Nudge Theory: an invisible force defining our choices

A Nudge is

according to the book by Thaler and Sunstein, any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.

The theory based on encouraging people to make better decisions by making small changes to existing processes, services, and environments based on insights from psychology and social sciences. Policymakers use this technique to nudge people to make choices in their interest without forcing them to.

Proponents of nudge theory suggest that well-placed ‘nudges’ can reduce market failure, save the government money, encourage desirable actions and help increase the efficiency of resource use. Critics argue nudges can be misused and become a form of social engineering or way to encourage consumers to buy goods they don’t really need.

Basic example:

At a grocery store, a person might choose healthier food items if they are placed at eye-level, or near the cash register. Conversly, they might choose unhealthy or more expensive items with the same placement.

A few nudge strategies

• Up-sell. If you go to a fast-food restaurant, servers are trained to ‘up-sell’ — this means they offer extra options to go with the meal. Often it is ‘drinks, extras and deserts’ which are the most profitable part of the meal. When you buy a coffee, and a barista offers a pastry as well — we are more likely to buy the pastry when it is offered as a suggestion.
• Product placement. To encourage healthy eating, healthy options could be made more easily available, e.g school lunches could be carefully monitored — reducing the number of unhealthy options. This is related to the concept of ‘choice architecture’ — the idea that if goods are presented in a different way, it can help ‘nudge’ people’s consumption to the desired option.
• Default options. A powerful way to encourage take-up rates of ‘desirable options’ is to set the desired outcome as the default option. For example, at the moment, people have to ‘opt-in’ to be an organ donor. This leads to low rates of organ donation as people don’t want to carry a card. But, the other way would be to change rules so you have to ‘opt-out’ of organ donation. This would cause donation rates to retire.

There is a difference between nudging a certain behaviour and compelling a certain choice. A good nudge may be considered to be one which encourages a certain choice, but is still:

• Transparent — Make the nudge clear and obvious, not hiding costs / other options.
• Choice is retained — with consumer able to make the final choice.
• Good reason to believe that the nudge is warranted, e.g. strong health costs of smoking/eating too much sugar.
• Nudges may not be enough. To reduce smoking rates, we need policies which really tackle core problems. This may require — higher taxes, restrictions on places where you can smoke.