­tioned ear­lier, re­ally did mean to start sav­ing, and to get that ‘money on the ta­ble’: He just didn’t get around to it, be­cause it in­volved ef­fort and te­dious pa­per­work — and was less at­trac­tive than all the other things he could be do­ing in the next hour or day.

Fric­tional costs are not a pe­riph­eral is­sue. Rather, they of­ten make all the dif­fer­ence be­tween some­thing hap­pen­ing or not — be it a stone rolling down a slope, or a pol­icy suc­ceed­ing or fail­ing.the fact is, hu­mans have a deep-rooted ten­dency to take the line of least re­sis­tance, be it cut­ting the cor­ners across a park, to de­cid­ing what to eat. Try putting out a se­lec­tion of fruit in your of­fice, or even at home, and see what’s left at the end of the day. Chances are, it’ll be the or­anges: They are just that lit­tle bit more has­sle to eat com­pared with an ap­ple, or that mas­ter of con­ve­nience, the ba­nana.

The sim­ple in­sight that ‘has­sle and fric­tion have big im­pacts on be­hav­iour’ opens the door to count­less pol­icy in­ter­ven­tions — as well as to use (and abuse) by com­pa­nies.

Busi­nesses work hard to make it as easy as pos­si­ble for you to sign on to a new deal: To get a mo­bile; to try out a new prod­uct for 10-day pe­riod for free; or to walk out of the show­room with a new car. How­ever, most will not make it as easy to re­turn the prod­uct or end the deal. They’ll go to great trou­ble to make sure that when it comes to pay­ing the in­stal­ments or re­new­ing a sub­scrip­tion, it’s an ef­fort to opt out, but as easy as pos­si­ble to re­new.

If it’s a prod­uct you are happy with, there’s no prob­lem. But if you aren’t sure about it and gen­uinely want to try it out, think­ing you’ll can­cel it in the of­fer pe­riod is gen­er­ally a mis­take: The fric­tions are now work­ing strongly against you. As the lit­er­a­ture shows us, even a small amount of fric­tion will de­feat most of us. Hence the re­tailer, or man­u­fac­turer, can af­ford to of­fer dra­matic

The hu­man im­pulse to do some­thing grinds to a halt when it be­comes a has­sle.

dis­counts on the ticket price pro­vided there’s a bit of ef­fort in­volved in claim­ing the money back. The fact is, most of us will never get around to it, even though that’s what helped to per­suade us to make the pur­chase in the first place.

Busi­nesses can also take out fric­tion in ways that con­sumers can find very help­ful. For ex­am­ple, phar­ma­cies can make life much eas­ier for pa­tients on re­peat pre­scrip­tions by au­to­mat­i­cally send­ing, by post, a new batch of med­i­ca­tion just be­fore the old pre­scrip­tion runs out. This can save both pa­tient and doc­tor quite a lot of has­sle in get­ting and col­lect­ing a new pre­scrip­tion, sav­ing tens of mil­lions of dol­lars in the process.

Of course, there is lit­tle point in pass­ing a law, in­tro­duc­ing a ben­e­fit, or run­ning a pub­lic in­for­ma­tion cam­paign in­tended to in­flu­ence be­hav­iour if no one knows about it — or if the in­for­ma­tion is so dense and com­plex that it is not clear what is be­ing asked of peo­ple. As such, the most fun­da­men­tal ap­pli­ca­tion of ‘make it easy’ is to make sure that your in­for­ma­tion and mes­sag­ing are sim­ple to un­der­stand.

When you last re­ceived a let­ter from the gov­ern­ment, was it clear what it was ask­ing you to do? If you were asked to pay a bill, was it ob­vi­ous how to pay, or were there three dif­fer­ent ad­dresses, sev­eral phone num­bers and the ‘how to pay’ de­tails buried some­where on the back? Our work in BIT has taught us to be al­most ob­ses­sive about re­mov­ing such fric­tions. Even the tini­est ex­tra has­sle can make a sig­nif­i­cant dif­fer­ence.

Some­times, how­ever, the an­swer may be to add more fric­tion — at least when you are try­ing to en­cour­age peo­ple not to do some­thing, or to pause for thought be­fore do­ing some­thing that they might later re­gret. That’s be­cause many of the de­ci­sions we make in life make use of our au­to­matic or ‘Sys­tem 1’ parts of our brain, as Daniel Kah­ne­man has shown. In some sit­u­a­tions, the role of the ‘nudger’ may be sim­ply to put a bump in the road to jolt the per­son’s ‘Sys­tem 2’, or ac­tive re­flec­tion, back on.

Ex­am­ples of such ‘bumps in the road’ in­clude in­tro­duc­ing manda­tory cool­ing-off pe­ri­ods for fi­nan­cial prod­ucts; hav­ing a re­quired de­lay be­tween a store of­fer­ing cheap up-front credit and the per­son’s abil­ity to use the card (even if just 30 min­utes); and re­quir­ing that cer­tain prod­ucts, such as cig­a­rettes, are only sold over the counter. A lit­tle fric­tion, it turns out, is not al­ways a bad thing.

In clos­ing

The world is full of ex­am­ples of fric­tions re­moved or added to shape our be­hav­iour. Pol­i­cy­mak­ers and busi­ness lead­ers alike should never for­get to ask the ques­tion, ‘Could we make this eas­ier?’ Go ahead: Make it easy; take out the fric­tion. Or, de­pend­ing on your goal, add some.

Dr. David Halpern is a Bri­tish psy­chol­o­gist and head of the UK Gov­ern­ment’s Be­havioural In­sights Team. He is the au­thor of In­side the Nudge Unit: How Small Changes Can Make a Big Dif­fer­ence (Pen­guin Ran­dom House UK, 2015), from which this ar­ti­cle was...

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