A short and actionable primer on Nudges

The concept of  Nudge is seemingly exploding in popularity. Governments and companies “nudge” citizens or consumers. And there seems to be an ever-expanding group of people that qualify themselves are “nudge” practitioners. It’s of course the central concept in Richard Thaler and Cass Sunstein’s very popular eponymous book1.

But most people I’m talking to don’t have a clear understanding of what a nudge is. Some interventions are labelled nudges but others aren’t, though they’re very similar. Some people also question why nudges are so popular when they seem to be so simple.

In this short primer aimed at government or corporate executives, we’ll see:

  • what is a nudge
  • why it’s so popular as an applied behavioral economics tool
  • the inherent limitations of nudges as a tool

Loosely defined initially, but gaining in clarity

Loosely defined, even among behavioral economists

It’s difficult to pin down exactly what a nudge is because it’s a poorly defined concept. Even Thaler & Sunstein use different and conflicting definitions. Here’s the one used in their book:

A nudge, as we will use the term, is 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.

And in a later interview on the definition of what a Nudge is or is not, Richard Thaler provided this different definition:

Sunstein and I define a “good” nudge as something that will affect Humans but not Econs and will be in their best interest.— Forbes

This of course is a very different concept, and Richard Thaler then goes on to explain how a red traffic light fits the definition of a nudge. Not stopping at a red light comes with very strong negative incentives though, so for me this wouldn’t qualify as a nudge. As I said, the concept is a poorly defined one and certainly difficult to use in an academic and scientific setting, but it can work brilliantly as a business tool.

A good example used in their book is the one of the food arrangement in a school cafeteria: if healthy foods are put on prominent areas at eye-level, and less healthy choices are more difficult to see, then people will be “nudged” into choosing healthier food, even though they remain free to choose whatever less healthy food they want.

An actionable definition

When looking at defining the concept of a nudge from a pragmatic perspective, the best definition I came across is Pelle Hansen’s one2:

A nudge is a function of (I) any attempt at influencing people’s judgment, choice or behavior in a predictable way, that is

(1) made possible because of cognitive boundaries, biases, routines, and habits in individual and social decision-making posing barriers for people to perform rationally in their own self-declared interests, and which

(2) works by making use of those boundaries, biases, routines, and habits as integral parts of such at- tempts.

Thus a nudge amongst other things works independently of:

  1. forbidding or adding any rationally relevant choice options
  2. changing incentives, whether regarded in terms of time, trouble, social sanctions, economic and so forth, or
  3. the provision of factual information and rational argumentation.

Put more simply, a nudge is a behavioral tool used to:

  • shape people’s choice in a specific situation by adjusting elements of choice architecture but not changing:
    • their existing options
    • their incentives, broadly defined
    • the information and arguments provided to them

The popularity of nudging as an applied tool

The appeal of the concept of nudging is obvious when you look at its definition.

Low cost, no change management, yet potentially meaningful results

Risk aversion is obviously very widespread among managers, both in the corporate and government sectors. So a nudge allows them to:

  • potentially get real results
  • try something that doesn’t require a significant budget and often is free to test
  • try something that doesn’t require any commitment from them
  • try something that doesn’t require them to change how they currently operate and thus go into the realms of change management, always very complex…

Keeping all existing options open for consumers

Since by definition a nudge doesn’t remove any options that can be chosen by a consumer, this gives them a PR cover since they do not really take away any existing options, so customers are free to still choose whatever they want. That makes companies feel much less responsible about the changes made to customer’s experience because in a backlash, they can always point back to the possibility for customers to choose any options they want to choose.

It’s no surprise nudges are attractive to managers: it seems a low-cost, low-risk possibility to obtain significant results.

Using nudges is aiming for the local optimum, not the global one

The flipside of course is that nudges are optimizing existing processes towards their local optimum, but are by definition useless if you are trying to improve a process efficiency towards its global optimum.

Nudges are small tweaks and improvements to existing processes, using well known behavioral science principles. They are not tools that can be used to determine how a process could be redesign for optimal efficiency.

This doesn’t mean they are less efficient tools of course. Since they are low cost, the ROI will still be very high. But limiting yourself to only nudging won’t go that far in terms of impact.

But nudges are still not used widely!

How come then that despite the popularity of the concept, the practice of nudging is not more widely used? I see 3 main reasons:

It’s still a change to be implemented

Change is difficult within most organizations and nudges are still a change.

It needs to be tested on small sample first

Case studies makes nudging sound very simple, obvious and easy to do. “Look! We changed the order of the boxes on the form and we got 50% more people signing up!” In reality, it isn’t obvious which nudges will have an impact in practice and whether that impact will be positive or negative.

So you have to experiment and run field tests on a small sample of subjects to validate each nudges. Digital channels can do A/B testing quite easily, even if doing it correctly takes significant expertise, but offline processes have to run Randomized Controlled Trials in the field, which is not the easiest thing to do.

These obstacles may mean that going from the idea of nudging to actually improving an actual process thanks to a nudge is a more difficult process than envisioned when simply reading about nudges.

How far should you nudge?

The last reason is related to the very nature of a nudge: how far or efficiently should you nudge people towards your preferred choice?

You know you have to preserve all existing options, but what does that mean in terms of actually nudging people towards one of them? Should you make it really difficult for people to choose another option? A bit more difficult?

Here we touch on the hypocrisy behind the concept of nudging. Yes, you have to retain all existing options so you preserve the ability of your customers or users to choose whatever they want, but if you are effective with your nudging, you will steer them away from their spontaneous choices. So while, in theory, preserving all options for customers, an effective nudge will limit them de facto.