nudge-theory

What Is Nudge Theory? Nudge Theory In A Nutshell

Nudge theory argues positive reinforcement and indirect suggestion is an effective way to influence the behavior and decision making of individuals or groups. Nudge theory was an idea first popularized by behavioral economist Richard Thaler and political scientist Cass Sunstein. However, the pair based much of their theory on heuristic research conducted by psychologists Daniel Kahneman and Amos Tversky in the 1970s.

Understanding nudge theory

In their subsequent 2008 book about health and wealth-based decision making, Thaler and Sunstein defined a nudge as:

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.

Nudge theory was initially developed as an ethical construct designed to improve societies.

However, it is now used in any situation where an individual or group seeks to influence other individuals or groups.

Although it has obvious implications for consumer psychology, the theory can also be used in the parenting of a child or the management of global populations.

In business, nudge theory is especially useful in leadership, motivation, change management, and personal or professional development.

Nudge theory compared to traditional approaches

Central to nudge theory is the idea that one can influence the likelihood of an individual choosing one option over another by shaping their environment.

This environment is also known as choice architecture, which describes the various ways choices are presented and how they impact decision-making.

Here, the theory suggests an individual can be helped to think appropriately and make better decisions by being offered choices designed to enable those outcomes.

Although nudge theory is used to push an individual toward a desired outcome, they must maintain freedom of choice and feel in control of the decision-making process.

This style contrasts with more traditional means of instituting change, where instruction, enforcement, or even punishment are used to coerce people to do something against their will.

To that end, nudge theory is much more effective in altering behavior because it encourages positive choices over restricting undesirable behavior with sanctions.

What’s more, nudge theory respects that each individual is comprised of certain attitudes, knowledge, and capabilities that influence their behavior.

Differences between traditional (enforced) change and nudge theory

Consider the following differences between traditional (enforced) change and nudge theory techniques to put the above into perspective:

Simplicity

Enforced change is drastic, direct, and requires conscious, determined effort by the person or group subject to the change.

Nudge techniques are more simple for individuals to imagine doing because they are far less threatening and disruptive.

Non-confrontational

Enforced change is usually confrontational and provokes resistance.

Nudge techniques, on the other hand, are indirect, tactical, and less confrontational.

In some cases, they may be pleasurable or cooperative in nature.

Examples of nudge theory in action

One of the archetypal examples of nudge theory in action can be seen in Amsterdam’s Schiphol Airport. I

In the men’s bathrooms, an image of a housefly is displayed on each urinal to encourage travelers to improve their aim. This increases visual amenity and more importantly for the airport, reduces cleaning costs.

Other examples can be categorized according to three, broad nudge categories:

Default options

Or decisions an individual automatically makes if they do nothing.

For example, more consumers chose the renewable energy option for electricity when it was offered by default.

In the United Kingdom, organ donation rates increased simply by making individuals organ donors by default and requiring them to opt-out if desired.

Health and wellness

In the workplace, employers can use nudges to encourage employees to make healthier choices.

For example, providing healthy food options in the cafeteria, placing fruit baskets near the office entrance, or installing standing desks can all nudge employees towards healthier behaviors.

Environmental conservation

Governments and businesses can use nudges to encourage people to reduce their environmental impact.

For example, providing clear and concise information about the environmental benefits of recycling, or offering incentives for using reusable bags, can nudge people towards more sustainable behaviors.

Social-proof heuristics

Describing the tendency for individuals to make decisions based on the actions of those around them.

Governments have increased the number of citizens filing their taxes by sending reminders to laggards notifying them that most other people had already paid.

Salient options

By highlighting the importance or prevalence of the desired option it is more likely to be chosen.

Various studies have proven that healthy food in supermarkets was more likely to be bought the nearer it was to the cash register.

Savings and investment

Financial institutions can use nudges to encourage customers to save and invest more money.

For example, framing savings as a “default” option, such as enrolling customers in automatic savings plans, can increase the likelihood that they will save money.

Public safety

Law enforcement agencies can use nudges to promote public safety and reduce crime.

For example, placing mirrors in areas with high crime rates can nudge people towards self-awareness and deter potential criminals, or providing clear and visible signs and cues can nudge people towards safer behaviors.

Does nudging really work?

A recent research paper called “The effectiveness of nudging: A meta-analysis of choice architecture interventions across behavioral domains” found that, in many instances, nudging doesn’t prove to be effective.

And in many other cases, the cognitive psychologists involved with nudging fall themselves into biases when picking those nudged, from cherry-picking to attributing positive responses to nudges that, after all, have no statistical significance.

Key takeaways

  • Nudge theory argues positive reinforcement and indirect suggestion is an effective way to influence the behavior and decision making of individuals or groups. It was first popularised by behavioral economist Richard Thaler and political scientist Cass Sunstein.
  • Nudge theory suggests decision-making can be influenced by considering choice architecture, or the various ways choices are presented to enable better outcomes for the individual.
  • Nudge theory has limitless applications since it can be used by any entity wanting to influence another entity toward achieving a desired outcome. Broadly speaking, this process can be facilitated by three types of nudge categories: default options, social-proof heuristics, and salient options.

Connected Thinking Frameworks

Convergent vs. Divergent Thinking

convergent-vs-divergent-thinking
Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.

Critical Thinking

critical-thinking
Critical thinking involves analyzing observations, facts, evidence, and arguments to form a judgment about what someone reads, hears, says, or writes.

Systems Thinking

systems-thinking
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.

Vertical Thinking

vertical-thinking
Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.

Maslow’s Hammer

einstellung-effect
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).

Peter Principle

peter-principle
The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.

Straw Man Fallacy

straw-man-fallacy
The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.

Streisand Effect

streisand-effect
The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.

Heuristic

heuristic
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Recognition Heuristic

recognition-heuristic
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.

Representativeness Heuristic

representativeness-heuristic
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.

Take-The-Best Heuristic

take-the-best-heuristic
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.

Biases

biases
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Bundling Bias

bundling-bias
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.

Barnum Effect

barnum-effect
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

First-Principles Thinking

first-principles-thinking
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.

Ladder Of Inference

ladder-of-inference
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.

Six Thinking Hats Model

six-thinking-hats-model
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.

Second-Order Thinking

second-order-thinking
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

lateral-thinking
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Bounded Rationality

bounded-rationality
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Dunning-Kruger Effect

dunning-kruger-effect
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

occams-razor
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Mandela Effect

mandela-effect
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

crowding-out-effect
The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

bandwagon-effect
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger EffectLindy EffectCrowding Out EffectBandwagon Effect.

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