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.

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

  • 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.
  • 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:

  1. 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.
  2. 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.
  3. 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.

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 Heuristics & Biases

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
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
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
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
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman since 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
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
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"