Nudge Theory

What is Choice?

What the Nudge?

A mixture of –

Behavioural Economics

Psychology

Political Theory

Marketing/Sales

Growing popularity in public and not-for-profit sectors

Considers how people make decisions – and how others impact them

More Specifically

“A nudge, as we will use the term, is any aspect of choice architecture that alters people’s behaviour in a predictable way without removing any options or significantly changing their economic incentives.

To count as a mere nudge, the intervention must be easy and cheap to avoid.”

Why can we be Nudged?

Traditional economic theory says that all human act rationally when making purchasing decisions

In other words, we consider all things, researching all alternatives, and choose that which provides the most economic benefit to ourselves as individuals

But if this was true we couldn’t be nudged…

Smoking wouldn’t exist if we were truly rational

So how are we Nudged?

Need to start looking at how humans actually think

Two Systems of Thinking

Automatic System

Fast

Unconscious

Parallel

Associative

Low Energy

‘Doer’

Reflective System

Slow

Conscious

Serial

Analytic

Consumes a LOT of energy

‘Planner’

Reflective System

Works by creating hypotheses and

testing these with prior knowledge.

Meanwhile sorts between relevant

and irrelevant bits and pieces of

information.

You can activate this system by will,

and it resembles what we typically

associate with thinking in many ways.

Automatic System

Controls day to day thoughts – how much

butter to spread, how long to brush teeth for,

smiling when you see a cute puppy, etc.

Although the reflective system might seem

superior to the automatic system, it really isn’t.

The reflective system is simply too slow and too

single minded to handle even a fraction of the

alternatives we are faced with every day.

The automatic system can handle thousands

of problems and alternatives for us without

even bothering us with the outcomes.

Two Systems of Thinking

The two systems generally work well together, allowing us to act quickly and instinctively when required, or allowing deep, powerful thought

However they don’t always work well…and can ‘fail’ in many different ways

The automatic system is especially prone to bias, in fact it uses bias to speed up decision making

While the reflective system can often back up or reinforce decisions made by the automatic system, even if obviously wrong

Targeting Your Automatic System

Three questions. Three seconds only to answer each. No answers after Three seconds.

1. A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much

does the ball cost?

2. If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines

to make 100 widgets?

3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48

days for the patch to cover the entire lake, how long would it take for the patch to cover

half the lake?

Answers

1. A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?

2. If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?

3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake?

1. 5 cents 10 cents

2. 5 minutes 10 minutes

3. 47 days 24 days

Biases

In order to speed up decision making, the automatic system uses biases

Anchoring

Availability

Representativeness

Optimism and Overconfidence

Gains and Losses

Status Quo

Framing

Social Norms

So What?

Nudges are what ‘Marketers’ do every day –

What will make an individual ‘buy’?

Target nudges, usually lots of different ones, at

perceived biases

• Which ‘Nudge’ will work best?

• Promotion?

• Price?

• Place?

• However some of the best

nudges are changes in

design, tone, copy – or data!

• Especially prevalent in –

• Retail

• Digital

• Direct Sales

• Direct Marketing

Behavioural Insights UK

Tests with social norms

Tax debt payment DM

i.e. ‘9 out of 10 people pay their taxes on time’

Real numbers, as in taken from the data, work best

67.5%

72.5%

79.0%

83.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Control Social Norm National Social Norm Postcode Social Norm Town

RR %

Choice Architecture

Let the pictures tell the story

Simple Changes

From ‘Waste’ to ‘Landfill’

Make slightly more difficult to use less preferred

Use of colour

Barely Noticeable…

Small fly

Provides a target

Reduced spillage by 80%

Can Be Obvious

Especially when monotonous

Targets Automatic system

Heavily Science Based

Scientific discipline, literature

focuses on randomised control

trials

Fully or fractional factorial

designs allow large volume of

tests to run concurrently

Test variation of series of

elements, even if they seem

‘minor’

Can easily be identified in Direct

Marketing

Data Driven Works Best

Relevant Data

Government Example