Short Read

Nudges: Will they work forever?

As has been well-documented in academic research, people are by no means rational. In their book ‘Nudges’, Thaler and Sunstein famously describe two types of thinking: system 1 and system 2. The former is a more automatic method involving quick judgement calls which are more prone to irrationality, while the latter is much more deliberate, and less prone to external influences. From the moment we wake up and brush our teeth, to the moment we go to bed at night, there are millions of decisions we have to make. We therefore mostly operate with system 1 by using heuristics to decide things. Because these mental shortcuts are simplifications, they are imperfect and produce “irrational” decisions, as they are based on generalisations rather than the specific circumstances. Consequently, there is a need to find ways to compensate for the fact that our generalisations can be flawed and lead us to make decisions that are in turn flawed themselves.

One way this correction can occur is via nudges, which are indirect cues that hijack our system 1 thinking to correct for this imperfect process and encourage us to make better decisions. They do not change incentives drastically, as a tax might, nor do they forbid actions, as a government ban would. Instead, they are simply psychological tricks to adjust our behaviour. For example, by changing the default option of organ donations into an opt-out system, where a person might  choose to not have their organs donated upon their death, Wales increased the proportion of organ donors to 88.2%, far above the rest of the United Kingdom. This is because people generally prefer minimising the amount of work they do, and the inertia means they will not bother to opt out. Due to people being loss-averse, and fearing any changes from what the default is, they are particularly unlikely to switch. This is especially true since a default of donating acts as an implied endorsement which people follow. Another example of a nudge involves simply making the desired choice more noticeable. When Dutch researchers repositioned healthier snacks to be located nearer the cash register, the sales of those foods increased by 78%. These are all examples of tangible changes that  can be achieved at a very low cost through the use of a nudge.

However, it is questionable whether these nudges will work in other areas, or if they will continue to work once they become known. After all, if people are aware of this trickery, won’t they simply compensate for this? As it turns out, whilst this is a problem, it can be solved by carefully designing the nudges.

Generally speaking, there are two broad reasons nudges fail. The first is simply bad design. One example of a poorly designed nudge was a plan at US universities to get people to commit to saving for a pension in the future. This backfired, as the option to wait till later to start saving suggested implicitly that it was unimportant. However, when they retried it, linking the date you would start saving to a particularly important date, such as one’s birthday, the framing of a fresh start actually counteracted the problematic implicit message. Indeed, when it was implemented in the UK only for those who already thought it was unimportant and didn’t save, the implicit message had not additional effect, and so it increased saving for pensions significantly.

The second reason for a nudge to fail is because of individuals adjusting to it. If consumers are aware they are being nudged, they may feel patronised and actively resist the intention of the nudge. When farmers near the Great Barrier Reef were nudged to use better farming practices with less contamination of the groundwater, they felt shamed and attacked by the government – meaning that the nudge was ineffective and led to less concern by the farmers on their environmental footprint due to their anger. However, the ‘Setting the Record Straight’ campaign framed the program as a united community effort rather than a paternalistic government overreach, and most of the complaints disappeared. This led to increased efforts for sustainable agriculture that saw farmers working with governments to find alternative fertilisers that were less damaging. Similarly, the example of health food placement in the Netherlands worked precisely because consumers did not consider it a government intervention – rather a helpful reminder initiated by the shops themselves. Thus we can see when a nudge is not seen as paternalistic it is more effective in eliciting the desired behaviour.

Ultimately nudges are not a silver bullet, but they can manipulate social cues to elicit desired behaviour. Although badly designed and badly marketed nudges could be unsuccessful, these obstacles can be overcome by considering what the implicit message to the decision maker will be, and ensuring that these signals will not have an unintended effect. Compared to other strategies of changing behaviour, such as legislation or taxation, nudges represent a uniquely effective way of doing so, without drastically changing the incentives that exist. Thus, nudges represent a crucial way of encouraging better behaviour without infringing on other freedoms, allowing us to improve people’s lives without the heavy-handed restrictions that its alternatives impose.

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