Why don’t sensible people do sensible things?
Recent insights into how people think impact all of us. Governments and organisations use these insights to push us to certain decisions, often for our benefit and perhaps, sometimes, not with our best interests at heart. M S Narayan, Principal Advisor-Gateway, Sydney, Australia, explores the factors at play in “Think, Think, Nudge, Nudge,” a talk organized under the Pond’s veteran series at MMA.
When you turn 50 in Australia, you get a bowel cancer test kit, free of cost, from the government. The kit comes with a letter that says, “Every week, 80 Australians die of bowel cancer. With early detection, 90% of bowel cancers can be successfully treated.” And there are ads on TV and even reminder letters. They send this kit out once every two years. It takes maybe 10 to 15 minutes to take this free test. Yet, for the last 10 years, I have put these kits aside, fully intending to, yet never actually getting around to do the test. I am not alone—58% of Australians don’t send the test kit back. Why don’t sensible people do sensible things that could potentially save their lives?
If you were deciding next week’s dessert today, would you choose chocolate or fruit? 74% people opted for fruit in a test that was run in 1998 (Read and van Leeuwen). But when the same question was tweaked and asked: If you were deciding tonight’s dessert, would you choose chocolate or fruit? Most people opted for chocolate. Clearly, we know what is good for us. But we discount the value of future benefit in favour of immediate gratification. In the same way, we intend to join the gym but it is always something we will do tomorrow—and tomorrow never comes.
Jumping to conclusions
If you are asked the following question: A bat and ball together cost $1.10. The bat costs $1.00 more than the ball. How much does the ball cost?
Many of us jump to the conclusion that the ball costs 10 cents—and we are not alone. Around half of Princeton graduates gave this (wrong) answer when this test was run. If this question were to be asked in a Class X exam, students would have given the correct answer as 5 cents. But when asked outside of a formal test, many people instinctively jump to an answer. We go for the simple, obvious choices.
Understanding how people behave is key
Policy makers need to understand how people actually behave, which is not always rational. For example, our behaviour is not directed towards an objective real world but our idiosyncratic representation or construct of the world. We may be afraid of flying, even though objectively it is the safest mode of transport. We also overestimate our mental capacities or bandwidth. When we text or answer the phone while driving, even if it is hands-free, our peripheral vision and reaction time are affected as much as if we were legally intoxicated.
Scarcity affects mental capacity
In the 2013 book called ‘Scarcity: Why Having Too Little Means So Much,’ Mullainathan and Shafique came to some stunning conclusions. (Incidentally, Prof Mullainathan, now a Professor at the University of Chicago, won the Infosys Prize in 2018). In this book, the authors looked at how our mental capacities are consumed by conflicting demands. They tested the IQ of farmers in India before and after harvest and found that IQ was significantly lower pre-harvest (when they were cash strapped) than post-harvest. Similarly, in the UK, a group of people were told that they had to spend 1000 Pounds on car repairs the next day. Just contemplating this expense resulted in a 13-14 point drop in IQ—almost as if they had stayed awake all night.
Thinking about the fact that we may or may not have money affects our mental capacity and decision making. It may be that people are not poor because they make foolish choices; rather, it may be poverty that consumes mental resources and leads people to make bad choices.
Leveraging the understanding of human behaviour
If we can recognise human behavioural patterns, we may be able to develop highly adaptive and effective programs, and find ways to overcome our cognitive limitations. This knowledge can be of great value to designers of public policy, such as me. It requires an understanding of some of the theoretical frameworks that acknowledge that people are not always rational and recognize what possibly can be done to overcome this failing.
Not always the best choice
In 1738, Daniel Bernoulli hypothesised that people maximise utility in making choices. For 200 years, this was taken as a ‘given’ by economists. Then in the 1950s, Herbert Simon, who was to win the Nobel Prize in Economics many years later, argued that people do not necessarily maximise utility because of limitations in knowledge, social and personal connections. They are often happy with less than optimum solutions—i.e., finding an acceptable solution even if it doesn’t maximise benefits. Simon introduced economists to terms such as “bounded rationality” and “satisficing”.
Cass R Sunstein and Richard H Thaler wrote an article in The New Yorker, (Dec 2016) titled, ‘The two friends who changed how we think about how we think.’ They were referring to Daniel Kahneman and Amos Tversky who published a paper in 1979 which disrupted the world of Economics by outlining what they called Prospect Theory. According to this theory:
• Losses mean more than gains. This means that the pain we get from losing $20 is greater than the joy we get from gaining $20.
• People make decisions based on the potential value of losses and gains rather than the final outcome.
• Reference points matter—people care more about what they gain or lose depending on what they start with
• People tend to underestimate high probabilities and overestimate small probabilities. If something has only 1% chance of a happening, people think that it has a 5 to 10% chance and they behave accordingly.
• When dealing with complex problems, people use heuristics or mental shortcuts to transform complex matters into simpler ones, to make decisions.
Daniel Kahneman won the Nobel Prize for Economics in 2002. He wrote the very popular best seller, ‘Thinking Fast and Slow’, which many people would have read. His 38 minute Nobel Prize acceptance speech is well worth listening to.
Richard H Thaler and Cass R Sunstein wrote the bestselling book, “Nudge,” in 2008. They took Kahneman and Tversky’s concepts and built on them, packaging them attractively and accessibly.
The idea behind Nudge Theory is that people can be “nudged” to think properly and make better choices by offering them choices that are designed to help them do so. We know that people think irrationally. If we can identify the patterns in which people think irrationally, then we can design choices that will take advantage of this understanding and help them make better decisions.
The theory established some principles. For example, nudging was never to be about compulsion, reducing freedom of choice or significantly changing economic incentives. It was not about forcing people to do something they didn’t want to do. Instead, nudges should be easy to avoid. The theory was put forward as an ethical way of simply helping people to make better decisions, for their good, by using knowledge of the mental shortcuts or heuristics that people use to make decisions. See some examples comparing Traditional and Nudge approaches to addressing an issue in the table on this page. The authors called nudge theory ‘Libertarian Paternalism.’ Of course, while there was a degree of paternalism, it was still consciously about preserving liberty and allowing people to make their own choices. In their construct, ‘nudge theory’ was aimed at making the community better, not a mechanism for commercial exploitation or government manipulation. In practice, of course, that has not always been the case, as we shall see later.
Common mental short cuts
In addition to the examples of anchoring and status quo discussed above, there are many other such heuristics or mental shortcuts, including:
• Loss aversion
• Self-control strategies
• Spotlight effect
• Conforming/following the herd
• Language and signage design
There are, of course, others.
Growing global interest
David Cameron, former Prime Minister of England, after reading ‘Nudge,’ reportedly became a fan of the book. He set up a ‘Behavioural Insights Team (BIT)’ aka ‘Nudge Unit’ in 2010 with an annual budget of GBP 500,000. The BIT team was challenged to produce a ten-fold return on operating cost in two years, failing which the unit would be shut down. The team coopted Richard Thaler (2017 Nobel Prize winner in Economic Sciences and co-author of Nudge Theory) to be an advisor and saved 22 times its running costs.
This success led to BITs being formed in many countries. Google searches on ‘Nudge Theory’ continue to grow year after year, which shows the ongoing interest in these ideas.
In 2017, OECD published 100 case studies from 202 countries across the world highlighting success stories from the BITs. In 2018, the World Bank published a study on Behavioural Development Economics identifying global leaders in this area.
Success stories from around the world
In the UK, the BIT team increased tax receipts by 200 million Pounds a year. They achieved this by sending an initial letter to the defaulter saying something along the lines of, “90% of the people have paid their tax on time. We note that you have not. Can you please pay by this date?” Many responded. Another letter said “Nine out of ten people in your local area pay their tax on time. You are in the minority…”And so, with a series of letters, they nudged people to “follow the herd”—and comply.
Enrolling organ donors was another big success of the BIT in the UK. The Nudge Unit was able to increase the number of people registered as organ donors by 96,000 a year. How did they achieve this? The ‘Nudge unit’ created nine different versions of the landing page where people had to go to renew their car registrations. Each version had slightly different wording. One version read, “Three people a day die because there are not enough organ donors.” Another version said, “If you needed an organ transplant, would you have one? If so, please help others.” This last version, which was based on the ‘reciprocity’ heuristic, was the most effective in getting people to agree to be organ donors. The experiment ran for just five weeks, and cost very little. And just changing around 15 words on a web page ended up potentially saving many lives.
…. the experiment ran for just five weeks, and cost very little. And just changing around 15 words on a web page ended up potentially saving many lives.
In Tokyo train stations, there was reportedly an 84% reduction in suicide attempts when they installed ‘Blue’ LED lights above train station platforms, a low-cost alternative to sliding barriers. The blue lights reportedly have a soothing effect on the mind. This idea has since been adopted elsewhere in the world too.
Here a nudge, there a nudge
• Marking of lines on the road to demarcate lanes and ensure lane discipline is an example of a ‘nudge.’ It is the single most effective road safety device in the world. There are many stories on how it came into being. One story is that a lady doctor in California, Dr Jane McCarroll who narrowly escaped being run over by a truck coming in the opposite direction, decided to do something about it and painted a line in the middle of the road herself. By artificially reducing the width of the road, people were nudged to stay in their lane.
• The ‘Keep Singapore Clean’ campaign is another example of behaviour change by a Government nudging people to do the right thing using publicity, and social pressure.
• In Stockholm, ‘speed camera lottery’ signs were introduced to nudge people into obeying the speed limit. In a 25 mph zone area, those who exceed the speed limit are fined and those who drive within this limit are eligible to go into a lottery to win a share of the fines. The result: The average speed of vehicles in this site dropped from 32 mph to 25 mph.
• Smaller plates in a hotel buffet reduced food wastage by 22%
• To reduce cigarette littering, a campaign was run themed, “Think inside the box. Vote with your cigarette butt. Who is the best player in the world – Ronaldo or Messi?” For each player, there was a box into which cigarette butts could be deposited to “vote”. This led to a 74% reduction in cigarette littering.
• Similar, fun-driven, concepts were devised to encourage people to dispose of chewing gums in designated spaces and waste in segregated boxes.
• In a behavioural test done in India on car drivers, a button was introduced to encourage a reduction in honking. Every time a driver honked, a red light would flash and would keep flashing annoyingly until manually switched off. There was a 61% reduction in indiscrete honking.
• In Copenhagen, authorities provided waste bins and made them highly visible. They also painted green coloured footsteps that led to the waste bins, thus nudging people to use the bins and resulting in a 46% reduction in litter
• Reminding people to use the steps instead of escalators by painting the calories burned by taking the stairs is a nudge. In another famous nudge, at Odenplan station in Stockholm, stairs were modified in such a way that when people walked on the steps, musical note were produced. This led to a 66% increase in the use of stairs. Such musical stairs have spread to Milan, Melbourne, Istanbul, KL and Auckland. Fun can obviously change behaviour.
Nudges in business
Virgin Atlantic was able to save 6828 metric tons of fuel by nudging their captains. A test was run by behavioural scientists on pilots, who were divided into three groups. The first group was told that fuel consumption during the trip would be monitored. The second group was given a target consumption figure; the third group was given a target and told that if they beat the target, a certain sum would be donated to charity. Compared to the first group, there was appreciable reduction in fuel savings delivered by the second and third group.
“Lemonade,” a disruptor in the insurance industry in the US employs on its rolls a world leading behavioural economist as Chief Behavioural Officer. Lemonade makes use of AI and behavioural insights. For example, when people are asked to fill a form, if they are asked to sign at the top rather than at the end, they are more likely to be honest in their declarations and less likely to lie. Lemonade uses techniques such as this. They are even referred by some as ‘The Tesla of the Insurance industry.” While this may be hype, they are definitely a business to watch out for.
Nudging and marketing
Marketers have knowingly or unknowingly used nudges for years; for example, by comparing in advertising the daily cost of a newspaper subscription with the cost of a chocolate sundae; or the cost of an Ikea coffee maker with the cost of parking.
Other examples are a service provider who offers different plans for availing a service, identifies one of them as the most popular plan, thus anchoring and nudging people to make that choice; and the use of price framing i.e., pricing at 599 rather than 600; or giving people a welcome gift for signing up for a service. These are all nudges.
Nudging can also be used in ways that are not necessarily in people’s interest. For example, the UK proposed a new campaign—trying to get people back to work in offices rather than from home during the Covid 19 pandemic.
Designing a nudge
How do you design a nudge? It’s quite simple conceptually:
First: Frame the problem.
Next: Design experiments and run randomised and controlled trials.
Third: Interpret results.
Cautions and observations
It is important to be trusted when nudging. People are more open to being nudged if they have positive feelings toward the nudger. Likeability, credibility, trust and influence are all important factors.
Also, one size does not fit all. A nudge that works in one context may not succeed in another
The dark side of nudge theory
Nudging can also be used in ways that are not necessarily in people’s interest. For example, the UK proposed a new campaign—trying to get people back to work in offices rather than from home during the Covid 19 pandemic. The message says, in effect, “If you don’t go back to work, the manager may forget you and you might risk losing your job.” This was to counter the overwhelming preference of people to continue to work from home.
Facebook did clandestine tests in India to see the impact of positive and negative content on people’s emotional well-being. We are familiar with fake accounts and fake news in social media that constantly nudge us. Finally, we encounter ‘sludge’ where organisations make it is easy to join or sign up and very difficult to get out of.
What next for Behavioural Insights (BI)?
• Gartner’s ‘Hype Cycle’ of innovation adoption suggests that there could be a trough after seeing a peak of positive results and inflated expectations from BI.
• However, while in some countries BI units have harvested the low hanging fruit, there is still considerable scope in other countries to do the same. At the same time, advanced BI units such as in Australia are working on complex issues like gender inequality and domestic violence.
• There is still considerable scope for nudge techniques to be employed by governments and business.
I leave you with these closing thoughts:
• Are you being nudged? The answer, if you think about it, is: “Yes, every day and in many ways.” Are you aware of this? Are you happy to be nudged?
• Are you a nudger? If so, how have you designed your nudges? Have you considered behavioural insights in designing these nudges?
• Should you consider adding nudging to your tool kit?