29/07/2019 - 16:08

"Nudge: influencing behavior in 5 steps" by Jonathan Bros

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People Can Be Nudged to Make Better Decisions and it’s Incredibly Simple.

Every day we make thousands of conscious and subconscious decisions – how to dress, what to eat, where to invest one’s money, who to vote for, etc. Although we are generally not pressurized, we are still subjected to real influence: the context in which we make our choices is decisive. We are more inclined to do something if we see others or our family circle doing it frequently.

Sometimes, our need to adhere to social context is so strong that it can even change our perception of reality. Although our close friends insist on the fact that an object has a certain appearnace, we see it differently.

We also perceive a problem differently depending on the way it is presented to us For example, it is always easier to accept surgery if you know that 90% of the patients who have already had the operation are still alive five years later. And it is much harder to accept knowing that 10% of patients died following the same operation.

A Non-Restrictive Incentive-Based Approach

So, people can be encouraged to change their behavior for the better, if you explain how. The nudge principle is to devise a choice architecture to help individuals make better decisions, while giving them freedom of choice. A nudge is simple and does not cost much, yet it alters the behavior of individuals in a predictable fashion, without creating restriction. Behavioral economics, which conceptualized the nudge, focuses on incentive-based approaches rather than on rule restrictions (also read the page: “Nudge, the new marketer’s ally”).

There are many targets and areas of intervention in behavioral economics: the improvement of company productivity, the fight against discrimination, obesity and smoking, the choice of supplementary pension schemes, environmental protection and waste reduction, influencing how you choose between one product and another, etc. Nudges can be applied to consumers, communities, users and employees.

In Great Britain, for example, the Nudge Unit set up by David Cameron’s government changed the Organ Donor Register web page, by adding the sentence “every day thousands of people who see this page decide to register” and by adding the NHS logo. By playing on this association and on the social norm, coupled with the impact of the red logo, the registration rate increased from 2.3 percent to 3.2 percent in one year, representing 96,000 additional registrations.

Preferences are not always coherent or rational and our knowledge of them is imperfect. We lack experience, particularly concerning our most binding choices. These biases can explain suboptimal decisions: inadequate long-term savings, unsuitable insurance policies (short-term versus long-term, for example), high risk health behaviors (cigarettes, alcohol, etc.), resistance to change, etc. So here is some advice to help you set up an effective nudge strategy.

1. Identify What You Intend to Improve

You need to identify the problem that needs solving and the desired behavior. You must choose a specific problem: reduction in paper use, eliminating rudeness, etc.

2. Observe Behavior and Study Biases

Observation is essential. First you need to understand the decision path and architecture, as well as the psychological biases that act on this specific decision to know how to influence it. There are three main categories of bias (and 200 cognitive biases identified to date):

The representativeness bias amounts to basing decisions on a representation of reality or on stereotypes rather than on statistical analysis, or generalizing from specific cases or examples, without using logical and probabilistic reasoning. This is the case, for example, with people who make bets thinking they will win the jackpot. People who are guided by this bias see themselves in situations that do not really exist.

The anchoring bias refers to the difficulty you have in getting over your first impression. By focusing on the first information, first value or first feature, the mind is unable to assess or consider new information or values, or envisage other choices. Example, the student who arrives late on the first day back to school has every chance of being labelled “always late” by his teacher, and it will be difficult to change his mind.

The availability bias is linked to the fact that we assess risks in relation to examples that come readily to mind or recent events we have read in the press. For example, if we have recently seen a report on corrupt politicians, we tend to think that they are all corrupt. In the same way, after buying a red Fiat 500, you will definitely notice all the other red Fiat 500s every time you take your car out, although this was not the case before you bought it.

3. Devise Simple Nudges and Check their Effectiveness

At this stage, you need to identify the simplest method that will result in something productive. You must develop a default system that is easy-to-use, simple and automatic. Nudges must be simple to set up.

This is the case of the initiative by Rutgers University (New Jersey). It introduced recto verso printing by default to reduce paper consumption. In this example, they used a default choice to simplify the decision path. The results, which were easily measurable, were impressive, since they economized 7 million sheets (in all 620 trees) in six months.

4. Test Them on a Small Scale

Before implementing your nudge strategy on a large scale, try to test them on a small scale, to be able to measure the effects properly as well as their success. A test phase on a selected sample is an opportunity to adjust or change the nudge and to check it is working properly. Experimentation is an integral part of the approach.

5. Implement Them on a Large Scale

Once the test phase is successful, the challenge will be to implement this strategy on a scale that will encourage mass virtuous behavior. And this implementation must be improved continuously.

 

Jonathan Bros

Managing Partner