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Are you being nudged (or sludged)?

"There is no such thing as a neutral presentation of a choice - it is always leading you to one direction or another"

Thank you for joining me for my eighth blog in the series, highlighting decision-making and the brain. This is my public exploration of what drives decision-making and how we can use that information to make better decisions, resulting in better outcomes.

If you have ever been told what a restaurant's most popular dish is, used a default option on an online purchase or read on the HMRC's website that most people have completed their tax returns on time you have been 'nudged'

Nudges are subtle changes to the way choices are presented in order to sway you to make certain choices without in any way decreasing your freedom. It is subtle manipulation and can be used to make you make choices that are better for you, or can be used against you to tempt you to a better outcome for the person presenting the choice. Governments and businesses are nudging you all the time.

There are some people who have spent their lives helping governments and businesses nudge people and I encourage you to read "Nudge - The final edition" by Richard Thaler and Cass Sunstein. The typical ways to nudge people are normally one of these three ways:

1) Default options

Default options are very powerful, for example, in Germany where organ donation is a opt-in system only 12% of the population have opted in, whereas in neighbouring Austria where it is an opt-out system (i.e. you are presumed to have opted in), 99% of the population are effectively in the organ donation system. This works because of the status quo bias, which is a tendency to not make decisions that take effort in an area where you are not an expert. The default option is you outsourcing your decision to the person who set the default.

2) Norms

Letting people know what the most popular dish on the menu is, will encourage many people to choose it on that basis alone. Another is to let people know in a cruise ship that the 'normal' tip is $20 per person per day for your waiter. These are examples of norms, ie many people before me have done it so why would I do it any other way. Norms use social proof which is the idea that the crowd has made a decision and it is easier to follow them.

3) Visual cues Almost immediately after COVID began, supermarkets had line markings showing how long 2metres was. 2 metres was the recommended safe distance to stand near someone whilst sufficiently managing your risk of catching COVID. Whilst many people already wanted to be in compliance those lines encouraged many more by making it easy.

A good case study - Pensions

There was an alarming lack of retirement savings for many and in 2012, the UK government announced an auto enrolment for workplace pensions. This meant, that when you started a job, they presumed you would set aside money for your pension. This was in some cases a change from opt-in pensions. The study I have seen suggests that where pensions are opt-in, the participation rate is 47%, but if there is auto enrolment where people need to opt-out the participation rate is 93%!

This is a great outcome for both employees and the government. Firms might have lost some money in the process as there is an employer's contribution within the system.

What stands out, is why did people who had not opted out of the pension system, not opt in when it was an option? When some people were asked why they had not opted in, it was because the paperwork was too arduous and there are some really tough choices to make e.g. how much to contribute each month, and how to choose your investments within the pension account.

If you want people to do something you need to decrease the cognitive load for them - MAKE IT EASY!

Thank you to Acteon for their visual below.

Sludge - the opposite of nudge

If making it easy is a way to encourage you to do something then making it difficult, hard to find and inconvenient is a way to discourage you from doing something. There is a lot of sludge in the new economy but for me the most egregious is the asymmetry between subscribing and and unsubscribing from a paid service. An example is an online newspaper subscription that took me two minutes to join, and took me two weeks to unsubscribe. Some countries have now brought in laws that try and address this asymmetry. Other forms of sludge are discounts via rebates where there is a long-winded process to claim the rebates or the various levels of sludge form-filling for insurance claims.

What makes a good nudge?

If you want to nudge people to make decisions that are likely to benefit them, the best place to do it is where people are inexperienced in a complex subject and will only make this decision at a maximum a handful of times in their lives. The financial sector is particularly bad at this unfortunately, and whether it is choosing funds or mortgages, the choice and lack of easy comparison dissuades people from moving forward or lands them in the wrong product.

To be above board and not coercing, i think nudges should:

1) be transparent and in no way misleading

2) be easy to opt out of

3) encourage behaviour that improves the welfare of those being nudged

4) avoid overreach past wherever you think the line should be drawn

There is no neutral way to present choices

It's easy to say, that this is all a hypothetical scenario, but we present choices to people every day whether choices of food to our kids, or choices of direction at work, choices of restaurant to our partner or friends. The key is, there is no neutral way to present a set of choices. Even if you put the options in a list, many people will choose first, last or one which has some interesting visual characteristics or use a lazy heuristic.

How might this impact my business?

If you want customers and employees to do something, make it easy for them. 1-click purchasing from Amazon is a truly excellent example of making something easy.

The key takeaways from today are:

1) Nudges are ways to present choices such that you sway people towards one option without reducing their choice

2) Default options, reminders of social norms and visual cues are good ways of nudging people

3) It can be used for good or bad so try use the power of nudging responsibly and try and make sure you know when it is being improperly used on you

Thank you for joining. Next week, we will discuss cognitive inertia (finding it hard to change your mind).


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