If you need a nudge; behavioural economics and ‘Nudge’ theory

How exactly does 'Nudge' work, and how can we apply it? I recently had the pleasure of discussing these very questions at an ESOMAR event.

To understand how to apply nudge theory and how it can change behaviours, we need to understand its origin. The essence of Nudge is founded on the principles and science of behavioural economics. Over the last 50 years, it has challenged the traditional economic assumptions that all people are rational, that their choices are consistent and therefore predictable, and that they correctly evolve their opinions and belief structures when new information is received.

However, it would be wrong to assume that behavioural economics is grounded in the irrationality of people simply because traditional economic theory assumes rationality. It simply means that people often make systematic mistakes during decision making and, therefore, do not always make choices that consistently maximise their own happiness or success.

Richard Thaler and Cass Sunstein have argued that by harnessing the predictable quirks of human decision, governments can nudge citizens to make better choices. Embraced by David Cameron’s Government in 2010, it has since been taken up by governments across the globe. Nudge offers governments a way of responding to public problems without increasing regulation, without reducing equality and without increasing public spending.

Nudge is the visible part of behavioural economics; it creates a context of choice and favours the adoption of a desired behaviour without constraints. There are many examples of how the application of nudge can drive a positive outcome. The organ donation system in the UK requires opt-in from the population through direct mail and online registration. Faced with increased demand for donor organs and a stagnant number of registered donors, the UK used nudge theory to encourage online visitors to government web portals to register. The inclusion of the text ‘If you needed an organ transplant would you have one? If so please help others’ increased registrations by 96,000 in one year. That’s an extra 500,000 organs that are now potentially available, simply because of one additional emotionally connective sentence.

A nudge cannot be created for a nudge’s sake, however – it is still part of the complex science that is behavioural economics. Whilst there are successes that you would expect, nudges also sometimes do not work, for whatever reason. But as an initial guide, there are four key principles that must be applied to support a Nudge topic. The first is that it has to be about behavioural change; it will only succeed if there is an inherent behaviour that needs to be changed. Second, other approaches should have been tried and proved to have limits or be unfeasible in terms of capabilities. Third, the behaviour you are trying to encourage through nudge must ultimately be good for the consumer. Fourth and finally, Nudge has the greatest effect and longevity when there is already the intention to act by the individual themselves; nudges should act as a bridge between pre-existing intention and desired action.

BVA BVA BDRC brings a wealth of understanding across behavioural economics, and particularly nudge theory. With academic thinking at its core, BVA Nudge Consulting has grown and developed rapidly over the last seven years, delivering over 100 major projects across sectors and international markets. Clearly, demand is growing, and we welcome further opportunities to demonstrate the very real power of Nudge.

Want to find out how Nudge could help you? Get in touch.