Behavioural insights are being used to lower your energy bill, improve education and help people save for their future. By changing our environment in subtle, controlled ways psychologists and behavioural economists are uncovering more and more about how we make decisions and how context shapes our behaviours. These insights are then used to nudge us towards making better decisions effortlessly.
“A nudge… alters people’s behaviour 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 fruit at eye level counts as a nudge. banning junk food does not.”
Cass Sunstein and Richard Thaler, Nudge (2008)
What is fascinating about this research-based approach is it helps tackle societal challenges which neither the firm stick of government regulation nor the invisible hand of the free-market has ever been able to solve.
Researching real people, making real decisions to find what works
Nudge Theory is a strand of behavioural economics which identifies small changes in an individual’s environment which can make a significant positive impact on people’s lives. Effective “nudges” are isolated and tested by researching real people making real decisions in real environments, in an iterative approach of test, learn, adapt and repeat.
As a researcher at Edelman’s research arm, Edelman Intelligence, these inroads towards evidence-based policy is a welcome shift towards hard data rather than relying on received wisdom. Just as statistical analysis was used in Moneyball to find objective value in baseball, behavioural economics applies the mantra of “evidence beats intuitions” to improve regulation.
While some concerns need to be reconciled by the government, business and the public, the evidence-based approach of behavioural economics is revolutionising state approaches to regulation. Small insights can make a significant positive impact. Watch this space.
A bi-partisan approach, offering a third way between state and business
“Given that governments’ budgets are shrinking and public oppositions to taxes and bans is growing, nudging offers a good way to accomplish social good without the associated inefficiencies of traditional policy instruments.”
Dilip Soman, Nudge – Making policy through a behavioural lens (2013)
In the context of continued austerity and with trust in government consistently lower than trust in business over the last decade, behavioural economics interventions offer a cost-effective alternative to traditional regulation. This libertarian paternalism helps people make better decisions for themselves without restricting freedom of choice, appealing to the free market liberals on the right and those on the left who are concerned about education, health and social issues.
The UK’s “Nudge Unit” is impressively bi-partisan. It was conceived under Gordon Brown, set up by David Cameron in 2010, headed by David Halpern (previously a Labour strategist) and partners with businesses and NGOs to develop behavioural economics interventions. In its first two years the Nudge Unit created £300 million cost-savings from initiatives promoting energy-savings, tax adherence and charitable-giving.
Is providing information not enough?
Traditional approaches to promote healthy or environmentally-friendly behaviours in society tend to focus on information and education (anti-smoking health campaigns) as well as regulation. Critics of Nudge Theory have suggested that the traditional approach of education is more direct and less infantilizing to the public. However, I would argue that behavioural economics and communications are complimentary. Firstly, research is highly effective in testing the most effective message and communication channels. Secondly, nudges can enable the first step – initiating behaviours with a nudge can open the door for more effective and efficient communications.
Challenges do need to be addressed in the future
As behavioural economics moves forward it must address critics concerns. Firstly, Nudge Theory is built upon the assumption that humans are irrational, myopic and make poor decisions. While this may be true and this insight is backed up by data, care must be taken not to patronise the public. The focus must be on supporting the individual in making the decision they want and not prescribing what is right or wrong.
Secondly, transparency is key in maintaining public trust. If behavioural economics is to be used to inform policy and encourage better decisions, the public should be aware of the purpose of behavioural interventions as well as getting feedback on the outcomes.